ITO, Ward-15(3), Hyderabad V. M/s.Vijay Bhargavi Chit Fund Limited, Hyderabad

ITA 820/HYD/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53821 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 05-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T DIWAKAR PRASAD
• Assessee Lawyers: PURNA CHANDURU
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER I.T.A. NO. 820/HYD/2011 (ASSESSMENT YEAR : 2004-05) THE INCOME TAX OFFICER WARD-15(3), HYDERABAD VS. M/S. VIJAY BHARGAVI CHIT FUND LTD., HYDERABAD PAN: AAACV8130B APPELLANT RESPONDENT APPELLANT BY: SHRI T. DIWAKAR PRASAD RESPONDENT BY: SHRI PURNA CHANDURU DATE OF HEARING: 0 9 .1 2 .2011 DATE OF PRONOUNCEMENT: 26.12.2011 O R D E R PER BENCH: THIS APPEAL BY THE REVENUE AND IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-II, HYDERABAD DATED 9.3.2011 FOR THE ASSESSMENT YEAR 2004-05. 2. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE CIT(A) IS CONTRARY TO LAW. THE CI T(A) OUGHT TO HAVE SUSTAINED THE ORDER U/S. 201 & 201(1A) OF THE ACT. 2. THE CIT(A) OUGHT TO HAVE HELD THAT THE DIVIDEND ALLOWED TO NON PRIZED SUBSCRIBERS BY DUE DRAWAL OF THE CHITS, PARTAKES THE CHARACTER OF INTEREST AND HENCE THE ASSESSEE IS UNDER LEGAL OBLIGATION TO CAUSE DEDUCTION OF TAX AT SOURCE U/S. 194A OF THE INCOME-TAX ACT. 3. THE CIT(A) FAILED TO APPRECIATE THAT THE EXPRESSION 'INTEREST' AS DEFINED IN SECTION 2(28A) OF THE INCO ME- TAX ACT IS WIDE ENOUGH TO COVER DIVIDEND IN QUESTIO N I.T.A. NO. 820/HYD/2011 M/S. VIJAY BHARGAVI CHIT FUND LTD. =========================== 2 BEING PAID TO THE SUBSCRIBERS BY A CHIT FUND COMPANY. 4. THE CONCEPT OF 'INTEREST' AS DEVELOPED IN THE COMMERCIAL 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. THEREFORE, TH E ASSESSEE IS OBLIGATED TO CAUSE DEDUCTION OF TAX AT SOURCE, WHILE REMITTING DIVIDEND OR INTEREST AS THE CASE MAY BE. 5. THE CIT(A) DID NOT CONSIDER, OR ATTACH ANY SIGNIFICANCE TO THE EXPRESSION IN RESPECT OF SECTIO N 2(28A) REFERS TO 'ANY MONEYS BORROWED OR DEBT INCURRED (INCLUDING A DEPOSIT, A CLAIM OR SIMILAR R IGHT OR OBLIGATION). DIVIDEND BEING NOTHING BUT DISCOUNTED AMOUNT FOREGONE BY PRIZED SUBSCRIBER ON ACCOUNT OF HIS DRAWAL OF CHIT, IT IS NOTHING BUT A DEBT INCURRED BY HIM. THE AMOUNT PAID BY WAY OF DIVIDEND THEREFORE, PARTAKES THE CHARACTER OF INTEREST. THE ASSESSEE, WHO ACTS ON BEHALF OF CHIT SUBSCRIBERS IS, THEREFORE, UNDER LEGAL OBLIGATION T O CAUSE TAX DEDUCTION AT SOURCE. 6. THE EXPRESSION 'SIMILAR RIGHT OR OBLIGATION' FOUND IN SECTION 2(28A) OF THE INCOME-TAX ACT IS EQUALLY RELEVANT IN THE CONTEXT. INASMUCH AS THE NON-PRIZE D SUBSCRIBER GETS PAID DIVIDEND ON ACCOUNT OF HIS POSTPONING THE RIGHT OF DRAWAL OF CHIT, SUCH DIVIDE ND PARTAKES THE CHARACTER OF INTEREST WITHIN THE MEANING OF SAID SECTION. 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 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 I.T.A. NO. 820/HYD/2011 M/S. VIJAY BHARGAVI CHIT FUND LTD. =========================== 3 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. NO. 820/HYD/2011 M/S. VIJAY BHARGAVI CHIT FUND LTD. =========================== 4 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, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH DECEMBER, 2011. SD/- SD/- SD//-- (CHANDRA POOJARI) ACCOUNTANT MEMBER SD/- (H.S. SIDHU) JUDICIAL MEMBER HYDERABAD, DATED THE _26 TH DECEMBER, 2011 COPY FORWARDED TO: 1. THE INCOME - TAX OFFICER, WARD - 15(3) (TDS), RANGE - 15, HYDERABAD. 2. M/S. VIJAY BHARGAVI CHIT FUND LTD., 1 - 7 - 1074/B, 207 & 208, SRI DATTA SAI COMMERCIAL COMPLEX, RTC X ROAD, HYDER ABAD. 3. THE CIT(A) - II , HYDERABAD . 4. THE CIT ( TDS ) , HYDERABAD. 5. THE DR A BENCH, ITAT, HYDERABAD TPRAO