Bank Not “Assessee In Default” For Not Deducting TDS On Interest From Senior Citizens After Accepting Valid Form 15H: Kerala High Court Sets Aside Demands Under Section 197A(1C), Income Tax Act
Isabella Mariam
The High Court of Kerala Division Bench of Justice A. Muhamed Mustaque and Justice Harisankar V. Menon allowed a bank’s appeals and held that it could not be treated as an “assessee in default” for not deducting tax at source on interest paid to senior citizen depositors who had furnished Form 15H declarations under Section 197A(1C) of the Income Tax Act. The Bench examined whether the bank was still required to deduct TDS when the interest credited on fixed deposits exceeded the basic exemption limit, as asserted by the tax department with reference to a note in Form 15H. Holding that non-deduction follows upon receipt of a valid Form 15H in the prescribed form and manner, the Court set aside the consequential tax and interest demands against the bank.
The appeals were filed by a banking institution challenging a common order passed by the Income Tax Appellate Tribunal in relation to multiple assessment years. The dispute arose from proceedings initiated by the income tax authorities alleging failure to deduct tax at source on interest paid on fixed deposits held by senior citizens. The tax authorities relied on the provisions governing tax deduction on interest income and treated the bank as an “assessee in default,” raising demands for tax and interest.
The bank contended that it had not deducted tax based on declarations submitted by senior citizen depositors in the prescribed statutory form, declaring that their estimated total income was not taxable. These declarations were accepted and filed along with statutory returns. The revenue authorities, however, took the view that such declarations should not have been accepted where the interest income exceeded the basic exemption limit. The Tribunal upheld the revenue’s stand, leading to the present appeals before the High Court.
The Court recorded that “the appellant had a statutory duty to deduct tax at source as against the interest paid by it on fixed deposits,” but noted that a distinct statutory mechanism existed for senior citizens. It observed that “a separate treatment was provided for interest being paid on deposits made by persons above the age of 60 years” and that non-deduction was permitted when a valid declaration was furnished.
The Bench stated that “the fact that the appellant has obtained and submitted Form 15H for all the years as regards the disputed payments is not in dispute.” The proceedings against the bank were found to be based solely on a footnote appended to the declaration form. On this, the Court observed that “the exception carved out through sub-section (1B) is only as regards the non-deduction under sub-sections (1) and (1A)” and “it does not extend to the non-deduction under sub-section (1C).”
The Court further recorded that “when the statute has been expressly amended… it is a pointer to the effect that the liability on non-deduction… should have to be prescribed through the statute itself.” Referring to the legislative intent, it noted that the provision was introduced as a welfare measure and that “the prohibition contained in sub-section (1B) will not be applicable in the case of senior citizens.”
The Court recorded that, “insofar as a similar exception has not been carved out with respect to the non-deduction under sub-section (1C), we are of the opinion that the appellant was justified in not deducting tax at source in these cases.”
“Therefore, these appeals would stand allowed, answering the questions of law, in favour of the appellant-assessee and against the respondent-revenue.”
Advocates Representing the Parties
For the Petitioners: Shri Joseph Markos, Senior Advocate; Shri Abraham Joseph Markos; Shri V. Abraham Markos; Shri Alexander Joseph Markos; Shri Isaac Thomas; Shri John Vithayathil
For the Respondents: Shri P. G. Jayashankar, Standing Counsel; Shri Navaneeth N. Nath
Case Title: The South Indian Bank Limited v. Income Tax Officer (TDS)
Neutral Citation: 2025: KER:90885
Case Numbers: I.T.A. Nos. 64–69 of 2024
Bench: Justice A. Muhamed Mustaque, Justice Harisankar V. Menon
