DCIT, CHENNAI vs. CLARION WIND FARM P LTD., CHENNAI

आदेश / O R D E R PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:

This is an appeal filed by the Revenue against the Order dated

19.03.2014 of Commissioner of Income Tax (Appeals)-I, Chennai, in ITA

No.349/11-12/A-I for the AY 2009–10.

2.0 All the grounds of the appeal are related to the disallowance of

Rs.1,,47,66,760/- u/s.40(a)(i) of Income Tax Act (in short ‘the Act’). The

assessee filed the return of income declaring total loss of

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Rs.14,77,46,128/- on 30.09.2009. The assessment was completed on

total loss of Rs.13,28,79,368/-. In the assessment proceedings the AO

made the addition of Rs.1,47,66,716/- u/s.40(a)(i) of the Act for non-

deduction of tax at source.

3.0 Aggrieved by the order of the AO, the assessee went on appeal

before the CIT(A) and argued that the interest payment was made to bank

on behalf of M/s.Uniply Industry Ltd and the TDS provisions are not

applicable for payments made to banks u/s.194A of the Act. The Ld

CIT(A) deleted the addition holding that the assessee made the payment

on behalf of Uniply from whom the generators were purchased and the

provisions does not attract whether payment is made to bank directly or

as a reimbursement. Aggrieved by the order of the ld.CIT(A) the

department is in appeal before us.

4.0 We heard the rival submissions and perused the material placed

before us. The assessee is engaged in the business of generation of

power from wind mill and sale of power generating equipments. The

assessee is an associated company of Shriram EPC Ltd., (SEPC) a PSI

company which is into manufacturing of wind ELectrical Generators(WEG).

The SEPC sold WEGs to M/s.Uniply industries Ltd., are got all its WEGs

connected to the electricity Grid of TNEB. The assessee submitted that

after some years of its operations in wind energy manufacture, The Uniply

Industries Ltd.(uniply) wanted to exit from power generation business.

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After mutual discussion, SEPC and Uniply had agreed to sell all it’s WEGs

to SEPC associate of the assessee. The Uniply has bought the WEGs from

SEPC by availing term loans from Bank of India and Corporation Bank and

has bot made the full payment of the term loans.. The parties have agreed

for settlement of bank from the purchase consideration. According to the

assessee, the two banks had also accepted the proposal for sale of wind

mills of Uniply to the assessee company. The payment was made by the

assessee to the banks on the due dates of the term loan installments to

discharge the obligations of the Uniply and as part of purchase

consideration. In a nutshell, it is submitted by the Ld.AR that the

assessee company has made the payment to the bank on behalf of the

Uniply industries towards settlement of term loan installments and the

interest debited by the bank on term loans granted to M/s Uniply

industries. Since the payment was made to the banks, the assessee

contended that no TDS provisions are applicable.

4.1 The first argument of the assessee is t the payment of interest to

the bank does not attract TDS. If the Bank has given a loan to the

assessee and the payment is made to the bank for discharging it’s

liability,the assessee is covered under exception for not deducting tax

u/194A of I.T.Sct. The section is applicable to any person who is making

payments of interest to any banking company. For ready reference, we

re-produce hereunder Sec.194A(1) and Sub-Clause (3) of the Act:

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[Interest other than "Interest on securities". 70 194A. 71 72(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying73 to a resident any income73 by way of interest other than income 74[by way of interest on securities], shall, at the time of credit of such income to the account of the payee75 or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : (3) The provisions of sub-section (1) shall not apply— (ii) 87[***] (iii) to such income credited or paid to— (a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank), or (b) any financial corporation established by or under a Central, State or Provincial Act, or (c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or (d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or (e) any company or co-operative society carrying on the business of insurance, or (f) such other institution, association or body 88[or class of institutions, associations or bodies] which the Central Government may, for reasons to be recorded in writing, notify89 in this behalf in the Official Gazette;

In the assessee’s case, as on the date of payment there was no loan

outstanding against the assessee in Corporation Bank and Bank of India.

The term loans were outstanding in the name of M/s.Uniply Industries

Ltd., and the assessee has made the payments in either to bank directly

to M/sUnipy Industries Ltd., towards the term loan installments of Bank

loans which was inclusive of interest. Since the Bank loan was not given to

the assessee and no loan was outstanding against the assessee, the

assessee is not covered by the exception in section 194A and the same is

not tenable.

