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Facts
The assessee, a wholly-owned enterprise of the Government of Tamil Nadu, filed its return for AY 2018-19 admitting NIL income and claiming a loss. During scrutiny, the Assessing Officer (AO) disallowed interest tax payment of Rs. 9,98,46,515/- and also disallowed Rs. 69,699/- for delayed payment of employee's PF contribution. Additionally, interest under Section 234C was charged. The CIT(A) upheld the AO's order.
Held
The Tribunal held that Section 18 of the Interest-tax Act, 1974, allows the interest tax payable to be a deductible expense from the income assessable for the relevant assessment year. The interest tax liability for AYs 1993-94 to 1997-98, although paid in AY 2018-19, was allowed as a deduction in the assessment year it pertained to. The levy of interest u/s 234C was rendered academic.
Key Issues
Whether the interest tax paid in AY 2018-19, relating to earlier assessment years (1993-94 to 1997-98), is allowable as a deduction in AY 2018-19 or the assessment years to which it originally pertained. Also, the correctness of levy of interest u/s 234C.
Sections Cited
Section 18 of the Interest-tax Act, 1974, Section 43B of Income Tax Act, Section 234C of the Income Tax Act
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI S.S. VISWANETHRA RAVI, HON’BLE & SHRI S. R. RAGHUNATHA, HON’BLE
आदेश /O R D E R
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax
(Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2018-19, vide order dated 15.02.2024.
The assessee has raised the following grounds of appeal:
1. Order of the National Faceless Appeal Centre (NFAC) / Commissioner of Incometax (Appeals) his continued to law facts and circumstances of the case in so far as it is against the appellant.
:-2-: ITA. No: 1036/Chny/2024
The NFAC / CIT(A) should have allowed the deduction of interest tax of Rs.9,98,46,515/- -paid during the year and also CIT(A) erred in not allowing the interest tax paid inspite of the specific provisions of Section 18 of the Interest-tax Act.
The NFAC should have appreciated that under section 43-B all taxes which are otherwise allowable under the act is to be allowed only on the year in which it is actually paid and CIT(A) has also erred in not allowing the claim of Rs.69,699/-. 4. The NFAC should have appreciated that the interest tax payable by virtue of section 18 of the interest Tax Act becomes allowable as a deduction under the Income Tax Act, which the CIT(A) has also not properly appreciated the issue. 5. The NFAC should have appreciated that under section 43 B deduction otherwise allowable under the Act of any sum payable as Tax , irrespective of the previous year in which the liability to pay such sum was incurred by the Assessee shall be allowed in computing the income referred to in section 28 of that previous year which such sum is actually paid.to be allowed only in the year in which it is actually paid. 6. The NFAC having accepted that ought to have appreciated that in view of the clear provisions of the Section 43B, interest tax liability is allowable only in the year in which it was paid. 7. For the above grounds and any other grounds that may be adduced at the time of hearing / filing of written submission the appeal may kindly be entertained and relief claimed may kindly be allowed.
The assessee has also raised the additional grounds, which reads as under:
The NFAC/Commissioner of Income tax(Appeals) erred in levying interest u/s. 234C as the resultant assessed income is only a loss.
Even as per the return of income filed there was no positive income liable to pay any advance tax and the returned income is only a loss. Since there was no liability to pay any advance tax the levy of interest u/s. 234C is not correct.
The appellant craves leave to file additional grounds at the time of hearing.
:-3-: ITA. No: 1036/Chny/2024
The brief statement of facts of the case are that the assessee is a wholly owned enterprise of Government of Tamil Nadu. For the assessment year 2018-19, the assessee filed its return of income on 28-9-2018 admitting "NIL" income and claiming a loss of Rs.15,98,97,472/-. A scrutiny assessment was framed by passing an order u/s. 143(3) r.w.s 143(3A) and 143(3B) of the Act by re- computing the total income by reducing the current year loss to Rs.5,99,81,253/- on account of disallowance of interest tax payment of Rs.9,98,46,515/-during the A.Y 2018-19. Further, though no tax is payable on the assessed loss, the Assessing Officer has charged interest u/s.234C of the Act to the extent of Rs.89,63,903/- and after reducing the TDS claimed, a net demand of Rs.61,53,499/- was raised. While completing the Assessment the following additions/disallowance have been made by the A.O.
a) Disallowance of claim of interest tax paid to the extent of Rs. 9,98,46,515/- b) Disallowance of Rs.69,699/- on account of delay in payment of employees’ contribution to PF and c) Levy of interest u/s.234C to the extent of Rs. 89,63,903/-.
