HARNAM SINGH KULBIRSINGH, MUMBAI V. DCIT 22(2), NAVI MUMBAI

CO 206/MUM/2014

• Counselvise Citation: [2014] 123 COUNSELVISE.COM (IT) 0077 (ITAT-MUMBAI)
• Duration Of Justice: 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 10-10-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 29-09-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIVEK A PERAMPURNA
• Keywords: Period of limitation; Retrospective amendment; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 5170/MUM/2012 ASSESSMENT YEAR: 2009-10 DCIT-22(2) VASHI RAILWAY STATION BLDG. COMPLEX, VASHI NAVI MUMBAI VS. SHRI HARNAMSINGH KULBIRSINGH MAKER, 7, GREEN APARTMENT, ACHARYA NAGAR, W.T. PATIL MARG, GOVANDI, MUMBAI- 400 088 PAN:AACPM 6759 Q (APPELLANT) (RESPONDENT) C.O. NO. 206/MUM/2014 (ARISING FROM ITA NO. 5170/MUM/2012) AY: 2009-10 SHRI HARNAMSINGH KULBIRSINGH MAKER, 7, GREEN APARTMENT, ACHARYA NAGAR, W.T. PATIL MARG, GOVANDI, MUMBAI- 400 088 PAN:AACPM 6759 Q VS. DCIT-22(2) VASHI RAILWAY STATION BLDG. COMPLEX, VASHI NAVI MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI JAYANT R. BHATT REVENUE BY : SHRI VIVEK A PERAMPURNA DATE OF HEARING : 01.10.2014 DATE OF PRONOUNCEMENT : 10.10.2014 O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECTI ON BY THE ASSESSEE ARE PREFERRED AGAINST THE ORDER OF THE LD.CIT(A) -33, M UMBAI DATED 18.05.2012. THE SUM AND SUBSTANCE OF THE GRIEVANCES OF THE REVENUE IS THAT THE LD.CIT(A) ERRED IN HOLDING THAT DISCOUNT ON HUNDI IS NOT COVERED BY TH E DEFINITION OF INTEREST AND THEREFORE, NOT LIABLE FOR DEDUCTION OF TAX AT SOURC E U/S 194 OF THE ACT, AND ACCORDINGLY CANNOT BE DISALLOWED U/S 40(A)(IA). 2. ASSESSEE IS A PROPRIETOR OF M/S. SHRI SAWANT ENT ERPRISE, A BUILDER AND DEVELOPER. THE ASSESSEE HAS ALSO SHOWN INCOME FROM SALARIES FROM M/S. SHREE ITA NO. 5170/MUM/2012 SHRI HARNAMSINGH KULBIRSINGH MAKER ASSESSMENT YEAR: 2009-10 2 SAWANT BUILDER AND DEVELOPER P. LTD. AND INCOME FRO M OTHER SOURCES. DURING THE COURSE OF THE SCRUTINY THE ASSESSMENT PROCEEDINGS T HE AO NOTICED THAT UNDER THE HEAD FINANCE EXPENSES THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.91,30,250/- ON ACCOUNT OF DISCOUNT ON HUNDI. THE ASSESSEE WAS ASKE D WHETHER TAX HAS BEEN DEDUCTED AT SOURCE U/S 194A OF THE ACT. THE ASSESSE E REPLIED THAT PROVISION OF SECTION 194A ARE NOT ATTRACTED AS THE SAID EXPENSES ARE ONLY DISCOUNT AND NOT INTEREST AND ARE COVERED BY CIRCULAR NO. 647 DATED 22.03.1993 OF THE CBDT, AND THEREFORE, PROVISIONS OF SECTION 40(A)(IA) ARE ALSO NOT APPLICABLE. 3. THIS EXPLANATION DID NOT FIND FAVOUR WITH THE AO . DRAWING SUPPORT FROM THE DECISION OF THE TRIBUNAL DELHI BENCH IN THE CASE OF KANHA VANASPATI LTD. 17 SOT 160 THE AO WAS OF THE FIRM BELIEF THAT DISCOUNTING CHAR GES CLAIMED BY THE ASSESSEE AMOUNT TO INTEREST AS DEFINED IN SECTION 2(28)A OF THE ACT. THE AO PROCEEDED BY DISALLOWING RS.91,30,250/- U/S 40(A)(IA) OF THE ACT . 