Delhi High Court

Commissioner Of Income Tax-Xvii vs Food Corporation Of India, ... on 28 July, 2008

Author: Badar Durrez Ahmed

*             THE HIGH COURT OF DELHI AT NEW DELHI


%                                   Judgment delivered on : 28.07.2008


+              ITA Nos.781/2008, 782/2008, 783/2008 & 808/2008


THE COMMISSIONER OF                                       ..... Appellant
INCOME TAX-XVII.
                   -versus-

FOOD CORPRATION OF INDIA,
CONTRIBUTORY PROVIDENT
FUND TRUST.                                              ..... Respondent

Advocates who appeared in this case:

For the Appellant           :       Ms. Rashmi Chopra
For the Respondent          :       Mr. Kamal Sawhney

CORAM :-

HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE RAJIV SHAKDHER

1. Whether the Reporters of local papers may be allowed to see the judgment ?

2. To be referred to Reporters or not ?

3. Whether the judgment should be reported in the Digest ?

BADAR DURREZ AHMED, J (ORAL)

1. These four appeals arise out of the common order dated

14.09.2007 passed by the Income Tax Appellate Tribunal

(hereinafter referred to in short as „Tribunal‟) in ITA Nos. 4042,

4043, 4044, 4045/D/2006 pertaining to the financial years 2001 - 02

to 2004 - 05. In respect of these years the question which arose was

whether the assessee was liable to deduct tax at source under Section

194A of the Income Tax Act, 1961, (hereinafter referred to as „the

said Act‟).

2. According to the revenue, the assessee was liable to

deduct the tax at source and, not having done so, became an assessee

in default. As recorded in the impugned order, the assessee is a

Provident Fund Trust of Employees created after seeking exemption

under Section 16 of the Employees Provident Fund Act, 1952 (EPF

Act). The trust is recognised and exempted both under the IVth

Schedule of the said Act by the Commissioner of Income Tax, Delhi,

as well as, by the Provident Fund Commissioner under the EPF Act.

3. In the course of survey proceedings conducted in the

premises of the assessee it was found that the amounts being credited

to the account of the ex-employees after cessation of employment,

had the character of interest and as such, according to the Assessing

Officer, the assessee was required to deduct tax at source under

Section 194A of the said Act. The assessee having failed to do so

was treated as being default and, hence, demands under Section 201

(1) and 201 (1A) for the said financial years were raised against the

assessee by the Assessing Officer.

4. Being aggrieved by the said order of the Assessing

Officer, appeals were filed before the CIT (Appeals), who confirmed

the orders passed by the Assessing Officer. The matter was taken in

appeal by the assessee before the Tribunal. Before the Tribunal, the

issue that required consideration was, whether the assessee trust was

an individual and, therefore, was outside the purview of Section 194

A of the said Act. The Tribunal considered the definition of person

given in Section 2 (31), as well as, the provisions of Section 194A of

the said Act and came to the conclusion that a conjoint reading of the

two sections would make it clear that before holding an assessee in

default under Section 194 A, it has to be first determined and

adjudicated as to what is the status of the assessee. This is so

because any person who is an individual or a Hindu Undivided

Family, is not liable to deduct tax at source under Section 194 A of

the said Act in respect of the payments with regard to interest. The

Tribunal noted that neither the Assessing Officer nor CIT (Appeals)

had determined the status of the assessee trust before holding the

assessee to be in default for non-deduction of tax at source as

provided under Section 194 A of the said Act. The tribunal also

referred to various decisions of High Courts including :-

i. CIT v. SEA Head Office Monthly Paid Employees Welfare Trust : (2004) 141 Taxman 364(Del);

ii. CIT v. Showroom Krishan Bandar Trust: 201 ITR 984;

iii. CIT v. Deepak Family Trust: 72 Taxman 406;

iv. M L Family Trust &Others v. State of Gujarat: 213 ITR 152;

v. ITO v. Arihant Trust & Others : 214 ITR 306 (Mad);&

vi. CIT v. TSR Enterprises: 274 ITR 41 (2004) (Mad).

5. After considering all these decisions, the Tribunal

concluded (a) that it is necessary to determine the status of an

assessee before the liability of deducting tax at source under Section

194A of the said Act can be foisted upon such assessee; (b) on the

basis of the decisions rendered by the various High Courts, as

mentioned above, the status of the assessee trust in this case, would

be that of an individual.

6. In coming to the latter conclusion, the tribunal, as did

other decisions of several High Courts referred to above, placed

reliance on the provisions of Section 161 of the said Act. We are of

the view that the objects for which the trust was constituted by the

trust deed dated 28.04.1968 needs to be kept in mind. A perusal of

the objects, the relevant extract of which is referred to hereinafter,

would show that the aggregate of sums, which are contributed or

subscribed to the fund by the members as defined in the Regulations

and by the Corporation in accordance with the Food Corporation of

India (Contributory Provident Fund) Regulations, 1967, together

with the income which accrues or investment held by the trustees,

constitute assets of the fund which, the trustees are required to hold

and apply in accordance with the regulations which are binding on

the members to the fund. The relevant object clause of the

respondent trust reads as follows:-

"It is hereby agreed and declared that the aggregate of the sums to be contributed and subscribed to the fund by the members as hereinafter defined and by the Corporation in accordance with the Food Corporation of India (Contributory Provident Fund) Regulations 1967 shall be paid and together with the Income accruing from the use of or investments thereof held by the Trustees and shall in their hands constitute the assets of the fund and the Trustees shall hold and apply the assets of the said fund according to the said regulations which shall be binding on the members as herein after defined and the Corporation."

Under Section 160 & 161 of the Act, the trustees are the

representative assessees in respect of the income accruing to trust.

The trustees thus, in accordance with provisions of Section 161 of

the Act are amenable to tax, as well as, eligible to all exemptions,

deductions and benefits which would be available to the

beneficiaries, i.e., members who are individuals as per their

entitlements, if they were to individually hold the said assets. It is,

thus, clear that the trustees bears the same status under the Act as

that of the beneficiaries whom they represent. It is in this context

that the various High Courts, in the judgments referred to above,

accepted the status of the trust to be of like nature as that of

individual beneficiaries.