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Income Tax Appellate Tribunal, KOLKATA BENCH ‘B’, KOLKATA
Before: SHRI P.M. JAGTAP, VICE-(KZ) & SHRI S.S. GODARA, JM]
order : January 17th , 2020 ORDER PER P.M. JAGTAP, VICE-PRESIDENT (KZ) This appeal is preferred by the Revenue against the order of Ld. CIT (A) – 23, Kolkata dated 29.01.2019 and the same is being disposed of along with the cross-objection filed by the assessee being C.O. No. 19/Kol/2019.
In the present appeal filed by the Revenue, the following grounds are raised:
C.O. No. 19/Kol/2019 Assessment Year 2012-13 M/s. UCO Bank “1. The Ld. CIT(A)- 23 has erred in law and facts by not appropriating any rational, logical or actual basis of difference between the taxable interest income and exempted income before allotment of interest Free Bond and after allotment of Interest Free Bond.
2. The Ld, CIT(A)- 23 has erred in law and facts in placing reliance on the judgement of the Hon'ble Delhi High Court in the case of Commissioner of Income Tax vs Bharat Heavy Electricals Limited where time lag due to unreasonably long period of time for the interest earned on the amount of money before allotment of Interest Free Bond is misapprehensive.
In the prospectus of NHAI, it is clearly mentioned that the Interest in application money on the amount allotted, subject to deduction of income tax under the provisions of the Income Tax Act, 1961, as amended as applicable, to any applicants to whom Bonds are allotted pursuant to the issue from the date of realization of the chequre(s)/demand draft(s) or 3 (three) days from the date of receipt of the application (being the date of submission of each application as duly acknowledged by the Bankers to the issue) whichever is later upto one day prior to the Deemed Date of AIIotment, @ 8.20% per annum and 8.30% per annum for Tranche 1 and Series 1 and Tranche 1 and Series 2 Bonds respectively interest. Thus, the entity issuing the tax-free Bonds themselves have stated that the interest paid for the period to issue of Bonds are taxable and subjected to TDS. Hence, it is clearly taxable. Copy of the printout of prospectus is attached. The prospectus of HUDCO and IRFC is too voluminous and hence not attached. The scheme as set out by the Government of India is the same for all the three tax-free Bonds.
4. The Ld. CIT(A)- 23 has erred in law and facts by considering that interest received on deposit prior to issuance of exempted bond is exempted as both the interest received are under different rates and scheme (s).
The Ld. CIT(A)-23 has erred in law and facts in placing reliance on the judgement of Hon’ble Calcutta High Court in the case of DCIT vs S.K. Tekriwal (ITA No. 183 of 2012) in justifying the fact that if there is any shortfall, due to the difference in opinion regarding the rate of taxability of any item of expense the assessee can be penalized u/s 201 of the Act however no disallowance for short deduction can be made u/s 40(a)(ia).
The Ld. CIT(A)-23 has erred in law and facts by deleting an addition of Rs. 17,93,654/- made u/s 40(a0(ia) since the assessee has not filed any C.O. No. 19/Kol/2019 Assessment Year 2012-13 M/s. UCO Bank evidence regarding lower rate of deduction either to the AO or CIT(A) and Ld. CIT(A) accepting it to be short deduction without examining the necessary evidence and without giving any specific opportunity to the Assessing Officer for the same.”
3. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the common issue involved in ground no. 1 to 4 of the Revenue’s appeal relating to the deletion by the Ld. CIT(A) of the disallowance made by the AO on account of assessee’s claim for exemption of interest income u/s 10(15) of the Act has been decided by the Ld. CIT(A) vide his impugned order as under: “The appeal of the appellant has objected to the AO's action of denying the exemption u/s 10(15) in respect of interest paid on applications monies paid by the appellant for subscription towards tax free bonds amounting to Rs.3,86,15,972/-. In the impugned order the AO observed that as per Section 10(15)(iv)(h) interest payable by any public sector company in respect of bonds or debentures as the Central Government may specify is exempt. Accordingly the AO was of the opinion that the aforesaid interest of Rs.3,86,15,972/- was paid on the application monies prior to bonds were actually allotted. In AO's opinion the benefit of exemption was available only in respect of interest paid on bonds and its benefit could not be extended where the interest was paid on application monies. The AO accordingly withdrew the exemption granted to the appellant in the order u/s 143(3) of the Act. In the present case the appellant bank had subscribed to tax free bonds issued by public sector undertakings such as HUDCO, IRFC, NHAI etc. There is an interim period between the time the application monies were paid and actual allotment of bonds by the respective PSUs. The said PSUs paid interest at the same rate at which the interest was to be paid on bonds on the subscription amounts received from the dates of receipt till the date of allotment. The details thereof are as follows: Name of Bond Date of Application Date of Allotment Time Gap Interest 7.62% HUDCO 28.10.2011 07.11.2011 14 days 2,92,274 7.77% IRFC 22.10.2011 07.11.2011 14 days 9,04,726 7.55% IRFC 22.10.2011 07.11.2011 14 days 8,79,110 8.20% IRFC 30.12.2011 01.02.2012 33 days 1,45,36,026
C.O. No. 19/Kol/2019 Assessment Year 2012-13 M/s. UCO Bank 8.00% IRFC 27.01.2012 23.02.2012 27 days 95,80,388 8.20% NHAI 28.12.2011 28.01.2012 30 days 1,24,23,448 3,86,15,972 The Ld. AR of the appellant relying on the judgement of the Hon’ble Delhi High Court in the case of CIT vs Bharat Heavy Electricals Ltd. (352 ITR 88) claimed that the interest received from the PSUs during the interim period on application monies was also eligible for exemption u/s 10(15) of the Act. On perusal of the said judgment i find that the following observations of the Hon'ble High Court are relevant to the facts of the present case.
