The Kerala High Court (Ernakulam Bench) ruled that the South Indian Bank (appellant) is justified in not deducting tax at source in cases where senior citizens had furnished a valid Form 15H declaration, irrespective of whether the interest amount exceeded the basic exemption limit.
The Court clarified that for the depositors aged 60 years and above (senior citizens), a special provision under Section 197A(1C) of the Income Tax Act allows for non-deduction of tax if the depositor furnishes a declaration in the prescribed Form 15H, stating that the tax on their estimated total income for the relevant previous year would be NIL.
The Division Bench comprising Justice A. Muhamed Mustaque and Justice Harisankar V. Menon analysed the structure of Section 197A and noted that while sub-section (1A) provides for non-deduction upon furnishing a declaration, sub-section (1B) carves out an exception. Sub-section (1B) explicitly states that the provisions for non-deduction shall not apply if the aggregate income paid exceeds the maximum amount not chargeable to income tax.
Crucially, the Bench observed that the exception carved out by sub-section (1B) is expressly limited to the non-deduction provisions under sub-sections (1) and (1A) of Section 197A, and it does not extend to the special provision for senior citizens under sub-section (1C). The Bench opined that since the legislature did not include sub-section (1C) within the ambit of the restriction in sub-section (1B), the appellant was justified in not deducting tax at source based on the Form 15H declarations provided by senior citizens.
As far as legislative intent and welfare measures are concerned, the Bench referred to the memorandum explaining the provisions of the Finance Act, 2003, which introduced Section 197A(1C). The memorandum clarified that this provision was a “welfare measure” for senior citizens and explicitly stated that the prohibition contained in sub-section (1B) will not be applicable in the case of senior citizens.
The Bench also addressed the AO’s reliance on Footnote No. 10 of Form 15H, and observed that compliance with this footnote would require the payer (the bank) to verify not just the interest income but also the payee’s eligible deductions under Chapter VI-A and any set-off of losses. The Bench deemed this a “herculean task” for the payer, which would defeat the very purpose of the beneficial treatment intended for senior citizens, especially since Form 15H does not have columns for such detailed financial information.
Briefly, the core issue revolves around the appellant’s statutory duty to deduct tax at source (TDS) on interest paid on fixed deposits under Section 194A of the Income Tax Act. As the appellant did not deduct tax at source for senior citizen depositors who provided Form 15H declarations, the AO initiated proceedings to treat the appellant as an ‘assessee in default’. The AO’s action was fortified by footnote No. 10 of Form 15H, which stipulated that the person responsible for payment should not accept the declaration if the interest income exceeds the maximum amount not chargeable to tax.
The appellant was subsequently held to be an ‘assessee in default’, and demands for tax and interest were raised under Section 201(1) and 201(1A) of the Income Tax Act. The CIT(A) as well as the ITAT upheld these demands raised by the AO.
Appearances:
Advocates Abraham Joseph Markos, V. Abraham Markos, Alexander Joseph Markos, Isaac Thomas, and John Vithayathil, for the Appellant/ Taxpayer
Advocates P.G. Jayashankar and Navaneeth N. Nath, for the Respondent/ Revenue
