DECIDED BY: ITAT, DELHI BENCH `E’, NEW DELHI , IN THE CASE OF: ITO Vs. Executive Officer Cum Secretary Marketing Committee, APPEAL NO: ITA Nos. 1005 & 1006/Delhi of 2009, DECIDED ON April 29, 2010
PER C. L. SETHI, JM:
These two appeals are filed by the revenue against a consolidated order dated 15.1.2009 passed by the learned CIT(A) in the matter of order passed by the AO u/s 201(1) and 201(1A) of the Income-tax Act, 1961 (the Act) pertaining to the period relevant to the Assessment Years 2006-07 and 2007-08 respectively.
2. The grounds in both the appeals are identical and drafted in the same fashion by stating that the learned CIT (A) has erred in law, and on facts in deleting the demand raised by the AO u/s 201 and 201(1A) of the Income-tax Act for the two assessment years, namely, Asstt. Years 2006-07 and 2007-08.
3. In the grounds of appeal, the revenue has contended that learned CIT (A) has erred in holding as under:
(i) The “Tax Deductor” is not liable to deduct tax on the amount of interest paid/credited in the account of the deductee.
(ii) The “Tax Deductor” is maintaining its accounts on cash basis. So long as the interest is created to the account of the deductee, section 194A is clearly attracted.
(iii) Haryana State Agriculture Marketing Board is covered u/s 194A(3)(iii)(f) of the Income-tax Act, 1961.
(iv) The AO has incorrectly applied the rate of TDS on the applicant.
(v) There is no revenue loss as the income tax deductee viz. Haryana State Agriculture Marketing Board was not taxable. Even if the income of Haryana State Agriculture Marketing Board is treated as not taxable (which is though not a acceptable fact) revenue is deprived of utilization of this account from the date of its deduction to the date of issue of refund. This loss of revenue, however, gets compensated only through the levy of interest u/s 201(1A) of the I.T. Act.
4. We have heard both the parties and have perused the material on record. In these two years, the AO has passed the order u/s 201(1) and 201(1A) by holding that the assessee has failed to deduct tax at source on the interest accrued on loan taken from Haryana State Agriculture Marketing Board, Panchkula. In the financial year 2005-06 relevant to the Asstt. Year 2006-07, the AO has noted the following entries made by the assessee in its books:
Loan from Boards:
Add: Interest accrued on loan
Similarly in the financial year 2006-07 pertaining to the Asstt. Year 2007-08, the following entries were made:
Loan from Boards:
Add: Interest accrued on loan
Less Repayment on loan
The AO was of the opinion that when interest accrued on loan was credited in the creditor’s account, the assessee was supposed to deduct tax at source within the meaning of provisions contained in Section 194A of the Act.
5. Since assessee failed to deduct tax at source from the amount of interest credited in the creditor’s account, the AO passed the order u/s 201(1) and 201(1A) in both the Asstt. Years as under:
(a) Assessment Year 2006-07:
Demand u/s 201 of the I.T. Act, 1961
As envisaged u/s 194-A of the I.T. Act, 1961 Rs.76,34,620/-
On the payment of interest amounting to Rs. 3,40,22,368/-
Interest u/s 201(1A) of the I.T. Act, 1961 Rs.21,37,688/-
For the period of delay from 1.4.2006 to 07/2008 ——————
(b) Assessment Year 2007-08:
Demand u/s 201 of the I.T. Act, 1961
As envisaged u/s 194-A of the I.T. Act, 1961 Rs.50,03,923/-
On the payment of interest amounting to Rs. 2,22,99,125/-
Interest u/s 201(1A) of the I.T. Act, 1961 Rs.8,00,624/-
For the period of delay from 1.4.2007 to 07/2008 ——————
6. On appeal, the ld. CIT (A) cancelled the AO’s order passed u/s 201(1) and 201(1A) by the AO by giving following reasons:
(i) That in the light of exemption u/s 11 & 12 granted to M/s Haryana State Agriculture Marketing Board, Panchkula, there was no tax liability payable by the creditor and as such, no default can be envisaged within the meaning of Section 201(1) and 201(1A) of the Act on the part of the assessee inasmuch as practically, there was no loss to the revenue and even if the demand is raised that would turn out to be a redundant.
