The CBDT has issued Circular No. 23/2015 dated 28.12.2015 stating that in the case of UCO Bank (Writ Petition No. 3563 of 2012), the Delhi High Court has held that the provisions of section 194A do not apply to fixed deposits made in the name of Registrar General of the Court on the directions of the Court during the pendency of proceedings before the Court. It is pointed out that in such cases, it is not known who the beneficiary of the fixed deposits will be till the Court passes the appropriate orders in the matter. The amount and year of receipt is also unascertainable. The High Court quashed Circular No. 8 of 2011 and stated that the person who is ultimately granted the funds would be determined by orders that are passed subsequently. The Board has accepted the aforesaid judgment and clarified that interest on FDRs made in the name of Registrar General of the Court or the depositor of the fund on the directions of the Court, will not be subject to TDS till the matter is decided by the Court. However, once the Court decides the ownership of the money lying in the fixed deposit, the provisions of section 194A will apply to the recipient of the income. The CBDT has also directed that such issues should not be contested in appeal and pending litigation, if any on the issue before various Courts/Tribunals should be withdrawn/not pressed upon.
Circular No. 23/2015
F. No. 279/Misc/140/2015-ITJ
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
New Delhi 28th December, 2015Subject: TDS under section 194A of the Act on interest on fixed deposit made on direction of Courts-regd
Section 194A of Income Tax Act, 1961 (“the Act”) stipulates deductions of tax at source (TDS) on interest other than interest on securities if the aggregate of amount of such interest credited or paid to the account of the payee during the financial year exceeds the specified amount.
2. In the case of UCO Bank in Writ Petition No. 3563 of 2012 (available on NJRS at 2014) and CM No. 7517/2012 vide judgment dated 11/11/2014, the Hon’ble Delhi High Court has held that the provisions of section 194A do not apply to fixed deposits made in the name of Registrar General of the Court on the directions of the Court during the pendency of proceedings before the Court. In such cases, till the Court passes the appropriate orders in the matter, it is not known who the beneficiary of the fixed deposits will be. Amount and year of receipt is also unascertainable. The Hon’ble High Court thus held that the person who is ultimately granted the funds would be determined by orders that are passed subsequently. At that stage, undisputedly, tax would be required to be deducted at source to the credit of the recipient. The High Court has also quashed Circular No. 8 of 2011.
3. The Board has accepted the aforesaid judgment. Accordingly, it is clarified that interest on FDRs made in the name of Registrar General of the Court or the depositor of the fund on the directions of the Court, will not be subject to TDS till the matter is decided by the Court. However, once the Court decides the ownership of the money lying in the fixed deposit, the provisions of section 194A will apply to the recipient of the income.
4. Accordingly, such issues may not be contested in appeal and pending litigation, if any on the issue before various Courts/Tribunals may be withdrawn/not pressed upon.
5. This may be brought to the notice of all concerned.
(Ramanjit Kaur Sethi)
DCIT (OSD) (IJT)
CBDT New Delhi
In 2004-05 when I was ACIT (TDS) there was a deep discussion among the TDS AOs and the then CIT TDS whether TDS has to be effected to such deposits lying in banks on the directions of the High Court. It was pointed by the majority of the then TDS AOs that the deposits were not out of the activities of the depositors and there was no voluntary acts to earn interest on such deposits but by compulsion by the Courts. The CIT (TDS) did not accept the point of the AOs (TDS) and directed all AOs in writing to effect the TDS on interest on such deposits. The registrar of High Court also pointed out that the points stated in the case under acceptance.
Now the CBDT had acted proactively on the virtual facts of events.
Kudos to CBDT for its actions.