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 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 ITA No.1835/Mds/2014 :- 2 -:

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-

ITA No.1835/Mds/2014 :- 7 -: 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.