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD.CI T(A) AND REITERATED HIS CLAIM THAT HUNDI DISCOUNT CHARGES ARE NOT INTEREST AND TH EREFORE NOT SUBJECT TO TDS AND CONSEQUENTLY DISALLOWANCE U/S 40(A)(IA) OF THE ACT IS NOT CORRECT. IN SUPPORT THE ASSESSEE RELIED UPON THE CBDT CIRCULAR NO. 647 AND ON THE DECISION OF CARGIL GLOBAL TRADING INDIA PVT. LTD. 126 TTJ 516. 5. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS AND CBDT CIRCULAR AND THE DECISION RELIED UPON BY THE ASSESSEE THE LD.CIT(A) WAS CONVINCED THAT THE DECISION RELIED UPON BY THE AO IN THE CASE OF KANHA VANASPAT I LTD. DO NOT APPLY ON THE FACTS OF THE CASE. THE LD.CIT(A) CONCLUDED BY DELETING TH E ADDITION OF RS.91,30,250/-. AGGRIEVED BY THIS THE REVENUE IS BEFORE US. 6. THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF TH E AO, IT IS THE SAY OF THE DR THAT HUNDI DISCOUNTING CHARGES ARE COVERED BY THE D EFINITION OF INTEREST GIVEN U/S 2(28)A OF THE ACT. PER CONTRA COUNSEL FOR THE ASSES SEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 7. HAVING HEARD RIVAL SUBMISSIONS, WE HAVE CAREFULL Y PERUSED THE ORDERS OF THE AUTHORITIES BELOW. LET US FIRST UNDERSTAND THE DEFI NITION OF INTEREST GIVEN U/S 2(28A) OF THE ACT. ITA NO. 5170/MUM/2012 SHRI HARNAMSINGH KULBIRSINGH MAKER ASSESSMENT YEAR: 2009-10 3 INTEREST MEANS INTEREST PAYABLE IN ANY MANNER IN RESPECT OF ANY MONEYS BORROWED OR DEBT INCURRED (INCLUDING A DEPOSIT, CLA IM OR OTHER SIMILAR RIGHT OR OBLIGATION) AND INCLUDED ANY SERVICE FEE OR OTHER C HARGE IN RESPECT OF THE MONEYS BORROWED OR DEBT INCURRED OR IN RESPECT OF A NY CREDIT FACILITY WHICH HAS NOT BEEN UTILIZED; IT IS CLEAR FROM THE DEFINITION THAT THE EXPENDITUR E WOULD BE HELD AS IN THE NATURE OF INTEREST IF IT IS PAYABLE IN RESPECT OF:- (A) MONEY BORROWED OR (B) DEBT INCURRED IN THE IMPUGNED TRANSACTION BOTH THESE ELEMENTS ARE MISSING AS THERE IS NO BORROWER- LENDER RELATIONSHIP WHICH IS AN ESSENTIAL CHARACTERISTIC/FEATURE OF ALL BORROWINGS/LENDING AS THE HUNDI CANNOT BE TREATED E ITHER AS THE LOAN OR BORROWING, THE DISCOUNTING CHARGES PAID THEREON IS NOT SUBJECT TO TDS UNDER THE PROVISIONS OF THE ACT. THE HONBLE DELHI HIGH COURT IN THE CASE O F CARGIL GLOBAL TRADING INDIA PVT. LTD. IN ITA NO. 331 OF 2011 WITH ITA NO. 204 OF 201 1 CONSIDERED THE FOLLOWING OBSERVATIONS OF THE TRIBUNAL:- 9.THE WORD 'INTEREST' IS DIFFERENTLY DEFINED UNDER INTEREST-TAX ACT. AS PER SECTION 2(7) OF INTEREST-TAX ACT, 'INTEREST' MEANS INTEREST ON LOANS AND ADVANCES MADE IN INDIA AND INCLUDES-(A) COMMITMENT CHARGES ON UNUTILIZED PORTION OF ANY CREDIT SANCTIONED FOR BEING AVAILED OF IN INDIA AND (B) DISCOUNT ON PROMISSORY NOTES AND BILL OF EXCHANGE DRAWN OR M ADE IN INDIA. THUS WHERE THE LEGISLATURE WAS CONSCIOUS OF THE FACT THA T EVEN THE DISCOUNT OF BILL OF EXCHANGE IS TO BE INCLUDED WITHIN THE DEFINITION OF INTEREST, THE SAME WAS BASICALLY SO PROVIDED FOR. HOWEVER, UNDER THE SCHEM E OF IT ACT, THE WORD 'INTEREST' DEFINED UNDER SECTION 2(28A) DOES NOT IN CLUDE THE DISCOUNTING CHARGES ON DISCOUNTING OF BILL OF EXCHANGE. THOUGH THE CIRCULAR NO. 65 WAS RENDERED IN RELATION