2015 (10) TMI 2553 - AT - Income Tax

Denial of TCS credit u/s 206C(1C) - Held that - The fact that State Govt. has collected TDS and paid it to Govt. treasury is undisputed. It is abundantly clear that assessee s case is covered under the TCS provisions and that is why the TCS is collected in this behalf u/s 206C. It is undisputed fact that that TCS payment is duly certified by payer Rajasthan Govt. in prescribed Form No. 27D; consequently the credit of TCS has to be given to assessee as a matter of right, more so, when the corresponding income from contracted activities as per Rajasthan Minor Minerals Concession Rules, 1986, is included in assessee s income. In these facts and circumstances, I find merit in the arguments of the ld. Counsel for the assessee that denial of credit tantamount to confiscating assessee s tax for which corresponding income is included in its taxable income. Such confiscation amounts to unjust enrichment on the part of the Govt. which is not permissible. In view of the entirety of the facts and circumstances of the case, the assessee claim of credit of TCS amount as mentioned above is justified and deserves to be allowed. This ground of the assessee in both the years is allowed. Interest charged by the Govt. on late deposit of royalty installments under the head royalty expenses - allowable expenditure u/s 31(1) - Held that - Interest @ 12% paid to Govt. for late deposit of monthly royalty instalemnts for delay in payment is clearly compensatory in nature and not penal in nature as held by the lower authorities. My view is fortified by above judgments. The contentions about the business expediency and allowability of interest in the view of the decision of Hon ble Apex Court in the case of S.A. Builders vs. CIT (2006 (12) TMI 82 - SUPREME COURT) is well placed and deserves to be accepted. These being the Govt. payments, find no merit in the findings of the ld. CIT(A) that no evidence was produced in this behalf as the payments are demonstrated by the assessee s account in assessment year 2007-08. In view of thee facts and circumstances of the case, the payment of royalty expense is compensatory in nature and is an allowable expenditure u/s 31(1) of the Act.

Summary

Issues:
1. Denial of TCS credit u/s 206C(1C)
2. Not allowing the claim of interest charged by the Govt. on late deposit of royalty installments

Analysis:

Issue 1: Denial of TCS credit u/s 206C(1C)
The appeals were filed against the orders of the ld. CIT(A) for the assessment years 2006-07 and 2007-08. The main issues raised were the denial of TCS credit u/s 206C(1C) and the disallowance of interest charged by the Govt. on late deposit of royalty installments. The Assessee argued that TCS was collectible from them as a contractor under the Rajasthan Minor Mineral Concession Rules, 1986. The lower authorities misinterpreted Section 206C(1C) by denying TCS credit, even though TCS was deducted and paid to the Govt. The Assessee contended that the denial of TCS credit was unjust and led to unjust enrichment by the Govt. The ld. CIT(A) upheld the AO's decision, stating that the credit belonged to the lessees of mines, not the contractor. However, the Assessee was appointed as a contractor under statutory provisions, and the denial of TCS credit was deemed absurd. The Tribunal found merit in the Assessee's arguments and allowed the claim of TCS credit in both years.

Issue 2: Not allowing the claim of interest on late royalty installments
The second ground raised was the disallowance of interest paid on belated royalty installments. The lower authorities claimed the interest was penal, but the Assessee argued it was compensatory and paid under a valid contract with the State Govt. The Assessee relied on case laws to support their claim. The interest payment was considered a business necessity, as paying a higher interest rate from the market would have been less prudent. The Tribunal agreed with the Assessee, stating that the interest was compensatory and allowable under section 31(1) of the Act. The evidence of payments through challans was produced, and the disallowance of interest expenses was deemed unjustified. Therefore, the Tribunal allowed the Assessee's claim for interest expenses in both assessment years.

In conclusion, the Tribunal allowed the appeals of the Assessee, granting them the TCS credit u/s 206C(1C) and accepting the claim for interest paid on late royalty installments as compensatory in nature.