Failure of bank to deduct TDS u/s 194A on interest paid to customers, notwithstanding furnishing of declaration in Form No. 15G, attracts Sec 201(1)

While setting aside the order under Section 201(1)/201(1A) passed against Bank of India (Assessee) for non-deduction of tax under Section 194A on interest paid to customers, The Nagpur Income Tax Appellate Tribunal partially allowed the Assessee’s appeal and directed the AO for passing a fresh order u/s 201(1)/(1A).

A Division Judge Bench of Justice Partha Sarathi Chaudhury and Accountant Member R.S. Syal observed that “a bank can receive form no. 15G and need not deduct tax at source only in the cases, where the declaration is given that the tax liability on total income including the interest income will be Nil provided the interest income does not exceed the basic exemption limit.”

“But where the interest income exceeds the basic exemption limit, the bank needs to deduct tax at source notwithstanding the furnishing of declaration in Form No. 15G and the bank will be treated as assessee in default u/s 201(1), where not only it failed to deduct tax at source but the customer also failed to pay such tax directly”, added the Bench. 

Advocate Pratik Sadrani appeared for the Assessee whereas Advocate Sanjay Agrawal appeared for the Revenue. 

The brief facts of the case were that the Assessee was a Nationalised Bank engaged in the banking business. A spot verification in some branches of the assessee bank was conducted in March 2016 and default in compliance was found anent to the TDS provisions under section 194A. During the investigation, AO noted four cases, where the interest paid was more than the basic exemption limit but no deduction of tax at source was made on receiving Form Nos.15G/15H. AO held the assessee to be in default u/s.201 to the tune of Rs.1,90,801/-. 

The assessee filed an appeal before the Commissioner of Income Tax (CIT) which was delayed by 633 days. After granting credit in respect of the Corona period, the CIT(A) observed that still there was a delay of 324 days. CIT was not satisfied with the reason for the delay by the Assessee and dismissed the appeal. Without prejudice, he also discussed the issue of merits rejecting the assessee’s contention that the order passed by the AO u/s.201(1)/201(1A) was time-barred and also that the AO was not right in treating the assessee in default. Aggrieved thereby, the assessee is in appeal before the Tribunal.

After considering submission, the Bench noted there is no material to show that the recipient/payee paid the tax directly under Section 191.

The bench explains the facts with the help of an explanation of section 191, Section 194 read with sections 197A and 201 that there will be no TDS obligation on furnishing the necessary declaration by customers where either the interest income does not exceed the basic exemption limit or the depositor is more than the prescribed age (65 years) and he furnishes the declaration that tax on his total income including interest from the bank will be Nil.

The Bench stated under the light of Section 191 that it is only upon the cumulative satisfaction of the following conditions that an assessee can be treated as assessee-in-default under Section 201(1), which are where the tax is not deducted/paid and when the payee has also failed to pay such tax directly.

The Bench also stated that Assessee did not deduct tax at source under Section 194A on the interest paid to some of its customers from whom it received Form Nos.15G/15H from such customers, specifying that no tax was payable by the customers on such interest income.

The bench further stated that as far as the issue of the impugned order being time-barred is concerned, the amendment to Section 201(3) introduced by Finance Act, 2014, with effect from Oct 1, 2014, extended the time limit for passing the order under Section 201(1)/201(1A), from 2 years from the end of the financial year in which the statement for the last quarter was filed, to 7 years from the end of the financial year in which the payment is made or credit for the income is allowed.

“In the present case period of two years from the end of the financial year in which the last statement was filed expires on Mar 31, 2015, by which the substituted Section 201(3) was enacted”, added the Bench. 

The Bench opines that the amendment in Section 201(3) is applicable to the present case and the order passed on Sep 27, 2019, in the present case, is well within the stipulated period of 7 years under Section 201(3).

The Bench also highlighted the fact that the Assessee will be discharged from the obligation of deducting tax at source on the interest payment in respect of recipients who have provided the declaration in form No. 15G/15H, but only to the extent of the relaxation given section 197A.

The bench stated that Section 197A provides that no deduction is to be made where the recipient furnishes a declaration in writing (Form no. 15G) stating that the tax on his estimated total income will be Nil.

“The Assessee on receipt of Form 15G, need not deduct tax at source, provided the interest income does not exceed the basic exemption limit. Analyses Section 197A(1C) which provides that no deduction of tax shall be made in the case of any individual resident in India who is of the age of 65 years or more at any time during the relevant AY, who furnishes a declaration in Form No. 15H”, added the bench by the conjoint reading of Section 197A(1A) and 197A(1B).

The bench further Opines that even if the Assessee is not to be treated as assessee-in-default where the recipient paying the tax directly under Section 191, yet the Assessee will still be liable to pay interest.

The Bench remarked that the appeal before the CIT is condoned and the order u/s 201(1)/(1A) is not time-barred. 

The Bench also found that the cases covered u/s 197A(1A) but were not hit by section 197A(1B). Similarly, the cases covered u/s 194A(1C) will also be excluded and interest u/s 201(1A) is payable by the assessee.

Accordingly, the Bench partially allowed the appeal and directed the AO to pass a fresh order u/s 201(1)/(1A).

Cause Title: Bank of India Vs. DCIT [ITA No.277/Nag/2022 / 2023-Enterslice-43-ITAT-Nag]

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