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TMI Blog2024 (12) TMI 247X X X X Extracts X X X X X X X X Extracts X X X X ..... On the facts of the case and in Law, the CIT(A) has grossly erred in considering the assessee as "Assessee in default" for non-deduction of TDS without accepting the fact that the interest paid on loan from group entities are in the nature of reimbursement and therefore not liable for deduction of TDS. 2. The appellant craves leave to add, to amend, alter / delete and / or modify the above grounds of appeal on or before the final date of hearing. 3. As per the facts of the case the assessee is a part of the Ruparel Realty Group which is engaged in the business of building and developing properties and selling flats and offices for residential and commercial use in various parts of Mumbai Metropolitan Region and generates income from business of building and developing properties and selling flats and offices for residential and commercial use. The assessee has filed return of income for the year under consideration i.e A.Y. 2016-17 on 17.10.2016 declaring total income at Rs. 13,39,060/-. 4. A search action u/s 132 of the Income Tax Act was conducted on the Ruparel Realty group on 25.11.2021.On the basis of the details forwarded by the DDIT(Inv), Unit6(3), Mumbai the Ld. Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt lenders becomes difficult for the various reasons. v. to give share of the specific projects to the outsiders, wherever applicable. vi. many other reasons depending on case-to-case basis 3. All these entities are engaged in similar business activity of builders and developers. The group is mainly engaged in the business of re-development of slums (SRA Projects) and other old building structures. 4. All the companies and firms are family owned and have common shareholders and directors. 5. Area of the business operation of the group is Mumbai, Navi Mumbai and suburbs of Mumbai. The group is into real estate business since last more than 20 years. 6. The group needs finance for the various projects carried out by various entities of the group. The group has to mortgage various projects in order to borrow more money and fulfil security objectives of Lenders / Financial Institutes which ranges from 2-3 times of loan amount. This also helps in minimizing the paper work and other compliances. The objective of the groups is to secure maximum possible finance by one or another way to keep the projects alive at minimum possible cost & compliance, is thus thereby achieved. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above it is evident that interest transactions between the group entities are pure reimbursement in nature. 16. The assessee has reimbursed interest amounting to a total of Rs. 1,59,32,156/- in the relevant A.Y. 2016-17 to its sister concerns. The details of the same has been tabulated below S. No. Name of the Sister Concerns Amount (Rs.) 1 Ruparel Developers India Pvt Ltd 59,065 2 Ruparel Estates India Pvt Ltd. 2,76,357 3 Ruparel Homes (I) Private Ltd. 1,33,38,962 4 Shree Sukhakarta Developers India Pvt Ltd 22,57,772 Total 1,59,32,156 17. The Ld. AO has determined an amount totalling to Rs. 1,27,458/- as an interest payable for failure to deduct TDS on the above-mentioned interest payments to its sister concerns. The details of the same has been tabulated below Sr. No. Name of the Sister Concerns Amount TDS Interest Due u/s 201(1A) 1 Ruparel Developers India Pvt Ltd 59,065 5,907 473 2 Ruparel Estates India Pvt Ltd. 2,76,357 27,636 2,211 3 Ruparel Homes (I) Private Ltd. 1,33,38,962 13,33,896 1,06,712 4 Shree Sukhakarta Developers India Pvt Ltd 22,57,772 2,25,777 18,062 Total 1,59,32,156 15,93, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lass of persons, as may be specified in the said notification. Section 194A deals with deduction of TDS on interest other than interest on securities like Interest on Fixed Deposits, Interest on Loans and Advances other than banks. 1. This section is only applicable to a resident. Thus, the provisions of section 194A are not applicable in case of payment of interest to a non-resident. 2. Payments made to non-residents are also covered under TDS mechanism. However, tax in such a case is to be deducted as per Section 195. 3. The payer/Deductor shall deduct TDS if the amount of such interest paid or credited or is likely to be paid or credited in a financial year, exceed a. 10,000 where the payer is * Banking company or any bank or a banking institution * Co-operative society engaged in the business of banking * Post office (on deposit under scheme framed and notified by Central Government). b. 5,000 in any other case * From FY 2018-19 onwards no TDS will be deducted on interest earned upto INR 50,000 by senior citizens. The interest amount should be earned from the following: * Deposits with banks; * Deposits with post offices * Fixed deposit schemes * Rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deductible or payable under any provision of this Act. From the aforesaid provisions of section 4(2), it is quite clear that income-tax is deductible at source, in respect of income chargeable to tax under section 4(1) of the Act. In other words, it is quite clear that tax is deductible at source, in respect of income, which is chargeable to tax under the Act. 2) Section 190 - Deduction at source and advance payment. Section 190 falls under Chapter XVII-A and its heading is 'Deduction at source and advance payment'. For the sake of ready reference, section 190 is reproduced as follows: Section 190: Deduction at source and advance payment. 