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TMI Blog2023 (1) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the Appellant as assessee in default without appreciating the fact that payees have filed their return of income and remitted the tax due and therefore by virtue of 1" proviso to section 201(1), the Appellant cannot be treated as assessee in default. 4. The learned CIT(A) has erred in confirming the action of AO in concluding that the Pre EMI interest borne by the Appellant on behalf of the buyers under subvention scheme is interest u/s 2(28A) of the Income Tax Act and is liable for TDS u/s 194A of the Income Tax Act. 5. The learned AO has erred in not appreciating that the responsibility to comply with TDS provisions was only on the buyer, who had availed the loan from NBFC and not the Appellant. 6. The Appellant denies its liability to be charged with interest under Section 201(1A) of the Act in the facts and circumstances of the case. 7. The Appellant craves for leave of this Hon'ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal as may be necessary at the time of hearing. 8. For these and other grounds that may be urged at the time of hearing of appeal, the Appellant prays that the appeal may be allowed for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of subvention interest wherein the borrowal/debt is incurred by the buyer of the residential unit and the interest liability payable by the buyer has been diverted to the assessee only for economic purposes and the primary liability to pay interest of the underlying loan continues to remain with the buyer. The AO did not appreciate the submissions of the assessee and passed an order under section 201 and 201(1A) of the Act treating the assessee as an assessee in default raising a demand of Rs.11,62,16,891/- which was subsequently rectified under section 154 to Rs.11,47,27,154/-. Aggrieved, the assessee preferred an appeal before the CIT(A) who confirmed the order of the AO by relying on various judicial pronouncements including the decision of the Madras High Court relied on by the AO in the case of Viswapriya Financial Services & Securities Ltd vs ITO (2008) 303 ITR 122 (Madras). 3. The assessee is now in appeal before the Tribunal against the order of the CIT(A). The issue of non-remittance of TDS 4. The learned AR reiterated the submissions made before the lower authorities and explained that the assessee is in serious financial crisis due to which the TDS deducted could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant in such form as may be prescribed57: 9. 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 of the Hon'ble Supreme Court in the case of Hindustan CocaCola Beverage (P.) Ltd (Supra) is applicable to assessee's case. The Hon'ble Supreme Court in this case held that 10. Be that as it may, the Circular No. 275/201/95-IT(B), dated 29- 1-1997 issued by the Central Board of Direct Taxes, in our considered opinion, should put an end to the controversy. The circular declares "no demand visualized under section 201(1) of the Income-tax Act should be enforced after the tax deductor has satisfied the officer-in-charge of TDS, that taxes due have been paid by the deductee-assessee. However, this will not alter the liability to charge interest under section 201(1A) of the Act till the date of payment of taxes by the deductee-assessee or the liability for penalty under section 271C of the Income-tax Act." 10. Considering the above decision, in the interest of justice we are of the view that the assessee should be given an opportunity to prove whether the payees have paid the taxes due. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest is liable to deduct tax at source and in the given case, it is the assessee who is paying the interest. Further, the provisions of section 194A of the Act require deduction of tax at source if the amount paid is "any income by way of interest" and therefore if the amount in the hands of the payee is interest, the provisions of TDS would apply. The CIT(A) further stated that the accounting treatment in the books of accounts of the assessee is not relevant in this case. The CIT(A) relied on the decision of Cochin Bench of the Tribunal in the case of Agreenco Fibre Foam Pvt. Ltd., Vs. ITO (2-13) 38 taxmann.com 155. 13. Aggrieved, the assessee is in appeal before the Tribunal. Before us, the learned AR referred to clauses 10 to 12 of the Tripartite Agreement as reproduced below: "10. That if the Borrower fails to pay the balance amount representing the difference between the loan sanctioned by IHFL and the actual purchase price of the unit/residential apartment; or in the event of death of the Borrower or in the event of cancellation of the residential unit for any reason whatsoever, the parties hereto agree that the total amount received by the Builder (prior to execution o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s mentioned in the respective loan agreement of the borrower. 4. The borrower has informed IHFL about the scheme of arrangement between the borrower under builder in terms thereof the builder hereby assumes the liability on account of interest payable by the borrower to IHFL during the period to be referred to as the "Liability Period." in terms of ........ months from the date of first disbursement of loan facility i.e. till 31/12/ 2019 and/or any other period as agreed by and between the borrower and the builder, more particularly referred under schedule I annexed herein (the liability period is referred to as "Assumed liability for the builder"). It is however agreed that during the liability period the payment of assumed liability is joint and several by and between the borrower and the builder. The assumption of liability by the builder in no manner whatsoever releases, relinquishes and/or reduces the liability of the borrower and that the same shall not be affected in any manner on account of any difference and/or dispute between the borrower and the builder under arrangement between them. 16. The learned DR submitted that the wordings used in section 194A is "person res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 21. Now coming to the issue of who is the 'person responsible for paying the interest'. We notice that the Madhya Pradesh High Court in the case of KrantiKumarSaxena, In re (2003) 262 ITR 33 while considering the issue of person responsible for paying interest u/s.194A held that 8. This section 194A has been inserted in the Income-tax Act, 1961, by the Finance (No. 2) Act, 1967, w.e.f. 1st April, 1967, which relates to deduction of income-tax at source from interest. Under this new section tax deduction at source is permissible in respect of interest on compensation on compulsory acquisition of land and also accrued on enhanced compensation under section 18 of the Land Acquisition Act where the total income assessable to tax exceeds taxable limit, interest accrued after order from the date of delivery of possession of land till the date of order granting enhanced compensation and its yearwise break-up shall be taken into account. This section has to be read in conj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fected in any manner on account of any difference and/or dispute between the Buyer/Borrower and assessee under the arrangement between them (Para 4 of Pg 5 of PB-I). (vii) The Borrower shall be liable to pay regular EMI as per the terms and conditions of the Loan Agreement, subsequent to completion of the Liability Period (Para 6 at page 5 of PB-I). (viii) As per the Memorandum of Understanding (MOU) between the Buyer/Borrower and the assessee, Buyer/Borrower is responsible for loan approval, documentation and applicable charges. (page 1 of PB-I). 23. From the above it is explicitly clear that the 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 (refer Clause 4). 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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