2008 (8) TMI 491 - HC - Income Tax

Interest on foreign currency deposits exempt from tax under IT Act; no TDS on rent to co-owners

The court upheld the Income-tax Appellate Tribunal's decision that interest paid on deposits in foreign currency was exempt from taxable income under ... Liability to deduct TDS on interest paid on TDR/STDR and on rent paid for the office building to four co-owners - interest paid by the Bank to the NRIs on deposits in Indian Currency was exempt u/s10(15)(iv)(fa) and thereby not subject to TDS u/s195 – further, when there are a number of owners of a property, the limit/ceiling of ₹ 1,20,000 was applicable to each co-owner separately and thus, no tax was required to be deducted at source u/s 194I – revenue’s appeal dismissed Issues:1. Interpretation of section 10(15) (iv) (fa) of the Income-tax Act regarding exemption of interest paid on deposits in foreign currency from TDS.2. Determination of liability to deduct TDS on rent paid to co-owners of a property.Analysis:Issue 1: Interpretation of section 10(15) (iv) (fa) of the Income-tax Act regarding exemption of interest paid on deposits in foreign currency from TDSThe appellant contended that interest paid on TDR/STDR did not fall under section 10(15) (iv) (fa) of the Income-tax Act, thus, deduction was not admissible. The Income-tax Appellate Tribunal, however, accepted the appeals on the ground that the interest income was exempt from taxable income as per section 10(15) (iv) (fa). The court referred to the provision which exempts interest payable by a scheduled bank to a non-resident or a person not ordinarily resident on deposits in foreign currency approved by the Reserve Bank of India. Citing the case of Transmission Corporation of A. P. Ltd. v. CIT, it was clarified that tax deduction at source is required only on income subject to tax under the Act. Since the interest income in question was exempt under section 10(15) (iv) (fa), the tribunal's decision was upheld, and the first question was answered in favor of the assessee-respondent.Issue 2: Determination of liability to deduct TDS on rent paid to co-owners of a propertyRegarding the deduction of TDS on rent paid to co-owners, the appellant argued that TDS should have been deducted as the shares of co-owners were not definite and ascertainable. However, the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal found that the property's ownership was clearly defined among the late Smt. Tej Roop Kumari's three sons and one grandson as absolute owners in definite shares. The appellant relied on a Calcutta High Court case, Smt. Bishaka Sarkar v. Union of India, which suggested splitting rent among co-owners for tax purposes. Contrary to this, the court referred to CIT v. Bijoy Kumar Almal, emphasizing that where co-owners' shares are clear, they should be taxed individually. As each co-owner's share was ascertainable, the limit of &8377; 1,20,000 applied to each, and no TDS was required. The Income-tax Appellate Tribunal's decision was deemed correct, and the second question was answered in favor of the assessee.In conclusion, both appeals filed by the appellant were dismissed based on the above analysis and legal interpretations provided by the court.