Income Tax Officer, Ward-15(1) (TDS), Hyderabad V. M/s. Neeladri Chit Fund Pvt., Ltd., Hyderabad

ITA 1354/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74556 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 09-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V RAGHAVENDRA RAO
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NOS. 1354, 1355 & 1356/HYD/2013 ASSESSMENT YEARS: 2009-10, 2010-11 & 2011-012 INCOME-TAX OFFICER(TDS), APPELLA NT WARD 15(1), HYDERABAD. VS. M/S NEELADRI CHIT FUND PVT. LTD., RESPONDENT HYDERABAD. (PAN AAACN7964K) REVENUE BY : SHRI JEEVAN LAL LAVIDIYA ASSESSEE BY : SHRI V. RAGHAVENDRA RAO DATE OF HEARING : 06/02/2014 DATE OF PRONOUNCEMENT : 06/02/2014 ORDER PER CHANDRA POOJARI, A.M.: THESE APPEALS PERTAINING TO ONE ASSESSEE ARE PREFE RRED BY THE REVENUE DIRECTED AGAINST THE SEPARATE ORDERS OF CIT (A)-II HYDERABAD DATED 24/07/2013 FOR THE ASSESSMENT YEARS 2009-10 , 2010-11 & 2011-12. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS, THEY WERE CLUBBED AND HEARD TOGETHER AND, THEREFORE, A C OMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. 2 ITA NOS. 1354, 1355 & 1356/H/13 M/S NEELADRI CHIT FUND PVT. LTD. 2. THE GROUND RAISED BY REVENUE IN THESE APPEALS I S COMMON, WHICH IS AS FOLLOWS: THE LEARNED CIT(A) ERRED IN HOLDING THAT THE CHIT D IVIDENDS PAID TO THE SUBSCRIBERS DOES NOT PARTAKE THE CHARACTER O F INTEREST AND CONSEQUENTLY THE CHIT FUND COMPANY IS NO LIABLE TO DEDUCT TAX U/S 194A WHILE MAKING PAYMENT OF DIVIDEND TO TH E SUBSCRIBER. 3. BRIEFLY THE FACTS ARE THAT THE ASSESSING OFFICER HELD THAT THE DIVIDEND PAID BY THE ASSESSEE IS IN THE NATURE OF I NTEREST PAID TO THE CHIT SUBSCRIBERS, HENCE, THE SAME IS LIABLE FOR TDS U/S 194A OF THE ACT. HE FURTHER HELD THAT SINCE NO TDS WAS MADE BY THE ASSESSEE, THE ASSESSEE WAS DEEMED TO BE IN DEFAULT AND TDS U/ S 201(1) AND INTEREST U/S 201(1A) WAS CHARGED. 4. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT T HE ISSUE WAS ALREADY DECIDED IN FAVOUR OF THE ASSESSEE FOR THE A Y 2008-09 VIDE ORDER OF CIT(A)-II, HYDERABAD DATED 11/07/2012. IT WAS FURTHER SUBMITTED THAT THE HONBLE ITAT A BENCH VIDE ITS ORDER DATED 1352, 1353 & 1354/HYD/2011 HAD DECIDED THE SAME ISSUE IN FAVOUR OF THE ASSESSEE FOR THE AYS. 2005-06, 2006-07 AND 2007-08 RESPECTIVELY VIDE ORDER DATED 16/11/2011. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) FOLLOWING THE DECISION OF HIS PREDECESSOR IN AY 200 8-09 IN ASSESSEES OWN CASE AND DECISION OF THE ITAT FOR AY 2005-06, 2 006-7 AND 2007- 08 IN ASSESSEES OWN CASE (SUPRA), ALLOWED THE APPE ALS OF THE ASSESSEE FOR THE YEARS UNDER CONSIDERATION. 6. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES, PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE REVE NUE AUTHORITIES. WE FIND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATIO N BEFORE THE COORDINATE BENCH OF HYDERABAD IN ASSESSEES OWN CAS E FOR 3 ITA NOS. 1354, 1355 & 1356/H/13 M/S NEELADRI CHIT FUND PVT. LTD. ASSESSMENT YEARS 2005-06, 2006-07 AND 2007-08 (SUPR A) WHEREIN THE COORDINATE BENCH HELD AS FOLLOWS: 4. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED THE IMPUGNED ORDERS OF T HE LOWER AUTHORITIES AND OTHER MATERIAL ON RECORD. SIMILAR ISSUE, VIZ. NATURE OF CHIT DIVIDEND PAID/CREDITED, CAME UP FOR CONSIDERATION IN THE CASE OF MARGA SOOCHI CHIT PVT. LTD., IN I.T. A. NO. 995/BANG/2008 AND ALSO IN THE CASE OF SAHIB CHITS ( DELHI) (P) LTD., BEFORE THE DELHI HIGH COURT IN I.T.A. NO. 44 OF 2008 ORDER DATED 24.7.2009 WHEREIN IT WAS HELD THAT THE AMOUNT DISBURSED BY A CHIT FUND COMPANY TO THE MEMBERS FROM THE CONT RIBUTION CANNOT BE TREATED AS INTEREST. AS THE PAYMENT MADE /DISBURSED TO THE SUBSCRIBERS/MEMBERS IS NOT INTEREST, THE QUE STION OF DEDUCTING ANY TAX AT SOURCE FROM IT WOULD NOT ARISE . IN THE CASE OF A CHIT FUND, THERE IS NO BORROWING OF MONEY NOR ANY DEBT IS INCURRED AND AS SUCH THE PROVISIONS OF SECTION 194A AND 2(28A) OF THE ACT ARE NOT ATTRACTED. 