Case Law Details
Yes Bank Ltd. Vs Add. CIT (TDS) (ITAT Dehradun)
ITAT Dehradun held that Uttarakhand Environment Protection and Pollution Control Board (UEPPCB) is a corporation which has been constituted under a Central Act, no tax was deductible. Accordingly, penalty u/s 271C of the Income Tax Act cannot be levied on a non-taxable entity.
Facts-
The TDS officer observed that Uttarakhand Environment Protection and Pollution Control Board (UEPPCB) had maintained fixed deposits with the Appellant and that the Appellant Bank had not deducted tax at source on the payment of interest on the fixed deposits. The TDS officer passed the order under section 201(1)/ 201(1A) dated 23 January 2015 thereby raising a demand of Rs. 1,86,539/- on the grounds that the bank had not deducted tax at source under section 194A of the Act, on payment of interest on fixed deposits, to UEPPCB.
A penalty notice dated 5 February 2015 was issued under section 274 r.w.s 271C of the Income Tax Act, 1961 asking the bank to show cause as to why an order imposing penalty should not be passed under section 271C of the Act for the assessment year 2013-14, for the alleged failure to deduct tax at source on payment of interest on Fixed Deposit Receipts to UEPPCB.
CIT(A) has dismissed the Bank’s appeal on the ground that the Bank has not specified any specific provisions of the Act under which UEPPCB was exempt from tax on its income.
Conclusion-
Held that since UEPPCB is a corporation which has been constituted under a Central Act, no tax was deductible on payment of interest to UEPECB, in accordance with provisions of section 194A(3)(iii)(i) read with of the Notification dated 22.10.1970. Therefore no interest under section 201(1A) of the Act ought to have been charged.
Held that we hereby unequivocally held that the assessee has been formed by the Act of Government and a non-taxable entity and hence no penalty is leviable u/s 271C.
FULL TEXT OF THE ORDER OF ITAT DEHRADUN
These are the appeals filed by the assessee against the orders of the ld. CIT(A), Muzaffarnagar dated 29.09.2017.
2. Since, the issues involved in both the appeals are identical, they were heard together and being adjudicated by a common order.
3. The assessee has raised the following grounds for Assessment Year 2013-14:
“1. The Commissioner of Income Tax (Appeals), Muzaffarnagar [hereinafter referred to as CIT(A)] erred in upholding the action of Additional Commissioner of Income-Tax (TDS), Dehradun (hereinafter referred to as AO) of levying penalty under section 271C of the Act for alleged non-deduction of tax at source under section 194A of the Act, on the interest paid on fixed deposits to Uttrakhand Environment Protection and Pollution Control Board (herein after referred to as ‘UEPPCB’), without appreciating the facts of the case.
2. The Appellants pray that the order under section 271C of the Act should be quashed and penalty levied should be deleted.”
4. The issue, the arguments of the assessee and the adjudication of the revenue authorities is as under:
“1. While examining the records of UEPPCB, the TDS officer observed that UEPPCB had maintained fixed deposits with the Appellant and that the Appellant Bank had not deducted tax at source on the payment of interest on the fixed deposits. The TDS officer passed the order under section 201(1)/ 201(1A) dated 23 January 2015 thereby raising a demand of Rs.1,86,539 (including interest of Rs.36,863 levied under section 201(1A)) on the grounds that the Bank has not deducted tax at source under section 194A of the Act, on payment of interest on fixed deposits, to UEPPCB for TDS assessment year 2013-14.
A penalty notice dated 5 February 2015 was issued under section 274 r.w.s 271C of the Income Tax Act, 1961 asking the bank to show cause as to why an order imposing penalty should not be passed under section 271C of the Act for the assessment year 2013-14, for the alleged failure to deduct tax at source on payment of interest on Fixed Deposit Receipts to UEPPCB. The Bank vide its letter dated 19.02.2015 submitted that no tax was required to be deducted on such payments, since UEPPCB was a corporation established under a Central Act i.e. Water (Prevention and Control of Pollution) Act, 1974, and was exempt from income tax.
9. The CIT(A) vide order dated 16.03.2016 disposing the appeal filed against the order passed under section 201/201(1A) of the Act, has dismissed the Bank’s appeal on the ground that the Bank has not specified any specific provisions of the Act under which UEPPCB was exempt from tax on its income.
10. Vide letter dated 28 July 2016, the Bank has filed detailed submission as to why penalty should not be levied under section 271 of the Act. However the TDS AO passed an order dated 29 August 2016 under section 271C levying penalty of Rs.1,86,539 being 100% of the alleged non-deduction of tax at source including interest under section 201(1 A) of the Act.
It was submitted by the assessee that,
1) UEPPCB is a statutory organisation constituted under the section 4 of Water (Prevention and Control of Pollution) Act, *1974 to implement Environmental laws and rules within die jurisdiction of Uttarakhand (source: httpr//ueppA.uk.gov.in/). A copy of the screenshot of the website of UEPPCB is enclosed at pages 24 to 25 of die paper book. UEPPCB is a corporation established under the Central Act.
