2022 (1) TMI 1314 - AT - Income Tax

TDS u/s 195 - amount paid towards refurbishment / reconstruction charges - non-deduction of TDS - addition u/s 40(a)(i) - As argued amount paid towards refurbishment / reconstruction is not in the nature of fee for technical services covered u/s.9(1)(vii) of the Act as refurbishment activity is in the nature of reconstruction / repair and accordingly no TDS is deductible on this expenditure - HELD THAT - As evident that the assessee company is in the business of generation and sale of electricity. The assessee owns and operates a 330.5MW combined cycle power plant. To run this cycle power plant, the necessary machinery like gas turbine including spare parts viz., HGPS consisting of Combustor Baskets, Transition pieces, Fuel Nozzles, Turbine Static Blades and Turbine Moving Blades with each component having a pre- defined standard life based on Equivalent Operating Hours (EOH) is purchased. The process as explained above including the details of machinery, there is service agreement for refurbishment / repair of these machines entered with Marubeni Corporation, Japan. This refurbishment from the above facts is clear that is only repairs and services of machinery. Thus where discussion of AR as well as ld.senior DR, we are of the belief that payments for repairs are outside the scope of FTS and such payment do not constitute FTS u/s.9(1)(vii) of the Act. These are simple refurbishment or repairs and payment made for these do not attract TDS provision u/s.195 of the Act. Accordingly, we are of the view that this issue stands covered in favour of the assessee. Hence, the CIT(A) has rightly deleted the addition and we confirm the same. Therefore, the Revenue s appeal is dismissed. Disallowing deduction u/s.80IA in respect of interest on bank deposits - interest on TRA deposits placed with the bank, as the same was a requirement of the financing document - HELD THAT - We find that this issue is squarely covered by the Tribunal s order in assessee s own case for earlier assessment years 2006-07 to 2008-09 2015 (5) TMI 1244 - ITAT CHENNAI Therefore, taking a consistent view, we confirm the order of lower authorities and dismiss the cross objection filed by the assessee.

Summary

Issues Involved:
1. Disallowance of expenses under Section 40(a)(i) of the Income Tax Act, 1961.
2. Deduction under Section 80IA of the Income Tax Act, 1961 for interest on bank deposits.

Detailed Analysis:

Issue 1: Disallowance of Expenses under Section 40(a)(i)
The primary issue in ITA No.3015/Chny/2018 is the disallowance of expenses by the Assessing Officer (AO) under Section 40(a)(i) of the Income Tax Act, 1961, due to non-deduction of Tax Deducted at Source (TDS) on refurbishment charges paid to M/s. Marubeni Corporation, Japan.

Facts and Arguments:
- The assessee company is engaged in the generation of electric power and periodically sends key components (Hot Gas Path Spares - HGPS) to Marubeni Corporation, Japan, for refurbishment.
- The AO issued a show-cause notice to the assessee, questioning why the refurbishment charges should not be disallowed due to non-deduction of TDS under Section 195 read with Section 9(1)(vii).
- The assessee argued that the refurbishment charges are not fees for technical services but are in the nature of reconstruction/repair, and thus, no TDS is deductible.
- The AO disallowed the payment, arguing that the refurbishment involves technical services and hence falls under the purview of Section 9(1)(vii).

CIT(A) Decision:
- The CIT(A) deleted the disallowance, stating that the refurbishment is essentially repair and maintenance of machinery, which does not constitute technical services requiring TDS deduction.

Tribunal's Analysis:
- The Tribunal examined the nature of the refurbishment activities and concluded that these are routine repairs and not technical services.
- The Tribunal referenced decisions from other cases, such as DCIT vs. VSNL Broadband Ltd. and ITO vs. Emami Paper Mills Ltd., which held that routine repairs do not constitute fees for technical services.
- The Tribunal upheld the CIT(A)'s decision, confirming that the payment for refurbishment does not attract TDS provisions under Section 195.

Issue 2: Deduction under Section 80IA for Interest on Bank Deposits
The issue in CO No.1/Chny/2019 pertains to the disallowance of deduction under Section 80IA for interest earned on bank deposits.

Facts and Arguments:
- The assessee claimed deduction for interest earned on Trust and Retention Account (TRA) deposits, arguing that it is inextricably linked to the eligible undertaking.
- The AO disallowed the deduction, treating the interest income as "income from other sources" based on the Supreme Court decision in Pandian Chemicals vs. CIT.
- The CIT(A) confirmed the AO's decision, referencing the Tribunal's earlier orders in the assessee's own case for previous assessment years.

Tribunal's Analysis:
- The Tribunal noted that the issue is covered by its earlier decisions in the assessee's own case for assessment years 2006-07 to 2008-09.
- Consistent with its previous rulings, the Tribunal upheld the lower authorities' decision to disallow the deduction under Section 80IA for interest income on bank deposits.

Conclusion:
- The appeal filed by the assessee in ITA No.2092/Chny/2019 for the assessment year 2016-17 is allowed.
- The appeal filed by the Revenue in ITA No.3015/Chny/2018 and the cross-objection filed by the assessee in CO No.1/Chny/2019 for the assessment year 2010-11 are dismissed.