The extract of the A.O’s finding is given below:
“a). Expenditure under head “Extraordinary items” (i) in response to the show cause notice issued, assessee submitted that it has claimed only the payment of "Interest Tax Demand" and not income tax. Further, it has submitted that the said claim of the deduction is allowable as per section 18 of Interest Tax Act, 1974 which is reproduced as under:
:-4-: ITA. No: 1036/Chny/2024
Section 18 in The Interest- Tax Act, 1974
Interest- tax deductible in computing total income under the Income-tax Act.
“Notwithstanding anything contained in the Income- tax Act, in computing the income of a credit institution chargeable to income- tax under the head" Profits and gains of business or profession" or under the head" Income from other sources", the interest- tax payable by the credit institution for any assessment year shall be deductible frorm the income, under the respective heads, of the credit institution assessable for that assessment year]”
(ii)On perusal of the submissions of assessee, it is observed that the assessee claimed deduction of interest tax demand which arose after giving effect to High Court Order for the assessment years 1993-94 to 1997-98 that is evident from the rectification order u/s 154 of Income Tax Act, 1961 dated 20.12.2017.
(iii) The interest Tax Act, 1974, although obsolete now, is applicable for to the whole of India, including all the States arnd Union Territories with no exceptions with regard to chargeable interest accruing before 31 March 2000 Further, as per provisions of section 18 of Interest Tax Act which were quoted by the assessee, it is clearly evident that the interest tax payable by the credit institution for any assessment year shall be deductible from the income, under the respective heads. of the credit institution assessable for that assessment year.
(iv)As per provisions discussed above, it can be concluded that the interest tax payable is allowable deduction from income assessable for the assessment year and not in the year in which the interest tax payment was made. In the case under discussion assessed had made interest tax payment of Rs. 9,98,46,515/- during A.Y. 2048-19 which actually pertain to A.Y. 1993-94 to 1997-98. As the assessee had made payment of interest tax of Rs. 9,98,46,515/- which pertain to A.Y 1993-94 to 1997-98, the said payment is not allowable expenditure in A.Y 2018-19. Thus, the reply of the assessee to allow the same is not found to be tenable and the amount of Rs. Rs. 9,98,46,515/- is disallowed.”
The said interest tax of Rs.9,98,46,515/-was payable consequent to the order of the Assessing Officer dated 20-12-2017
:-5-: ITA. No: 1036/Chny/2024 (giving effect to the order of the High Court of Madras) which was actually paid by the assessee. The Assessing Officer did not suspect the actual payment. The liability to pay the interest tax demand arose only during the previous year relevant to the assessment year 2018-19 and not during the assessment years 1993-94 to 1997-98.
When a draft assessment order proposing disallowance of the claim of interest tax payment made, a reply was given to the Assessing Officer to the effect that as per section 18 of the Interest Tax Act of 1974, interest tax paid /payable is allowable in computing the taxable income. Further, as per the return of income filed, no interest under section 234C is payable as the returned income is only a "loss" and interest under section 234C cannot be increased or charged over and above the amount as per the return of income, while completing the scrutiny assessment. Since no interest under section 234C is payable as per the return of income, the charging of interest u/s.234C as per the scrutiny order is not correct and requires to be deleted.
Aggrieved by the order of the A.O, the assessee preferred an appeal before the Ld. CIT(A)/NFAC, Delhi.
On perusal of the order of the A.O and submissions made by the assessee the Ld. CIT(A) confirmed the action of the A.O of :-6-: ITA. No: 1036/Chny/2024 disallowance of interest tax payment of Rs. 9,98,46,515/- during the A.Y 2018-19 by holding as under:
“6.2.2 It is noted that there is no dispute about the fact that the liability to pay the impugned interest tax arose and was actually paid by the appellant in the FY 2017-18 (AY 2018-19). There is also no dispute about its eligibility of deduction from income.
The only issue is whether it was allowable in the years it pertained to (.e. AY 1993-94 to 1997-98) or is it allowable in the year when actual liability arose and was also paid by virtue of order of the AO giving effect to order of Hon'ble High Court.
