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Case Law Details

Case Name : Spectrum Power Generation Ltd. Vs ACIT (TDS) (ITAT Hyderabad)
Appeal Number : ITA No.438 of 2007
Date of Judgement/Order : 12/06/2015
Related Assessment Year : 2000-01

Brief Facts of the case:

The assessee in the present case is a company incorporated with the main object to generate and sale power. The generation of electricity is done through the natural gas supplied by GAIL. The operation and maintenance of the power unit of the assessee is done by M/s. Rolls Royce Industrial Power India Limited (RRIPL), London having its permanent establishment in Delhi.The generation of electricity is done through the natural gas supplied by GAIL.

A survey operationunder section 133A was carried out in the case of theassessee wherein certain defaults in the matter of TDS compliance allegedly committed by the assessee were detected. One of such defaults, according to the A.O., was the failure of the assessee to deduct tax at source amounting Rs.1,11,39,688 from the payment made to M/s. RRIPL on account of Plant Load Factor (PLF) bonus for the F.Y. 1999-2000.

He pointed out that the liability on account of PLF bonus payable to M/s. RRIPL was provided for in the books of account of the assessee company for the F.Y. 1999-2000 and since there was no exemption certificate furnished by the payee for the F.Y.1999-2000, the assessee company was liable to deduct tax at source from the amount credited to M/s. RRIPL on account of PLF bonus. Accordingly, he treated the assessee company as in default for its failure to deduct tax at source to that extent under section 201(1) and also levied interest under section 201(1A).

Aggrieved by the order of AO, assesseee preferred an appeal before CIT (A).

CIT (A) allowed the assessee’s appeal by holding that since in the present case the actual payment has preceded the actual credit entry made, the TDS liability of the appellant is to be reckoned as on the date when the payment was made.Since at the time of making the payment, there was a valid exemption certificate issued by TDS authority at New Delhi, the appellant had a reasonable ground for not deducting TDS at the time of remittance. Aggrieved by the order of CIT (A), Revenue preferred an appeal before the ITAT.

Contention of the Assessee:

Learned counsel for the assessee contended that the PLF bonus to M/s.RRIPL for the F.Y. 1999-2000 was paid in the month of November, 2000 and February, 2001 falling within the F.Y. 2000-2001 It was also submitted that the A.O. that the annual accounts for the year 1999-2000 were closed in January, 2003 when the liability for PLF bonus was actually provided in the accounts.Thus, since the payment has preceded the credit entry, the payment date is the point of attraction of TDS liability.

And since the said payee had furnishedan exemption certificate issued by the A.O. for the F.Y.2000-2001(year of payment), the assessee company was not liable to deduct tax at source.

Contention of the Revenue:

According to the learned counsel for the department, the assessee company as per the provisions of section 195(1) was liable to deduct tax at source from the payment made to a non-resident of any sum chargeable under the provisions of the Act at the time of credit of such income to the account of the payee or at the time of payment thereof whichever is earlier.

He also pointed out that the liability on account of PLF bonus payable to M/s. RRIPL was provided for in the books of account of the assessee company for the F.Y. 1999-2000 and since there was no exemption certificate furnished by the payee for the F.Y.1999-2000, the assessee company was liable to deduct tax at source from the amount credited to M/s. RRIPL on account of PLF bonus.

Decision of the ITAT:

The ITAT after considering the rival submissions made observed that relevant entries making provision for the PLF bonus in the books of account of the assessee company for the F.Y. 1999-2000 were actually made only in January, 2003. It is thus clear that when the payments were made by the assessee company to M/s. RRIPL on account of PLF bonus in the months of November, 2000 and February, 2001, the amount of PLF bonus was not credited by the assessee company to the account of M/s. RRIPL.

Thus, as per the provisions of Sec 195(1), the assessee was liable to deduct tax at source at the time of making payment in FY 2000-01 (as it is earlier than credit).

Since M/s. RRIPL had furnished an exemption certificate obtained from the AO for the FY 2000-2001, we concur with the findings of CIT(A) that there was no default on the part of the assessee in making the payment to M/s. RRIPL without deduction of tax at source.

Therefore, the appeal of Revenue is dismissed.

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