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TMI Blog2014 (4) TMI 904X X X X Extracts X X X X X X X X Extracts X X X X ..... this included as income in the JV as income, assessee has not deducted the tax in view of the amended provisions of section 40(a)(ia) of the Act, wherein it was held that second proviso to section 40(a)(ia) inserted by the Finance Act, 2012 with effect from 01/04/2013, which is clarificatory in nature and the benefit of the same should be applied restrospectively – Relying upon as held by the Cochin Bench in the case of Antony D. Mundackal Vs. ACIT [2013 (12) TMI 67 - ITAT COCHIN] – thus, the AO is directed to see whether JV has paid tax on the income or not on this income and decide the issue in accordance with law – Decided in favour of Revenue. - ITA No. 2224/Hyd/2011 - - - Dated:- 4-3-2014 - Shri Chandra Poojari And Smt. Asha Vijayaraghavan,JJ. For the Petitioner : Sri Jeevan Lal Lavidiya For the Respondent : Sri A.V. Raghu Ram ORDER Per Chandra Poojari, AM: This appeal preferred by the Revenue is directed against the order of the CIT(A), Guntur, dated 21/10/2011 for the assessment year 2008-09 wherein the Revenue has raised the following substantial grounds: 2) The learned CIT(A) has failed to appreciate the action of the Assessing Officer with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of acquisition of machinery and the hire charges proportionate to the period during the financial year is debited to P L A/c by transferring the same from un matured HP Finance charges. The appellant has not paid any interest to, HP Finance Companies, so as to attract the provisions of Sec 194A, which clearly says that the provisions are applicable only for interest, other than interest on securities. 3.1 The AR of the assessee submitted that the Assessing Officer held that such hire purchase finance charges paid by the assessee to HP Finance companies constitute interest by quoting interest definition given in Sec 2(28A) of the IT Act and also referred to IT Circular No. 738 dated 25-03-1996, interest as per Sec 2 (28A) of tile I.T.AcL,1961, means interest payable in any manner in respect of money borrowed or Debt incurred (Including a deposit, claim or other similar right or obligation and include any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility availed. 3.2 The AR of the Assessee submitted that the above Section refers simply the manner in which the interest payable in respect of ,!l10ney borrowed wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, the machinery on which hire charges paid in respect of HP agreement is owned by your petitioner and is also claiming depreciation on the same. No one pays rent for the assets owned by him. In view of the above explanation, the nature of payments made by your petitioner is not interest within the meaning of neither Sec 2 (28A) to attract the provisions of Sec 194A nor Rent with in the meaning of explanation to section 194I of the IT Act to attract the provisions of Sec 40(a)(ia). 3.6 Without prejudice to the above arguments, the AR of the assessee submitted that even it is treated as rent, the of hire charges paid in respect of HP Agreement, are not hit by the provision of Sec 194I. Sec 194I came into Statue with effect from 13/07/2006, relating to AY 2007-08. In respect of the following agreements, the hire charges In respect of HP Agreements were already transferred to un-matured hire charges before the date of 13.07.2006. Agreement No. L T Finance Ltd. 3 Nos. Volvo Tippers 5,78,200 PC 300 2,69,315 8,47,515 SREI Infrastructure Finance Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute whether it is interest or not on hire purchase contract has been decided by the Hon'ble AP High Court in the case of CIT Vs. M/s M.G. Brothers Finance Ltd., vide ITTA Nos. 43,44,45, 50 of 2007 and 761 of 2006, judgment dated 05/12/2013, wherein the Hon'ble Court held as follows: The owner of the goods, which are usable movable goods let out to the hirer on payment of certain amount either on monthly or quarterly or yearly basis and after payment of the entire amount as claimed by the owner being the price of the goods, it is optional for the hirer to buy up to become owner or not. In the event, he exercises his option t buy them, then, the owner of the goods is bound to convey the same by transferring title in favour of the hirer. On the other hand, if the hirer does not exercise his option, then the goods in question must be returned and the payments so far made are treated to be rentals. Therefore, the whole concept is with regard to payment of consideration money or rental not repayment of loan amount in financial transaction. Unless there is involvement of loan transaction, the question of payment of interest does not arise. The aforesaid peculiar situati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed the above expenditure under the head 'interest on