2015 (12) TMI 1689 - AT - Income Tax

Addition u/s 40(a)(ia) - TDS u/s 194J - no tax had been deducted on processing charges paid to SBI for managing the consortium account of the FCI - Held that - The processing charges were collected from the FCI by the SBI for processing of the loan involved. It never went to the assessee s account. The assessee got net of the processing charges i.e. interest exclusively there being no outflow of expenses. There was no occasion for the assessee to deduct TDS. It was on account of the accounting treatment that the AO was of the view that the TDS was required to be made on the processing charges. In such facts the provisions of section 194J of the Act are definitely not attracted. The payment has been made as processing charges to the SBI for managing consortium account of FCI. It remains undisputed that the loan involved was processed by the SBI and not by the assessee bank. Therefore the provisions of section 194J did not get attracted. No tax was required to be deducted on the processing charges paid to the SBI - Decided in favour of assessee. TDS u/s 194J - non deduction of tds on clearing house charges/MICR charges paid - human intervention - Held that - As per this system the machine recognizes the numeric data printed with magnetic charged ink. This is done with the help of ultraviolet rays which scan the genuineness of cheques. The department has not been able to dispute that MICR clearance of cheques can be possible by a mechanized system only and not through human intervention keeping in view the processing of bulk cheques. The assessee Bank did not make TDS since the amount had been paid as share of expenditure incurred by the concerned Bank and apportion to the assessee Bank as its share of that expenditure. No tax was required to be deducted on the amount incurred towards MICR as mere collection of a fee for use of a standard facility provided to all those who are willing to use it does not amount to fee received for technical services as wrongly held by the AO. - Decided in favour of assessee. Bari Brahmana Branch of the assessee as eligible for deduction u/s 36(1)(viia) - Held that - The provisions of section 36(1)(viia) prescribe that in respect of any provision for bad and doubtful debts made by a Scheduled Bank an amount not exceeding certain percentage as specified by the Finance Acts for different assessment years of aggregate average advances made by the Rural Branches of such Bank computed in the prescribed manner deduction is to be allowed. In view of the above specific provisions of the Act the definition of the Rural Branch as a place with population upto 10000 the department is not justified in placing reliance on the Digest of Statistics for 2002-03 published by the Govt. of J & K. It is trite that when the Act specifically deals with a particular situation it is the concerned provisions of the Act which have to be gone by and no outside material can be resorted to. In the present case the Bari Brahamana Branch of the Bank is located at village Kartholi where the population as per the last census was of 314. - Decided in favour of assessee. 100% depreciation on wooden partitions - Held that -It is seen that depreciation was claimed on the wooden partitions claiming that the expenditure was incurred on wooden partitions as purely temporary erections eligible for 100% depreciation as provided under the I.T.Act 1961. A similar addition was deleted by the ld. CIT(A) for the assessment year 2002-03 which deletion was not challenged by the department. The wooden partitions as remains undisputed were erected in leasehold (tenanted) premises. The partitions had not provided any enduring advantage to the assessee. They were redesigned time and again as per the assessee s business requirement. It is also not the case of the department that these partitions became the property of the assessee at the end of the lease. Moreover it has not been shown that they created any tangible assets for which a value could be attributable.- Decided in favour of assessee. TDS on interest paid to Jammu Development Authority - Held that - It has not been disputed that Jammu Development Authority stands incorporated by the J & K Development Act 1970. C.B.D.T. Notification no.3489 dated 27.10.1970 issued in pursuance of the provisions of section 194A(3)(f) of the Act provides that no tax was required to be deducted on interest on deposit paid to a Corporation incorporated under a State Act. The position is not any different so far as regards J.D.A. incorporated under the said State Act too. Therefore the provisions of section 194A of the Act are not applicable due to which the provisions of section 40(a)(ia) are also not attracted.- Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of disallowance made under Section 40(a)(ia) of the Income Tax Act, 1961, on account of processing charges paid to SBI.
2. Deletion of disallowance made under Section 40(a)(ia) on account of clearing house charges.
3. Eligibility of Bari Brahmana Branch for deduction under Section 36(1)(viia).
4. Allowance of 100% depreciation on wooden partitions.
5. Deletion of disallowance made under Section 40(a)(ia) on account of non-deduction of tax on interest paid to Jammu Development Authority.

Detailed Analysis:

1. Deletion of Disallowance on Processing Charges Paid to SBI:
The Assessing Officer (AO) disallowed Rs. 79,26,589 under Section 40(a)(ia) due to non-deduction of tax on processing charges paid to SBI, considering them as managerial services under Section 194J. The CIT(A) deleted the disallowance, stating that the processing charges were part of the interest and not managerial services, thus not attracting Section 194J. The Tribunal upheld this view, citing that the processing charges were included in the interest earned and no tax was required to be deducted.

2. Deletion of Disallowance on Clearing House Charges:
The AO disallowed Rs. 19,32,159 under Section 40(a)(ia) for non-deduction of tax on clearing house/MICR charges, considering them as technical services. The CIT(A) deleted the disallowance, relying on the Supreme Court decision in CIT vs. Bharti Cellular Ltd., which stated that human intervention is required for services to be considered technical. The Tribunal upheld this, noting that MICR clearance of cheques is a mechanized process without human intervention, thus not attracting Section 194J.

3. Eligibility of Bari Brahmana Branch for Deduction under Section 36(1)(viia):
The AO disallowed Rs. 8,17,28,840 claimed under Section 36(1)(viia), arguing that the Bari Brahmana Branch was not a rural branch due to its population exceeding 10,000. The CIT(A) deleted the addition, supported by the Tribunal's earlier decision that the branch's location at village Kartholi, with a population of 314, qualifies it as a rural branch under the Act. The Tribunal upheld this, rejecting the department's reliance on external statistics.

4. Allowance of 100% Depreciation on Wooden Partitions:
The AO restricted depreciation on wooden partitions to 10%, considering them permanent structures. The CIT(A) allowed 100% depreciation, following the Tribunal's earlier decision that wooden partitions in leasehold premises, redesigned as per business needs, do not provide enduring advantage and are eligible for 100% depreciation. The Tribunal upheld this view.

5. Deletion of Disallowance on Interest Paid to Jammu Development Authority:
The AO disallowed Rs. 2,93,15,880 under Section 40(a)(ia) for non-deduction of tax on interest paid to Jammu Development Authority (JDA), a taxable entity. The CIT(A) deleted the disallowance, referencing the Tribunal's earlier decision that JDA, incorporated under the J&K Development Act, is exempt from TDS under CBDT Notification no.3489. The Tribunal upheld this, noting no significant difference in facts from the previous assessment year.

Conclusion:
The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s deletions and allowances on all grounds. The decisions were based on consistent application of legal provisions and precedents, affirming that the processing charges, clearing house charges, rural branch eligibility, depreciation on wooden partitions, and interest payments to JDA were correctly treated by the CIT(A).