Case Law Details
I.T.O. M/s. Batram Properties Pvt. Ltd. (ITAT Kolkata)
Interest income paid to a company carrying on a business of insurance need not deduct tax at source
A plain reading of the provision of section 194A(3)(iii)(e) of the Act suggests that interest income paid to a company carrying on a business of insurance need not deduct tax at source. There is no other qualification mentioned in the relevant statutory provisions. Nevertheless it is not possible to conclude from a mere look at the profile of the company in a website that it is carrying on business of insurance. Therefore it would be in the interest of justice to set aside the order of CIT(A) on this issue and remand the issue for fresh consideration by the AO on the question as to whether Reliance Capital Ltd can said to be carrying on the business of insurance.
Once it is held that the Assessee is entitled to the benefit of 2nd proviso to Sec.40(a)(ia) of the Act, it would be appropriate to direct the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same.
Hon’ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (I) Pvt.Ltd., in ITA No. 160/2015 judgment dated 26.8.2015 has taken the view that the insertion of the second proviso to Sec.40(a)(ia) of the Act is retrospective and will apply from 1.4.2005. Once it is held that the Assessee is entitled to the benefit of 2nd proviso to Sec.40(a)(ia) of the Act, it would be appropriate to direct the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no dis allowance u/s. 40(a)(ia) of the Act ought to have been sustained by the CIT(A). We therefore hold and direct that in case the recipient parties are not cooperating in providing details, the AO should call for the information u/s. 133(6) or 131 of the Act, for verification of the same. In this regard we also direct the assessee to furnish all the details of assessment particulars of the recipients of payment from the Assessee. The AO therefore should not have any difficulty in making the required verification. We therefore set aside the order of the CIT(A) to the extent to which he had sustained the order of the AO on the dis allowance u/s.40(a)(ia) of the Act and remand the issue to the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no dis allowance u/s.40(a)(ia) of the Act should be made by the AO. In case the recipient parties are not cooperating in providing details, the AO should be directed to call for the information u!s. 133(6) or 131 of the Act, for verification of the same.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
This is an appeal by the Revenue against the order dated 16.03.2016 of C.I.T.(A)-16, Kolkata relating to A.Y. 2009-10.
2. The Assessee is a company engaged in the business of sub-letting of various properties and deriving rental income and service charges there from. Originally an order of assessment u/s 143(3) of the Income Tax Act, 1961 (Act) was passed on 12.2011. In the said assessment an addition of interest paid to Reliance Capital Ltd. by the assessee of Rs.35,02,370/- was disallowed u/s 40(a)(ia) of the Act for the assessee’ s failure to deduct tax at source while making the payment of interest. On further appeal the Hon’ble ITAT, Kolkata set aside the addition made by the AO for a denovo consideration by the AO.
3. Pursuant to the aforesaid direction of ITAT the AO framed an order of assessment dated 20.11.2014 u/s 254/143(3) of the Act. As far as the interest paid by the assessee to Reliance Capital Ltd is concerned the plea of the assessee was that there was no obligation to deduct tax at source on the interest paid to Reliance Capital Ltd because under section 194A(3) (iii)(e) of the Act the provision mandating of tax at source laid down n section 194(1) shall not apply where the interest income in question is paid to any company or cooperative society carrying on the business of insurance. It is not in dispute that Reliance Capital Ltd is a non banking finance company. It also had one of the line of business of life insurance and general insurance.
4. The AO held that the provision of section 194A of the Act will be clearly attracted and since the assessee failed to deduct tax at source the dis allowance u/s 40(a)(ia) of the Act has to be made.
5. On appeal by the assessee the CIT(A) accepted the submissions of the assessee deleted the addition made by the AO. by observing as follows :-
“Accordingly the case was fixed for hearing on 11.11.2014 and the appellant submitted reply with evidence vide its letter dated 11.11.2014 to prove that interest payment of Rs. 34,02,370/- to Reliance Capital Ltd., is covered u/s. 194A(3)(iii)(e) of the I.T.Act,1961, which specifically exempt any company or co-operative society carrying on the business of insurance from deduction of tax at source. However, the ld. AO while allowing interest of Rs. 1,01,120/- paid to ICICI Bank, he disallowed interest of Rs. 34,02,370/- paid to Reliance Capital Ltd. treating it as NBFC. The AR has mentioned that “The AO ignored and bypassed the fact that Reliance Capital Ltd. is a highly diversified company also carrying on the business of insurance enjoy exemption covered u/s.194A (3)(iii) of the I.T.Act,1961. This contention of the appellant is evident from the profile of the company available on website, a copy of which was submitted for your kind consideration during earlier hearing on 29.02.2016. Therefore, the Id. AO was totally unjustified in by- passing the above submission and considering the company as NBFC passed order u/s 254/143(3) of the I.T. Act, 1961 on 20.11.2014 making dis allowance of Rs. 34,02,370/- u/s 40(a)(ia) which is totally unjustified and not based on facts deserves to be deleted.”
