2018 (8) TMI 1553 - HC - Income Tax

Reassessment of proceedings - justification given for the disallowance of loan restructuring fee and alike charges paid by the assessee - Held that - The assessee s appeal succeeded before the Income Tax Appellate Tribunal which, on the issue of subsequent assessment proceedings for the Assessment Year 2003-04, accepted the assessee s contentions with respect to the correct interpretation under Section 2(28A) of the Act. It was held on the merits that the broad nature of the definition of interest under Section 2(28A) of the Act includes not only interest but also the other amounts. The Revenue s contention that the restructuring fee paid by the assessee under these circumstances, in the opinion of this Court, is not interest, is unpersuasive. Firstly, Section 2(28A) of the Act is using wide terms and comprehensively not only interest per se and also the other amounts, such as deposits, service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised . This broad definition led the Court to the interpretation in the case of Gujarat Guardian Ltd. (2009 (1) TMI 13 - HIGH COURT DELHI) that the pre-payment premium or charges were interest within the meaning of the Act. A restructuring fee or processing fee or a payment of any description would likewise answer the description of other charge in respect of the moneys borrowed. or in respect of any credit facility which has not been utilised . For these reasons, the Court is of the opinion that no substantial question of law arises.

Summary

Issues:
1. Rejection of arguments on the tenability of re-assessment
2. Justification for the disallowance of loan restructuring fee and similar charges paid by the assessee

Analysis:
1. The Revenue appealed against the ITAT's order under Section 260-A of the Income Tax Act, 1961, challenging the rejection of its arguments on the tenability of re-assessment. The initial assessment was completed under Section 143(1) of the Act, followed by a re-assessment notice issued by the Revenue under the proviso to Section 148 of the Act. The Revenue contended that the assessee wrongly claimed a sum under Section 2(28A) of the Act. The ITAT accepted the assessee's contentions regarding the correct interpretation under Section 2(28A) of the Act for the Assessment Year 2003-04. The Court observed that the broad definition of "interest" under Section 2(28A) includes not only interest but also other amounts.

2. The Revenue contended that the restructuring fee paid by the assessee was not interest. However, the Court disagreed, citing the wide terms used in Section 2(28A) of the Act, which encompass not only interest but also other charges related to borrowed money or credit facilities. The Court referred to the judgment in the case of 'Commissioner of Income Tax vs. Gujarat Guardian Limited' to support the interpretation that charges like restructuring fees qualify as "interest" under the Act. The Court concluded that no substantial question of law arose and dismissed the appeal.

In summary, the High Court upheld the ITAT's decision, ruling in favor of the assessee regarding the interpretation of "interest" under Section 2(28A) of the Income Tax Act. The Court found the restructuring fee paid by the assessee to be covered under the definition of "interest," dismissing the Revenue's appeal against the order of the ITAT.