2018 (12) TMI 1131 - AT - Income Tax

TDS u/s 194A - non deduction of tds on interest payment to various NBFCs - Held that - It is abundantly clear that equipment loans had been availed by the assessee from four finance Companies namely M/s Tata Capital and Finance Services Ltd., M/s L & T Finance, M/s SREI Equipment & Finance Pvt. Ltd and M/s Sreeram Equipment Finance Co. Ltd. We note that on all such loans, monthly deduction of principal and proportionate interest had been paid by the assessee and claimed in the accounts as finance charges. The total interest debited during the year amounted to ₹ 4,41,12,661/- without any deduction of TDS. However, out of the four finance Companies, two Companies namely M/s L & T Finance and M/s SREI Equipment and Finance Pvt. Ltd. had issued confirmation to payer Company that they have duly included the same in their income. For the other two Companies, Chartered Accountant s certificates confirming that the interest so received have all been duly credited to their income, were also received by the payer company. Therefore, in view of the insertion of second proviso of section 40(a)(ia) and proviso of section 201(1) which are curative and retrospective in nature, the addition made by the AO should be deleted. - Decided against revenue.

Summary

Issues:
- Disallowance of interest paid to different parties under section 40(a)(ia)
- Applicability of second proviso to section 40(a)(ia) for Assessment Year 2012-13

Analysis:
1. Disallowance of interest paid under section 40(a)(ia):
The appeal by the Revenue challenged the deletion of an addition on account of disallowance of interest paid to various parties totaling to ?4,41,12,662 under section 40(a)(ia) for Assessment Year 2012-13. The Assessing Officer disallowed the claim as the tax was not deducted at source under section 194A. The assessee argued that the finance charges were not interest, hence section 194A was not applicable. However, the Assessing Officer rejected this argument due to lack of supporting evidence. The Commissioner of Income Tax (Appeals) deleted the addition, stating that the finance charges were not subject to TDS. The Tribunal upheld this decision, noting that the loans were availed from finance companies, and the interest debited without TDS. Confirmation from some companies and CA certificates for others supported that the interest was duly included in their income, leading to the deletion of the addition.

2. Applicability of second proviso to section 40(a)(ia):
The Revenue contended that the second proviso to section 40(a)(ia) was wrongly applied for Assessment Year 2012-13, as it was inserted by the Finance Act 2012 for Assessment Year 2013-14. However, the Tribunal upheld the Commissioner's decision based on the retrospective and curative nature of the second proviso and section 201(1). The confirmation and CA certificates provided by the finance companies further supported the deletion of the addition. Consequently, the Tribunal dismissed the Revenue's appeal, upholding the Commissioner's order.

In conclusion, the Tribunal upheld the Commissioner's decision to delete the addition of interest paid to different parties under section 40(a)(ia) for Assessment Year 2012-13, based on the nature of finance charges, confirmation from companies, and retrospective applicability of the second proviso to section 40(a)(ia).