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Income Tax Appellate Tribunal, ‘A’ BENCH, AHMEDABAD
Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED
आयकर अपील�य अ�धकरण, अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, AHMEDABAD (THROUGH VIRTUAL COURT) BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER And SHRI WASEEM AHMED, ACCOUNTANT MEMBER Sl. ITA No(s) Asset. Appeal(s) by No(s) Year(s) Appellant vs. Respondent Appellant Respondent 1. 2216/Ahd/2013 2007-08 DCIT Nirma Limited TDS Circle, Nirma House, Ashram Ahmedabad Road, Ahmedabad-380009 PAN No. AAACN5350K Revenue by : Shri Dileep Kumar, Sr. DR. Assessee by : Shri S. N. Soparkar, Sr. Adv. with Shri Himanshu Shah, AR सुनवाई क� तार�ख/Date of Hearing : 27.11.2020 घोषणा क� तार�ख /Date of Pronouncement : 04.01.2021 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The appeal has been filed by the Revenue for A.Y. 2007-08 which is arising from the order of the CIT(A)-XXI, Ahmedabad dated 13.06.2013, in the proceedings under Section 201(1)/201(1A) of the Income Tax Act, 1961 for A.Y. 2007-08 (in short “the Act”).
At the outset, we note that impugned appeal has been remanded back by the Hon’ble Gujarat High Court in R/Tax Appeal No. 581 of 2017 vide order dated 25th April 2018 for deciding the following issues afresh: “In our view, all these aspects require consideration. While not disturbing the Tribunal’s opinion that the decision of the Supreme Court in case of Hindustan Coca Cola Beverages Private Limited [Supra] would apply, the following additional issues that the Tribunal may examine upon remand, which we propose to provide, are as under:
2 ITA No. 2216/Ahd/2013 AY: 2007-08 [A] Whether the HDFC Bank as a payee has deposited entire tax arising out of such payment in advance, and therefore, the ratio laid down in a decision of this Court in case Commissioner of Income-Tax v. Rishikesh Apartments Coop. Housing Society Limited [Supra] would apply. [B] In absence of any such advance payment, should the assessee not pay interest on delayed deposit of tax by the payee, as clarified by the Supreme Court in the case of Hindustan Coca Cola Beverages Private Limited [Supra]. [C] If need be, in other words, if the answer to these questions is against the assessee, the Tribunal would be required to examine the assessee’s legal contention that in any case, looking to the nature of payments in question, liability of the assessee to deduct tax at source did not arise at all. For considering the above issues, the impugned judgment of the Tribunal is set-aside. Proceedings are remanded back to the Tribunal for fresh consideration in accordance with law. Tax Appeal stands disposed of accordingly.”
The relevant facts required for disposing of the present appeal are as follows. The AO treated the assessee as assessee in default under section 201(1) of the Act on account of non-deduction of TDS under Section 193 of the Act on the interest expenses incurred on deep discount bonds. Thus the AO raised the demand for the TDS and interest under section 201(1) and 201(1A) of the Act amounting to Rs. 12,23,687/- and 96,71,464/- respectively. However, on appeal the Learned CIT(A) deleted the demand raised by the AO on account of non-deduction of TDS and interest thereon under the provisions of section 201(1)/(201)(1A) of the Act by observing that the provisions of TDS under Section 193 of the Act with respect to deep discount bonds do not apply. As such, the same are subject to TDS under the provisions of Section 194A of the Act.
3.1 The learned CIT (A) also found that the assessee has not made any provision for the year under consideration for the interest on the deep discount bonds. Accordingly, the CIT (A) held that there is no question of deducting TDS in the
3 ITA No. 2216/Ahd/2013 AY: 2007-08 situation wherein the assessee has not claimed any expenditure on such deep discount bonds.
3.2 The Revenue carried the matter to the Tribunal which was pleased to delete the demand raised by the AO in ITA No. 2216/AHD/2013 for the year under consideration vide order dated 6th December 2016 on a different reasoning altogether. It was held by the Tribunal that once the payee i.e. HDFC Bank has paid taxes on the income received from the assessee with respect to the deep discount bonds in question, the issue of raising the demand of TDS in the hands of the assessee does not arise under Section 201(1) of the Act in view of the judgment of Hon’ble Supreme Court in the case of Hindustan Coca-Cola Beverage Private Ltd. reported in 293 ITR 226.
3.3 However, the Revenue carried the matter to the Hon’ble Gujarat High Court in tax appeal No. 581 of 2017 on the following question of law: “Whether the appellate Tribunal has erred in law and on facts in deleting the interest levied under Section 201(1A) of the Act” 3.4 The above question of law was admitted by the Hon’ble Gujarat High Court and the matter was remanded back to the Tribunal for fresh adjudication with the directions vide order dated 25th April 2018. The direction of the Hon’ble Court have already been elaborated in the preceding paragraph. Now in the backdrop of the above stated discussion, we proceed to adjudicate the issue involved in the appeal.
