UCO Bank vs. UOI and Dy. CIT; 369 ITR 335 (Del):
The Petitioner bank had accepted fixed deposits in the name of the Registrar General of the Delhi High Court in compliance with a direction by the Court in relation to certain proceedings before the Court. On the question of applicability of section 194A, 201(1) and (1A) of the Income-tax Act, 1961, the High Court held as under:
“i) In the absence of an assessee, the machinery of provisions for deduction of tax to his credit are ineffective. The expression “payee” u/s. 194A would mean the recipient of the income whose account is maintained by the person paying interest. The Registrar General of the Court was clearly not the recipient of the income represented by interest that accrued on the deposits made in his/her name. Therefore, the Registrar General could not be considered as a “payee” for the purposes of section 194A. The Registrar General was also not an assessee in respect of the deposits made with the bank pursuant to the orders of the Court. The credit by the bank in the name of the Registrar General would, thus, not attract the provisions of section 194A. Although section 190(1) clarifies that deduction of tax can be made prior to the assessment year of regular assessment, none the less the section would not imply that deduction of tax is mandatory even where it is known that the payee is not the assessee and there is no other assessee. The deposits kept with the bank under the orders of this Court were, essentially, funds which were in custodia legis, that is, funds in the custody of the Court. The interest on that account – although credited in the name of the Registrar General – was also part of funds under the custody of the Court. The credit of interest to such account was, thus, not a credit to an account of a person who was liable to be assessed to tax. Thus, the bank would have no obligation to deduct tax because at the time of credit there was no person assessable in respect of that income which may be represented by the interest accrued/paid in respect of the deposits. The words “credit of such income to the account of the payee” occurring in section 194A have to be ascribed a meaning in conformity with the scheme of the Act and that would necessarily imply that deduction of tax bears nexus with the income of an assessee.
ii) Circular No. 8 of 2011, dated 04-10-2011, proceeds on an assumption that the litigant depositing the money is the account holder with the bank or is the recipient of the income represented by the interest accruing thereon. This assumption is fundamentally erroneous as the litigant who is asked to deposit the money in Court ceases to have any control or proprietary right over those funds. The amount deposited vests with the Court and the depositor ceases to exercise any dominion over those funds. It is also not necessary that the litigant who deposits the money would be the ultimate recipient of the funds. The person who is ultimately granted the funds would be determined by orders that may be passed subsequently. And at that stage, undisputedly, tax would be required to be deducted at source to the credit of the recipient. However, the litigant who deposits the funds cannot be stated to be the recipient of income.
iii) Deducting tax in the name of the litigant who deposits the funds with the Court would also create another anomaly because the amount deducted would necessarily lie to his credit with the Income Tax Authorities. In other words, the tax deducted at source would reflect as a tax paid by that litigant/depositor. He, thus, would be entitled to claim the credit in his return of income. The implications of this are that whereas the Court had removed the funds from the custody of a litigant/depositor by judicial orders, a part of the accretion thereon is received by him by way of tax deducted at source. This is clearly impermissible because it would run contrary to the intent of judicial orders.
iv) Therefore, the notices issued by the Assistant Commissioner directing the bank to submit the details of deposits made with the bank by all litigants in the name of the Registrar General of the Court during the financial years 2005-06 to 2010-11, Circular No. 8 of 2011 and the order holding the bank to be an assesee in default within the meaning of section 201(1) for a sum of Rs. 7,78,34,950 determined u/s. 201(1)/201(1A) were liable to be set aside.”
