ITO, Ward-14(3), Hyderabad v. Laxman Chit Fund & Finance (P) Ltd, Hyderabad

ITA 528/HYD/2011 | 2006-2007
Pronouncement Date: 29-09-2011 | Result: Dismissed

Appeal Details

RSA Number 52822514 RSA 2011
Assessee PAN AAACL3465B
Bench Hyderabad
Appeal Number ITA 528/HYD/2011
Duration Of Justice 6 month(s)
Appellant ITO, Ward-14(3), Hyderabad
Respondent Laxman Chit Fund & Finance (P) Ltd, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 29-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 29-09-2011
Assessment Year 2006-2007
Appeal Filed On 29-03-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH HYDERABAD BEFORE SHRI CHANDRA POOJARI ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN JUDICIAL MEMBER ITA NO. 526/HYD/2011 A.Y. 2004-05 ITA NO. 527/HYD/2011 A.Y. 2005-06 ITA NO. 528/HYD/2011 A.Y. 2006-07 ITA NO. 529/HYD/2011 A.Y. 2007-08 INCOME-TAX OFFICER WARD-14(3) HYDERABAD VS M/S. LAXMAN CHIT FUND & FINANCE (P) LTD. HYDERABAD PAN: AAACL3465B APPELLANT RESPONDENT APPELLANT BY: SHRI P. PEERYA RESPONDENT BY: SHRI V. SIVA KUMAR DATE OF HEARING: 29.9.2011 DATE OF PRONOUNCEMENT: 29.9.2011 ORDER PER CHANDRA POOJARI A.M. THE ABOVE FOUR APPEALS BY THE REVENUE ARE DI RECTED AGAINST THE SEPARATE ORDERS OF THE CIT(A)-II HYDERABAD DATED 1 4.2.2011 FOR ASSESSMENT YEARS 2004-05 TO 2007-08. SINCE THE ISS UE INVOLVING IN ALL THESE APPEALS IS COMMON THESE APPEALS WERE HEARD T OGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. THE ISSUE INVOLVING IN THESE APPEALS IS WITH REG ARD TO CANCELLATION OF ORDERS PASSED U/S. 201 AND 201(1A) OF THE INCOME-TAX ACT 1961 WITH REFERENCE TO NON DEDUCTION OF TAX ON CHIT DIVIDEND PAID / DISTRIBUTED BY THE ASSESSEE THOUGH IT REPRESENTS TH E INTEREST AS PER SECTION 2(28A) AND WAS WITHIN THE MEANING AND PURVI EW OF SECTION 194A OF THE ACT. 3. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. S IMILAR ISSUE CAME UP FOR CONSIDERATION IN THE CASE OF MARGA SOOC HI CHIT PVT. LTD. IN I.T.A. NO. 995/BANG/2008 AND ALSO IN THE CASE OF SA HIB CHITS (DELHI) (P) LTD. BEFORE THE DELHI HIGH COURT IN I.T.A. NO. 44 OF 2008 ORDER DATED 24.7.2009 WHEREIN IT WAS HELD THAT THE AMOUNT DISBURSED BY A ITA NOS. 526 TO 529/HYD/2011 M/S. LAXMAN CHIT FUND & FINANCE (P) LTD. ============================ 2 CHIT FUND COMPANY TO THE MEMBERS FROM THE CONTRIBUT ION CANNOT BE TREATED AS INTEREST. AS THE PAYMENT MADE/DISBURSED TO THE SUBSCRIBERS/MEMBERS IS NOT INTEREST THEREFORE THE QUESTION OF DEDUCTING ANY TAX AT SOURCE FROM IT WOULD NOT ARISE . IN THE CASE OF A CHIT FUND THERE IS NO BORROWING OF MONEY NOR ANY D EBT IS INCURRED AND AS SUCH THE PROVISIONS OF SECTION 194A AND 2(28A) O F THE ACT ARE NOT ATTRACTED. 4. SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF BILAH ARI INVESTMENTS (P) LTD. V. CIT 288 ITR 39 (MAD). THE VIEW WAS C ONFIRMED BY THE SUPREME COURT IN THE CASE OF CIT VS. BILAHARI INVES TMENT PVT. LTD. (2008) 299 ITR 1 WHEREIN IT WAS HELD AS UNDER: A CHIT FUND SCHEME IS A KIND OF SAVINGS SCHEME IN WHICH A SPECIFIC NUMBER OF INDIVIDUALS COME TOGETHER TO P OOL A SPECIFIC AMOUNT AT PERIODIC INTERVALS. USUALLY THE NUMBER OF INDIVIDUALS AND NUMBER OF PERIODS IS THE SAME. AT THE END OF EACH PERIOD THERE IS AN AUCTION OF THE CHIT . THE MEMBERS OF THE CHIT PARTICIPATE IN THIS AUCTION FOR THE POOLED MONEY DURING THAT INTERVAL. THE BID AMOUNT IS DIVIDED BY THE NUMBER OF MEMBERS THUS DETERMINING T HE CONTRIBUTION PER HEAD DURING THAT PERIOD. WHEN THE CHIT IS AUCTIONED EVERY MONTH THE BIDDER TAKES THE CHIT FO R AN AMOUNT WHICH IS LESS THAN THE FACE VALUE OF THE CHI T. THE DIFFERENCE BETWEEN THE FACE VALUE AND THE AUCTIONED VALUE DURING EVERY PERIOD IS GROSS DIVIDEND GENERAT ED IN THIS PERIOD. THIS AMOUNT OF DIVIDEND GETS DISTRIBU TED AMONG ALL THE MEMBERS (SUBSCRIBERS) EQUALLY. THE MEMBERS (SUBSCRIBERS) NEED NOT PAY THE TOTAL MONTHL Y SUBSCRIPTION AND INSTEAD THEY PAY THE MONTHLY SUBSCRIPTION AFTER DEDUCTING THE AMOUNT OF DIVIDEND EARNED. MEMBERS WHO HAVE BID FOR THE CHIT IN AUCTI ON HAVE THE LIABILITY TO KEEP THE CONTRIBUTION TO THE CHIT TILL THE END OF THE CHIT PERIOD AND THE PRIZED MEMBERS GET DIVIDEND IN FUTURE MONTHS ALSO. USUALLY THE DISCOU NT NAMELY THE SUM OF MONEY WHICH THE PRIZED SUBSCRIB ER IS REQUIRED TO FORGO DECREASES OVER PERIODS. THE PER SON GETTING MONEY IN THE LAST PERIOD RECEIVED THE FULL SCHEME AMOUNT. 5. FURTHER SIMILAR ISSUE IS CONSIDERED BY THIS TRIB UNAL IN THE CASE OF M/S. VIPANCHI CHIT FUNDS LTD. AND M/S. VINUTNA CHIT FUNDS (P) LTD. IN ITA NOS. 804 & 805/HYD/2011 ORDER DATED 11 TH AUGUST 2011 DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE. ITA NOS. 526 TO 529/HYD/2011 M/S. LAXMAN CHIT FUND & FINANCE (P) LTD. ============================ 3 6. IN VIEW OF THE ABOVE FINDINGS OF THE VARIOUS COU RTS WE ARE OF THE OPINION THAT THE CIT(A) IS JUSTIFIED IN HOLDING THA T THE PAYMENT OF DIVIDEND TO THE SUBSCRIBERS OF A CHIT TOWARDS DIVID END DOES NOT PARTAKE THE CHARACTER OF INTEREST AND ACCORDINGLY THE ASSES SEE IS NOT LIABLE TO DEDUCT TDS U/S. 194A OF THE ACT AND NOT LIABLE FOR INTEREST U/S. 201(1) AND 201(1A) OF THE ACT. 7. IN THE RESULT BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH SEPTEMBER 2011. SD/- (ASHA VIJAYARAGHAVAN) SD/- (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD DATED THE 29 TH SEPTEMBER 2011 COPY FORWARDED TO: 1. THE INCOME-TAX OFFICER WARD-14(3) (TDS) RANGE- 14 HYDERABAD. 2. M/S. LAXMAN CHIT FUND & FINANCE (P) LTD. FLAT N O. 311 BHANU ENCLAVE SUNDER NAGAR ERRAGADDA HYDERABAD. 3. THE CIT(A)-II HYDERABAD 4. THE CIT (TDS) HYDERABAD 5. THE DR A-BENCH ITAT HYDERABAD. TPRAO