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2015 (12) TMI 1553 - AT - Income TaxDisallowance under Section 40(a)(ia) - assessee has not made any TDS at the time of payment and the recipient of the amount has submitted Form 15H on 10.04.2011 - Held that - The fact is that the recipient of interest amount informed the assessee that she will file Form 15H. Accordingly, at the time of credit, the tax was not deducted. Subsequently Form 15H was filed on 10.04.2011, before the due date for depositing the amount in the Government account. When the recipient filed Form 15H, there is no liability on the part of the assessee to deduct tax. Admittedly, the tax was not deducted at the time of credit. However, before the due date for filing return of income, the recipient filed Form 15H. Therefore, on the date of filing of return of income, tax is not deductible on the amount paid to the recipient since Form 15H is filed. When there is no requirement for deduction of tax in view of filing of Form 15H by the recipient on 10.04.2011, this Tribunal is of the considered opinion that there cannot be any disallowance under Section 40(a)(ia) of the Act. Therefore, this Tribunal is unable to uphold the order of the lower authority and accordingly, the order of the lower authority is set aside and the addition is deleted. Disallowance u/s 36(1)(iii) - contention of the assessee is that addition of one more windmill does not amount to extension, it is only an expansion of the business - addition one more windmill to the existing business - Held that - This Tribunal is of the considered opinion that when the assessee is admittedly in the business of generation of electricity through windmill and made addition of one more windmill, it is an extension of such existing business of generation of electricity through windmill. Therefore, the capital borrowed is for acquisition of asset for extension of the existing business or profession. When the assessee paid interest on the borrowed capital, which was used for acquisition of asset for extension of the existing business of generation of electricity through windmill, this Tribunal is of the considered opinion that the interest cannot be allowed as deduction till the capital asset acquired by the assessee is put to use. In this case, admittedly, the capital asset purchased is not put to use. Therefore, the CIT(Appeals) has rightly confirmed the addition made by the Assessing Officer. Disallowance being the amount paid to Life Insurance Corporation of India, towards Narasu s Spinning Mills Employees Group Gratuity Fund - Held that - An identical situation was considered by the Apex Court in the case of Textool Co. Ltd. (2009 (9) TMI 66 - SUPREME COURT ) wherein found that the real intention behind Section 36(1)(v) of the Act is that the employer should not have any control over funds of irrevocable trust created exclusively for the benefit of the employees. Since the Fund created by the LIC for the benefit of the employees of the assessee and contribution made by the assessee ultimately came back to the Employees Gratuity Fund, the Apex Court found that the conditions stipulated under Section 36(1)(v) of the Act is satisfied. In the case before us, the application made by the assessee is still pending before the Commissioner for approval and the amount was paid to the LIC. The assessee had no control over the Fund created by the LIC for the benefit of its employees. Since the assessee has no control over the funds and application is still pending before the Commissioner, this Tribunal is of the considered opinion that there is no reason to disallow the claim of the assessee. Since the funds of the assessee have gone out of the hands of the assessee and the assessee has no control over the funds, the dictum laid down by the Apex Court is squarely applicable to the facts of the case. Accordingly, we set aside the orders of the lower authorities and the addition made by the Assessing Officer to the extent of ₹ 46,71,233/- is deleted.
Issues:
1. Disallowance under Section 40(a)(ia) of the Income-tax Act, 1961. 2. Disallowance under Section 36(1)(iii) of the Income-tax Act, 1961. 3. Disallowance of payment towards Employees Group Gratuity Fund. Issue 1: Disallowance under Section 40(a)(ia) of the Income-tax Act, 1961: The assessee challenged the disallowance of &8377; 71,016 under Section 40(a)(ia) by the Assessing Officer for not deducting TDS on interest payment. The counsel argued that the recipient informed in advance about submitting Form 15H, hence no TDS was deducted. The Tribunal held that since Form 15H was filed before the due date, no disallowance was warranted under Section 40(a)(ia) as there was no requirement for TDS deduction. Issue 2: Disallowance under Section 36(1)(iii) of the Income-tax Act, 1961: The second issue pertained to the disallowance of &8377; 3,70,377 under Section 36(1)(iii) for not capitalizing interest on borrowed funds till machinery was put to use. The counsel argued it was an expansion, not an extension, hence the proviso to Section 36(1)(iii) did not apply. However, the Tribunal held that adding a windmill constituted an extension of the existing business, thus disallowance was upheld under Section 36(1)(iii). Issue 3: Disallowance of payment towards Employees Group Gratuity Fund: The third issue involved disallowance of &8377; 46,71,233 for payment towards Employees Group Gratuity Fund. The counsel contended that since the funds were paid out of the assessee's control to LIC, it should be allowed under Section 36(1)(v). The Tribunal agreed, citing a similar Apex Court judgment, and ruled in favor of the assessee, deleting the addition made by the Assessing Officer. In conclusion, the Tribunal partly allowed the appeal, ruling in favor of the assessee regarding the disallowance under Section 40(a)(ia) and payment towards Employees Group Gratuity Fund, but upholding the disallowance under Section 36(1)(iii) for not capitalizing interest on borrowed funds.
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