The learned DR before us has filed the written submission which are reproduced as under: The above matter was heard on 19.09.2019 by your Honour's. The matter was argued in detail by the Id. counsel of the assessee and the undersigned.
4 ITA No. 2216/Ahd/2013 AY: 2007-08 2. The facts of the case are that the assessee company repurchased deep discount bonds from HDFC Bank Ltd. On these deep discount bonds the company paid interest of Rs. 15,71,90,4287- during the financial year 2006-07 on which no tax was deducted at source u/s.193. The Assessing Officer issued notice to the assessee company. In response the assessee company claimed that HDFC bank Ltd falls within the ambit of provisions of section 194A (3(ii)) of the i.T. Act and hence no tax was required to be deducted. The A.O. issued another notice dated 06.11.2012. According to the A.O., the interest paid on deep discount bonds was covered by section 193 of I.T. Act and hence the assessee was under obligation to deduct tax at source on the interest payment. Accordingly, after considering the reply of the assessee the A.O. passed order u/s 201(1) and 201(1 A) of the I.T. Act raising demand of Rs. 12,23,6877- and Rs. 96,71,4647- respectively. The total demand of Rs. 1,08,95,151 has been raised. The assessee filed appeal before the Ld. CIT(A)-XI, Ahmedabad. The Ld. CIT(A) vide his order dated 13.06.2013 decided to appeal in favour of the assessee and deleted the demand raised by the AO. The decision of the Ld CIT(A) is primarily based on the following grounds : a. As per the CBDT Circular para 8, redemption price- is the price which is actually paid at the time of maturity. From the reading of para 8 of circular number 2, it is clear that redemption is reacquiring of DDBs at the time of maturity indicated on the bonds itself and cannot be equated with repurchase. The CIT(A) agreed with the contention of the assessee that section 2(28B) clearly defined interest on securities which is covered for IDS u/s 193A. The definition of interest on security makes it very clear the types of instruments which would attract section 193A. The CIT(A) also agreed with the appellant that the bonds and debentures are two different and distinguished financial instruments and return other securities is used for the term securities similar to the benches. b. The CIT(A) held that redemption and repurchase are different. The CIT(A) also held that interest payment made to HDFC bank on repurchase of DDBs comes within purview of section 194A and not section 193 of the I.T. Act and accordingly deleted the demand raised. 3. Thereafter, the Department filed appeal before the Hon'bte ITAT. The Departmental appeal was dismissed by order dated 06.12.2016. The Department however filed appeal before the Hon'ble Gujarat High Court. The Hon'ble Gujarat High Court by their order dated 25.04.2018 remanded the matter back to the Hon'ble Tribunal with specific directions-to examine three issues. 4. The hearing took place on 19.09.2019. During the course of hearing, the Ld. AR raised a fresh issue stating that the assessee company has neither made provision nor paid any amount to the HDFC Bank during the year under consideration, hence, there is no issue of non deduction of interest u/s 201(1) and 201 (A). Since the new issue was raised for the first time by the assessee, the department sought adjournment to examine the issue and submit proper reply. The Hon'ble Bench was kind enough to adjourn the matter to 08.11.2019. DEPARTMENT'S STAND 1) The assessee repurchased 391 DDBs from HDFC bank and 9 DDBs form sister concern Nirma Chemical Works Pvt Ltd. Admittedly, no TDS has been deducted on interest payment to both the company. 2) The DDBs were covered by section 193 of the IT Act.