190. (1) Notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction or collection at source or by advance payment or by payment under sub-section (1A) of section 192, as the case may be, in accordance with the provisions of this Chapter. (2) Nothing in this section shall prejudice the charge of tax on such income under the provisions of subsection (1) of section 4. From the aforesaid provisions of section 190, it is clear that ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts exempt under section 10A of the Act, do not constitute income for the purpose of section 195 and therefore, no tax is deductible at source, in respect of such amount. The relevant observations of the Hon. High Court on page 752 of the Report are reproduced as follows: The construction sought to be placed by the respondents is based on a distinction which has no substance in it. It is not understandable as to why a benefit which will not be included in the total income of a person, should be considered as "income" for the purpose of deduction of tax at source at all. The purpose of deduction of tax at source is not to collect a sum which is not a tax levied under the Act. The interpretation put on those provisions by the respondents would result in collection of certain amounts by the State which is not a tax qualitatively. Such an interpretation of the taxing statute is impermissible. From the aforesaid observations of the Hon. High Court, it is clear that a benefit or amount which will not be included in the total income of a person, should not be considered as 'income', for the purposes of deduction of tax at source, at all. 4) Reimbursement of expenses does not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance is placed on the following legal precedents: 1. Onward e-Services Ltd. v/s Assistant Commissioner of Income-tax, Central Circle 37-ITAT MUMBAI (IT APPEAL NOS. 97 AND 2974 (MUM.) OF 2010) Assessee-company was engaged in business of software development - It had taken over a banking division of its parent company - In view of taking over of banking division, assessee had to share interest cost burden of parent company based on funds utilized because, parent company was enjoying borrowing facilities from banks for its group companies - On other hand, assessee company was enjoying borrowing facilities from bank through its parent company and funds had actually been advanced to assessee as bank had not approved transferring said borrowing facility to assessee - Thus, to extent of funds utilized in respect of borrowing in name of parent company, interest cost was being reimbursed by assessee to parent company - Whether on facts, it was apparent that assessee had paid interest to bank only through its parent company and, thus, there was no statutory obligation on it to deduct tax at source under section 194A - Held, yes [In favour of assessee] 2. Neo Sports Broadcast (P.) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nical services. It was held that since the amount of bills so raised was towards the actual expenses incurred by the consultant, there was no element of any profit or income involved in the said bills. It was, thus, a clear case of reimbursement of actual expenses incurred by the consultant and the same, therefore, was not of the nature of payment, requiring the assessee to deduct tax at source therefrom. 4. Mahindra and Mahindra Ltd VsDy.CIT [2009] 313 ITR (AT) 263 (Mum)(SB): 22 DTR (Trib) 361 (Mum)(SB). It was, inter alia, held in this case that reimbursement of expenses cannot be considered to be in the nature of income and therefore, it is not income by way of fees for technical services. It was further held that when a particular amount of expenditure is incurred and that sum is reimbursed as such, that cannot be considered as having any part of it in the nature of income. Any payment, in order to be brought within the scope of income by way of fees for technical services under section 9(1)(vii) should, be or have at least some elements of income in it. Such payment should involve some compensation for the rendering of any services which can be described as income in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR (Trib) 217 (Mum) It was, inter alia, held in this case that reimbursements received by the assessee were in respect of specific and actual expenses incurred by the assessee and do not involve any mark up. Besides, there was reasonable control mechanism in place to ensure that these claims were not inflated and the assessee had furnished sufficient evidence to demonstrate the incurring of expenses. There was, thus, no reason to make any addition to income in respect of the reimbursement of expenses. We also rely on the below mentioned judgements related to reimbursement: IN THE SUPREME COURT OF INDIA Director Of Income Tax (It) - I vs A.P. Moller Maersk The Supreme Court in the case of Director of Income-tax (IT) vs. A.P. Moller Maersk, held that cost reimbursed by Indian agents for utilizing global telecommunication facility cannot be treated as fees for technical services and therefore not taxable. IN THE HIGH COURT OF JUDICATURE AT BOMBAY INCOME TAX APPEAL NO. 652 OF 2017 Pr. Commissioner of Income Tax - 1 Versus Goldman Sachs (India) Finance Pvt Ltd (GSIFPL) Held that, 3. The Tribunal, however, held that, the amount in question was by way of reimbursement of cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income Tax, Central, Ahmedabad v. Plastene India Ltd.