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2012 (6) TMI 323 - AT - Income TaxLoan Processing fees - whether considered as interest for purpose of Section 2(28A) and 194A - Held that - Definition of Section 2(28A) clarifies that it includes all the charges in respect of moneys borrowed or debt incurred or in respect of any credit facility whether it has been utilized or not. Therefore, such loan processing fee fell within the said definition. Also, unless context otherwise requires interest mentioned, in Section 194A has to be understood in accordance with the definition of interest given u/s 2(28A). Therefore, assessee was obliged to deduct tax at source which it had not done so. Rigours of Section 40(a)(ia) is attracted - Decided in favor of Revenue Dis-allowance u/s 14A - assessee considered pro rata interest on investments made to earn dividend income on ground that borrowed money was invested in various companies and shares were not allotted in some of such companies, hence, interest could not be attributed to earning of any dividend income on such investments - Held that - Intention of the assessee for earning dividend income could not be attributed to the amounts invested in share application money, unless and until there is a commitment brought on record by the concerned company for allotment of shares, and the share application money can at the best be considered only as a loan given by the assessee to the said company. We remit the issue back to the AO for fresh consideration in accordance with law.
Issues:
1. Disallowance under Section 14A of the Income-tax Act, 1961. 2. Disallowance of loan processing fees under Section 40(a)(ia) of the Act. Issue 1: Disallowance under Section 14A of the Income-tax Act, 1961: The dispute revolved around the disallowance under Section 14A of the Act concerning the direction of the CIT(Appeals) to re-work the disallowance. The assessee claimed exemption under Section 10(34) on dividend income but only considered a portion of the interest on investments for disallowance under Section 14A. The Assessing Officer (A.O.) disallowed a substantial amount under Rule 8D, citing the purpose of earning exempt dividend income. The assessee argued that as long as the money was share application money, no intention could be attributed for earning dividend income. The CIT(Appeals) directed the A.O. to re-work the disallowance, excluding the amount admitted by the assessee. The Tribunal found that the A.O.'s application of Rule 8D was incorrect due to the non-retrospective nature of the rule. It emphasized that the intention of the assessee for earning dividend income is relevant only if a definite date for share allotment is declared by the company. Since no shares were allotted against the share application money, the Tribunal remitted the issue back to the A.O. for fresh consideration. Issue 2: Disallowance of loan processing fees under Section 40(a)(ia) of the Act: The second issue involved the disallowance made by the A.O. on loan processing fees paid to a finance company. The A.O. treated the processing fees as interest under Section 2(28A) of the Act, requiring TDS under Section 40(a)(ia). The assessee contended that the processing fees should not be considered as interest under Section 194A for TDS purposes. The CIT(Appeals) upheld the disallowance, stating that the definition of "interest" under Section 2(28A) applies uniformly across the Act. The Tribunal agreed with the CIT(Appeals), concluding that the processing fees fell within the definition of "interest" under Section 2(28A) and that the assessee was obligated to deduct TDS. Therefore, the Tribunal dismissed the appeal on this ground. In summary, the Tribunal allowed the Revenue's appeal for statistical purposes and partly allowed the assessee's appeal for statistical purposes, addressing the issues of disallowance under Section 14A and loan processing fees under Section 40(a)(ia) of the Income-tax Act, 1961.
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