It is also pertinent to mention here that the appellant has not provided details of the time-line and evidences of the liability to pay such interest tax so that it is not verifiable if the appellant had claimed it in any of the relevant assessment years when the issue first arose during the assessment of interest tax or in first appeal. It is not clear what had happened about such liability at the time of orders giving effect to order of first appellate authority in interest tax appeal and whether the appellant had claimed corresponding deduction from its' income in any of the earlier years.
It is also noted here that the section 43B of Income Tax does not mention about deduction of interest tax liability and such deduction is allowable exclusively u/s 18 of Interest Tax Act 1974. Hence, such deduction cannot be allowed u/s 43B of the Income Tax Act.
It is seen that the language of section 18 of Interest Tax Act 1974 is very clear and it is clearly spelt out therein that the credit for payment of interest tax is allowed from the income of relevant assessment year (s) only.
Considering the above, these grounds no. 2, 3 &4 of appeal are dismissed.”
The Ld. Counsel for the assessee assailing the action of the A.O and Ld. CIT(A) stated that the provisions of Section 18 of the Interest-tax Act, 1974, to mean that it would be allowable only in computing the income of the AYs 1993-94 to 1997-98 and not in the previous year in which such interest was actually paid. He drew our
:-7-: ITA. No: 1036/Chny/2024 attention to Section 18 of the Interest Tax Act which reads as under:
“18. Interest-tax deductible in computing total income under the Income-tax Act.–Notwithstanding anything contained in the Income- tax Act, in computing the income of a credit institution chargeable to income-tax under the head “profits and gains of business or profession” or under the head “income from other sources”, the interest-tax payable by the credit institution for any assessment year shall be deductible from the income, under the respective heads, of the credit institution assessable for that assessment year.”
Further, the Ld. AR brought to our notice that the Interest-tax for the A.Ys 1993-94 to 1997-98 which was claimed as an expenditure in the respective A.Ys by the assessee under the Income-tax Act, have been added back to the assessed income by the A.O in its order u/s. 143(3) r.w.s 250 of the Act in pursuant to the order of the ITAT in ITA Nos.1413(Mds.)/2000, 100(Mds.)/1999, 1669(Mds.)/2000 & 936 & 937(Mds.)/2003. The Co-ordinate Bench of the Tribunal in the above cases held that the Interest-tax is not liable to be paid by the assessee as the provisions of Interest-tax Act, 1974 are not applicable since it is not a credit institution is mainly engaged in the promotions of State of Tamil Nadu by holding as under:
“The assessee company does not come within the purview of the definition of term “finance company”, as defined under section 2(5B) of the Interest Tax Act, and therefore, is not a credit institution within the meaning of section 2(5A) of the Interest Tax Act.”
:-8-: ITA. No: 1036/Chny/2024
Therefore, order giving effect pursuant to this Tribunal’s order have been passed for the A.Ys 1993-94 to 1997-98 (P.B Page Nos.12 to 15) and raised the demand for the respective A.Ys.
accordingly.
The issue of levy of interest-tax on the assessee was challenged by the Revenue before the Hon’ble High Court of Madras in TC(A) Nos.1401 to 1405 of 2007 dated 27.08.2014 (Mad.) (P.B Page Nos.1 to 9) against the orders of this Tribunal was held in favour of the Revenue, since the assessee is also engaged in the business of financial company, their lordship held as under:
“13. The learned counsel for the assessee relied upon a decision of the Supreme Court in Commissioner of Wealth-tax v. Ellis Bridge Gymkhana and Others, [1998] 229 ITR 1, wherein it is held that the rule of construction of a charging section s that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section and no one can be taxed by implication. There is no dispute with regard to the said legal proposition. In the case on hand, the nature of business conducted by the assessee and the transaction of finance, for which interest has been received for all the assessment years running to several crores of rupees, establishes that the assessee is also engaged in the business of financial company. Therefore, the interest earned by the assessee company is liable to tax under the provisions of the Interest Tax Act. In view of our finding that the assessee is a credit institution falling within the definition of “financial company” under section 2(5B) of the Interest Tax Act, the decision of the Supreme Court in Ellis Bridge Gymkhana, referred supra, does not ensure to the benefit of the assessee.”
:-9-: ITA. No: 1036/Chny/2024
The assessee filed an SLP in Hon’ble Supreme Court vide SLP No.2027/2015 against the decision of the Hon’ble High Court of Madras, supra, was dismissed on 13.02.2015 (P.B Page Nos.10 & 11). Pursuant to the order of Hon’ble Madras High Court, the A.O passed an order giving effect by claiming the refund which is already issued to the assessee on 27.11.2017 and raised a demand.
