ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1, BELLARY vs. M/S TUNGABHADRA STEEL PRODUCTS LTD, HOSPET

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ITA 984/BANG/2017Status: DisposedITAT Bangalore27 October 2017AY 2006-075 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the interest on the government loan was correctly treated as a liability and not disallowed under Section 43B. However, the management charges paid to the holding company were considered to attract TDS provisions under Section 194J, and the CIT(A)'s deletion was set aside.

What were the facts?

The assessee company provisionally debited interest on a government loan but did not pay it. The Assessing Officer disallowed this interest, but the CIT(A) deleted the addition. The CIT(A) also deleted the disallowance of management charges paid to a holding company, deeming it reimbursement. The revenue appealed both decisions.

What were the issues?

Whether interest on a government loan, provisionally debited but not paid, is allowable under Section 43B. Whether management charges paid to a holding company, treated as reimbursement, are subject to TDS under Section 194J and disallowance under Section 40(a)(ia) if TDS is not deducted.

Which sections of the Income-tax Act were involved?

Section 43B,Section 40(a)(ia),Section 194J

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE BENCH ‘ C ’

Before: SHRI VIJAY PAL RAO & SHRI JASON P BOAZ

For Appellant: Shri R.N. Prabat,CIT-III (D.R)

Per Shri Vijay Pal Rao, J.M. : This appeal by the revenue is directed against the order dt.28.02.2017 of Commissioner of Income Tax (Appeals) for the Assessment Year 2006-07. 2. None has appeared on behalf of the assessee despite the service of notice through RPAD. We propose to hear and dispose of this appeal exparte.

3.

The revenue has raised the following grounds :

4. Ground No.1 is general in nature and does not require any specific adjudication.

1.

5. Ground Nos.2 to 7 are regarding addition made on account of interest on loan borrowed from Government of India under Section 43B which was deleted by the CIT (Appeals).

6.

We have heard the learned Departmental Representative and considered the relevant material on record. The assessee company has not paid interest towards the Govt. of India loan of Rs.12,71,90,551 but has debited the same on provisional basis. The Assessing Officer disallowed the interest on the ground that the assessee had no intention to pay interest liability to Govt. of India and further when the interest was not actually paid then as per the provisions of Section 43B, the same is not allowable. On appeal, the CIT (Appeals) has deleted the addition made by the Assessing Officer in para 4.1.1 as under :

Thus it is clear that the assessee has not written off the liability but it is showing in the books of accounts as liability payable to Govt. of India. Further the interest does not fall under the provisions of Section 43B and therefore we do not find any error or illegality in the impugned order of the CIT (Appeals) qua this issue.

7.

Ground No.8 is regarding disallowance of management charges under Section 40(a)(ia) for want of TDS.

8.

The Assessing Officer disallowed the amount of Rs.6 lakhs debited towards management charges and paid to holding company M/s. Bharat Yatra Nigam Limited as no tax was deducted on the same. On appeal, the CIT (Appeals) deleted the addition on the ground that this payment is in the nature of reimbursement of expenses incurred by the holding company on behalf of the assessee and as such TDS is not applicable.

9.

The learned Departmental Representative has submitted that merely because the payment is routed through the holding company will not relieve the assessee from the liability of deducting tax at source. He has further submitted that Section 194J are applicable in the amount paid for management fees.

10.

Having considered the contention of the learned Departmental Representative and carefully considered the relevant material on record, we find that there is no dispute on the point that the assessee has debited an amount of Rs.6 lakhs towards management charges paid to M/s. Bharat Yatra Nigam Limited. Even if the said payment was on account of reimbursement of expenses incurred by the holding company the provisions of Section 194J cannot be circumvent by modus operandi of payment routing through the holding company. Once the nature of payment is clearly attracting the provisions of Section 194J the modes of payment will not change the obligation of the assessee to deduct the tax at source. If this modus operandi is allowed then in each and every case the provisions of Section 194 as well as Section 40(a)(ia) can be circumvent by making the payment through an intermediary and not directly to the party. Hence we set aside the order of the CIT (Appeals) qua this issue and restore the order of the Assessing Officer.

11.

In the result, the appeal of the revenue is partly allowed. Order pronounced in the open court on 27th Oct.,2017.

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