mobilisation advance'. The Assessing Officer questioned the nature of payment, in reply, the assessee submitted that M/s Srinvasa Constructions Company and R. Balarami Reddy Co, two individual firms, who formed a Joint Venture as 'Srinvasa Constructions Company and R. Balarami Reddy Co.' (JV) for the purpose of execution of contract works and also to satisfy the eligibility criteria in the execution of contract works of Govt. of Maharashtra. This JV participated in a tender and could successfully bid the tender in the Irrigation Department of Maharashtra. Toward such tender, an amount of Rs. 13,00,02,000/- was released as initial disbursement towards mobilisation advance to the JV. The account copy of the assessee in the books of the JV clearly indicated that the interest of Rs. 39,72,000/- was paid by the assessee to JV which is a different legal entity. Accordingly, the Assessing Officer held that the assessee is liable to deduct TDS u/s 194A of the Act, which failed to do so by the assessee, he invoked the provisions of section 40(a)(ia) and disallowed the interest paid by the assessee of Rs. 39,72,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able Supreme Court held the case like that. 8.2 The AR submitted that the ultimate payee is the Irrigation Department of Govt. of Maharashtra on which TDS need not be deducted. Further, the JV is solely formed for Execution of contract works and taking of Mobilisation advance and payment of interest froms an integral part of the business of execution of contract works. Hence, the case law cited by the Learned JClT, Nellore, is not applicable in this case. 8.3 The AR referring to the judgment of Supreme Court is Hindustan Coca Cola Beverages Private Limited 293 ITL 226(SC), wherein it was held that if the tax has been paid by the deductees, so that where this could be shown to have been so, there can be no liability for deduction itself. In this case, the JV (deductee) has discharged and paid all the tax liability at the point of time where liability for deduction of TDS arises. Hence, even by virtue of the above decision of the Supreme Court, no liability to deduct TDS arises and hence provisions of Sec. 40a (ia) have no application. 9. After considering the submissions of the assessee, the CIT(A) deleted the disallowance made by the Assessing Officer by observing as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant findings of the Bench in the said case as under: 7. We have heard the rival contentions and carefully perused the record. According to the assessee, there is no written contract between him and the persons doing polishing works. Accordingly, the assessee has contended before us that the provisions of sec. 194C shall not apply to the polishing charges. However, we notice that the assessing officer has given a clear finding that essential ingredients of a contract are very much available in the polishing works entrusted by the assessee. Further we notice that the CBDT, vide circular No.433 dated 25- 09-1985 (1986)(157 ITR St. 27) has clarified that the provisions of sec. 194C are wide enough to cover oral contracts also. A contract is normally reduced in writing in order to make clear the terms and conditions, obligations of the parties to the contract etc. If the conditions of contract are otherwise understood by the parties, in view of the repeated transactions, in our view, the absence of a written contract would not make any difference. In the instant case, the assessee is repeatedly given works to the polishing people and hence the terms and conditions of the work wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in the case of Vector Shipping Services (357 ITR 642). On a careful perusal of the decision given by Hon'ble Allahabad High Court, we notice that the High Court has decided the issue referred to it on a different footing and has made a passing comment about the decision rendered by the Special Bench. Thus, the ratio of the said decision is different from that rendered in the case of Meryline Shipping and Transports by the Special bench. Hence, we are inclined to reject the contentions of the assessee on this point also. 7.3 The assessee placed reliance on the decision of Hon'ble Supreme Court in the case of Hindustan Coco-Cola beverages Ltd (supra) in order to contend that the revenue is not entitled to recover taxes, if the recipient has declared the payments in his return of income. We notice that the above said decision was rendered in the context of the provisions of sec. 201(1) and hence, we are of the view that the ratio of the said decision cannot be applied to the disallowance made u/s 40(a)(ia) of the Act. 7.4 The last contention of the assessee is that the second proviso to sec. 40(a)(ia) of the Act, inserted by the Finance Act, 2012 with effect fro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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