2015 (10) TMI 800 - AT - Income Tax

Disallowance u/s 201(1) and 201(1A) - non deduction of TDS on work of supply, erection and commissioning of lift - payment under the works contract v/s contract of sale - CIT(A) deleted the disallowance - Held that - This issue is covered by judment of Hon ble Supreme Court in the case of State of Andhra Pradesh vs Kone Elevators (India) Ltd (2005 (2) TMI 519 - SUPREME COURT OF INDIA) observing that the contract is not a work contract but only a contract for sale and therefore, no TDS is applicable. Consequently interest charged u/s 201(1A) in both the years was deleted . - Decided in favour of assessee. Non deduction of tax from the payments made to certain customers debited in direct expenses under minor head excess payment refund - Held that - It is crystal clear that from the plain reading of sec. 2(28A) of the Act that money paid in respect of amount borrowed or debt incurred, is interest payable in any manner. The definition of interest in Sec. 2(28A) after referring to the interest payable in any manner in respect of any moneys borrowed or debt incurred proceeds to include in the terms money borrowed or that incurred, deposits, claims and other similar rights or obligations and further includes any service fees or other charges in respect of the money borrowed or debt incurred which would include deposit, claim or other similar rights or obligations as also in respect of any credit facility which has not been utilized. Thus, the statutory definition given u/s 2(28A) of the Act regards amounts which may not otherwise be regarded as interest, as interest for the purpose of statute. The definition of interest has been carried to the extent that even the amounts payable in transactions were money has not been borrowed and that has not been incurred, are brought within the scope of its definition, as in the case of service fees paid in respect of a credit facility which has not been utilized. Undisputedly, in the instant case, the amounts were paid in respect of an obligation in respect of purchase of flat through agreement, therefore, no fault can be found on the part of the AO for treating these charges as interest and liable for TDS u/s 194A of the Act. The mere fact that the assessee did not choose to characterize such payment as interest, will not take such payment out of the ambit of the definition of interest , in so far as payment made by the assessee was in respect of an obligation incurred with earlier flat agreement holder . The assessee has essentially incurred an expenditure and the amount of charges paid was with respect to the amount incurred by the flat agreement holder and the period for which money was so utilized by the assessee. - Decided against assessee.

Summary

Issues involved:
1. Condonation of delay in filing Cross Objections.
2. Disallowance under sections 201(1) and 201(1A) of the Income Tax Act.
3. Non-deduction of tax from payments to customers under the head "excess payment refund."

Analysis:

Issue 1: Condonation of Delay
The assessee filed Cross objections delayed by 50 days and sought condonation. The Tribunal found the reasons for delay provided by the assessee to be general and casual, lacking a reasonable cause. The Tribunal dismissed the Cross Objections as non-admitted due to the absence of a good and reasonable cause for the delay.

Issue 2: Disallowance under Sections 201(1) and 201(1A)
The AO found that the assessee failed to deduct tax at source on payments made to M/s Kone Elevators, considering it liable for TDS under section 194C. The CIT(A), however, allowed the claim of the assessee based on a Supreme Court judgment, stating the contract was not a 'work contract' but a 'contract for sale,' hence no TDS was applicable. The Tribunal upheld the CIT(A)'s decision, citing the Supreme Court judgment.

Issue 3: Non-deduction of Tax from Payments
Regarding the non-deduction of tax from payments labeled as "excess payment refund," the AO treated it as interest payment liable for TDS under section 194A. The CIT(A) disagreed, considering the payments as capital receipts. The Tribunal analyzed the nature of payments and concluded that the amounts were indeed in the nature of interest as defined under section 2(28A) of the Act. The Tribunal reversed the CIT(A)'s order, holding the payments as interest and liable for TDS under section 194A.

In summary, the Tribunal confirmed the decision on the condonation of delay issue, upheld the CIT(A)'s decision on the disallowance under sections 201(1) and 201(1A), and reversed the CIT(A)'s decision on the non-deduction of tax issue, holding the payments as interest and subject to TDS. Consequently, the revenue's appeals were partly allowed, and the assessee's Cross Objections were dismissed.