Bank Not 'Assessee In Default' For Not Deducting TDS On Interest After Accepting Form 15H From Senior Citizens: Kerala High Court

Justices A. Muhamed Mustaque and Harisankar V. Menon examined whether the bank (appellant) has to be treated as an assessee in default for failure to deduct TDS on interest income paid to senior citizens who have furnished declarations in Form 15H.

Section 197A(1C) of the Act provided that if the person who is making the deposit and is receiving the interest furnishes a declaration in writing in duplicate “in the prescribed form and verified in the prescribed manner”, to the effect that the tax on his estimated total income of the previous year concerned would be NIL, the person responsible for making the TDS need not affect the same.

In the case at hand, the assessee/appellant (Bank) had a statutory duty to deduct tax at source (TDS) as against the interest paid by it on fixed deposits with reference to the provisions of Section 194A of the Income Tax Act, 1961.

At the same time, a separate treatment was provided for interest being paid on deposits made by persons above the age of 60 years under the provisions of Section 197A(1C) of the Act.

The Form prescribed under Section 197A(1C) of the Act was the one under Form 15H framed under the provisions of Rule 29C of the Income Tax Rules, 1962.

On the basis of Form 15H declarations furnished by the depositors, the bank has not deducted tax at source during the relevant years.

The declarations furnished as above by the depositors were also produced along with the TDS returns filed by the bank. However, proceedings were later initiated proposing to treat the bank as an “assessee in default” for the failure to deduct TDS on the interest income paid as above.

Such proceedings were taken essentially relying on Footnote No.10 to the relevant declaration in Form 15H. Brushing aside the objections raised by the bank, it was treated as an “assessee in default” by separate orders, demanding tax under sub-section (1) and interest under sub-section (1A) of Section 201 of the Act.

The first appeals against the afore-mentioned orders were rejected by the Commissioner of Income Tax (Appeals), on account of which further appeals were instituted before the Income Tax Appellate Tribunal, which were rejected.

According to the revenue, in all these cases, the interest payment having exceeded the basic exemption limit, the assessee Bank ought not to have acted on the declaration, as stipulated in Foot Note No.10.

The bench opined that Foot Note No.10, relied on by the revenue, would require the payer to consider whether the amount credited to the payee exceeds the maximum amount which is not chargeable to tax after considering the deductions in Chapter VIA/set off of loss, etc. This would be a herculean task for the payer, and if Foot Note No.10 is made mandatory, the payer would have to insist on the payee providing his eligible claims under Chapter VIA/set off of loss, etc., so as to avail the benefit under Section 197A(1C) of the Act.

Then the very purpose of providing a different/beneficial treatment for senior citizens would get defeated. This is all the more so when Form 15H does not show any columns requiring the payee to provide the deductions under Chapter VIA/set off, etc., eligible to him, added the bench.

The bench noted that the Form, by virtue of the prescription under Foot Note No.10, amounts to the exercise of excessive delegated powers.

In view of the above, the bench allowed the appeal.

Case Title: The South Indian Bank Limited v. Income Tax Officer

Case Number: ITA NO.64 OF 2024

Citation: 2025 LiveLaw (Ker) 827

Counsel for Appellant/Assessee: Abraham Joseph Markos, V. Abraham Markos, Alexander Joseph Markos, Isaac Thomas, John Vithayathil, Joseph Markos

Counsel for Respondent/Department: P.G. Jayashankar, Navaneeth N. Nath

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