TaxTMI 
TaxTMI 
2012 (4) TMI 210
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....r assessment years 2004-05 to 2011-12 for non deduction of TDS on the interest paid by the assessee bank to Rajasthan Rural Road Development Agency (RRRDA), a body formed by the State Government, was initiated. 4. On survey by department, it was revealed that Rajasthan Rural Road Development Agency, a nodal agency was formed as a Society by the State Government. The Ministry of Rural Development, Central Government of India, under the programme of Pradhan Mantri Gram Sadak Yojna (PMGSY) sent the funds in the name of Rajasthan Rural Road Development Agency, which was deposited in the account maintained with the assessee i.e. State Bank of Bikaner & Jaipur. On survey, it was revealed that huge interest has been accrued on the amount of deposit and no TDS has been deducted by the Bank in view of provisions of section 194A. It was also found that neither any certificate has been obtained under section 197 that no tax is payable on the amount of interest. Thereafter, the Additional CIT under section 144A directed the TDS ITO to initiate proceedings under section 201(1A) of the Act. Thereafter, proceedings were initiated. Detailed reply was filed on behalf of the assessee. However, th....
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....ain in the following manner : 8.1. A TDS survey u/s 133A dated 12.01.2011 was conducted at the business premises of the assessee bank. During the course of survey, it was noticed that M/s Rajasthan Rural Development Agency (RRRDA), a nodal agency of Ministry of Rural Development (MORD), Government of India has kept the funds released by MORD in a separate bank account called Programme Fund opened with the assessee bank to be utilized for the purpose of approved work under Pradhan Mantri Gram Sadak Yojna (PMGSY). On these funds, bank has credited interest. On such interest, assessee bank has not deducted tax at source u/s 194A. 8.2. Show cause notice u/s 201(1)/201(1A) dt. 17.01.2011 for F.Y. 06-07 onwards & 22.02.2011 for F.Y. 05-06 onwards were issued to the assessee bank. Further, looking to the amount involved a reference u/s 144A was made by the ITO (TDS) to Addl. CIT (TDS), Jaipur who issued necessary direction to the ITO (TDS) which are reproduced at of the assessment order. 8.3. The AO in pursuance of directions given by Addl. CIT (TDS), Jaipur u/s 144A held the assessee liable for deduction of tax at source u/s 194A. The reasons given by Addl. CIT (TDS) for holding....
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....The ld. CIT (A) has discussed this basic controversy in present case relates to the nature and ownership of interest income and whether TDS provisions are applicable on such receipts or not. He called for a remand report from AO where he reiterated what is already stated in his order. The Ld. CIT(A) after considering the entire facts held that section 194A is not applicable in the present case for the following reasons: (i) Nature of Receipt - From the relevant articles of Memorandum of Understanding and Accounts Manual of PMGSY, it can be inferred that the amount received by RRRDA is a 'Project Fund' released by the Central Government and not a 'Grand-in-Aid' as such. Accordingly, being a Central Government Sponsored Scheme, the provision of TDS sections are not applicable as such. (ii) Ownership of the Interest Income - From the Chapter 10 of 'Accounting Manual' of PMGSY scheme it is clearly evident that any interest income accrued on the surplus fund of the project parked in the bank, would be belonging to Ministry of Road Developments / Central Government and the SRRDA/RRRDA would not have any rights over such interest income. In other words, the plain and una....
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....ion of S. 194A as such. The claim of the Ld. AR of applicability of notification No.SO3489 dated 22.10.1970 of CBDT was examined. As pointed out the above notification exempts 'any undertaking or body including a society registered under the Society Registration Act, 1860, financed wholly by the Government'. It is an undisputed fact that RRRDA is a body established by the State government, registered under Society Act and fully funded by the State Government as such. Considering the above aspect, in my considered opinion, even RRRDA is also covered under the above notification, being as a body financed wholly by the State Government. Accordingly, it is held that even on this ground, the interest receipt earned by RRRDA on the surplus of project fund of PMGSY is not liable for deduction of tax at source. The AO's contentions that the appellant, being registered u/s 12A, is not exempted unconditionally also has no bearing on the issue under consideration as M/s RRRDA is otherwise fully exempted from TDS provision, in view of the above referred Notification of the CBDT. Thus fulfillment of conditions of the registration u/s 12A is not a relevant question for the matter under question.....
