ITO, Ward-15(3), Hyderabad V. M/s.Vinutna Chit Funds (P) Ltd., Hyderabad

ITA 1280/HYD/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53729 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 06-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MYTHLI RANI
• Assessee Lawyers: A CHANDRA MOHAN RAO
• Keywords: Non-deduction of tax
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBE R. ITA NO.1280/HYD/2011 (ASSESSMENT YEAR 2006-07) AND ITA NO.1281/HYD/2011 (ASSESSMENT YEAR 2007-08) INCOME-TAX OFFICER, WARD-15(3), HYDERABAD V/S M/S. VINUTNA CHIT FUNDS (P)LTD., HYDERABAD. (PAN - AAACL 3279 R ) (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. K.MYTHLI RANI RESPONDENT BY : SHRI A.CHANDRA MOHAN RAO DATE OF HEARING 25 10.2011 DATE OF PRONOUNCEMENT 31.10.2011 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THESE APPEALS BY THE REVENUE FOR THE ASSESSMENT Y EARS 2006-07 AND 2007-08, ARE DIRECTED AGAINST SIMILAR B UT SEPARATE ORDERS OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-V, HYDER ABAD BOTH DATED 26.4.2011. 2. THOUGH ELABORATE COMMON GROUNDS HAVE BEEN RAISED IN THESE APPEALS, THE ONLY COMMON ISSUE INVOLVED IN THESE AP PEALS IS WITH REGARD TO CANCELLATION OF ORDERS PASSED U/S. 201 AND 201(1A) OF THE INCOME-TAX ACT, 1961 WITH REFERENCE TO NON-DEDUCTION OF TAX ON CHIT DIVI DEND PAID / DISTRIBUTED BY THE ASSESSEE THOUGH IT REPRESENTS THE INTEREST AS PER S ECTION 2(28A) AND WAS WITHIN THE MEANING AND PURVIEW OF SECTION 194A OF THE ACT. 3. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. SIMILAR ISSUE CAME UP FOR CONSIDERATION IN THE CASE OF MARGA SOOCHI CH IT PVT. LTD., IN I.T.A. NO. 995/BANG/2008 AND ALSO IN THE CASE OF SAHIB CHITS ( DELHI) (P) LTD., BEFORE THE ITA NO.1280 AND 1281/HYD/2011 M/S. VINUTNA CHIT FUNDS (P)LTD., HYDERABAD. 2 DELHI HIGH COURT IN I.T.A. NO. 44 OF 2008 ORDER DAT ED 24.7.2009 WHEREIN IT WAS HELD THAT THE AMOUNT DISBURSED BY A CHIT FUND COMPA NY TO THE MEMBERS FROM THE CONTRIBUTION CANNOT BE TREATED AS INTEREST. AS THE PAYMENT MADE/DISBURSED TO THE SUBSCRIBERS/MEMBERS IS NOT INTEREST, THE QUESTI ON OF DEDUCTING ANY TAX AT SOURCE FROM IT WOULD NOT ARISE. IN THE CASE OF A C HIT FUND, THERE IS NO BORROWING OF MONEY NOR ANY DEBT IS INCURRED AND AS SUCH THE PROV ISIONS OF SECTION 194A AND 2(28A) OF THE ACT ARE NOT ATTRACTED. 