"8, Question No. 2 - Whether the interest earned on tax free bonds between the date of their application by the assessee and the date of their allotment could be given the benefit claimed? This question arises for consideration only for the assessment year 1988- 89. The assessee had earned Rs. 25 lacs which was credited to its interest account. The facts are that the assessee had applied for and was allotted tax free bonds during the relevant period. The interest sought to be taxed was for the period between the date of submission of application along with the money to the issuing agency i.e. the Railways and actual allotment. In the opinion of the AO and the Appellate Commissioner (who affirmed the former's decision), the character of the income i.e. interest for that period i.e. between the date of application and the date of allotment of bonds was different and it could not claim the benefit of exemption.
In support of the appeal, it was argued that the Tribunal fell into error in holding that interest for the brief period when the bonds were not allotted, could not be taxed, It was submitted that in terms of the bonds applied for, interest was payable from the date of allotment. Interest income was exempted from the date of allotment till the date of maturity even though the concerned agency might have paid interest for the period before the allotment, that interest income could not claim the benefit of exemption.
The Tribunal by its impugned order reasoned while accepting the assessee's appeal as follows: - "50. We have considered the rival submissions. It is noticed that the benefit of deduction u/s 10(15)(iv)(h) is available to the various specified/notified bonds/debentures, Further, the reading of the C.O. No. 19/Kol/2019 Assessment Year 2012-13 M/s. UCO Bank Explanation 2 to the said section also shows that the expression interest has been widened so that the benefit of exemption from withholding of tax is also extended to hedging transaction charges on account of currency fluctuation. This clearly shows that the interest on the bonds whether embedded in bonds subsequent to its purchase is also exempt. This being so, we are of the view that the disallowance as made by the AO and as confirmed by the CIT(A) on this ground is not on right footing and is liable to be reversed and we do so. In the circumstances, the AO is directed to grant the assessee the benefit of the deduction of the interest of Rs.25 lakh which has fallen due in connection with the transaction of the purchase of the tax free bonds. In the circumstances, this issue is held in favour of the assessee and stands allowed,"
Section 70 lists out all kinds of amounts and income which are not taxable. Section 10(15)(iv) to the extent it is relevant reads as follows: “(I) Interest payable – (h) by any public sector company in respect of such bonds or debentures and subject to such conditions including the condition that the "holder of such bonds or debentures register its name and the holding with that company as the Central Government may by Notification in the Official Gazette specified in this behalf".
12, A juxtaposition of the terms "interest payable on monies" [apparent from Section 10(15)(iv)(a), (b), (c), (e) and (f)1, on one hand, with the term "interest payable by a public sector company in respect of such bonds", on the other, would reveal a different intention in dealing with the kind of deposit envisioned in Section 10(15)(1)(iv)(h), Interest payable on "bonds or deposits" [referred to Section 10(15)(1)(iv)(fa)] would mean interest earned by such amount or deposit. On the other hand, interest paid in respect of such bonds, as is the case with tax free interest bonds under sub-section 15(1)(iv)(h), connotes an entirely different intention. The expression "in respect of," unlike the term "on," has a wider connotation and would embrace a larger subject matter. On the other hand, "interest on the bond or deposit" would mean what is actually yielded by the bonds and nothing else. The Tribunal noticed - and in our opinion - correctly - that interest would include hedging transaction charges payable on account of currency fluctuation. Such being the amplitude of the provision, the fact that interest was paid for a brief period of about six days in the present case would not make it any less an amount of interest payable "in respect of the bonds" in question, If, in fact, the assessee had sought to claim the benefit of tax exemption for a larger period and there were some material on record to show that the amount
C.O. No. 19/Kol/2019 Assessment Year 2012-13 M/s. UCO Bank deposited towards the bond and kept for that purpose was for an unreasonably long period of time, the conclusion by the AO might have been justified. In this case, the time lag is extremely small less than a week.
