Vipanchi Chit Funds Private Limited,, ... vs Department Of Income Tax

Income Tax Officer Ward 15(3), V/s. M/s. Vipanchi Chit Funds Pvt. Ltd., Hyderabad Hyderabad.

( PAN - AAACV 8243 K)

(Appellant) (Respondent)

Appellant by : Shri Rajat Mitra DR

Respondent by : Smt. Shilpa Mainyar

Date of Hearing 08.01.2015 Date of Pronouncement 09.01.2015

ORDER

Per P.M.Jagtap, Accountant Member:

This appeal preferred by the Revenue is directed against the order of the Commissioner of Income-tax(Appeals) II, Hyderabad dated 26.6.2014, and the solitary issue involved in this appeal is whether the chit dividends paid by the assessee to its subscribers partake the character of interest and consequently the assessee is liable to deduct tax under S.194A of the Act, while making payment of dividend to the subscriber.

2. The assessee in the present case is a company which is engaged in the business of running a chit fund. A survey operation under S.133A was conducted in the business premises of the assessee company on 14.3.2007, During the course of survey, it was noticed that the assessee company had distributed chit dividends to its subscribers without deducting tax at source as required under S.194A of the Act. A letter dated 26.6.2013 was 2 ITA No. 1423/Hyd/2014 M/s. Vipanchi Chit Funds Pvt. Ltd., Hyderabad.

addressed to the assessee requesting to furnish the details of dividend paid/payable (month-wise), dividends paid/payable below Rs.5000, dividend on vacant chits and requesting to furnish whether TDS was deducted on the dividends distributed to its subscribers, and if not, to show cause as to why it should not be treated as an assessee in default u/s. 201(1) and 201(1A) of the I.T. Act for non-deduction of tax at source on dividends paid to subscribers. In response to the said letter, the assessee vide letter dated 22.7.2013, besides furnishing the details of dividend paid during the financial year 2011-12, contended that the chit dividend paid/payable does not partake the character of interest, and the provisions of S.194A are not attracted, and there is no obligation on it to deduct tax at source while making such payments on account of chit dividends. Not convinced with the explanation of the assessee, the Assessing Officer treated the assessee as an assessee in default and raised demand for an amount of Rs.53,58,328, comprising of tax under S.201(1) of Rs.40,58,388 and interest under S.201(1A) of Rs.12,99,940, vide order dated 28.11.2013 passed under S.201(1) read with S.201(1A) of the Act.

3. On appeal, the learned CIT(A) taking note of the fact that the issue as to the nature of chit dividend paid by the assessee, is covered in favour of the assessee by the decisions of CIT(A) in assessee's own case, and also referring to various other judicial pronouncements on the issue, allowed the appeal of the assessee. Aggrieved by the order of the learned CIT(A), Revenue is in appeal before us.

4. We have heard the arguments of both the sides and also perused the relevant material on record. It has been agreed 3 ITA No. 1423/Hyd/2014 M/s. Vipanchi Chit Funds Pvt. Ltd., Hyderabad.

by the learned representatives of both sides that the issue in dispute relating to the nature of chit dividends paid by the assessee and applicability of the provisions of S.194A is covered in favour of the assessee and against the Revenue by the decision of this Tribunal in assessee's own case for assessment year 2005-06, vide order dated 11th August, 2011. This apart, in a recent decision of this Tribunal in the case of Margadarsi Chit Fund Ltd.(ITA No.1553/Hyd/2010) dated 24.9.2014, the issue as to the nature of chit dividend, in the context of applicability of the provisions of S.40(a)(ia), was decided in favour of the assessee and against the Revenue, in the following manner-

"16. We have heard the arguments of both the sides and also perused the relevant material on record. As agreed by the learned representatives of both the sides, the issue involved in the appeal of the Revenue is squarely covered in favour of the assessee by the decision of the coordinate bench of this Tribunal in assessee's own case for assessment year 2008-09 rendered vide order dated 24.2.2012 in ITA No.973/Hyd/2011, wherein a similar disallowance made by the Assessing Officer was held to be unsustainable, following the decision of the Madras high Court in the case of Bilahari investments (P)Ltd.(288 ITR

39), wherein it was held that the dividend distributed by the assessee did not part-take the character of interest and consequently, the assessee was not liable to deduct tax at source. The said decision of the Tribunal rendered in assessee's own case for assessment year 2008-09 has been upheld by the Hon'ble Andhra Pradesh High Court vide its judgment dated 10th July, 2013 passed in ITTA No.228 of 2013 and even the SLP filed by the revenue against the order of the Hon'ble Andhra Pradesh High Court has also been dismissed by the Hon'ble Supreme Court recently on 30th July, 2014 in Petition for Special leave to Appeal (C) No.9457/2014. Respectfully following these judicial pronouncements in assessee's own case on similar issue, we uphold the impugned order of the learned CIT(A), deleting the disallowance made by the Assessing Officer under S.40a(ia) on account of dividend paid by the assessee to the chit subscribers for non-deduction of tax at source and dismiss the appeal of the Revenue."

In this view of the matter, we do not find any infirmity in the impugned order of the CIT(A) in holding that the TDS provisions of 4 ITA No. 1423/Hyd/2014 M/s. Vipanchi Chit Funds Pvt. Ltd., Hyderabad.

S.194A are not attracted to the chit dividend payments made by the assessee. We accordingly uphold the order of the CIT(A) and dismiss the grounds of the Revenue in this appeal.

3. In the result, appeal of the Revenue is dismissed.

` ``

Order pronounced in the court on 9th January, 2015

Sd/- Sd/-

(Asha Vijayaraghavan) (P.M.Jagtap) Judicial Member Accountant Member

Dt/- 9th January, 2015

Copy forwarded to:

1. M/s. Vipanchi Chit Funds Pvt. Ltd., Flat No.607, Babu Khan Estate, Basheerbagh, Hyderabad.

2. Income Tax Officer Ward 15(3), Hyderabad

3. Commissioner of Income-tax(Appeals) II Hyderabad

4. Commissioner of Income-tax I, Hyderabad

5. Departmental Representative, ITAT, Hyderabad.

B.V.S