By TIOL News Service

COCHIN, AUG 22, 2017: THE issue before the Tribunal is - Whether contributions to provident fund not recognized as valid deductions u/s 80C(2)(vi) of I-T Act, would be treated as short-deductions u/s 192 and consequently taxable under the heading 'Income from other sources'. YES is the answer.

Facts of the case:

During assessment for the AYs 2007-08 and 2008-09, the AO observed short deductions of tax by the assessees, while they were making TDS on salaries u/s 192 of the Act. The reason behind this was that while computing taxable salary, the assessees were deducting u/s 80C contributions to unrecognized Provident Fund (PF). The AO opined that the contributions to unrecognized Provident Fund were not eligible for deduction u/s 80C. The AO further held that interest accrued on employees’ contribution to unrecognized Provident fund was also taxable under the head ‘Income from other sources’. Thereby, the AO passed orders u/s 201(1) and 201(1A) for the two short deductions, and also imposed interest on them.

ITAT held,

++ section 192(1) states that "Any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment, deduct income tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year". Hence it is clear that the employees are bound to deduct tax at source at the time of payment of salaries. Since admittedly, the contributions of the assessees to the PF are not a recognized Fund, the same are not eligible for deduction u/s 80C (2) (vi). If the contributions are not eligible for deduction u/s 80C of the Act, there are resultant short deductions of tax u/s 192 of the Act. Consequently, the interest accrued on the PF is also liable to be taxed as ‘Income from other sources’. Therefore, the estimations made by the assessees are not correct and since there were short deductions of tax, the AO justifiably passed the orders u/s 201(1) and 201(1A) of the Act. Moreover the assessees were unable to show that any of the employees of the assessee-society had filed returns and had paid tax correctly to the Government account.

(See 2017-TIOL-1174-ITAT-COCHIN)