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....nd therefore the ld. CIT(A) has erred in deleting the demand. The department has not challenged the other reasons for which the demand has been deleted as stated above. In fact ld. CIT(A) has not at all relied circular no. 4/2002 in deleting the demand u/s 201(1)/201(1A). Hence for this reason alone the ground of the department be dismissed. Without prejudice to above it may be noted that M/s RRRDA is a nodal agency of Ministry of Rural Development (MORD/ NRRDA) Government of India to monitor the expenditure incurred by the PWD in implementing of Pradhan Mantri Gram Sadak Yojna (PMGSY). For this purpose, funds are released by (MORD) in a separate bank account opened & operated by RRRDA & the funds held in this account are allowed to be utilized only for the purpose of approved work under PMGSY. This fact is evident from clause 4(g) of the MOA of RRRDA (PB 11-14) & from the letter of Ministry of Rural Development for release of funds (PB 55). M/s RRRDA in MOU with National Rural Road Development Agency (NRRDA) & the assessee bank (PB 15-18) have opened a specific bank account with the assessee bank for this purpose. Chapter 1 of PMGSY Accounts Manual in Para 1.3.18 & 1.3.19 re....
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....nd. As per Chapter 10 of the Guidelines issued by MORD (PB 29), any interest that comes on it funds with the bank belong to MORD who provides the funds & it is not the income of the State Road Rural Development agency i.e. RRRDA. Thus, it can be noted that the account which is maintained by the assessee bank as per the MOU entered with NRRDA/MORD & RRRDA is not the personal account of RRRDA but only an account of Ministry of Rural Development Government of India (MORD). RRRDA is only a nodal agency entrusted with the duty of operating this account in execution of PMGSY. It is only a trustee/ authorized signatory of this account on behalf of MORD. The income credited to this account also belongs to MORD as specified in Chapter 10 referred in Para 3 above. This account maintained by the assessee bank is a Government account where the interest credited is payable to MORD. Hence, Ld. CIT(A) has rightly held that on such credit/payment of interest to the Government there is no liability of deduction of tax at source u/s 196. So far as accounting procedure is concerned, it is to be noted that as per the format of schedules to the Balance Sheet of RRRDA given in Chapter 15 of the Ac....
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....counting head cannot override the provisions of the Act. Therefore, on this basis Bank cannot be made liable for deduction of tax at source on the interest credited to the Programme Fund ignoring that it is an interest payable to the government u/s 196 as Government has full beneficial interest in this Fund. The CIT(A) has therefore rightly appreciated that Chapter 15 of the accounts manual cannot override chapter 10 of the manual and therefore no tax is required to be deducted on such interest which belongs to Government. As regards liability to deduct TDS u/s 194A on interest accrued/ paid on funds received by RRRDA from Government of India and others by treating the same as grants in the hand of RRRDA is concerned, it is to be noted that funds received by RRRDA from MORD/ NRRDA, Government of India are Programme Funds and not a grant in aid simplicitor in the hands of RRRDA. Even in the release letter of funds issued by the Ministry of Rural Development (PB 55), it is specifically mentioned that amount is released to RRRDA, which is the autonomous agency for receiving the funds for the Programme. Such fund is to be kept in a separate account and shall not be transferred to an....
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....interest u/s 201(1A) can be imposed on the assessee in view of the decision of Supreme Court in the case of Hindustan Coco Cola (P) Ltd. v. CIT 293 ITR 226.(PB 66-69), CIT v. Bharti Cellular Ltd. 330 ITR 239 (PB 70-71) and decision of Karnatka High Court in the case of Solar Automobiles India (P) Ltd. VS. DCIT 64 DTR 34. In view of above the ld. CIT(A) has rightly held that the assessee is not liable for deduction of tax at source on interest credited to the account of RRRDA and therefore ground of the department be dismissed." 11. The above observations and finding of ld. CIT (A), in our considered view, are correct. Neither the finding of ld. CIT (A) could be controverted nor any other material was brought on record to establish otherwise. The ld. CIT (A) has taken into consideration various aspects and while giving his finding, has decided on three issues. However, all the three issues have not been challenged here before the Tribunal by the department as department is challenging that since the income of the assessee was exempt and, therefore, it cannot be said that provisions of section 194A are not applicable. It has also stated that the Rajasthan Rural Road Development....