Having regard to these circumstances and the intendment of the statute which was to generally exempt such kind of income, this Court is satisfied that the Tribunal's order on this aspect does not call for any interference."
From the foregoing observations of the Hon'ble High Court, I find that the Court has held that benefit of exemption u/s 10(15) was to be extended in respect of interest payable by PSUs "in respect of" bonds and the benefit was jot restricted only to the interest paid "on" the bonds, In other words, in the opinion of the Hon'ble High Court the expression "in respect of" was of wider import which inter alia included interest paid on application monies pending allotment of bonds by the PSUs. I also note that in the present case the time gap between the date of application and date of allotment was a brief period of 14-33 days, which cannot be construed to be “unreasonably long” as alleged by the AO. I find that the similar issue was considered by the Hon’ble ITAT, Mumbai in the case of Dy. CIT vs Tata Chemicals Ltd. (ITA No. 4464/Mum/2003) wherein the Hon’ble Tribunal following the judgment of Delhi High Court in the case of CIT vs Bharat Heavy Electricals Ltd. (supra) held that the interest paid for brief period between date of application and allotment of tax free bonds is eligible for exemption u/s 10(15) of the Act. In view of the above judgments, I find that in the facts of the present case the time gap between the date of application and allotment of tax free bonds varied from 14-33 days which cannot be said to be “unreasonably long” and therefore the ratio laid down in the decisions of the Hon’ble Delhi High Court (supra) and ITAT, Mumbai (supra) are squarely applicable. The Ld. AO is therefore directed to delete the addition of Rs. 3,86,15,972/- and grant the exemption claimed u/s 10(15) of the Act”
As is evident from the relevant portion of the impugned order of the Ld. CIT(A) reproduced above, this issue is squarely covered in favour of the assessee by the decision of Hon’ble Delhi High Court in the case of Bharat Heavy Electricals Ltd. (supra) as well as by the Mumbai Bench of this Tribunal in the case of DCIT vs Tata Chemicals
C.O. No. 19/Kol/2019 Assessment Year 2012-13 M/s. UCO Bank Ltd. (supra) and even the ld. DR has not be able to dispute this position. We, therefore, respectfully follow the said judicial pronouncements and uphold the impugned order of the Ld. CIT(A) deleting the disallowance made by the AO on account of assessee’s claim for exemption of interest u/s 10(15) of the Act. Ground No. 1 to 4 of the Revenue’s appeal are accordingly dismissed.
5. As regards the common issue involved in Ground No. 5 and 6 relating to the deletion by the Ld. CIT(A) of the disallowance of Rs. 17,93,654/- made by the AO u/s 40(a)(ia), it is observed that this issue has been decided by the Ld. CIT(A) in his impugned order as under: The appellant has objected to the disallowance of Rs.17,93,654/- made by the AO u/s 40(a)(ia) in respect of expenditure on which taxes were short deducted. From the submissions of the Ld. AR, I find that this issue was adjudicated in their own case for AY 2013-14 in Appeal No. 02/CIT(A)- 23/16-17 dated 12.12.2017. In Para - "V", the following findings were recorded by the Ld. CIT(Appeals)-23, Kolkata: “l have carefully gone through the submissions of the A/R of the appellant and the findings of the AO in the assessment order. The limited issue to be decided in this ground is whether the expenses on which taxes are short deducted can be disallowed under Section 40(a)(ia) or not. In order to answer this question, it would therefore be relevant to re-produce the extant provisions of Section a)(a)(ia) which is as follows: "any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139" From the language of the above Section, it appears that the said provision seeks to disallow the following two types of expenses, (a) expenses on which no taxes are deducted, (b) expenses on which taxes were deducted but not paid before the return filing due date. The A/R of the appellant
C.O. No. 19/Kol/2019 Assessment Year 2012-13 M/s. UCO Bank has placed reliance on the judgment of the Hon'ble Calcutta High Court in the case of DCIT Vs S,K. Tekriwal (ITA No, 183 of 2012) wherein the High Court interpreting the import of section 40(a)(ia) has held as under:
