Banks not liable for TDS on rent below Rs.1,20,000/year to co-owners. Assessing Officer's orders overturned.

The Tribunal upheld the decision that the banks were not obligated to deduct TDS as the rent paid to each co-owner was below Rs.1,20,000 per annum, and the co-owners had definite and ascertainable shares. The Assessing Officer's orders under Sections 201(1) and 201(1A) were set aside, confirming the banks were not in default. The appeals were dismissed without any order as to costs.

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Issues Involved:
1. Whether the property was owned by several co-owners with definite and ascertainable shares.
2. Whether the limit of Rs.1,20,000/- applies to each payee/co-owner separately.
3. Whether M/s. Atma Ram & Brothers constitutes an Association of Persons (AOP).
4. Obligation of the payer to deduct TDS under Section 194-I of the Income-tax Act, 1961.
5. Validity of the orders passed under Section 201(1) and 201(1A) of the Income-tax Act, 1961.

Detailed Analysis:

1. Ownership and Shares of Co-owners:
The property in question was owned by fifteen co-owners with definite and ascertainable shares. Each co-owner had shown their investment and share in the rental income in their individual tax returns, which were accepted by the tax authorities. The co-owners' shares were clearly defined in the lease deeds executed with the banks.

2. Application of Rs.1,20,000/- Limit to Each Co-owner:
The banks paid rent to each co-owner separately by cheques, and the individual payments did not exceed Rs.1,20,000/- per annum. The Central Board of Direct Taxes (CBDT) clarified in Circular No.715 dated 8th August, 1995, that the limit of Rs.1,20,000/- applies separately to each co-owner if their shares are definite and ascertainable. The Tribunal upheld that the limit applies to each co-owner separately, and the rent received by each co-owner was assessed individually.

3. Association of Persons (AOP) Status:
The Income Tax Officer initially treated the co-owners as an AOP, specifically M/s. Atma Ram & Brothers, and held the banks responsible for not deducting TDS. However, Section 26 of the Income-tax Act specifies that if property is owned by multiple persons with definite and ascertainable shares, they should not be assessed as an AOP but individually. The Tribunal and Commissioner of Income Tax (Appeals) found that the co-owners had definite shares, and thus, the income should be assessed individually, not as an AOP.

4. Obligation to Deduct TDS under Section 194-I:
Section 194-I mandates TDS on rent payments exceeding Rs.1,20,000/- per annum to any person. The banks argued that since the rent paid to each co-owner was below this threshold, TDS was not required. The Tribunal agreed, citing the CBDT Circular and Section 26, which support the non-requirement of TDS if individual payments to co-owners do not exceed Rs.1,20,000/-.

5. Validity of Orders under Section 201(1) and 201(1A):
The Assessing Officer's orders under Sections 201(1) and 201(1A), which deemed the banks as assessees in default for not deducting TDS, were set aside by the Commissioner of Income Tax (Appeals). The Tribunal upheld this decision, confirming that the banks were justified in not deducting TDS as the rent paid to each co-owner was below the prescribed limit.

Conclusion:
The Tribunal correctly upheld the Commissioner of Income Tax (Appeals)'s decision, setting aside the Assessing Officer's orders. The banks were not required to deduct TDS as the rent paid to each co-owner was below Rs.1,20,000/- per annum, and the co-owners had definite and ascertainable shares. The appeals were dismissed without any order as to costs.

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