ACIT 22(2), NAVI MUMBAI V. HARNAMSINGH KULBIRSINGH MAKER, MUMBAI

ITA 316/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93021 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2007-2008
• Appeal Filed On: 13-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Question of law

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NOS.316 & 317/MUM/2014 ASSESSMENT YEARS: 2007-08 & 2008-09 ACIT. RG.22(2), R.NO.417, 4 TH FLOOR, TOWER NO.6, VASHI RAILWAY STATION COMPLEX, VASHI, NAVI MUMBAI-400705 / VS. MR. HARNAMSINGH KULBIRSINGH MAKER, 7, GREEN APARTMENT, ACHARYA NAGAR, W.T. PATIL MARG, GOVANDI, MUMBAI-400038 ( / REVENUE) ( !'# $ /ASSESSEE) P.A. NO. AACPM6759Q / REVENUE BY SHRI JEETENDRA KUMAR-DR !'# $ / ASSESSEE BY SHRI JAYANT R. BHATT % & ' $ ( / DATE OF HEARING : 22/06/2015 ' $ ( / DATE OF ORDER: 24/07/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) BOTH THESE APPEALS ARE BY THE REVENUE FOR ASSESSME NT YEARS 2007-08 AND 2008-09 CHALLENGING THE COMBINED ORDER DATED 01 ST OCTOBER, 2013 OF THE LD. FIRST APPELLATE MR. HARNAMSINGH KULBIRSINGH MAKER ITA NOS.316 & 317/MUM/2014 2 AUTHORITY, MUMBAI. THE COMMON GROUND RAISED IN BOT H THE APPEALS PERTAINS TO HOLDING THAT DISCOUNT ON HU NDIES DOES NOT COME UNDER THE DEFINITION OF INTEREST EXPE NSES, WHICH ATTRACTS DEDUCTION OF TDS U/S 194 OF THE INCO ME TAX ACT, 1961 (HEREINAFTER THE ACT) AND FURTHER HOLDING THAT THE CASE IS COVERED BY THE DECISION IN THE CASE OF CARG IL GLOBAL TRADING INDIA PVT. LTD. WITHOUT APPRECIATING THAT T HE DISCOUNT ON HUNDIES IS COVERED UNDER THE DEFINITION OF INTEREST U/S 2(28) OF THE ACT, WHICH ATTRACTS THE P ROVISION OF SECTION 194 OF THE ACT. 2. DURING HEARING OF THESE APPEALS, THE LD. DR, SH RI JEETENDRA KUMAR, DEFENDED THE CONCLUSION ARRIVED AT IN THE RESPECTIVE ASSESSMENT ORDERS BY ADVANCING HIS ARGUMENTS WHICH ARE IDENTICAL TO THE GROUND RAISED. ON THE OTHER HAND, SHRI JAYANT R. BHATT, LD. COUNSEL F OR THE ASSESSEE, DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDERS. IT WAS ALSO PLEADED THAT THE IMPUG NED ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FOR A.Y. 2009-10 (ITA NO.5170/MUM/2012) ORDER DATED 10/10/2014. THE LD. COUNSEL ALSO PRODUCED THE PHOTOCOPY OF THE AFORESAI D ORDER OF THE TRIBUNAL. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PO RTION FROM THE ORDER OF THE TRIBUNAL DATED 10/10/2014 FOR READY REFERENCE:- MR. HARNAMSINGH KULBIRSINGH MAKER ITA NOS.316 & 317/MUM/2014 3 2. ASSESSEE IS A PROPRIETOR OF M/S. SHRI SAWANT EN TERPRISE, A BUILDER AND DEVELOPER. THE ASSESSEE HAS ALSO SHOWN INCOME FROM SALARIES FROM M/S. SHREE SAWANT BUILDER AND DEVELOP ER P. LTD. AND INCOME FROM OTHER SOURCES. DURING THE COURSE OF THE SCRUTINY THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT UNDER TH E HEAD FINANCE EXPENSES THE ASSESSEE HAS DEBITED AN AMOU NT OF RS.91,30,250/- ON ACCOUNT OF DISCOUNT ON HUNDI. THE ASSESSEE WAS ASKED WHETHER TAX HAS BEEN DEDUCTED AT SOURCE U/S 1 94A OF THE ACT. THE ASSESSEE REPLIED THAT PROVISION OF SECTION 194A ARE NOT ATTRACTED AS THE SAID EXPENSES ARE ONLY DISCOUNT AN D NOT INTEREST AND ARE COVERED BY CIRCULAR NO. 647 DATED 22.03.199 3 OF THE CBDT, AND THEREFORE, PROVISIONS OF SECTION 40(A)(IA) ARE ALSO NOT APPLICABLE. 