5 ITA No. 2216/Ahd/2013 AY: 2007-08 3) The Assessee before the AO as well as before the CIT(A) claimed that the interest on securities is covered for TDS u/s 193A. The CIT(A) in para 8 of the judgment agreed with the contention of the assessee while allowing the appeal However,'the fact is that there is no provision of section 193A in the IT Act. 4) The CIT(A) has accepted the argument of the assessee's that redemption and repurchase are different and hence payment of interest on repurchase of DDBs comes within the purview of section 194A. The contention of the assessee as well as decision of CIT(A) is factually and legally incorrect. HDFC bank is exempt from IDS in respect of loans and advances given by the company under normal course of banking business. The interest earned on investment in deep discount bonds does not come within the ambit of loans or advance. The character of DDBs does not convert to loans on repurchase. 5) As per Securities Contract (Regulation Act 1956) bond is a security and TDS from interest on security is required to be deducted u/s 193. 6) The assessee's claim that section 193 is applicable to Government securities is incorrect. Clause (ii) of section 2(28) itself states that "Debenture or other securities". 7) The decision of Hon'ble Gujarat High Court in the case of Rishikesh Apartment has lost its relevance after the decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages Ltd wherein the Hon'ble Supreme Court held that revenue is permitted to levy interest under provision of section 201(1 A) and can also levy penalty, u/s 271C of the IT Act. 8) The Assessee has failed to prove that the interest received by the HDFC bank has been included in total taxable income of the bank and taxes due there on has been paid to the Government's account. 9) With regard to new issue raised by the AR of the assessee during the course of hearing it is submitted that the assessee itself submitted copy of interest account of HDFC bank limited in their paper book page number (39 & 74-76) which shows that the HDFC bank received interest on DDBs from the assessee company. As such, the contention of the assessee proves wrong and misleading. It is pertinent to mention that both Assessee Company and HDFC Bank Ltd are listed companies following mercantile system of accounting. Therefore, it is impossible that one company receives the income without being paid by another. In view of the above, it is contended that the assessee was liable to deduct tax at source from interest paid on repurchase of DDBs from HDFC bank Ltd. u/s 193 of the IT Act. The AO has correctly charged interest u/s.201(1) and 201(1A) of the IT Act by passing order dated 13.06.2013.
On the other hand, the learned AR before us filed a paper book running from pages 1 to 122 and contended that the assessee in the year under consideration has not claimed any interest expenses on such deep discount bonds. Therefore the question of deducting the TDS does not arise. Hence the assessee cannot be treated
6 ITA No. 2216/Ahd/2013 AY: 2007-08 as assessee default on account of non-deduction of TDS under the provisions of section 201(1) of the Act.
Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. The Hon’ble Gujarat High Court has restored the appeal for fresh adjudication with the direction which has already been elaborated somewhere in the preceding paragraph in this order. One of the direction of the Hon’ble Gujarat High Court, bearing number © and last in seriatim was to examine whether the assessee was liable to deduct TDS on the deep discount bonds. From the preceding discussion the first controversy that arises for our adjudication whether the assessee is liable to deduct TDS when it has not incurred any interest expenses on the deep discount bonds. The provisions of “Chapter XVII, B- Deduction at source” provides that person who is responsible for paying any income to a resident by way of interest, shall, at the time of credit of such income to the account of the payee or at the time of payment whichever is earlier, deduct tax at the rate prescribed under the law. In other words, the question of income in the hands of the payee arises when the assessee is incurring the expense and claiming the deduction. Thus, if the assessee is not incurring any expense, the question of income in the hands of the payee does not arise. Accordingly, the provisions for deducting the TDS as provided under “Chapter XVII, B- Deduction at source” of the Act will not be attracted. Hence, if the contention of the learned AR is believed to be true then the question of TDS does not arise. However, on perusal of reply furnished by the HDFC bank dated 28th November 2012 along with annexure A, we note that the payee, the HDFC Bank, has shown income in its
7 ITA No. 2216/Ahd/2013 AY: 2007-08 hands received from the assessee. This fact can verified from the letter issued by the HDFC Bank which is placed on pages 74 to 76 of the paper book.
7.1 Thus we find that the contention of the assessee is not in consistent to the reply furnished by the HDFC bank as discussed above. On a question to the ld. AR for the assessee at the time of hearing about such in-consistency, the ld. AR reiterated that the assessee has not claimed any interest expenses on such deep discount bonds and in support of his contention drew our on the finding of the ld. CIT-A which has not been challenged by the Revenue.
7.2 The ld. AR has also filed the breakup of interest expenses in support of his contention that the assessee has not claimed any interest expense which is detailed below: Nirma Limited Asst. Year 2007-08 Schedule 18 of profit and loss account Acct. Year 2006-07 Details of Interest expense Particulars Amount Interest on Non Convertible debentures 4,24,43,590 Interest on Inter Corporate Deposit 1,62,01,399 Other Interest 5,87,14,223 Bank Interest 3,05,52,706 Interest on packing credit in foreign currency 6,63,981 Bank Commission 2,90,45,432 Foreign bank Charges 48,546 Bank L.C. Charges 30,814 Total 17,77,00,690 7.3 At the time of hearing, the DR has also not controverted the arguments of the ld. AR for the assessee. Accordingly we hold that there is no question for deducting the TDS on the interest expenses on the deep discount bond as alleged
8 ITA No. 2216/Ahd/2013 AY: 2007-08 by the AO for the simple reason that the assessee has not claimed any interest expense. Hence the ground of appeal of the Revenue is dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the Court on 04 /01/2021 at Ahmedabad.
Sd/- Sd/- (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER ( (True Copy) Ahmedabad; Dated 04/01/2021 manish