2) UEPPCB came into existence on 1 May 2002 and functions through its Head office at Dehradun along with four regional offices. The Board has been entrusted with the powers and functions under the below Acts: (source: http://ueppcb.uk.gov.in/)
1. Water (Prevention and Control of Pollution) Act, 1974
2. Water (Prevention and Control of Pollution) Cess Act, 1974
3. Air (Prevention and Control of Pollution) Act, 1981
4. Public Liability Insurance Act, 1991,
A copy of the screenshot of the website of UEPPCB is enclosed at pages 24 to 25, of the paper book.
3) Section 194A-relates to the provisions for deducting tax at source on the payment; of interest other than ‘interest on securities’. Attention is invited to the provisions of section 194A(3)(iii) (f) which interalia provides as under:-
“The provisions of sub-section (1) to section 194A shall not apply – to such income credited or paid to –
(f) such other institution, association or body [or class of institutions, associations or bodies] which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette
4) Central Government vide notification No.SO 3489 dated 22/10/1970 has notified as under:-
“In pursuance of sub-clause (f) of clause (iii) of sub-section (3) of section 194A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notify the following for the purposes of the said sub-clause.
(i) any corporation established by a Central State or provincial Act;
5) As explained above, UEPPCB is a corporation established by a Central Act (i.e. Water (Prevention and Control of Pollution) Act, 1974, etc.) and hence should be covered within the aforesaid notification read with provisions of section 194A(3)(iii)(f) of the Act. This fact is evident from the information available on the website of UEPPCB (http://UEPPCBb.uk.gov.in/). As per the annexed list (relevant Extracts) entrusted with the powers and functions under the below Acts: (source: http://ueppcb.uk.gov.in
1. Water (Prevention and Control of Pollution) Act, 1974
2. Water (Prevention and Control of Pollution) Cess Act, 1974
3. Air (Prevention and Control of Pollution) Act, 1981
4. Public Liability Insurance Act, 1991,
A copy of the screenshot of the website of UEPPCB was enclosed
3) Section 194A relates to the provisions for deducting tax at source on tine payment; of interest other than ‘interest on securities’. Attention is invited to the provisions of section 194A(3)(iii) (f) which provides as under:-
“The provisions of sub-section (1) to section 194A shall not apply – to such income credited or paid to –
(f) such other institution, association or body [or class of institutions, associations or bodies] which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette
4) Central Government vide notification No.SO 3489 dated 22/10/1970 has notified as under:-
“In pursuance of sub-clause (f) of clause (Hi) of subjection (3) of section 194A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notify the following for the purposes of the said sub-clause:-
(i) any corporation established by a Central State or Provincial Act;
5) As explained above, UEPPCB is a corporation established by a Central Act (i.e. Water (Prevention and Control of Pollution) Act, 1974, etc.) and hence should be covered within the aforesaid notification read with provisions of section 194A(3)(iii)(f) of .-the Act. This fact is evident from the information available on the website of UEPPCB (http://UEPPCBb,gov.in/1. As per the annexed list (relevant Extracts)
(http:/ /indiacode.nic.in/incodis/alpha.htm) Water (Prevention and Control of Pollution) Act/1974 is a Central Act enacted in India. Copy of relevant extracts enclosed at pages 27 to 27 of the paper book
6) In view thereof, the facts as recorded in the order dated 23.01.2015 passed under section 201(1) / 201(1A) of the Act and in the CIT(A) order dated 16 March 2016, are incorrect. Thus since UEPPCB is a corporation which has been constituted under a Central Act, no tax was deductible on payment of interest to UEPECB, in accordance with provisions of section 194A(3)(iii)(i) read with of the Notification dated 22.10.1970. Therefore no interest under section 201(1A) of the Act ought to have been charged.
7) Attention is further invited to the provisions of section 196 of the Act, which inter alia Antes as under:
Notwithstanding anything contained in the foregoing provisions of this Chapter, no deduction of tax shall be made by any person from any sums payable to –
i. the Government, or
ii. the Reserve Bank of India, or
iii. a corporation established by or under a Central Act which is, under any law for the time being in force, exempt from income tax on its income, or
iv. a Mutual fund specified under clause (23D) of section 10, where such sum is payable to it by way of interest or dividend in respect of any securities or shares owned by it or in which it has full beneficial interest, or any other income accruing or arising to it.”
8) Further the Bank enclose herewith a screenshot from die income tax website source:https://incometaxindiaefiling.gov.in/eFiling/Services/Know Yours jurisdiction) providing the income tax jurisdiction details of UEPPCB. The jurisdiction of UEPFC6 is Exemption Ward, Dehradun. Copy of screenshot enclosed at page 28 of the paper book.
