Commissioner of Income Tax vs State Bank of Patiala

Sanjay Karol, J.�This appeal stands admitted on the following substantial question of law:

"Whether for the purpose of obtaining exemption under S. 194A(3)(f) of the IT Act, the assessee was required to apply for exemption and the same could only be granted to the assessee after the Central Government issued a notification in this behalf in the official gazette?"

Genesis of the dispute emanates with the alleged non-compliance of statutory provisions of S. 194A(1) of the IT Act, 1961 (hereinafter referred to as the Act) by the assessee/respondent herein. M/s. Biotech Biobusiness and HP SITEG, wholly financed and controlled establishment of the Government, had made certain deposits with the assessee, who at the time of disbursement did not deduct the component of income-tax (TDS).

Finding such action of the assessee to be illegal, Revenue initiated proceedings with the issuance of notice under S. 201(1)/201(1A) of the Act. Vide order dt. 15th Dec, 2012, for the financial year 2008-09, ITO (TDS), Shimla, raised demands and took penal action.

In an appeal filed by the assessee, CIT(A), Shimla, vide order dt. 14th Dec, 2012, reversed such findings, which order stands affirmed by the Tribunal, Chandigarh Benches ''A'' Chandigarh, vide order dt. 10th July, 2013, in ITA Nos. 323 & 324/Chd/2013, titled as ITO vs. State Bank of Patiala.

For the purposes of adjudication of the present appeal, relevant provisions of the Act, are reproduced as under:

"194A. (1) Any person, not being an individual or an HUF, who is responsible for paying to a resident any income by way of interest other than income (by way of interest on securities), shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force:.......

(3) The provisions of sub-s. (1) shall not apply--.......

(iii) to such income credited or paid to--.......

(f) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette;"

It is not disputed that the societies in question are wholly funded by the Government.

Evidently, as noticed by the appellate authority, by virtue of its power, in terms of S. 194A, Central Government has issued notification covering "Any undertaking or body including a society registered under the Societies Registration Act, 1860 (XXI of 1860) financed wholly by the Government."

Now the language of S. 194A of the Act is simple, unambiguous and evidently clear. The Central Government has issued notification, specifically exempting, inter alia, societies which are wholly financed by the Government, thus making the provisions of sub-s. (1) of S. 194A inapplicable. In view of sub-s. (3)(iii)(f) of the said section, in the instant case, assessee made payments, without deducting income-tax, to such societies which stand exempted under the notification.

In our considered view, once the notification stands issued, it is not the requirement of the Act for the assessee to either apply or seek exemption from the authorities under the Act or the Central Government. Expression "reasons to be recorded in writing" are in reference to the stage preceding issuance of notification by the Central Government. Reasons have to be that of the Central Government and not the assessee. With the issuance of notification by the Central Government, which is not the subject matter of challenge herein, provisions of S. 194A(1) of the Act, automatically become inapplicable. Thus, order passed by the appellate authority is upheld and substantial question of law is answered accordingly. As such, appeal stands disposed of as also pending application(s), if any.