4. SIMILAR VIEW HAS BEEN TAKEN IN THE CASE O F BILAHARI INVESTMENTS (P) LTD., V. CIT, 288 ITR 39 (MAD). THE VIEW WAS CONFI RMED BY THE SUPREME COURT IN THE CASE OF CIT VS. BILAHARI INVESTMENT PVT. LTD. ( 2008) 299 ITR 1, WHEREIN IT WAS HELD AS UNDER: A CHIT FUND SCHEME IS A KIND OF SAVINGS SCHEME IN WHICH A SPECIFIC NUMBER OF INDIVIDUALS COME TOGETHER TO POOL A SPECI FIC AMOUNT AT PERIODIC INTERVALS. USUALLY THE NUMBER OF INDIVIDU ALS AND NUMBER OF PERIODS IS THE SAME. AT THE END OF EACH PERIOD, TH ERE IS AN AUCTION OF THE CHIT. THE MEMBERS OF THE CHIT PARTICIPATE I N THIS AUCTION FOR THE POOLED MONEY DURING THAT INTERVAL. THE BID AMO UNT IS DIVIDED BY THE NUMBER OF MEMBERS THUS DETERMINING THE CONTRIBU TION PER HEAD DURING THAT PERIOD. WHEN THE CHIT IS AUCTIONED EVE RY MONTH, THE BIDDER TAKES THE CHIT FOR AN AMOUNT WHICH IS LESS T HAN THE FACE VALUE OF THE CHIT. THE DIFFERENCE BETWEEN THE FACE VALUE AND THE AUCTIONED VALUE DURING EVERY PERIOD IS GROSS DIVIDE ND GENERATED IN THIS PERIOD. THIS AMOUNT OF DIVIDEND GETS DISTRIBU TED AMONG ALL THE MEMBERS (SUBSCRIBERS) EQUALLY. THE MEMBERS (SUBSCR IBERS) NEED NOT PAY THE TOTAL MONTHLY SUBSCRIPTION AND INSTEAD, THEY PAY THE MONTHLY SUBSCRIPTION AFTER DEDUCTING THE AMOUNT OF DIVIDEND EARNED. MEMBERS WHO HAVE BID FOR THE CHIT IN AUCTI ON HAVE THE LIABILITY TO KEEP THE CONTRIBUTION TO THE CHIT TILL THE END OF THE CHIT PERIOD AND THE PRIZED MEMBERS GET DIVIDEND IN FUTUR E MONTHS ALSO. USUALLY THE DISCOUNT, NAMELY, THE SUM OF MONEY, WHI CH THE PRIZED SUBSCRIBER IS REQUIRED TO FORGO, DECREASES OVER PER IODS. THE PERSON GETTING MONEY IN THE LAST PERIOD RECEIVED THE FULL SCHEME AMOUNT. 5. FOLLOWING THE RATIO LAID DOWN BY VARIOUS CO URTS IN THE CASES NOTED ABOVE, IT HAS BEEN CONSISTENTLY HELD BY THE COORDIN ATE BENCHES OF THIS TRIBUNAL, AS IN ITA NOS.804/HYD/2011 FOR ASSESSMENT YEAR 2005 -06 IN THE CASE OF M/S. VIPANCHI CHIT FUNDS LTD. AND ANR, DATED 11 TH AUGUST, 2011, COPY OF WHICH IS ALSO FILED BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US IN THE PAPER-BOOK, ITA NO.1280 AND 1281/HYD/2011 M/S. VINUTNA CHIT FUNDS (P)LTD., HYDERABAD. 3 THAT THE PAYMENT TO THE SUBSCRIBERS OF A CHIT TOWAR DS DIVIDEND DOES NOT PARTAKE THE CHARACTER OF INTEREST. IN THIS VIEW OF THE MAT TER, WE UPHOLD THE ORDERS OF THE CIT(A) IMPUGNED IN THESE APPEALS, IN HOLDING THAT T HE ASSESSEE IS NOT LIABLE TO DEDUCT TDS U/S. 194A OF THE ACT AND NOT LIABLE FOR INTEREST U/S. 201(1) AND 201(1A) OF THE ACT, AND CONSEQUENTLY, REJECT THE GR OUNDS OF THE REVENUE IN BOTH THESE APPEALS.. 3. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 31.10.2011 SD/- SD /- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER. JUDICIAL MEMBER. DT/- 31ST OCTOBER, 2011 COPY FORWARDED TO: 1. M/S. VINUTNA CHIT FUNDS (P)LTD., 3-6-462/8, IST FLOOR, STREET NO.5, HIMAYAT NAGAR, HYDERABAD. 2. INCOME-TAX OFFICER, WARD-15(3)(TDS), HYDERABAD 3. COMMISSIONER OF INCOME - TAX(A) - II HYDERABAD I 4. COMMISSIONER OF INCOME - TAX (TDS) , HYDERABAD 5. THE D.R., ITAT, HYDERABAD. B.V.S.