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- Attention is further invited to the Uttarakhand High Court’s decision dated 19 May 2016 in die case of Uttrakhand and Pollution Control Board v/s Union of India and others [Writ Petition no 1107 of 2015]
- In the above case, UEPPCB filed a writ petition before the High Court seeking a direction to quash notices issued under section 143(2) of the Act, by the income tax department.
- UEPPCB relied on the notification dated 19.12.2005 issued by die Ministry of Environment and Forests to Central Board of Direct
- Taxes, Department of Revenue, Ministry of Finance on die subject, ‘Exemption to State Pollution Control Boards’ from filing income tax Returns. The relevant extracts from the above letter is reproduced below:
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“Since the State Boards are functioning under the Department of Environment in the States, they may also be treated as Government Departments and necessary exemption granted from the purview of Income Tax”
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- UEPPCB further referred to Notifications exempting Tamil Nadu Pollution Control Board, Rajasthan State Pollution Control Board and Uttarakhand State AIDS Control Society, submitting that when Tamil Nadu Pollution Control Board, Rajasthan State Pollution Control Board, Uttarakhand State Aids Control Society and West Bengal Pollution Control Board could be given exemption under Section 10(46) of the Income Tax Act, 1961, then why UEPPCB, who was performing the same duties, cannot be giver) the same relief under section 10(46) of the Act.
- The High Court directed UEPPCB to file an appeal before the CIT(A) in accordance with the provisions of section 246A of the Act. The High Court further held that while disposing the appeal to be filed by UEPPCB before CIT(A), the following points should be considered:
(a) Below para from notification dated 19.12.2005 issued by the Ministry of Environment and Forests to Central Board of Direct Taxes, Department of Revenue, Mims try of Finance on the subject, ‘Exemption to State Pollution Control Boards’ from filing income tax returns
“Since the State Boards are functioning under the Department of Environment in the States, they may also be treated as Government Departments and necessary exemption granted from the purview of Income Tax”.
b) Various CBDT Notifications, enclosed with the supplementary affidavit filed by the petitioner Board, indicating that Tamil Nadu Pollution Control Board, Rajasthan State Pollution Control Board, Uttarakhand State AIDS Control Society and West Bengal Pollution Control Board have been granted exemption under Section 10(46) of the Income Tax Act The High Court, therefore, granted further stay in the recovery proceedings initiated by the tax department, from UEPPCB for a period of two weeks from the date of its decision, within which period, UEPPCB was required to file the statutory appeal before the CIT(Appeals).
10) It is further submitted that the Bank, in its capacity as deductor has substantiated that no TDS was required to be deducted at source, on the interest paid to UEPPCB, by submitting tire below details:
a) Copy of a letter dated 21 September 2012 (copy enclosed at pages 34 to 35 of the paper book) received from UEPPCB stating .that it is a Government Entity and hence no TDS should be deducted on the interest payment made to UEPPCB.
b) Copy of a letter dated 21 September 2012 (copy enclosed at pages 34 to 35 of the paper book) received from UEPPCB informing the Bank to issue the Fixed Deposit to UEPPCB and reiterating that as UEPPCB is a Government entity, no IDS should be deducted on the interest payment to UEPPCB.
11) Without prejudice to the above, it is submitted that, UEPPCB should have filed its return of income for the assessment year 2013-14 and paid requisite taxes (if any) and hence the tax of Rs.149,676 ought not be recovered from the Bank and interest (if any) under section 201 (1A) ought to be levied from the date when tax was deductible till the date of payment of taxes (if any) by UEPPCB..
Reliance is placed” on the decision of Hon’ble Supreme court in the case of Hindustan Coca Cola Beverage (P.) Ltd. v. CIT(2007) 163 Taxman.com 355 (SC) (copy enclosed at pages 36 to 38 of the paper book), wherein it has been held that where the deductee, i.e. recipient of income, has already paid taxes on amount received from deductor, Income tax department once again cannot recover the tax from deductor on the same by treating deductor to be assessee in default for shortfall in the amount of tax deducted at source. The Supreme Court further held that the aforesaid position will not alter the liability to charge interest under section 201(1 A) till the date of payment of taxes by the deductee company.
12) Without prejudice to the above, it is submitted that the bank has paid the demand of Rs.l,86,539 (including interest of Rs.36,863 charged under section 201(1 A)) under protest, on 5 March 2015 and no demand is outstanding. Copy of the Bank ‘letter dated 31 March 2015 submitting the copy of challan for the aforesaid payment is enclosed at pages 39 to 39 of the paper book.
13) Therefore it is submitted that based on the facts of the case, no tax was required to be deducted at source and so penalty provisions should not be attracted.
14) It is submitted that the penalty levied of Rs’186,539 should be deleted.”
5. From the above, we hereby unequivocally held that the assessee has been formed by the Act of Government and a non-taxable entity and hence no penalty is leviable u/s 271C.
6. In the result, the appeals of the assessee are allowed. Order Pronounced in the Open Court on 16/12/2022.
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