Case Law Details

Case Name : ACIT Vs Smt. Champa Nandi (ITAT Kolkata)
Appeal Number : ITA No. 2517/Kol/2017
Date of Judgement/Order : 07/12/2018
Related Assessment Year : 2012-13
Courts : All ITAT (5948) ITAT Kolkata (480)

ACIT Vs Smt. Champa Nandi (ITAT Kolkata)

The Income Tax Appellate Tribunal ( ITAT ), Kolkata has held that the finance charges to Non-Banking Financial Companies (NBFCs) are not subject to Tax Deduction at Source ( TDS ) under the provisions of section 194A of the Income Tax Act.

The assessee has debited in his profit and loss account an aggregate sum of Rs.5,68,40,472/- under the head interest and finance charges. While completing the assessment proceedings, the Assessing Officer held that such amounts were payable/paid to different non-banking financial companies and no tax has been deducted at source under section 194A of the Act.

According to the assessee, the finance charges do not interest and hence, section 194A is not attracted since his business was that of hiring out industrial crane and equipment which are acquired on hire purchase finance from the bank and other financial companies. It was contended that the monthly hire -purchase installments were paid in which financial charges were also included.

The Tribunal noted that all such loans, monthly deduction of principal and proportionate interest had been paid by the assessee and claimed in the accounts as finance charges. The total interest debited during the year amounted to Rs.4,41,12,661/- without any deduction of TDS.

“However, out of the four finance Companies, two Companies namely M/s L & T Finance and M/s SREI Equipment and Finance Pvt. Ltd. had issued a confirmation to payer Company that they have duly included the same in their income. For the other two Companies, Chartered Accountant’s certificates confirming that the interest so received have all been duly credited to their income, were also received by the payer company. Therefore, in view of the insertion of the second proviso of section 40(a)(ia) and proviso of section 201(1) which are curative and retrospective in nature, the addition made by the Assessing Officer should be deleted,” the Tribunal said.

FULL TEXT OF THE ITAT JUDGMENT

The captioned appeal filed by the Revenue, pertaining to Assessment Year 2012-13, is directed against an order passed by the Ld. Commissioner of Income Tax (Appeals)-7, Kolkata, in Appeal No.82/CIT(A)-7/Kol/Cir-25/15-16, dated 29.09.2017, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

2. The grievances raised by the Revenue are as follows:

“1. That on the facts and circumstances of the case ld. CIT(A)-7/Kol/ had erred in deleting the addition on a/c of disallowance of interest paid to different parties amounting to Rs.4,41,12,662/- u/s 40(a)(ia).

2. That the ld. CIT(A)-7/Kol was wrong in holding that the second proviso to section 40(a)(ia) is applicable to the instant case for Assessment Year 2012-13 although second proviso to section 40(a)(ia) was not applicable to the Assessment Year 2012-13 since this proviso was inserted by Finance Act 2012 i.e w.e.f. 01/04/2013 i.e. Assessment Year 2013-14.

3. That the petitioner craves leave to add, amend, alter vary and/or withdraw any or all the above grounds of appeal.”

3. The brief facts qua the issue are that assessee has debited in his profit and loss account an aggregate sum of Rs.5,68,40,472/- under the head interest and finance charges. On perusal of the same it was noted by assessing officer that the following amounts were payable/paid to different non-banking financial companies and no tax has been deducted at source under section 194A of the Act:

SI. No. Name of Lenders & address Interest amounts (in Rs.)
1 Tata Capital & Financial Services Ltd., 71, Park Street Kolkata – 700 016 1,56,60,312
2 L & T Finance , 8- Beck Bagan Road, Kolkata :700 017 1,51,72,867
3 SREI Equipment Finance Pvt. Ltd. 86-C, Tapsia Road (south) Kolkata :- 700 046. 1,08,93,955
4 SRIRAM Equipment Finance Co. Ltd. Mira Tower, DN-27, Sector- V, Salt LakeCity, Kolkata:- 700 091 23,85,527
Total 4,41,12,662

During the assessment proceedings, the assessee was asked to explain as to why such expenses (as described above amounting to Rs.4,41,12,662/-) will not be disallowed u/s 40(a)(ia) of the Income Tax Act,1961.

In response to the above, the assessee submitted that his business was that of hiring out industrial crane and equipment which are acquired on hire purchase finance from bank and other financial companies. Monthly hire -purchase installments were paid in which financial charges were also included. The assessee felt that the finance charges are not interest and hence section 194A is not attracted and as such no TDS had been deducted.

However, the assessing officer rejected the contention of the assessee and noted that since the assessee had not submitted any documentary evidence or legal/judicial explanation in support of above set of arguments of the assessee which claims that monthly payments included hire charges and such hire charges were not subject to TDS u/s 194A of the Act. Therefore, the assessee’s entire claim of interest payment to various NBFCs aggregating to Rs.4,41,12,662/-that were debited in her books of accounts as payable at any time in the FY 2011-12, without making any TDS u/s 194A was disallowed under section 40(a)(ia) of the Act.

4. Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the ld CIT(A), who has deleted the addition made by the Assessing Officer.

5. Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us. The ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, the ld. Counsel for the assessee relied on the order passed by the CIT(A) and submissions made before the authorities below.

6. We have given a careful consideration to the rival submissions and perused the material available on record, we note that from the details submitted by the assessee it is abundantly clear that equipment loans had been availed by the assessee from four finance Companies namely M/s Tata Capital and Finance Services Ltd., M/s L & T Finance, M/s SREI Equipment & Finance Pvt. Ltd and M/s Sreeram Equipment Finance Co. Ltd. We note that on all such loans, monthly deduction of principal and proportionate interest had been paid by the assessee and claimed in the accounts as finance charges. The total interest debited during the year amounted to Rs.4,41,12,661/-without any deduction of TDS. However, out of the four finance Companies, two Companies namely M/s L & T Finance and M/s SREI Equipment and Finance Pvt. Ltd. had issued confirmation to payer Company that they have duly included the same in their income. For the other two Companies, Chartered Accountant’s certificates confirming that the interest so received have all been duly credited to their income, were also received by the payer company. Therefore, in view of the insertion of second proviso of section 40(a)(ia) and proviso of section 201(1) which are curative and retrospective in nature, the addition made by the Assessing Officer should be deleted. That being so, we decline to interfere in the order passed by the ld CIT(A), his order on this issue is hereby upheld and the grounds raised by the Revenue is dismissed.

7. In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open court on this 07/12/2018.

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