ITO, Ward(TDS)-14(2), Hyderabad V. M/s. Devi Chits and Finances, Hyderabad

ITA 578/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59176 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 07-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T DIWAKAR PRASAD
• Assessee Lawyers: K C DEVADAS
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 576/HYD/2011 (ASSESSMENT YEAR : 2005-06) I.T.A. NO. 577/HYD/2011 (ASSESSMENT YEAR : 2006-07) I.T.A. NO. 578/HYD/2011 (ASSESSMENT YEAR : 2007-08) INCOME TAX OFFICER WARD (TDS)-14(2) HYDERABAD VS. M/S. DEVI CHITS AND FINANCES HYDERABAD PAN: AACFD6700A APPELLANT RESPONDENT APPELLANT BY: SHRI T. DIWAKAR PRASAD RESPONDENT BY: SHRI K.C. DEVADAS DATE OF HEARING: 31 . 0 1.201 2 DATE OF PRONOUNCEMENT: 31.01.2012 O R D E R PER CHANDRA POOJARI, AM: THE ABOVE THREE APPEALS BY THE REVENUE ARE DIRECTE D AGAINST THE SEPARATE ORDERS OF THE CIT(A)-II, HYDERABAD DAT ED 8.02.2011 FOR ASSESSMENT YEARS 2005-06 TO 2007-08. 2. THE ISSUE INVOLVING IN THESE APPEALS 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 TA X ON CHIT DIVIDEND PAID / DISTRIBUTED BY THE ASSESSEE THOUGH IT REPRESENTS THE INTEREST AS PER SECTION 2(28A) AND WAS WITHIN T HE MEANING AND PURVIEW OF SECTION 194A OF THE ACT. 3. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. SIMI LAR 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 C ASE OF SAHIB I.T.A. NOS. 576-578/HYD/2011 M/S. DEVI CHITS & FINANCES ========================= 2 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 T HAT THE AMOUNT DISBURSED BY A CHIT FUND COMPANY TO THE MEMB ERS 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 SOU RCE 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 P ROVISIONS OF SECTION 194A AND 2(28A) OF THE ACT ARE NOT ATTRACTE D. 4. SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF 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 TOGETHE R TO POOL A SPECIFIC AMOUNT AT PERIODIC INTERVALS. USUA LLY THE NUMBER OF INDIVIDUALS AND NUMBER OF PERIODS IS THE SAME. AT THE END OF EACH PERIOD, THERE IS AN AUCTI ON OF THE CHIT. THE MEMBERS OF THE CHIT PARTICIPATE IN T HIS 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 T HAN THE FACE VALUE OF THE CHIT. THE DIFFERENCE BETWEEN THE FACE VALUE AND THE AUCTIONED VALUE DURING EVERY PER IOD IS GROSS DIVIDEND GENERATED IN THIS PERIOD. THIS A MOUNT OF DIVIDEND GETS DISTRIBUTED AMONG ALL THE MEMBERS (SUBSCRIBERS) EQUALLY. THE MEMBERS (SUBSCRIBERS) N EED NOT PAY THE TOTAL MONTHLY SUBSCRIPTION AND INSTEAD, THEY PAY THE MONTHLY SUBSCRIPTION AFTER DEDUCTING T HE AMOUNT OF DIVIDEND EARNED. MEMBERS WHO HAVE BID FO R 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 MONTHS AL SO. USUALLY THE DISCOUNT, NAMELY, THE SUM OF MONEY, WHI CH THE PRIZED SUBSCRIBER IS REQUIRED TO FORGO, DECREAS ES OVER PERIODS. THE PERSON GETTING MONEY IN THE LAST PERIOD RECEIVED THE FULL SCHEME AMOUNT. I.T.A. NOS. 576-578/HYD/2011 M/S. DEVI CHITS & FINANCES ========================= 3 5. IN VIEW OF THE ABOVE FINDINGS OF THE VARIOUS COURTS , WE ARE OF THE OPINION THAT THE CIT(A) IS JUSTIFIED IN HOLDING THAT THE PAYMENT OF DIVIDEND TO THE SUBSCRIBERS OF A CHIT TOWARDS DI VIDEND DOES NOT PARTAKE THE CHARACTER OF INTEREST AND ACCORDINGLY T HE ASSESSEE IS NOT LIABLE TO DEDUCT TDS U/S. 194A OF THE ACT AND N OT LIABLE FOR INTEREST U/S. 201(1) AND 201(1A) OF THE ACT. 6. IN THE RESULT, ALL THE APPEALS OF THE REVENUE ARE D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2012. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 31 ST JANUARY, 2012 COPY FORWARDED TO: 1. INCOME TAX OFFICER, WARD (TDS) - 14(2), HYDERABAD. 2. M/S. DEVI CHIT AND FINANCES, 3 - 4 - 365, TOBACCO BAZAAR, HYDERABAD. 3. THE CIT(A) - I I, HYDERABAD 4 . THE CIT (TDS) , HYDERABAD. 5. THE DR A BENCH, ITAT, HYDERABAD. TPRAO