2011 (8) TMI 449 - HC - Income Tax

Interest u/s 2(28A) - TDS - Appellant paid commission to Globe International for utilizing its unspent credit facilities for import clearly comes within the definition of interest under Section 2 (28A) as it is a debt incurred by the appellant, which includes an obligation to pay fee or other charges in respect of the unspent credit facility of the Globe International - It appears that the appellant in its book described the amount as interest paid to Globe International and the said Globe International also confirmed the same before the Assessing Officer - Therefore, find no substance in the contention of assessee that they had no obligation to deduct TDS from the amount paid to Globe International in terms of Section 194A of the Act - Decided in favour of Revenue.

Issues Involved:
1. Competence of the Assessing Officer to initiate proceedings under Section 201(1)/201(1A) of the Income Tax Act in the year 2007 for the assessment year 2002-03.
2. Applicability of Section 194A of the Income Tax Act to the payments made by the appellant to M/s. Globe International.

Detailed Analysis:

Issue 1: Competence of the Assessing Officer to Initiate Proceedings under Section 201(1)/201(1A) in 2007 for AY 2002-03

The appellant argued that the Assessing Officer was not competent to initiate proceedings under Section 201(1)/201(1A) of the Income Tax Act in 2007 for the assessment year 2002-03 due to the absence of a prescribed period of limitation. The appellant contended that even in the absence of a statutory limitation, actions should be taken within a "reasonable period," which should be inferred from the reintroduced limitation period in Section 201(3) effective from April 1, 2010.

The court examined the legislative history and found that the limitation period for initiating action under Section 201 was omitted from April 1, 1989, and reintroduced only from April 1, 2010. Thus, for the period in question, there was no statutory bar of limitation. The court rejected the appellant's reliance on the "reasonable period" argument, citing Supreme Court precedents that if no period of limitation is prescribed, actions under the statute can be taken at any time unless explicitly stated otherwise.

The court also rejected the applicability of the limitation period for "income escaping assessment" under Section 147, as the case involved failure to deduct tax at source under Section 194A, not income escaping assessment.

Issue 2: Applicability of Section 194A to Payments Made to M/s. Globe International

The appellant contended that the payments made to M/s. Globe International were reimbursements for interest paid by Globe International to the bank, not direct interest payments, and hence, Section 194A was not applicable.

The court referred to the definition of "interest" under Section 2(28A) of the Act, which includes any service fee or other charges in respect of any credit facility. The court found that the payments made by the appellant to Globe International for utilizing its unspent credit limits clearly fell within this definition. The appellant's own records described the payments as interest, and Globe International confirmed this before the Assessing Officer.

The court concluded that the appellant was liable to deduct tax at source under Section 194A for the payments made to Globe International.

Conclusion:

The court dismissed the appeal, holding that:
1. The order under Section 201 was not barred by limitation, and the Assessing Officer was competent to initiate proceedings in 2007 for the assessment year 2002-03.
2. The payments made by the appellant to Globe International were subject to tax deduction at source under Section 194A.

The court answered the first question in the affirmative and against the Revenue, and the second question in the negative and in favor of the Revenue. No order as to costs was made.

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