TO DEDUCTION OF TAX UNDER SECT ION 194A, IN RESPECT OF PAYMENT TO A RESIDENT, THE SAME WILL BE RELEVANT EV EN FOR THE PURPOSE OF CONSIDERING WHETHER THE DISCOUNT SHOULD BE TREATED AS INTEREST OR NOT. THE CBOT HAS OPINED THAT WHERE THE SUPPLIER OF GOODS MA KES OVER THE USANCE BILL/HUNDI TO HIS BANK WHICH DISCOUNTS THE SAME AND CREDITS THE NET AMOUNT TO THE SUPPLIER'S ACCOUNT STRAIGHTAWAY WITHOUT WAITING FOR REALIZATION OF THE BILL ON DUE DATE, THE PROPERTY IN THE USANCE BILL/HUNDI PASSES ON TO THE BANK AND THE EVENTUAL COLLECTION ON DUE DATE IS A RECEIPT BY THE BANK ON ITS OWN BEHALF AND NOT ON BEHALF OF THE SUPPLIER. FOR SUCH CASES O F IMMEDIATE DISCOUNTING THE NET PAYMENT MADE BY THE BANK TO THE SUPPLIER IS IN THE NATURE OF A PRICE PAID FOR THE BILL. SUCH PAYMENT CANNOT TECHNICALLY BE HELD AS INCLUDING ANY INTEREST AND THEREFORE, NO TAX NEED BE DEDUCTED AT SOURCE FROM SUCH PAYMENT BY THE BANK. THE DECISION RELIED BY THE AO IN THE C ASE OF VIJAY SHIP BREAKING CORPN. (SUPRA) HAS BEEN REVERSED BY THE HON'BLE SUP REME COURT AS REPORTED IN THE CASE OF VIJAY SHIP BREAKING CORPN. V. CIT (2 008) 219 CTR 639 (SC): ITA NO. 5170/MUM/2012 SHRI HARNAMSINGH KULBIRSINGH MAKER ASSESSMENT YEAR: 2009-10 4 (2008) 14 OTR (SC) 74. THE HON'BLE SUPREME COURT HE LD THAT USANCE INTEREST PAYABLE OUTSIDE INDIA BY AN UNDERTAKING ENGAGED IN THE BUSINESS OF SHIP BREAKING IS EXEMPT FROM PAYMENT OF INCOME-TAX BY VIRTUE OF EXPL N. 2 ADDED TO SECTION 10(15)(IV)(C) WITH RETROSPECTIVE EFFECT FROM 1ST AP RIL, 1962 AND HENCE THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE UND ER SECTION 195 OF THE ACT, THE DISCOUNTING CHARGES ARE NOT IN THE NATURE OF IN TEREST PAID BY THE ASSESSEE. RATHER AFTER DEDUCTING DISCOUNT THE ASSES SEE RECEIVED NET AMOUNT OF THE BILL OF EXCHANGE ACCEPTED BY THE PURCHASER. CFSA, NOT HAVING ANY PE IN INDIA, IS NOT LIABLE TO TAX IN RESPECT OF SUCH DIS COUNT EARNED AND HENCE THE ASSESSEE IS NOT UNDER OBLIGATION TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT. ACCORDINGLY, THE SAME AMOUNT CANNOT BE DISALLOWED BY INVOKING SECTION 40( A)(I) OF THE ACT. AND HELD AS UNDER:- WE ARE IN AGREEMENT WITH THE AFORESAID DISCUSSION ON THE LEGAL ASPECT. IT MAY BE POINTED OUT THAT THE CBDT HAS ISSUED ONE CIR CULAR NO.65 WAY BACK ON 02.09.1971 CLARIFYING THE POSITION IN RESPECT OF IN COME BY WAY OF INTEREST UNDER SECTION 194 READ WITH SECTION 197(1) AND (2) OF THE ACT AS UNDER: 1..... WHERE THE SUPPLIER OF GOODS MAKES OVER THE USANCE BILL/UNDI TO HIS BANK WHICH DISCOUNTS THE SAME AND CREDITS ET AMOUNT TO THE SUPPLIER'S ACCOUNT STRAIGHTAWAY WITHOUT WAITING FOR REALIZATIO N OF THE BILL ON DUE DATE, THE PROPERTY IN THE USANCE BILL/HUNDI PASSES ON TO THE BANK AND - EVENTUAL COLLECTION ON DUE DATE IS A RECEIPT BY THE BANK - O WN BEHALF AND NOT ON BEHALF OF THE SUPPLIER. FOR SUCH CASES OF IMMEDIATE DISCOU NTING THE NET PAYMENT MADE BY THE BANK TO THE SUPPLIER IS IN THE NATURE O F A PRICE PAID FOR THE BILL. SUCH A PAYMENT CANNOT TECHNICALLY BE HELD AS