"In the present case before us the assessee has deducted tax u/s. 194C(2) of the Act being payments made to sub-contractors and it is not a case of non-deduction of tax or no deduction of tax as is the import of section 40(a)(ia) of the Act. But the revenue's contention is that the payments are in the nature of machinery hire charges falling under the head ‘rent' and the previous provisions of section 1941 of the Act are applicable. According to revenue, the assessee has deducted tax @ 1% u/s, 194C(2) of the Act as against the actual deduction to be made at 10% u/s. 194I of the Act, thereby lesser deduction of tax. The revenue has made out a case of lesser deduction of tax and that also under different head and accordingly disallowed the payments proportionately by invoking the provisions of section 40(a)(ia) of the Act. The Ld, CIT, DR also argued that there is no word like failure used in section 40(a)(ia) of the Act and it referred to only non-deduction of tax and disallowance of such payments. According to him, it does not refer to genuineness of the payment or otherwise but addition u/s.40(a)(ia) can be made even though payments are genuine but tax is not deducted as required u/s.40(a)(ia) of the Act, We are of the view that the conditions laid down u/s.40(a)(ia) of the Act for making addition is that tax is deductible at source and such tax has not been deducted, If both the conditions are' satisfied then such payment can be disallowed u/s. 40(a)(ia) of the Act but where tax /s deducted by the assessee, even under bonafide wrong impression, under wrong provisions of TDS, the provisions of section 40(a)(ia) of the Act cannot be invoked. Here in the present case before us, the assessee has deducted tax u/s, 194C(2) of the Act and not u/s. 1941 of the Act and there is no allegation that this TDS is not deposited with the Government account. We are of the view that the provisions of section 40(a)(ia) of the Act has two limbs one is where, inter alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into Government Account. There is nothing in the said section to treat, inter alia, the assessee as defaulter where there is a shortfall in deduction. With regard to the shortfall, it cannot be assumed that there is a default as the deduction is not as required by or under the Act, but the facts is that this expression, 'on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in sub-section (1) of section 139'. This section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to government account. If there is any shortfall due to any difference of C.O. No. 19/Kol/2019 Assessment Year 2012-13 M/s. UCO Bank opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s, 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act, Accordingly, we confirm the order of CIT (A) allowing the claim of assessee and this issue of revenue's appeal is dismissed," We find no substantial question of law is involved in this case and therefore, we refuse to admit the appeal. Accordingly, the appeal is dismissed." In the above decision the Hon'ble High Court has held that if there is any shortfall, due to the difference in opinion regarding the rate of taxability of any item of expense the assessee can be penalized u/s. 201 of the Act however no disallowance for short deduction can be made u/s. 40(a)(ia). Respectfully following the above decision of the Hon'ble High Court I am of informed opinion that section 40(a)(ia) of the Act cannot be invoked for short deduction of tax. The AO is accordingly directed to delete the addition of Rs. 84,62,663/-. This ground of appeal of the appellant is therefore allowed." From the facts on record, I find that factual matrix in AY 2012-13 in respect of this disallowance of Rs. 17,93,654/- is identical with that of AY 2013-14. Therefore, following the appellate order passed in appellant's own case for AY 2013-14, the addition of Rs.17,93,654/- is deleted. Ground No. 6 is therefore allowed.”
A perusal of the relevant portion of the Ld. CIT(A)’s impugned order shows that this issue relating to the disallowance u/s 40(a)(ia) is squarely covered in favour of the assessee by the decision of Hon’ble Kolkata High Court in the case of DCIT vs S.K. Tekriwal (supra) and this position is not disputed even by the ld. DR, we, therefore, respectfully follow the said decision of the Hon’ble Jurisdictional High Court and uphold the impugned order of the Ld. CIT(A) deleting the disallowance made by the AO u/s 40(a)(ia). Ground No. 5 & 6 of the Revenue’s appeal are accordingly dismissed.
C.O. No. 19/Kol/2019 Assessment Year 2012-13 M/s. UCO Bank 7. In the cross-objection, the assessee has raised legal issue challenging the validity of the assessment made by the AO u/s 147/143(3) of the Act. However as a result of the decision rendered by us while disposing of the appeal of the Revenue upholding the impugned order of the Ld. CIT(A) deleting the additions made by the AO in the assessment completed u/s 147/143(3), the issue raised by the assessee in the cross-objection has become infructuous and this position is accepted even by the learned counsel for the assessee. We accordingly dismiss the cross-objection filed by the assessee as infructuous.
In the result, the appeal of the revenue as well as cross- objection of the assessee both are dismissed. Order Pronounced in the Open Court on 17th January, 2020.