ACIT, Circle-15(2), Hyderabad V. M/s. Shiram Chits Pvt. Ltd., Hyderabad

ITA 487/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61957 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 03-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: K C DEVADAS

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.486/HYD/2012 : ASSESSMENT YEAR 2006-0 7 ITA NO.487/HYD/2012 : ASSESSMENT YEAR 2007-0 8 ITA NO.488/HYD/2012 : ASSESSMENT YEAR 2008-0 9 ITA NO.489/HYD/2012 : ASSESSMENT YEAR 2009-1 0 ASSTT. COMMISSIONER OF INCOME - TAX, CIRCLE 15(2), HYDERABAD V/S M/S. SHRIRAM CHITS PVT. LTD., HYDERABAD ( PAN - AAFCS 4916 D ) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V.SRINIVAS RESPONDENT BY : SHRI K.C.DEVADAS DATE OF HEARING 18.7.2012 DATE OF PRONOUNCEMENT 20.7.2012 O R D E R PER D.KARUNAKARA RAO, ACCOUNTANT MEMBER: THESE FOUR APPEALS FILED BY THE REVENUE ARE DIREC TED AGAINST SEPARATE ORDERS OF THE COMMISSIONER OF INCOME-TAX(A PPEALS)-II, HYDERABAD DATED 17.1.2012 FOR ASSESSMENT YEAR 2006- 07; DATED 23.1.2012 FOR THE ASSESSMENT YEARS 2007-08, 2008-09 AND 2009-10. SINCE A COMMON ISSUE IS INVOLVED, THESE APPEALS ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. EFFECTIVE GROUNDS OF THE REVENUE, WHICH ARE COM MON IN THESE APPEALS, AS TAKEN FROM ITA NO.486/HYD/2012 FOR ASSE SSMENT YEAR 2005- 06, READ AS FOLLOWS- 01. THE ORDER OF THE CIT(A) IS CONTRARY TO LAW. TH E CIT(A) OUGHT TO HAVE SUSTAINED THE ORDER U/S. 201 & 201(1A) OF T HE ACT. 02. THE CIT(A) OUGHT TO HAVE HELD THAT THE DIVIDEND ALLOWED TO NON-PRIZED SUBSCRIBERS, BY DUE DRAWAL OF THE CHITS, PARTAKE THE CHARACTER OF INTEREST AND HENCE THE ASSESSEE IS UNDER LEGAL OBLIGATION TO CAUSE DEDUCTION OF TAX AT SOURC E U/S. 194A OF THE INCOME TAX ACT. ITA NO.486 TO 489/HYD/2012 M/S. SHRIRAM CHITS PVT. LTD., HYDERABAD 2 03. THE CIT(A) FAILED TO APPRECIATE THAT THE EXPRES SION INTEREST AS DEFINED IN SECTION 2(28A) OF THE INCO ME TAX ACT IS WIDE ENOUGH TO COVER DIVIDEND IN QUESTION BE ING PAID TO THE SUBSCRIBERS BY A CHIT FUND COMPANY. 04. THE CONCEPT OF INTEREST AS DEVELOPED IN THE C OMMERCIAL WORLD MEANS THE AMOUNT PAID BY WAY OF COMPENSATION FOR THE DEFERRED PAYMENT OF THE SUM DUE. THE NON-PRIZED SUBSCRIBER BY REASON OF POSTPONING HIS ENTITLEMENT TO DRAW CHIT, GETS PAID WHAT IS CALLED A DIVIDEND, WHICH IS NOTHING BUT AN EUPHEMISTIC EXPRESSION FOR INTEREST. THEREF ORE, THE ASSESSEE IS OBLIGATED TO CAUSE DEDUCTION OF TAX AT SOURCE, WHILE REMITTING DIVIDEND OR INTEREST AS THE CASE MA Y BE. 05. THE CIT(A) DID NOT CONSIDER OR ATTACH ANY SIGNI FICANCE TO THE EXPRESSION IN RESPECT OF SECTION 2(28A) REFERS TO ANY MONEYS BORROWED OR DEBT INCURRED (INCLUDING A