COMMISSIONER OF INCOME TAX (TDS), vs. NIRMA LIMITED

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TAXAP/581/2017HC GujaratGJHC24057019201725 April 2018Author: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA4 pages
AI SummaryRemanded

What did the High Court hold?

The High Court found that several aspects required consideration. While agreeing that the Supreme Court's decision in Hindustan Coca Cola Beverages Private Limited would likely apply, the Court noted that the Tribunal had not fully examined all relevant issues. Consequently, the impugned judgment of the Tribunal was set aside, and the proceedings were remanded back to the Tribunal for fresh consideration. The Tribunal was directed to examine three additional issues: (A) whether HDFC Bank had deposited the entire tax arising from the payment as advance tax, making the ratio in CIT v. Rishikesh Apartments Co-operative Housing Society Limited applicable; (B) if not, whether the assessee should pay interest on delayed deposit of tax by the payee, as clarified in Hindustan Coca Cola Beverages Private Limited; and (C) if the answers to (A) and (B) were against the assessee, the Tribunal should then examine the assessee's legal contention that the nature of the payment did not attract TDS liability. The Court did not decide these issues on merits.

What were the facts?

The assessee, Nirma Limited, paid approximately Rs. 26.40 Crores to HDFC Bank Limited for the assessment year 2007-2008, which the Assessing Officer (AO) characterized as interest on Deep Discount Bonds. The AO believed the assessee failed to deduct tax at source (TDS) on this payment and disallowed it. The assessee contended the payment was a repurchase price, not interest, thus not subject to TDS. The Commissioner allowed the assessee's appeal. The Revenue appealed to the Income Tax Appellate Tribunal (ITAT), which upheld the Commissioner's decision, relying on the Supreme Court's ruling in Hindustan Coca Cola Beverages Private Limited v. CIT. The Revenue's primary grievance before the High Court was that the ITAT overlooked the aspect of recovering interest on delayed payment by HDFC Bank.

What were the issues?

1. Whether the Appellate Tribunal has erred in law and in facts in deleting the interest levied under Section 201(1A) of the Income-tax Act, 1961? (Question of law and fact) Assessee's Contentions: - The payment was not in the nature of interest, and therefore, TDS provisions did not apply. - Even if TDS requirements were not fulfilled, no interest under Section 201(1A) could be levied if the payee (HDFC Bank) had deposited the tax by way of advance tax, citing Commissioner of Income Tax v. Rishikesh Apartments Co-operative Housing Society Limited. - The fundamental contention that the nature of payment did not necessitate TDS deduction was not examined by the Tribunal. Revenue's Contentions: - The Tribunal erred in deleting the interest levied under Section 201(1A). - The Tribunal did not provide for the recovery of interest on delayed payment by HDFC Bank, as clarified by the Supreme Court in Hindustan Coca Cola Beverages Private Limited v. CIT.

Which sections of the Income-tax Act were involved?

Section 201(1A)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
C/TAXAP/581/2017 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL No. 581 of 2017 ============================================================= COMMISSIONER OF INCOME TAX (TDS), Versus NIRMA LIMITED ============================================================= Appearance : Mr M.R BHATT Sr Advocate with Mrs MAUNA M BHATT, Advocate for the PETITIONER Mr SN SOPARKAR, Sr Advocate with Mrs SWATI SOPARKAR, Advocate for the RESPONDENT ============================================================= CORAM: HONOURABLE Mr. JUSTICE AKIL KURESHI and HONOURABLE Mr. JUSTICE B.N. KARIA 25th April 2018 ORAL ORDER (PER : HONOURABLE Mr. JUSTICE AKIL KURESHI) We had issued notice for final disposal on the following question of law presented by the Revenue : “Whether the Appellate Tribunal has erred in law and in facts in deleting the interest levied under Section 201 [1A] of the Act ?” The respondent-assessee is a company registered under the Companies Act, 1956. For the assessment year 2007-2008, the assessee had paid interest of Rs. 26.40 Crores [rounded off] on Deep Discount Bonds to HDFC Bank Limited. Assessing Officer was of the opinion that the assessee had not deducted tax at source while making such payment, and therefore, disallowed such Page 1 of 4

expenditure. In the process, he did not accept assessee’s contention that this payment was not in the nature of interest but it was the payment of repurchase price to which provisions for deducting TDS would not apply.

Assessee carried the matter in appeal before the Commissioner. The Commissioner allowed assessee’s appeal, upon which Revenue approached the Tribunal. Before the Tribunal, the assessee in addition to maintaining its stand that no requirement of TDS is attached, also relied upon judgment of Supreme Court in the case of Hindustan Coca Cola Beverages Private Limited v.

Commissioner of Income-tax, reported in [2007] 293 ITR 2w26 [SC] and dismissed the Revenue’s appeal.

The revenue’s principal grievance in this appeal against the said judgment of the Tribunal is that the Tribunal did not provide for recovery of interest on delayed payment by HDFC; if any, as is provided by the Supreme Court in the said judgment in case of Hindustan Coca Cola Beverages Private Limited [Supra]. On this limited ground, notice for final disposal was ordered.

While agreeing to the counsel for Revenue’s suggestion that this element was lost sight of by the Tribunal, Shri Soparkar, learned counsel for the assessee contended that this Court in the case of Commissioner of Income Tax v. Rishikesh C/TAXAP/581/2017 ORDER Apartments Co-operative Housing Society Limited, reported in [2002] 253 ITR 310 has held that when the payee has deposited the tax by way of advance tax, no interest under Section 201 [1A] of the Income-tax Act, 1961 could be levied from the buyer; even if TDS requirements have not been fulfilled by him. According to him, this issue would also require examination. Counsel further submitted that in any case, the assessee’s fundamental contention that requirement of deducting tax at source did not arise at all has not been examined by the Tribunal, in view of the Tribunal’s application of the ratio laid down by the Supreme Court in the case of Hindustan Coca Cola Beverages Private Limited [Supra].

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 :- [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 C/TAXAP/581/2017 ORDER 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. [Akil Kureshi, J.] [B.N Karia, J.] Prakash

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