In a recent ruling, the Income Tax Appellate Tribunal Cochin bench held that the interest accrued on the Provident Fund is taxable as ‘Income from other sources’ under the provisions of the Income Tax Act.
The assessees, while computing taxable salary, made deduction under section 80C of the Income Tax Act, contributions to unrecognized Provident Fund and also made TDS on salaries under section 192 of the Income Tax Act.
The assessing Officer found that the contributions to unrecognized Provident Fund were not eligible for deduction u/s. 80C of the Act. He, therefore, held that interest accrued on employees’ contribution to unrecognized Provident fund is also taxable under the head ‘Income from other sources’.
Accordingly, orders u/s. 201(1) and 201(1A) of the Income Tax Act, making the assesses in default for the above two short deductions and making it liable for interest.
The assessee, based on the decision of the Delhi ITAT, contended that the requirement of section 192 stands complied if the assesseehad made an honest and bonafide estimation of salary income. Hence, the provisions of section 201(1) and 201(1A) of the Income Tax Act cannot have application.
The Department, on the other hand, submitted that the Assistant Commissioner of Provident Fund, Kannur had stated that the contributions made by the assessee to the Provident fund are not established under a scheme framed under the Employees’ Provident Funds Act, 1952.
The bench noticed that the assessee also does not have a case that its PF is established under a scheme framed under the Employees Provident Fund Act, 1952. “That being the case, admittedly, the assessees’ contributions to the Provident Fund are not recognized Provident Fund u/s. 2(38) of the Act and the contributions are not entitled to deduction u/s. 80C (2)(vi) of the Income Tax Act. If the contributions are not eligible for deduction under section 80C of the Income Tax Act, there are resultant short deductions of tax under section 192 of the Income Tax Act. Consequently, the interest accrued on the Provident Fund is also liable to be taxed as ‘Income from other sources’.”
Read the full text of the order below.