5. SIMILAR VIEW HAS BEEN TAKEN IN THE CASE O F BILAHARI INVESTMENTS (P) LTD., V. CIT, 288 ITR 39 (MAD). TH E VIEW WAS CONFIRMED BY THE SUPREME COURT IN THE CASE OF CIT V S. BILAHARI INVESTMENT PVT. LTD. (2008) 299 ITR 1, WHEREIN IT W AS 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 SPECIFIC AMOUNT AT PERIODIC INTERVALS. USUALLY THE NUMBER OF INDIVIDUALS AND NUMBER OF PERIODS IS THE SAME. AT THE END OF EACH PERIOD, THERE IS AN AUCTION OF THE CHIT. THE MEMBERS OF THE CHIT PARTICIPATE IN THIS AUCTION FOR THE POOLED MONEY DURING THAT INTERVAL. THE BID AMOUNT IS DIVIDED BY THE NUMBER OF MEMBERS THUS DETERMINING THE CONTRIBUTION PER HEAD DURING THAT PERIOD. WHEN THE CHIT IS AUCTIONED EVERY MONTH, TH E BIDDER TAKES THE CHIT FOR AN AMOUNT WHICH IS LESS THAN THE FACE VALUE OF THE CHIT. THE DIFFERENCE BETWEEN THE FACE VALUE AND THE AUCTIONED VALUE DURING EVERY PERIOD IS GROSS DIVIDEND GENERATED IN THIS PERIOD. THIS AMOUNT OF DIVIDEND GETS DISTRIBUTED AMONG ALL THE MEMBERS (SUBSCRIBERS) EQUALLY. THE MEMBERS (SUBSCRIBERS) NEED NOT PAY THE TOTAL MONTHLY SUBSCRIPTION AND INSTEAD, THEY PA Y THE MONTHLY SUBSCRIPTION AFTER DEDUCTING THE AMOUNT OF DIVIDEND EARNED. MEMBERS WHO HAVE BID FOR THE CHIT IN AUCTION HAVE THE LIABILITY TO KEEP THE CONTRIBUTION TO THE CHIT TILL THE END OF THE CHIT P ERIOD AND THE PRIZED MEMBERS GET DIVIDEND IN FUTURE 4 ITA NOS. 1354, 1355 & 1356/H/13 M/S NEELADRI CHIT FUND PVT. LTD. MONTHS ALSO. USUALLY THE DISCOUNT, NAMELY, THE SUM OF MONEY, WHICH THE PRIZED SUBSCRIBER IS REQUIRED T O FORGO, DECREASES OVER PERIODS. THE PERSON GETTING MONEY IN THE LAST PERIOD RECEIVED THE FULL SCHEME AMOUNT. 6. FOLLOWING THE RATIO LAID DOWN BY VARIOUS CO URTS IN THE CASES NOTED ABOVE, IT HAS BEEN CONSISTENTLY HEL D BY THE COORDINATE 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; AND IN ITA NO.1280 AND 1281/HYD/2011 IN VINUT NA CHIT FUNDS (P)LTD., HYDERABAD, DATED 31.10.2011, THAT T HE PAYMENT TO THE SUBSCRIBERS OF A CHIT TOWARDS 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 THE 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 GROUNDS OF THE RE VENUE IN BOTH THESE APPEALS. 7.1 SIMILAR VIEW WAS TAKEN BY THE HONBLE AP HIGH C OURT IN THE CASE OF CIT(TDS) VS. M/S VIJAY BHARGAVI CHIT FUNDS LTD., VIDE ITTA NO. 64 OF 2013 & 22 OF 2013 WHEREIN IT WAS HELD THA T THE QUESTION OF DEDUCTING ANY TAX AT SOURCE FROM THE CHIT FUND COMP ANY WOULD NOT ARISE. IN THE CASE OF A CHIT FUND COMPANY, THERE IS NO BORROWING OF MONEY NOR ANY DEBT IS INCURRED AND AS SUCH, THE PRO VISIONS OF SECTIONS 194 AND 2(28-A) OF THE IT AT DO NOT ATTRAC T. 7.2 RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY T HE HONBLE AP HIGH COURT IN THE CASE OF M/S VIJAY BHARGAVI CHIT F UNDS LTD. (SUPRA) AND FOLLOWING THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2005-06, 2006-07 AND 2007-08, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND, THEREFOR E, THE ORDER OF THE CIT(A) IS HEREBY UPHELD IN ALL THE THREE YEARS UNDE R CONSIDERATION. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IN AL L THE THREE APPEALS IS DISMISSED. 5 ITA NOS. 1354, 1355 & 1356/H/13 M/S NEELADRI CHIT FUND PVT. LTD. 8. IN THE RESULT, ALL THE THREE APPEALS OF THE REVE NUE IN ITA NOS. 1354, 1355 & 1356/HYD2013 ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 06/02/2014 UPON CONCLUSION OF HEARING. SD/- SD/- (SAKTIJIT DEY) (CHANDRA POOJARI) JUDICIAL MEMBER ACCO UNTANT MEMBER HYDERABAD, DATED: 06/02/2014. KV COPY TO:- 1) ITO, WARD 15(1)(TDS), HYDERABAD. 2) M/S NEELADRI CHIT FUND PVT. LTD., 1-10-253/B, 1 ST FOOR, ASHOK NAGAR CROSS ROADS, HYDERABAD 500 028. 3) CIT(A)-II, HYDERABAD 4) CIT(TDS), HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T. A.T., HYDERABAD.