DEPOSIT, A CLAIM OR SIMILAR RIGHT OR OBLIGATION ). DIVIDEND BEING NOTHING BUT DISCOUNTED AMOUNT FOREGONE BY PRIZED SUBSCRIBER ON ACCOUNT OF HIS DRAWAL OF A CHIT, IT IS NOTHING BUT A DEBT INCURRED BY HIM. THE AMOUNT PAID BY WAY OF DIVIDEN D THEREFORE, PARTAKES THE CHARACTER OF INTEREST. THE ASSESSEE, WHO ACTS ON BEHALF OF CHIT SUBSCRIBERS, IS THEREFOR E, UNDER LEGAL OBLIGATION TO CAUSE TAX DEDUCTION AT SOURCE. 06. THE EXPRESSION SIMILAR RIGHT OR OBLIGATION FO UND IN SECTION 2(28A) OF THE INCOM E TAX ACT IS EQUALLY RELEVANT IN THE CONTEXT. IN AS MUCH AS THE NON-PRIZED SUBSCRIBER G ETS PAID DIVIDEND ON ACCOUNT OF HIS POSTPONING THE RIGHT OF DRAWAL OF CHIT, SUCH DIVIDEND PARTAKES THE CHARACTER OF INTER EST WITHIN THE MEANING OF SAID SECTION. THUS THE ONLY ISSUE INVOLVED IN THESE APPEALS RELAT ES TO THE APPLICABILITY OF THE TDS PROVISIONS TO THE AMOUNTS OF CHIT DIVIDEND PAID OUT BY THE ASSESSEE. 3. LEARNED COUNSEL FOR THE ASSESSEE, AT THE OUTSET , SUBMITTED THAT THE ISSUE INVOLVED IN THESE APPEALS IS COVERED BY THE DECISION OF THIS TRIBUNAL DATED 29.3.2012 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.961/HYD/2011. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STRONGLY SUPPORTED THE ORDERS OF THE ASSESSING OFFI CER PASSED UNDER S.201 AND 20(1A) OF THE ACT FOR THE YEARS UNDER APP EAL, AND SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN CANCELLING THE SAME. ITA NO.486 TO 489/HYD/2012 M/S. SHRIRAM CHITS PVT. LTD., HYDERABAD 3 5. WE HEARD BOTH SIDES AND PERUSED THE ORDERS OF T HE LOWER AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. ON CAREFUL CONSIDERATION OF THE MATTER, WE FIND THAT THE ISSUE INVOLVED IN THESE APPEALS IS SQUARELY COVERED IN FAVOUR OF THE ASSESS EE BY THE CONSISTENT VIEW TAKEN BY THE COORDINATE BENCHES OF THIS TRIBUN AL IN SIMILAR MATTERS, INCLUDING IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06. THE TRIBUNAL, VIDE ITS ORDER DATED 29.3.2012, HAS DECID ED THE ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWING AMONG OTHERS, THE DECISIO N OF THE MADRAS HIGH COURT IN THE CASE OF BILAHARI INVESTMENTS (P) LTD. V/S. CIT(288 ITR 39)- MAD., WHICH WAS CONFIRMED BY THE SUPREME COURT, IN THE FOLLOWING MANNER- 3. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE . SIMILAR ISSUE CAME UP FOR CONSIDERATION IN THE CASE OF MARGA SOOC HI CHIT PVT. LTD., IN I.T.A. NO. 995/BANG/2008 AND ALSO IN THE CASE OF SAHIB CHI TS (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 C OMPANY TO THE MEMBERS FROM THE CONTRIBUTION CANNOT BE TREATED AS INTEREST . AS THE PAYMENT MADE/DISBURSED TO THE SUBSCRIBERS/MEMBERS IS NOT IN TEREST, THEREFORE, THE QUESTION OF DEDUCTING ANY TAX AT SOURCE FROM IT WOU LD 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 T HE 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 C ONFIRMED BY THE SUPREME COURT IN THE CASE OF CIT VS. BILAHARI INVESTMENT PV T. 