2017 (11) TMI 1196 - AT - Income Tax

TDS u/s 194A - interest payment was made to the bank - non deduction of tds - Held that - In the assessee s case, as on the date of payment there was no loan out standing against the assessee in Corporation Bank and Bank of India. The term loans were outstanding in the name of M/s. Uniply Industries Ltd., and the assessee has made the payments in either to the bank directly to M/s. Uniply Industries Ltd., towards the term loan installments of the bank loans which was inclusive of interest. Since the bank loan was not given to the assessee and no loan was outstanding against the assessee, the asses see is not covered by the exception in section 194A and the same is not tenable. Payment to the bank was a reimbursement of bank interest in which case also the provisions of TDS 194A is not applicable - Held that - Since the assessee has taken the wind mills from M/s. Uniply Industries Ltd., it is obligation on the part of the assessee to make the payments since the ownership vests with the assessee-company by the memorandum of understanding. The SEPC has entered into the memorandum of understanding dated July 10, 2008 with M/s. Uniply Industries Ltd. for purchase of wind mills on behalf of its associates concern M/s. Clarion Wind Farm Pvt. Ltd. Though the memorandum of understanding entered with M/s. SEPCL and M/s. Uniply Industries Ltd., there were no purchase agreements documents between SEPC/Uniply Industries and the assessee-company. The assessee has not submitted the documents related to the registration of the wind mills in the name of the assessee-company. For a query from the Bench, the learned authorised representative accepted that the sale of wind mills, attracts sales tax but no sales tax assessment or payment details have been furnished by the assessee. No evidence has been furnished with regard to not claiming the interest by M/s. Uniply. These issues were not verified with the Assessing Officer. Unless the assessee establishes that the assessee has purchased the wind mills from M/s. Uniply Industries Ltd. and the documentation relating to transfer of property to the assessee have been completed and registered before the end of the financial year, the question reimbursement of expenses and the interest expenditure does not arise. Therefore, we set aside the orders of the lower authorities and remit the matter back to the file of the Assessing Officer to verify the facts

Summary

Issues:
- Disallowance under section 40(a)(i) of the Income-tax Act for non-deduction of tax at source.
- Applicability of TDS provisions on interest payments made to banks.
- Reimbursement of bank interest and its impact on TDS provisions.
- Verification of formalities related to the transfer of assets in the case.

Analysis:
1. The appeal involved the disallowance of a specific amount under section 40(a)(i) of the Income-tax Act due to non-deduction of tax at source. The Assessing Officer added the amount for non-deduction of tax at source, leading to the appeal by the Revenue against the order of the Commissioner of Income-tax (Appeals)-I, Chennai. The dispute centered around whether the TDS provisions applied to interest payments made by the assessee to banks.

2. The assessee contended that the TDS provisions did not apply as the payments were made on behalf of another entity towards term loan installments and interest debited by the bank. The argument was based on the premise that no loan was outstanding against the assessee, and the payments were made to discharge obligations of the other entity. However, the Tribunal found this argument untenable as there was no loan outstanding against the assessee, and the exception under section 194A did not cover the assessee's situation.

3. Another argument put forth by the assessee was that the payments to the bank constituted a reimbursement of bank interest, exempting them from TDS provisions. However, the Tribunal noted discrepancies in the documentation and transfer of assets related to the wind mills purchased. The Tribunal emphasized the need for verifying whether the formalities regarding the transfer of assets to the assessee had been completed and registered. Without proper documentation and evidence, the question of reimbursement of expenses and interest expenditure did not hold, leading to the matter being remitted back to the Assessing Officer for further verification.

4. The Tribunal ultimately allowed the appeal of the Revenue for statistical purposes, highlighting the importance of verifying the completion of formalities related to the transfer of assets and the reimbursement of amounts paid by the other entity. The decision emphasized the necessity of proper documentation and evidence to support claims of reimbursement and interest expenditure to avoid TDS implications.

5. In conclusion, the judgment focused on the intricacies of TDS provisions, the nature of payments made to banks, and the importance of verifying transfer formalities in cases involving reimbursement of expenses. The detailed analysis underscored the significance of accurate documentation and compliance with legal requirements to determine the applicability of TDS provisions in such scenarios.