INCLUD ING INTEREST AND THEREFORE NO TAX NEED BE DEDUCTED AT SOURCE FROM SUCH PAYMENT S BY THE BANK. FURTHER, THE BUYER NEED NOT DEDUCT ANY TAX FROM THE PAYMENT MADE BY HIM ON DUE DATE TO THE BANK IN RESPECT OF SUCH DISCOUNTED BILL INASMUCH AS THESE PAYMENTS ARE TO OR A BANKING CO-OPERATIVE SOCIETY, CONFORMING TO THE EXEMPTION GRANTED BY SECTION 194A(3)(III)(A) OF THE INCOME-TAX ACT, 1961. ON THE OTHER HAND WHERE THERE IS NO IMMEDIATE DISCO UNTING AND THE BANK MERELY ACTING AS AGENT RECEIVES ON THE EXPIRY OF TH E PERIOD THE PAYMENT FOR THE BILL FROM THE BUYER ON BEHALF OF THE SUPPLIER A ND CREDITS IT TO HIM ACCORDINGLY, THE BANK RECEIVES INTEREST ON BEHALF O F THE SUPPLIER AND THE INSTRUCTIONS CONTAINED, IN BOARD'S ABOVE MENTIONED CIRCULAR 7TH NOVEMBER, 1970, WOULD APPLY AND BUYER WILL HAVE TO DEDUCT THE TAX FROM THE INTEREST.' 12. THERE IS ANOTHER CIRCULAR NO. 647 DATED 22.03.1 993 THE POINT AS IT RELATES TO TDS ON INTEREST OTHER THAN SECURITIES'. IN THIS CIRCULAR, THE BOARD HAS CLARIFIED THE ISSUE IN THE FOLLOWING MANNER: '3. A QUESTION HAS BEEN RECENTLY RAISED AS TO WHETH ER THE DIFFERENCE BETWEEN THE ISSUE PRICE AND FACE VALUE OF THESE INSTRUMENT S SHOULD BE TREATED AS 'INTEREST' IN WHICH CASE IT WOULD BE LIABLE TO DEDU CTION OF TAX AT SOURCE UNDER SECTION 194A OF THE INCOME-TAX ACT, 1961, OR, IT SH OULD BE TREATED AS 'DISCOUNT' WHICH IS NOT LIABLE TO DEDUCTION & AT SO URCE. ITA NO. 5170/MUM/2012 SHRI HARNAMSINGH KULBIRSINGH MAKER ASSESSMENT YEAR: 2009-10 5 4. IT IS CLARIFIED FOR THE INFORMATION OF ALL CONCE RNED THE DIFFERENCE BETWEEN THE ISSUE PRICE AND THE FACE VALUE OF THE COMMERCIA L PAPERS AND THE CERTIFICATES OF DEPOSITS IS TO BE TREATED AS 'DISC OUNT ALLOWED' AND NOT AS 'INTEREST; PAID'. HENCE, THE PROVISIONS OF THE INCO ME-TAX ACT RELATING TO DEDUCTION OF TAX AT SOURCE ARE NOT APPLICABLE IN TH E CASE OF TRANSACTIONS IN THESE TWO INSTRUMENTS.' 13. HAVING REGARD TO THE AFORESAID, WE ARE OF THE O PINION THAT NO SUBSTANTIAL QUESTION OF LAW ARISES, AS THE MATTER STANDS SETTLE D BY THE DICTA OF THE SUPREME COURT AS WELL AS CLARIFICATION BY CBDT ITSE LF. CONSIDERING THE FACTS IN THE LIGHT OF THE ABOVE JUD ICIAL DECISIONS, WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD.CIT(A) . 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. C.O. NO. 206/MUM/2014 (ARISING FROM ITA NO. 5170/MUM/2012) AY: 2009-10 9. CROSS OBJECTION BY THE ASSESSEE IS FILED LATE B Y 372 DAYS. THERE IS NO REQUEST FOR THE CONDONATION OF THE DELAY NOR ANY AFFIDAVIT IS FILED BY THE ASSESSEE EXPLAINING THE FACTS CAUSING THE DELAY IN FILING OF THE CROSS OBJECTION. CROSS OBJECTION FILED BY THE ASSESSEE ARE THEREFORE NOT ADMITTED BEING BARRE D BY THE PERIOD OF LIMITATION. CO. NO. 206/MUM/2014 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF OCTOBER, 2014. SD/- SD/- (AMIT SHUKLA) (N.K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 10.10.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR H BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.