* R/TAX APPEAL NO. 1284 OF 2018 Section 194A of the Income-tax Act, 1961 - Deduction of tax at source - Interest other than interest on securities (Letter of credit discount charges) - Assessment year 2008-09 - During relevant year, assessee-company debited payment of interest which included Letter of Credit (LC) discount charges - Assessing Officer opined that finance charges debited to profit and loss account were in nature of interest under section 2(28A) and thus, there was requirement to deduct tax at source - In view of assessee's failure to deduct tax at source, Assessing Officer disallowed LC discount charges - Commissioner (Appeals) found that LC discount charges were in nature of reimbursement of cost incurred by suppliers under agreed arrangement and it was also an additional cost for assessee for purchase of goods - However, no interest payments were made to supplier by assessee - Commissioner (Appeals) thus taking a view that provisions of section 194A were not applicable, deleted disallowance made by Assessing Officer - Tribunal upheld order passed by Commissioner (Appeals) - It was noted that assessee had o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, till judgment of High Court in such Appeal, is not 'income' and therefore would not be eligible to tax - Held, yes - Whether further, provision of deducting tax at source cannot govern taxability of amount which is being paid, hence, section 194A provision relating to deduction of tax at source also cannot make interest income chargeable to tax if it otherwise is not, as it is not a charging provision - Held, yes - Whether however, interest which may be paid for delay in depositing awarded amount, would not form part of compensation and, therefore, would fall in bracket of interest income and would be eligible to tax under normal provisions - Held, yes [Paras 59 and 61][In favour of assessee] HIGH COURT OF ALLAHABAD Commissioner of Income-tax v. Oriental Insurance Co. Ltd.* IT APPEAL NOS. 441 OF 2006 & 398 OF 2009 IT APPEAL DEFECTIVE NOS. 279, 281, 284 & 285 OF 2006 Section 2(28A), read with section 194A, of the Income-tax Act, 1961 - Interest - Interest on delayed payment of compensation under motor accident claims - Assessment years 1998-99 to 2002-03 - Whether interest paid on delayed payment of compensation under motor accident claims does not come within ambit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uilders for AY 2019-20 (Assessee's sister concern) 11. IN THE ITAT MUMBAI BENCH 'C' Onward e-Services Ltd. v. Assistant Commissioner of Income-tax, Central Circle 37 IT APPEAL NOS. 97 AND 2974 (MUM.) OF 2010 [ASSESSMENT YEARS 2005-06 AND 2007-08] 12. IN THE ITAT MUMBAI BENCH 'L-1' NathpaJhakri Joint Venture v. Assistant Commissioner of Income-tax, Circle 23(1), Mumbai IT APPEAL NOS. 35 AND 105 (MUM.) OF 2007 [ASSESSMENT YEAR 2003-04] 13. IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH 'I-2', NEW DELHI M/s Expeditors International (India) v. DCIT, Circle-11(1), New Delhi ITA No. 2242/Del/2015 :Asstt. Year: 2009-10 ITA No. 2260/Del/2015 :Asstt. Year: 2009-10 ITA No. 5994/Del/2017 :Asstt. Year: 2010-11 ITA No. 17/Del/2021 :Asstt. Year: 2010-11 ITA No. 3513/Del/2017 :Asstt. Year: 2011-12 ITA No. 18/Del/2021 :Asstt. Year: 2011-12 ITA No. 5538/Del/2018 :Asstt. Year: 2012-13 ITA No. 19/Del/2021 :Asstt. Year: 2012-13 14. IN THE ITAT MUMBAI BENCH 'B' Deputy Commissioner of Income-tax- 10 (1), Mumbai v. Mahanagar Gas Ltd. IT APPEAL NO. 1945 (MUM.) OF 2013 [ASSESSMENT YEAR 2009-10] 15. HIGH COURT OF DELHI Commissioner of Income-tax v. Industrial Engi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deductible on "the income". To ascertain where a particular receipt is income or not has to be looked from many aspects. The circumstances and nature of the transaction has to be analysed. Mere nomenclature resembling to that of an income item does not make it an Income. Here, the payments made by the assessee to its sister concerns are not treated as an income in the hands of the sister concerns as the payments are in nature of pure reimbursements. 2. There is no Loss of Revenue to the Exchequer: The principal borrower has duly deducted and paid the TDS to the exchequer while making payment of interest to the lender, wherever applicable. As the exchequer has duly received the share of the amount and hence, there is no any revenue loss to the Government. Had if the individual group entities directly paid the interest to principal lender deducting the TDS at their individual level, the amount of TDS amount reaching to the Government would have been the same, as is done now. The process of making one entity as principal borrower and other as coborrowers is for the purposes as stated here in before i.e. to secure maximum finance, less paper work and compliances, convenience, pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm Loan & Advances' under 'Current Assets' of same amount. From the above evidence, it can safely be concluded that the assessee-company was enjoying borrowing facilities from the bank through it's group entity companies and the funds have been advanced to the assessee. As per the contention of the assessee to the extent of the funds utilized in respect of bank borrowing in the name of the group entity companies, the interest cost is reimbursed. In fact, the assessee is paying only the interest to the bank but itis through the group entity companies. The group entity companies is not in lending business. 10. From the Balance Sheet of the assessee it has been observed that the assessee has shown the loan amount in the name of the group entity companies. If the credit limit has not been not transferred in the name of the assessee but the credit facility is being enjoyed by the assessee through the group entity companies, then in such a situation the assessee cannot directly show the name of the bank but liability has to be shown on the name of the group entity companies. The assessee has also relied upon the decision of the Coordinate Bench of ITAT in the case of Neo Sport ..... X X X X Extracts X X X X X X X X Extracts X X X X
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