ITO, Ward-15(2), Hyderabad V. M/s. Suman Chit Funds Pvt.Ltd., Hyderabad

ITA 604/HYD/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53641 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 11-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• 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. 604/HYD/2011 ASSESSMENT YEAR : 2006-07 INCOME-TAX OFFICER WARD-15(2), HYDERABAD VS. M/S. SUMAN CHIT FUNDS (P) LTD., HYDERABAD PAN: NOT AVAILABLE APPELLANT RESPONDENT I .T.A. NO. 605/HYD/2011 ASSESSMENT YEAR : 2007-08 INCOME-TAX OFFICER WARD-15(2), HYDERABAD VS. M/S. SUMAN CHIT FUNDS (P) LTD., HYDERABAD PAN: NOT AVAILABLE APPELLANT RESPONDENT APPELLANT BY: SHRI V. SRINIVAS RESPONDENT BY: SHRI SAI PRASAD DATE OF HEARING: 10.10.2011 DATE OF PRONOUNCEMENT: 10.10.2011 O R D E R PER CHANDRA POOJARI, AM: THESE TWO APPEALS BY THE REVENUE ARE DIRECTED AGAIN ST THE SEPARATE ORDERS OF THE CIT(A)-II, HYDERABAD DATED 14.02.2011 FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08. SINCE THE ISSUES ARISIN G OUT OF THESE APPEALS ARE IDENTICAL, BOTH THESE APPEALS WERE HEARD TOGETH ER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE . 2. THE ISSUE INVOLVING IN THESE APPEALS IS WITH REG ARD 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 DIVIDEND PAID / DISTRIBUTED BY THE ASSESSEE THOUGH IT REPRESENTS TH E INTEREST AS PER SECTION 2(28A) AND WAS WITHIN THE MEANING AND PURVI EW OF SECTION 194A OF THE ACT. I.T.A. NOS. 604 & 605/HYD/2011 M/S. SUMAN CHIT FUNDS (P) LTD. ========================= 2 3. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. S IMILAR 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 SA HIB 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 CONTRIBUT ION CANNOT BE TREATED AS INTEREST. AS THE PAYMENT MADE/DISBURSED TO THE SUBSCRIBERS/MEMBERS IS NOT INTEREST, THEREFORE, THE QUESTION 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 D EBT IS INCURRED AND AS SUCH THE PROVISIONS OF SECTION 194A AND 2(28A) O F THE ACT ARE NOT ATTRACTED. 4. 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 INVES TMENT 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 P OOL 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 T HE 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 CHI T. THE DIFFERENCE BETWEEN THE FACE VALUE AND THE AUCTIONED VALUE DURING EVERY PERIOD IS GROSS DIVIDEND GENERAT ED IN THIS PERIOD. THIS AMOUNT OF DIVIDEND GETS DISTRIBU TED AMONG ALL THE MEMBERS (SUBSCRIBERS) EQUALLY. THE MEMBERS (SUBSCRIBERS) NEED NOT PAY THE TOTAL MONTHL Y 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 FUTURE MONTHS ALSO. USUALLY THE DISCOU NT, NAMELY, THE SUM OF MONEY, WHICH THE PRIZED SUBSCRIB ER IS REQUIRED TO FORGO, DECREASES OVER PERIODS. THE PER SON I.T.A. NOS. 604 & 605/HYD/2011 M/S. SUMAN CHIT FUNDS (P) LTD. ========================= 3 GETTING MONEY IN THE LAST PERIOD RECEIVED THE FULL SCHEME AMOUNT. 5. IN VIEW OF THE ABOVE FINDINGS OF THE VARIOUS COU RTS, 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 DIVID END DOES NOT PARTAKE THE CHARACTER OF INTEREST AND ACCORDINGLY THE ASSES SEE 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. 6. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH OCTOBER, 2011. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 10 TH OCTOBER, 2011 TPRAO COPY FORWARDED TO: 1. THE INCOME-TAX OFFICER-15(2), ROOM NO. 447, D BL OCK, 4 TH FLOOR, IT TOWERS, AC GUARDS, HYDERABAD. 2. M/S. SUMAN CHIT FUNDS PVT. LTD., 5-4-36/1, JN RO AD, ABIDS, HYDERABAD. 3. THE CIT(A)-II, HYDERABAD. 4. THE CIT (TDS), HYDERABAD. 5. THE DR A BENCH, ITAT, HYDERABAD