6. Aggrieved by the order of CIT(A) the revenue is in appeal before the Tribunal.
7. The submission of the ld. DR was of the clause (e) of section 194A(3)(iii) of the Act covers only cases where the only business of an assessee is business of insurance. It was his submission that the assessee was a non banking finance company and business of financing was its primary business. It was further submitted by him that the purpose of allowing exemption from TDS u/s 194A(3)(iii)(e) of the Act is only to cover cases where there is default in payment of insurance premium and consequently interest is levied by the insurer from the insured on such delayed payment. Only in such case no TDS need to be made on interest paid. It is his further submission that the CIT(A) erred in concluding that Reliance Capital Ltd was carrying on the business of insurance on the basis of the profile of the company as reflected in its website rather than analyzing the profit and loss account and balances sheet of the company over a period of time. The AR relied on the order of AO and submitted that there is no such condition as is sought to be canvassed by the ld. DR in the relevant statutory provision. A plain and a literal meaning is to be given to the words of the section. Even if a part of the business of an assessee is a business of an insurance and even in a case where the interest paid is on loan borrowed, no TDS need to be made.
8. In the alternative, the learned counsel for the assessee prayed for a remand of the issue to the AO with a direction to the AO to verify if the payees have declared the receipt from the Assessee in their return of income and if they have so declared then the addition u/s. 40(a)(ia) of the Act should be deleted by the AO. The above submission was made in the context of the amendments to the provisions of Sec.40(a)(ia) of the Act by the Finance Act, 2012 w.e.f. 1-4-2013, whereby a second proviso was inserted which provided that if the payees have filed their return of income showing the receipts from the Assessee in their return of income than the it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in Sec.40(a)(ia) of the Act.
9. It was argued by the learned counsel for the Assessee that the Assessing Officer and first appellate authorities are vested with statutory powers u/s 133(6) or 131 and or other provisions and they could have made inquires with the parties or their respective Assessing Officer. In this regard it was submitted that all the relevant details of the payees were furnished and are available on record with their PAN and AO details.
10. It was pointed out that ITAT, Kolkata in the case of Ramakrishna Vedanta Math Income-tax Officer, Ward 59 (1), Kolkata, [2012] 24 taxmann.com29 (Kol.) has taken a view that once assessee furnishes lawfully maintained information about recipients, Assessing Officer should first ascertain related facts about payment of taxes directly from recipients before invoking section 201 (1). It was submitted that the above decision ITAT Kolkata in the above mentioned case will also apply for the purposes of Section 40(a)(ia) of the Act. Further reliance was also placed on the decision of the ITAT Kolkata in the case of Vas Electronics Vs. ACIT, ITAT Kolkata in I.T.A No. 662/Kol/2013 dated 24-11-2015 wherein following the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township P. Ltd. (2015) 377 ITR 635 (Del), the AO is directed to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same.
11. It was therefore submitted that the dis allowance u/s.40(a)(ia) of the Act should be set aside and remanded to the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no dis allowance u/s.40(a)(ia) of the Act should be made by the AO. In case the recipient parties are not co-operating in providing details, the AO should be directed to call for the information u/s. 13 3(6) or 131 of the Act, for verification of the same.
12. The learned DR relied on the order of the CIT(A) and submitted that the benefit of the second proviso should not be allowed to the Assessee as the tax deducted at source has not been paid on or before the due date for filing the return of income u/s.139(1) of the Act.
13. We have given a very careful consideration to the rival submissions. As rightly contended on behalf of the assessee a plain reading of the provision of section 194A(3)(iii)(e) of the Act suggests that interest income paid to a company carrying on a business of insurance need not deduct tax at source. There is no other qualification mentioned in the relevant statutory provisions. Nevertheless it is not possible to conclude from a mere look at the profile of the company in a website that it is carrying on business of insurance. Therefore it would be in the interest of justice to set aside the order of CIT(A) on this issue and remand the issue for fresh consideration by the AO on the question as to whether Reliance Capital Ltd can said to be carrying on the business of insurance.
14. On the alternative plea raised by the ld. Counsel for the assessee, we find that the Hon’ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (I) Pvt.Ltd., in ITA No. 160/2015 judgment dated 26.8.2015 has taken the view that the insertion of the second proviso to Sec.40(a)(ia) of the Act is retrospective and will apply from 1.4.2005. Once it is held that the Assessee is entitled to the benefit of 2nd proviso to Sec.40(a)(ia) of the Act, it would be appropriate to direct the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no dis allowance u/s.40(a)(ia) of the Act ought to have been sustained by the CIT(A). We therefore hold and direct that in case the recipient parties are not cooperating in providing details, the AO should call for the information u/s. 133(6) or 131 of the Act, for verification of the same. In this regard we also direct the assessee to furnish all the details of assessment particulars of the recipients of payment from the Assessee. The AO therefore should not have any difficulty in making the required verification. We therefore set aside the order of the CIT(A) to the extent to which he had sustained the order of the AO on the dis allowance u!s.40(a)(ia) of the Act and remand the issue to the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no dis allowance u!s.40(a)(ia) of the Act should be made by the AO. In case the recipient parties are not cooperating in providing details, the AO should be directed to call for the information u!s. 133(6) or 131 of the Act, for verification of the same.
In the result the appeal by the revenue is treated as allowed for statistical purposes.
Order pronounced in the Court on 01.12.2017.
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