(ii) The assessee credited merely a notional interest on loan taken from M/s Haryana State Agriculture Marketing Board, and in the books the assessee has made provision of accrued interest on loans though in fact no interest was actually paid to creditor, and, therefore, this notional entry would not result in income to the creditor whose income is exempt u/s 11 & 12 of the Act.
Hence, the Department is in appeal.
7. We have heard both the parties and have carefully gone through the orders of the authorities below.
8. It is not in dispute that the assessee has made entry of interest accrued on loan taken from M/s Haryana State Agriculture Marketing Board in its books of accounts. For the purpose of Section 194A, the tax on interest is deductible at source at the time of credit of such interest to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier. In Section 194A, it has been further provided under Explanation thereto that even if interest is credited in `Interest Payable Account’, `Suspense Account’ or by any other name, entered in the books of accounts, the person liable to pay interest shall be covered by Section 194A of the Act. Therefore, mere because the interest was not received by Haryana State Agriculture Marketing Board, and when assessee made a provision of interest in its account, in the account of the creditor, the provisions of Section 194A stand applicable when the amount was credited either in the suspense account or interest payable account or by any other name. Therefore, the CIT(A)’s observation that the entry was made only for notional interest accrued on loan and Section 194A in that case would not be applicable, is not justified.
9. Now coming to the question as to whether there is no tax liability payable by the payee or the creditor in whose account interest was credited, a demand can now be raised u/s 201(1) against the assessee for failure to deduct tax at source. In this connection, a reference may be made to a decision of Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd. vs CIT, (2007) 293 ITR 226 (SC) where it has been held that where the recipient has already discharged his tax liability and filed his return of income, the deductee could not be called upon to pay the amount u/s 201(1) if the tax has already been paid by the recipient on such income on which tax was deductible at source. However, when the tax is subsequently paid by the deductee, the liability to pay interest would not cease for the period for which revenue remained deprived of the amount, which was rightfully due to it and in that case the deductor would be liable to pay interest u/s 201(1A) of the Act. The CIT(A) has also followed this principle and then held that since Haryana State Agriculture Marketing Board was a tax exempt entity and no tax was payable on the income earned by the Board, the assessee was not liable to pay even interest u/s 201(1A) since there was no shortfall of the payment of tax at any point of time. In this connection, learned CIT(A) has relied upon a decision of ITAT Bench, Bangalore in the case of Mrs. Meena S. Patil vs ACIT reported in (2008), 114 ITD 181 (Bang) besides some other decisions.
10. In this case, it has been claimed by the assessee that deductee, namely, Haryana State Agriculture Marketing Board has already discharged its liability, no demand as raised by the AO u/s 201(1) can now be imposed against the present assessee. In the light of the decision of Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd. vs CIT (supra), we agree with the contention of the assessee that no demand visualized u/s 201(1) should be enforced after the tax deductor has satisfied the AO(TDS) that tax due have been paid by the deductee. However, this will not alter the liability to charge tax u/s 201(1A) till the date of payment of taxes by the deductee or this will not alter the liability of penalty u/s 271C of the Act. We, therefore, restore the matter back to the file of the AO to ascertain as to whether the tax liability of the deductee has been in the meantime discharged in respect of the income on which tax was deductible by the assessee. In case, it transpires that the tax due from the deductee, have been paid by deductee, the demand raised by the AO u/s 201(1) shall remain vacated. However, the AO shall be at liberty to examine the issue afresh from the standpoint of charging interest u/s 201(1A) after examining the facts of the present case. The assessee shall produce all necessary details before the AO. The AO shall make necessary enquiry about the assessment and recovery of demand in the case of deductee, namely, Haryana State Agriculture Marketing Board. The learned CIT(A) has stated that the registration u/s 12A has been granted to the Haryana State Agriculture Marketing Board, and, therefore, AO shall verify as to whether the income of deductee was fully exempted under the provisions of Section 11 to 13 of the Act or whether there was any tax liability payable by the deductee i.e. Haryana State Agriculture Marketing Board and whether that liability has been discharged by that assessee. All the facts shall be examined and the matter shall be decided in the light of the decision of Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd. vs CIT (supra). We order accordingly.
11. In the result, the present appeals are disposed of in the manner as indicated above.
12. This decision was pronounced in the Open Court on 29th April, 2010 immediately after the hearing was over.