Accordingly, the assessee has paid on 19.12.2017, the interest tax to the tune of Rs. 9,98,46,515/- during the A.Y 2008-09 for the AYs 1993-94 to 1997-98 (P.B Page Nos.21 to 26) as detailed below:
Assessment Year Interest-tax paid 1993-94 Rs. 2,16,04,128/- 1994-95 Rs. 2,99,05,594/- 1995-96 Rs.1,70,17,291/- 1996-97 Rs. 1,48,44,490/- 1997-98 Rs. 1,64,75,012/- Total Rs. 9,98,46,515/-
In light of the above facts, the Ld. AR stated that the expenditure which has been paid by the assessee during the A.Y 2018-19 towards interest-tax in accordance with the decisions of the Hon’ble Supreme Court & Hon’ble High Court of Madras has been rightly claimed in the profit and loss account as an expenditure and hence, prayed for setting aside the order of the Ld. CIT(A) and allow the appeal of the assessee.
:-10-: ITA. No: 1036/Chny/2024
Per contra, the Ld. D.R relied on the orders of the lower authorities which is based on the section 18 of the Interest-tax Act, 1974 and hence, prayed for dismissal of the appeal of the assessee.
We have heard both the parties, perused materials available on record and gone through orders of the authorities below.
Admittedly, the assessee is wholly owned company of Govt. of Tamil Nadu carrying on the business of providing long term credit to the industrial units for promotion of industrial estate. During the A.Y 2018-19, the assessee had claimed an amount of Rs. 9,98,46,515/- as an expenditure paid on 05.01.2018 towards interest tax which was relating to A.Ys 1993-94 to 1997-98 consequent to the order of the A.O dated 20.12.2017 (OGE to the order of the Hon’ble High Court of Madras). The expenditure of interest-tax claimed has been disallowed by the A.O and that of Ld. CIT(A) stating that ‘Section 18 of the Interest-tax Act allows the interest tax payable by the assessee is allowable deduction from income assessable for the respective A.Ys and not in the year in which the interest-tax payment was made’.
We note that heading of Section 18 of Interest-tax Act states that interest tax deductable in computing total income under the Income tax Act and reads as under:
:-11-: ITA. No: 1036/Chny/2024
“18. Interest-tax deductible in computing total income under the Income-tax Act.–Notwithstanding anything contained in the Income- tax Act, in computing the income of a credit institution chargeable to income-tax under the head “profits and gains of business or profession” or under the head “income from other sources”, the interest-tax payable by the credit institution for any assessment year shall be deductible from the income, under the respective heads, of the credit institution assessable for that assessment year.”
The section is very clear and the assessee is eligible to claim the interest tax payable for any assessment year shall be deductible from the income of the assessee. Further, the assessee originally had paid the applicable interest tax in the respective assessment years 1993-94 to 1997-98, which was later refunded by the Revenue in accordance with the decision of this Tribunal. However, the interest tax liability arose to the assessee during the A.Y 2018- 19 by way of OGE of the Revenue dated 27.11.2017 pursuant to the decision of the Hon’ble Madras High Court, which was subsequently confirmed by Hon’ble Supreme Court by dismissing the SLP filed by the assessee (supra). Accordingly, the interest tax liability for the A.Ys 1993-94 to 1997-98 has been discharged by the assessee during the A.Y 2018-19 and claimed as expenditure. Considering the facts and circumstances of the case, we are of the opinion that the assessee’s claim of interest tax expenditure during the A.Y 2018-19 disallowed by the A.O and that of the Ld. CIT(A) is erroneous and hence, we set aside the order of the Ld. CIT(A) and :-12-: ITA. No: 1036/Chny/2024 allow the claim of the assessee of interest expenditure for the A.Y 2018-19. Thus, the grounds of appeal raised on this issue of the assessee is allowed.
19. The additional ground raised by the assessee in respect of Section 234C of the Act becomes academic since the main ground has been decided in favour of the assessee.
In the result, the appeal of the assessee is allowed.
Order pronounced on 18th September, 2024 at Chennai.
Sd/- Sd/- (एसएसिव�ने�रिव) (एस. आर.रघुनाथा) (S. R. RAGHUNATHA) (S.S. VISWANETHRA RAVI) लेखासद�/Accountant Member �ाियकसद�/Judicial Member चे�ई/Chennai, �दनांक/Dated, the 18th September, 2024 EDN