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5.0 The Second argument of the assessee was , the payment to bank

was a reimbursement of bank interest in which case also the provisions of

TDS 194A is not applicable.

5.1 The SEPC is the manufacturer of Wind electric Generators.

M/s.Uniply Industries Ltd., has purchased the WEGs from SEPC by taking

loan from Bank of India and the corporation Bank. Later the generators

were taken over by the assessee company as per the directions of SEPC

which was the holding company at that time. As per the MoU dated

10.06.2008, the wind mills proposed to be sold to the assessee company

were mortgaged to the Corporation Bank and Bank of India for the term

loans financed to M/s.Uniply Industries Ltd. For purchase of the wind

mills, which were standing as security for bank loans, require a consent of

the concerned banks to transfer the assets as well as outstanding loans

in the name of the assessee. The assessee has neither furnished the

consent letter from the banks agreeing to transfer the loan and the

mortgaged assets to the assessee company. The assessee has not

furnished any evidence to show that the liability of M/s.Uniply Industries

Ltd., pertaining to bank loans and the assets were transferred to the

assessee company. The assessee contended that even if it is presumed

that there was no liability to the assessee to make the payment to the

bank on due dates of term loans, the supplier of the machinery who has

mortgaged the wind mills required to pay installments which includes the

interest. Since the assessee has taken the wind mills from M/s.Uniply

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Industries Ltd., it is obligation on the part of the assessee to make the

payments since the ownership vests with the assessee company by MoU.

The SEPC has entered into MoU dated 10.07.2008 with M/s.Uniply

Industries Ltd. for purchase of wind mills on behalf of its associates

concern M/s.Clarion Wind Farm Pvt. Ltd. Though, MoU entered with

M/s.SEPCL and M/s.Uniply Industries Ltd., there were no purchase

agreements/ documents between SEPC/Uniply Industries and the assessee

company. The assessee has not submitted the documents related to the

registration of the wind mills in the name of the assessee company. For a

query from the bench, the Ld.AR accepted that the sale of wind mills,

attracts sales tax but no sales tax assessment or payment details have

been furnished by the assessee. Unless the assessee furnish a proof that

the M/s.Uniply Industries Ltd., completed all the formalities before the end

of the Financial Year 31.03.2009, it cannot be said that the assessee has

reimbursed the amount paid due on the dates of the term loans of the

banks to the supplier. Though there was no loan outstanding in the name

of the assessee it had claimed the interest on bank loans as an

expenditure. No evidence has been furnished with regard to not claiming

the interest by M/s Uniply. These issues were not verified with the AO.

Unless the assessee establishes that the assessee has purchased the wind

mills from M/s.Uniply Industries Ltd., and the documentation relating to

transfer of property to the assessee have been completed and registered

before the end of the Financial Year, the question reimbursement of

expenses and the interest expenditure does not arise. Therefore, we set-

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aside the orders of the lower authorities and remit the matter back to the

file of the AO with a direction to verify whether the formalities relating to

transfer of the wind mills to the assessee company have been completed

or not between the bank and the assessee and whether the assets have

been transferred in the name of the assessee company or not and whether

the assessee furnished the evidence with regard to purchase of wind mills,

etc. In case, the assessee has completed all the formalities relating to the

transfer of assets, the assessee is under obligation to reimburse the

amount paid by the M/s.Uniply Industries Ltd., and in such event, the

TDS is not applicable for reimbursement of expenses. However care

should be taken to avoid the claim of interest by the supplier in it’s hands.

Accordingly, we direct the AO to verify the facts and decide the issue

afresh on merits.

In the result, the appeal of the Revenue is allowed for statistical

purposes.

Order pronounced in the Open Court on 30th May, 2017, at Chennai.

Sd/- Sd/- (एन.आर.एस. गणेशन) ("ड.एस. सु�दर %संह) (N.R.S. GANESAN) (D.S.SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER

चे�नई/Chennai, 6दनांक/Dated: 30th May, 2017. TLN

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आदेश क1 /�त%ल7प अ8े7षत/Copy to: 1. अपीलाथ./Appellant 4. आयकर आयु9त/CIT 2. /0यथ./Respondent 5. 7वभागीय /�त�न�ध/DR 3. आयकर आयु9त (अपील)/CIT(A) 6. गाड+ फाईल/GF