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 POO L A SPECIFIC AMOUNT AT PERIODIC INTERVALS. USUALLY THE NUMBER O F INDIVIDUALS AND NUMBER OF PERIODS IS THE SAME. AT THE END OF E ACH PERIOD, THERE IS AN AUCTION OF THE CHIT. THE MEMBERS OF TH E CHIT PARTICIPATE IN THIS AUCTION FOR THE POOLED MONEY DU RING THAT INTERVAL. THE BID AMOUNT IS DIVIDED BY THE NUMBER OF MEMBERS THUS DETERMINING THE CONTRIBUTION PER HEAD DURING T HAT PERIOD. WHEN THE CHIT IS AUCTIONED EVERY MONTH, THE BIDDER TAKES THE CHIT FOR AN AMOUNT WHICH IS LESS THAN THE FACE VALU E OF THE CHIT. THE DIFFERENCE BETWEEN THE FACE VALUE AND THE AUCTI ONED 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 (SUBSCR IBERS) NEED NOT PAY THE TOTAL MONTHLY SUBSCRIPTION AND INS TEAD, THEY PAY THE MONTHLY SUBSCRIPTION AFTER DEDUCTING THE AM OUNT 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 PERIOD AND THE PRIZED MEMBERS GET DIVID END IN FUTURE MONTHS ALSO. USUALLY THE DISCOUNT, NAMELY, THE SUM OF MONEY, ITA NO.486 TO 489/HYD/2012 M/S. SHRIRAM CHITS PVT. LTD., HYDERABAD 4 WHICH THE PRIZED SUBSCRIBER IS REQUIRED TO FORGO, D ECREASES OVER PERIODS. THE PERSON GETTING MONEY IN THE LAST PERI OD RECEIVED THE FULL SCHEME AMOUNT. 5. IN VIEW OF THE ABOVE FINDINGS OF THE VARIOUS COURTS, WE ARE OF THE OPINION THAT THE CIT(A) IS JUSTIFIED IN HOLDING THA T THE PAYMENT OF DIVIDEND TO THE SUBSCRIBERS OF A CHIT TOWARDS DIVIDEND DOES NOT PARTAKE THE CHARACTER OF INTEREST AND ACCORDINGLY THE ASSESSEE IS NOT LIABL E TO DEDUC5T TDS U/S.194A OF THE ACT AND NOT LIABLE FOR INTEREST U/S. 201(1)AND 201(1A) OF THE ACT. IN THE ABSENCE OF ANY DECISION TO THE CONTRARY BROU GHT TO OUR NOTICE BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDERS OF THE CIT(A). WE ACCORDINGLY UPHO LD THE IMPUGNED ORDERS OF THE CIT(A) AND CONSEQUENTLY, GROUNDS OF T HE REVENUE IN THESE APPEALS ARE DISMISSED. 6. IN THE RESULT, ALL THE FOUR APPEALS OF THE RE VENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 20.7.2012 SD/- SD/- (SAKTIJIT DEY) (D.KARUNAKARA RAO) JUDICIAL MEMBER. ACCOUNTANT MEMBER. DT/- 20TH JULY, 2012 COPY FORWARDED TO: 1. 2. 3 M/S. SHRIRAM CHITS PVT. LTD., 3 - 6 - 478, III FLOOR, ANAND ESTATES, OPP. INDIAN BANK, LIBERTY ROAD, HYDERABAD ASST. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-I, HYDERABAD COMMISSIONER OF INCOME-TAX(APPEALS) I HYDERABAD 4. COMMISSIONER OF INCOME - TAX CENTRAL, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD B.V.S.