ITO, Ward-14(3), Hyderabad V. Jyothi Chit s & Finance, Secunderabad

ITA 533/HYD/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53679 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-06-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 29-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VENKATESWARA RAO
• Assessee Lawyers: K C DEVADAS
• Keywords: Non-deduction of tax
• Section: 201(1); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL M EMBER. ITA NO530/HYD/2011 : ASSESSMENT YEAR 2004-05 ITA NO531/HYD/2011 : ASSESSMENT YEAR 2005-06 ITA NO532/HYD/2011 : ASSESSMENT YEAR 2006-07 ITA NO533/HYD/2011 : ASSESSMENT YEAR 2007-08 INCOME - TAX OFFICER, WARD - 14(3), HYDERABAD VS M/S. JYOTHI CHITS AND FINANCE, SECUNDERABAD. (PAN AACFJ 0820 B ) (APPL ICA NT) (RESPONDENT) APPELLANT BY : SHRI VENKATESWARA RAO RESPONDENT BY : SHRI K.C.DEVADAS DATE OF HEARING 17.10.2011 DATE OF PRONOUNCEMENT 21.10.2011 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THESE FOUR APPEALS BY THE REVENUE ARE DIRECTED AGAI NST SIMILAR BUT SEPARATE ORDERS OF CIT(A)-II, HYDERABAD ALL DAT ED 8.2.2011 FOR THE ASSESSMENT YEARS 2004-05 TO 2007-08. SINCE A COMMO N ISSUE IS INVOLVED IN ALL THESE APPEALS, THESE APPEALS WERE HEARD TOGETHER AN D ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. THE ISSUE INVOLVED IN THESE APPEALS IS WITH REGA RD 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. ITA NO.530-533/H/2011 M/S. JYOTHI CHITS AND FINANCE, SECUNDERABAD. 2 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 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 QUE STION 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 P ROVISIONS OF SECTION 194A AND 2(28A) OF THE ACT ARE NOT ATTRACTED. 3. SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF BILAH ARI 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 DURING THAT IN TERVAL. THE BID AMOUNT IS DIVIDED BY THE NUMBER OF MEMBERS THUS DET ERMINING THE CONTRIBUTION PER HEAD DURING THAT PERIOD. WHEN THE CHIT IS AUCTIONED EVERY MONTH, THE BIDDER TAKES THE CHIT FO R AN AMOUNT WHICH IS LESS THAN THE FACE VALUE OF THE CHIT. THE DIFFERENCE BETWEEN THE FACE VALUE AND THE AUCTIONED VALUE DURI NG EVERY PERIOD IS GROSS DIVIDEND GENERATED IN THIS PERIOD. THIS AMOUNT OF DIVIDEND GETS DISTRIBUTED AMONG ALL THE MEMBERS (SU BSCRIBERS) EQUALLY. THE MEMBERS (SUBSCRIBERS) NEED NOT PAY TH E TOTAL MONTHLY SUBSCRIPTION AND INSTEAD, THEY PAY THE MONT HLY SUBSCRIPTION AFTER DEDUCTING THE AMOUNT OF DIVIDEND EARNED. MEMBERS WHO HAVE BID FOR THE CHIT IN AUCTION HAVE T HE LIABILITY TO KEEP THE CONTRIBUTION TO THE CHIT TILL THE END OF T HE CHIT PERIOD AND THE PRIZED MEMBERS GET DIVIDEND IN FUTURE MONTHS AL SO. USUALLY THE DISCOUNT, NAMELY, THE SUM OF MONEY, WHICH THE P RIZED SUBSCRIBER IS REQUIRED TO FORGO, DECREASES OVER PER IODS. THE PERSON GETTING MONEY IN THE LAST PERIOD RECEIVED TH E FULL SCHEME AMOUNT. ITA NO.530-533/H/2011 M/S. JYOTHI CHITS AND FINANCE, SECUNDERABAD. 3 4. FOLLOWING THE RATIO LAID DOWN BY VARIOUS COURTS IN THE CASES NOTED ABOVE, IT HAS BEEN CONSISTENTLY HELD BY 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, THAT THE PAYMENT TO THE SUBSCRIBERS OF A CHIT TOWARDS DIVIDEND DOES NOT PAR TAKE THE CHARACTER OF INTEREST. IN THIS VIEW OF THE MATTER, WE UPHOLD TH E ORDERS OF THE CIT(A) IMPUGNED IN THESE APPEALS, IN HOLDING THAT THE ASSE SSEE IS NOT LIABLE TO DEDUCT TDS U/S. 194A OF THE ACT AND NOT LIABLE FOR INTERES T U/S. 201(1) AND 201(1A) OF THE ACT, AND CONSEQUENTLY, REJECT THE GROUNDS OF TH E REVENUE IN THESE APPEALS.. 5. IN THE RESULT, ALL THE FOUR APPEALS OF THE REVEN UE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.10.2011. SD/- SD/- (ASHA VIJAYARAGHAVAN) (CHANDRA POOJARI) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED 21ST OCTOBER, 2011 COPY FORWARDED TO: 1. M/S. JYOTHI CHITS AND FINANCE, SHOP NO.6 TO 8, II FLOOR, HYDRI COMPLEX, RANIGUNJ, SECUNDERABAD. 2. INCOME TAX OFFICER, WARD - 14(3), HYDERABAD 3. CIT (A) - II , HYDERABAD. 4. COMMISSIONER OF INCOME-TAX (TDS), HYDERABAD 5. THE D.R., ITAT, HYDERABAD. B.V.S