2014 (7) TMI 905 - AT - Income Tax

Tribunal exempts Site Restoration Fund deposits from TDS under Section 194A

The Tribunal ruled that Site Restoration Fund (SRF) deposits did not qualify as 'time deposits' under Section 194A, exempting them from TDS provisions. ... Jurisdiction of Order u/s 201(1)/201(1A) – Obligation to deduct TDS u/s 194A on interest accrued on deposits - Applicability of section 194A for site restoration fund - Interest has been credited by SBI on SRF a/c which has been opened by ONGC with it as per the provisions of section 33ABA - the nature of receipt is to be decided at the first instance - The interest accruing to SRF a/c is income of ONGC and the deeming provision as per third proviso to section 33ABA(1) of treating it as deposit is essentially application of income - ONGC is accounting for the interest in its P&L A/c and then claiming deduction of deposit which includes the interest accrued on SRF a/c - The deeming fiction contemplated in third proviso is for the purposes of section 33ABA only and cannot be extended beyond the purpose for which it has been inserted in section 33ABA. It is the nature of receipt being interest, which triggers the applicability of provisions of section 194A and if the assessee was claiming for no TDS then it should have obtained certificate u/s 197 for non-deduction/ at lower rate - The interest income does not loose its character merely because of the deeming provisions u/s 33ABA treating the accrued interest being treated as deposit - the nature of a receipt is to be decided at first instance; and secondly, this sub-section does not make the withdrawals chargeable to tax till the account is not closed - It is not the case of assessee that when withdrawal is made on closure of account, then also the amount withdrawn is to be subjected to TDS - this sub-section refers to entire credit balance lying in this account and not only the accrued interest - section 33ABA(5) brings to tax the amount which was earlier allowed as deduction. The deposits contemplated u/s 33ABA need not necessarily come from business of extraction or production of petroleum or natural gas because of the word used 'consisting' in sub-section (1) of section 33ABA - The deposits can be made from any other source of income also - no parity can be drawn between interest accruing to SRF a/c and the withdrawals made u/s 33ABA(5) which are assessable as business income - it cannot be held that interest accrued on SRF a/c was not chargeable to tax in the year of accrual – thus, the provisions of section 194A are not applicable – Decided against Revenue. Issues Involved:1. Applicability of Section 194A for TDS on interest accrued in Site Restoration Fund (SRF) accounts under Section 33ABA.2. Classification of SRF deposits as 'time deposits'.3. Revenue neutrality of the interest accrued in SRF accounts.4. Validity of previous exemptions and their impact on current TDS obligations.5. Relevance of Section 33ABA provisions in determining TDS applicability.Detailed Analysis:1. Applicability of Section 194A for TDS on Interest Accrued in SRF Accounts:The primary issue was whether the interest accrued on SRF accounts maintained by ONGC with SBI was subject to TDS under Section 194A of the Income Tax Act. The assessing officer observed that SBI had not deducted TDS on the interest payments to ONGC and issued a show-cause notice under Sections 201/201(1A). The assessee argued that the interest credited to the SRF account should be treated as a deposit under Section 33ABA and thus not subject to TDS under Section 194A. The assessing officer disagreed, stating that the interest becomes a deposit only upon reinvestment and that the treatment of income by the payee (ONGC) was irrelevant for the deductor's TDS obligations.2. Classification of SRF Deposits as 'Time Deposits':The assessee contended that SRF deposits were not 'time deposits' as defined in Explanation 1 to Section 194A(3)(vii), which excludes deposits repayable on the expiry of fixed periods. They argued that SRF accounts did not have a fixed maturity period and withdrawals were subject to specific conditions under the SRF Scheme. The Tribunal agreed, noting that the SRF Scheme did not specify a fixed period for deposits, and withdrawals were contingent on specific conditions, thus not fitting the definition of 'time deposits.'3. Revenue Neutrality of the Interest Accrued in SRF Accounts:The assessee argued that the entire exercise was revenue neutral since ONGC included the interest in its income and claimed a 100% deduction under Section 33ABA. The Tribunal acknowledged this argument but emphasized that the nature of the receipt (interest) should be determined at the first instance, and the deeming provision in Section 33ABA treating interest as a deposit was essentially an application of income. The Tribunal noted that the interest income does not lose its character due to the deeming provisions of Section 33ABA.4. Validity of Previous Exemptions and Their Impact on Current TDS Obligations:The assessee referenced a certificate granted under Section 197 for non-deduction of tax in A.Y. 2002-03, arguing that this exemption should continue. The Tribunal rejected this, stating that the certificate was specific to that period and could not extend to subsequent years. Additionally, principles of res judicata do not apply to income tax proceedings.5. Relevance of Section 33ABA Provisions in Determining TDS Applicability:The Tribunal examined Section 33ABA, which deals with Site Restoration Funds for businesses involved in petroleum or natural gas extraction. The third proviso to Section 33ABA(1) states that interest credited to the SRF account is deemed a deposit. The Tribunal held that this deeming provision is for the purposes of Section 33ABA only and does not affect the nature of the receipt (interest) for TDS purposes under Section 194A. The Tribunal concluded that the interest income was chargeable to tax and thus subject to TDS, regardless of its subsequent treatment as a deposit under Section 33ABA.Conclusion:The Tribunal ruled that SRF deposits did not qualify as 'time deposits' under Section 194A, thereby exempting them from TDS provisions. Consequently, the assessee's appeals were allowed, and the department's appeals, which contested the CIT(A)'s directions for further verification, were dismissed as infructuous. The Tribunal's decision emphasized the importance of the nature of the receipt and the specific definitions within the Income Tax Act in determining TDS obligations.