2023 (1) TMI 260 - AT - Income Tax

Default with respect to non-remittance of TDS - A O initiated proceedings under section 201 and 201(1A) - AR prayed that an opportunity may be given to produce Form 26A to evidence that the payee to whom the amounts are credited have included the same in their return of income and the tax thereon have been duly paid - HELD THAT - We are therefore of the considered view that the assessee cannot take shelter under the proviso to section 201(1). However we notice that the decision in the case of Hindustan CocaCola Beverage (P.) Ltd 2007 (8) TMI 12 - SUPREME COURT is applicable to assessee s case. We are of the view that the assessee should be given an opportunity to prove whether the payees have paid the taxes due. We therefore remit this issue back to the AO to consider the evidences that the assessee produces in support of the claim that the payees have paid the taxes due with respect to the amount credited by the assessee and decide the case on merits in accordance with law. TDS u/s 194A - Non-deduction of TDS on subvention interest - Assessee has entered into a tripartite agreement with the potential buyers and IHFL as per the terms of which the assessee would pay the pre EMI interest to the lender under interest subvention scheme. The lender while disposing the loan withheld the pre EMI interest - whether the subvention charges, which is in the form of pre-EMI interest paid by the assessee to IHFL is liable for TDS u/s.194A - HELD THAT - A person who is responsible for paying any income by way of interest is liable to deduct tax at source u/s.194A. When a payment is made which is treated as interest income then the person responsible for making such payment is liable to deduct tax at source. A close reading of the provisions of section 2(28A) would make it clear that to call an amount received as interest at least one of the conditions should be satisfied that the amount has been received as due on account of any money either borrowed or debt incurred. In the given case money is borrowed by the buyer when IHFL extended to the housing loan to the buyer. Therefore there can be no dispute that the payments made are in the nature of income by way of interest and would attract the provisions of section 194A. Who is the person responsible for paying the interest ? - The assessee has entered into a tripartite agreement with IHFL and the buyer i.e. borrower whereby the assessee assumes the liability of payment of pre-EMI interest on behalf of the buyer/borrower until the possession of the flat to the buyer/borrower. On perusal of following clauses of the agreement, it is clear that buyer of flat is primarily the person responsible for the payment of interest. Buyer/Borrower who has taken the loan is the person responsible for payment of interest. The assessee as a business strategy to attract customers agrees to bear the burden of pre-EMI interest payment. This does not absolve the primary liability of the borrower/buyer to make the EMI payment including interest and this is clearly stated in the Tripartite Agreement - The assessee in the given facts has acted as an agent of the buyer/borrower while meeting the liability on behalf of the buyer/borrower. As per section 194A, an individual and HUF are not liable to deduct tax at source on payments made by them by way of interest income. The buyer/borrower is therefore not liable to deduct tax at source on the interest payments made as part of EMI. When the buyer/borrower being the person responsible to making the interest payment is not liable to deduct tax at source, the assessee who is making the pre-EMI interest on behalf of the buyer/borrowe cannot be held to be liable to deduct tax at source. Thus we hold that the assessee is not to be treated as assessee in default u/s.201 of the Act and the demand raised u/s.201 and 201(1A) is hereby deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Non-remittance of TDS.
2. Non-deduction of TDS on subvention interest.

Issue-wise Detailed Analysis:

Non-remittance of TDS:
The assessee, a private limited company, faced a financial crisis and failed to remit TDS amounting to Rs. 9,18,59,358/-. The assessee argued that the financial constraints prevented timely remittance and requested an opportunity to produce Form 26A to show that the payees had included the amounts in their income returns and paid the tax. The Revenue contended that the assessee could not rely on the proviso to section 201(1) since it had deducted but not paid the tax. The Tribunal agreed with the Revenue that the proviso applies only to those who failed to deduct tax. However, referencing the Supreme Court decision in Hindustan Coca-Cola Beverage (P.) Ltd vs CIT, it was noted that no demand under section 201(1) should be enforced if the tax deductor proves that the taxes due have been paid by the deductee. The Tribunal remitted the issue back to the AO to allow the assessee to provide evidence that the payees had paid the taxes due.

Non-deduction of TDS on Subvention Interest:
The assessee entered into a tripartite agreement with buyers and IHFL, under which it paid pre-EMI interest on behalf of the buyers. The AO held that the payment constituted interest under section 2(28A) and was liable for TDS under section 194A. The CIT(A) upheld this view, stating that the person paying the interest is liable to deduct TDS. The Tribunal examined the agreement's clauses and determined that the buyer was primarily responsible for the interest payment. The assessee paid the interest as a business strategy but did not assume the primary liability. Since individuals and HUFs are not liable to deduct TDS on interest payments, the Tribunal concluded that the assessee, acting on behalf of the buyer, was not liable to deduct TDS. Consequently, the demand raised under sections 201 and 201(1A) was deleted.

The Tribunal allowed the appeal in favor of the assessee, emphasizing that the primary liability for interest payment lay with the buyer, and the assessee's role was secondary and strategic.