Law: Income Tax Act, 1961

Section: 2(28A),194A

Section 2(28A), read with section 194A, of the Income-tax Act, 1961 - Interest (Chit dividend) - Assessment years 2004-05 to 2006-07 - Whether chit dividend paid by of chit fund company to its members is not interest falling under section 2(28A) and, consequently, no deduction of TDS under section 194A is required to be made - Held, yes [Para 7] [In favour of assessee] FACTS â–  The assessee-company was engaged in the business of chit fund. It paid amounts to its subscribers who had participated in its chit scheme. The said amount was called as dividend. Under the scheme, the unsuccessful members in the auction chit would earn dividend and the successful bidders would be entitled to retain the face value till the stipulated period under the scheme. â–  The Assessing Officer held that the amount paid by assessee to its members by way of dividend was liable for deduction of tax under sections 2(28A) and 194A. â–  On appeal, the Commissioner (Appeals) held that the amount paid by way of dividend under the chit scheme by the assessee to the members of the chit could not be construed as interest under the Act and, therefore, there was no liability on the part of the assessee to deduct tax at source. â–  The Tribunal upheld the order of the Commissioner (Appeals). â–  On appeal to the High Court: HELD â–  Same substantial question of law had been decided in the case of CIT v. Sahib Chits (Delhi) (P.) Ltd. [2010] 328 ITR 342/[2009] 185 Taxman 34 (Delhi), wherein it was decided that the amount paid by way of dividend cannot be treated as interest under section 2(28A). Further, section 194A has no application to such dividends and, therefore, it was held that there is no obligation on the part of the assessee to make any deductions under section 194A before such dividend is paid to subscribers of the chit. â–  The aforesaid squarely applies to the facts of present appeal. No merits is found in the appeal and, therefore, same is dismissed. [Para 7] CASE REVIEW CIT v. Sahib Chits (Delhi) (P.) Ltd. [2010] 328 ITR 342/[2009] 185 Taxman 34 (Delhi). (para 7) followed. CASES REFERRED TO CIT v. Sahib Chits (Delhi) (P.) Ltd. [2010] 328 ITR…

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