TaxTMI 
TaxTMI 
2009 (7) TMI 75
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....onsideration it was running various chits. An on the spot verification was conducted on 21.12.05 at the business premises of the assessee and after collecting further details it was held by Assessing Officer (AO) that there was default on the part of the assessee company for not deducting tax under Section 194A of the Act on the amount paid to its members on the chits contributed by them under various chits organized by the assessee. While passing order under Section 201/201(1A) the AO quantified the default at Rs. 8, 17,683/- including tax (TDS), surcharge and interest payable by it. 3. In appeal, the action of the AO was quashed by the learned CIT(A) following the decisions in the below mentioned cases: a) Sh. Ram Chit (P) Ltd. v. D....
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....quent chits, bids between the members take place. The person who gives the highest bid is entitled to take a particular chit. The amount of bid offered by him is distributed between the members/ subscribers. These chits are governed by the law known as the Madras Chit Funds Act, 1961, which is extended to the Union Territory of Delhi. As per the provisions of this Act, there is a restriction to make a bid upto 35% of the maximum value of the chit. If more than one person offered 35%, then between them chit is allocated to a person by a draw of lot. The bid amount offered by the successful bidder is then distributed equally among all the members. It is this amount which is paid to the members that is treated as 'interest' by the Assessing Of....
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....deposit, claim or other similar right or obligation)and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised." xx xx xx "Section 194A: Interest other than interest on securities. (1) Any person, not being an individual or Hindu undivided family, who ism responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force…" 8. A bare readi....
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....est', as defined under the Act, specifically speaks of "moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation)…". In the present case various persons are contributing to chits, which amount is taken by the successful bidder who offers certain discount. Further, it was observed in Shriram Chits & Investment (P.) Ltd. (supra) that: "…it would not be correct to state that each subscriber lends money to the person who gets chit earlier. It cannot also be construed that the person who gets chit later should be treated as the money lender. The agreement between the parties that is entered as per Section 6 of the Act, only provides for distribution of the chit amount…" The Supreme Court furth....
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....sing Officer proceeds on the basis as if the contribution given by the subscribers/members every month amounts to deposit with the chit fund company, i.e. the assessee, and on that basis he proceeds as if the assessee is working as a banker and, therefore, the amount of bid disbursed equally among members is to be treated as 'interest' payable on money borrowed. This approach is fallacious on the face of it and particularly in view of the principle laid down in the aforesaid judgment of the Supreme Court in Shriram Chits & Investment (P) Ltd. (supra) wherein the Apex Court observed that the subscriptions received from the members of the chit fund company in terms of contract are not treated as 'deposits' for the purpose of Reserve Bank of I....