3. THIS EXPLANATION DID NOT FIND FAVOUR WITH THE A O. DRAWING SUPPORT FROM THE DECISION OF THE TRIBUNAL DELHI BEN CH IN THE CASE OF KANHA VANASPATI LTD. 17 SOT 160 THE AO WAS OF TH E FIRM BELIEF THAT DISCOUNTING CHARGES CLAIMED BY THE ASSESSEE AM OUNT TO INTEREST AS DEFINED IN SECTION 2(28)A OF THE ACT. T HE 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 AR E NOT INTEREST AND THEREFORE NOT SUBJECT TO TDS AND CONSEQUENTLY D ISALLOWANCE 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 DE CISION 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 ASSESS EE THE LD.CIT(A) WAS CONVINCED THAT THE DECISION RELIED UPON BY THE AO IN THE CASE OF KANHA VANASPATI LTD. DO NOT APPLY ON THE FACTS O F THE CASE. THE MR. HARNAMSINGH KULBIRSINGH MAKER ITA NOS.316 & 317/MUM/2014 4 LD.CIT(A) CONCLUDED BY DELETING THE ADDITION OF RS. 91,30,250/-. AGGRIEVED BY THIS THE REVENUE IS BEFORE US. 6. THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF T HE AO, IT IS THE SAY OF THE DR THAT HUNDI DISCOUNTING CHARGES ARE CO VERED BY THE DEFINITION OF INTEREST GIVEN U/S 2(28)A OF THE ACT. PER CONTRA COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN S UBMITTED BEFORE THE LOWER AUTHORITIES. 7. HAVING HEARD RIVAL SUBMISSIONS, WE HAVE CAREFULL Y PERUSED THE ORDERS OF THE AUTHORITIES BELOW. LET US FIRST UNDER STAND THE DEFINITION OF INTEREST GIVEN U/S 2(28A) OF THE ACT. INTEREST MEANS INTEREST PAYABLE IN ANY MANNER IN RESPECT OF ANY MONEYS BORROWED OR DEBT INCURRED (INCLUDING A DEPOS IT, CLAIM OR OTHER SIMILAR RIGHT OR OBLIGATION) AND INCLUDED ANY SERVICE FEE OR OTHER CHARGE IN RESPECT OF THE MONEYS BORROWED OR D EBT INCURRED OR IN RESPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEEN UTILIZED; IT IS CLEAR FROM THE DEFINITION THAT THE EXPENDITU RE WOULD BE HELD AS IN THE NATURE OF INTEREST IF IT IS PAYABLE IN RE SPECT 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 EITHER AS THE LOAN OR BORROWING, THE DISCOUNTING CHARGES PAID THEREON IS NOT SUBJECT TO TDS UNDER TH E 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 2011 CONSIDERED THE FOLLOWING OBSERVATIONS OF THE T RIBUNAL:- 9.THE WORD 'INTEREST' IS DIFFERENTLY DEFINED UNDER INTEREST-TAX ACT. AS PER SECTION 2(7) OF INTEREST-TAX ACT, 'INTEREST' MEANS INTEREST ON MR. HARNAMSINGH KULBIRSINGH MAKER ITA NOS.316 & 317/MUM/2014 5 LOANS AND ADVANCES MADE IN INDIA AND INCLUDES-(A) C OMMITMENT CHARGES ON UNUTILIZED PORTION OF ANY CREDIT SANCTIO NED FOR BEING AVAILED OF IN INDIA AND (B) DISCOUNT ON PROMISSORY NOTES AND BILL OF EXCHANGE DRAWN OR MADE IN INDIA. THUS WHERE THE LEG ISLATURE WAS CONSCIOUS OF THE FACT THAT EVEN THE DISCOUNT OF BIL L OF EXCHANGE IS TO BE INCLUDED WITHIN THE DEFINITION OF INTEREST, THE SAME WAS BASICALLY SO PROVIDED FOR. HOWEVER, UNDER THE SCHEME OF IT AC T, THE WORD 'INTEREST' DEFINED UNDER SECTION 2(28A) DOES NOT IN CLUDE THE DISCOUNTING CHARGES ON DISCOUNTING OF BILL OF EXCHA NGE. THOUGH THE CIRCULAR NO. 65 WAS RENDERED IN RELATION TO DEDUCTI ON OF TAX UNDER SECTION 194A, IN RESPECT OF PAYMENT TO A RESIDENT, THE SAME WILL BE RELEVANT EVEN FOR THE PURPOSE OF CONSIDERING WHETHE R THE DISCOUNT SHOULD BE TREATED AS INTEREST OR NOT. THE CBOT HAS OPINED THAT WHERE THE SUPPLIER OF GOODS MAKES OVER THE USANCE B ILL/HUNDI TO HIS BANK WHICH DISCOUNTS THE SAME AND CREDITS THE N ET AMOUNT TO THE SUPPLIER'S ACCOUNT STRAIGHTAWAY WITHOUT WAITING FOR REALIZATION OF THE BILL ON DUE DATE, THE PROPERTY I N THE USANCE BILL/HUNDI PASSES ON TO THE BANK AND THE EVENTUAL C OLLECTION ON DUE DATE IS A RECEIPT BY THE BANK ON ITS OWN BEHALF AND NOT ON BEHALF OF THE SUPPLIER. FOR SUCH CASES OF IMMEDIATE DISCOUNTI NG THE NET PAYMENT MADE BY THE BANK TO THE SUPPLIER IS IN THE NATURE OF A PRICE PAID FOR THE BILL. SUCH PAYMENT CANNOT TECHNI CALLY BE HELD AS INCLUDING ANY INTEREST AND THEREFORE, NO TAX NEED B E DEDUCTED AT SOURCE FROM SUCH PAYMENT BY THE BANK. THE DECISION RELIED BY THE AO IN THE CASE OF VIJAY SHIP BREAKING CORPN. (SUPRA ) HAS BEEN REVERSED BY THE HON'BLE SUPREME COURT AS REPORTED I N THE CASE OF VIJAY SHIP BREAKING CORPN. V. CIT (2008) 219 CTR 63 9 (SC): (2008) 14 DTR (SC) 74. THE HON'BLE SUPREME COURT HELD THAT USANCE INTEREST PAYABLE OUTSIDE INDIA BY AN UNDERTAKING EN GAGED IN THE BUSINESS OF SHIP BREAKING IS EXEMPT FROM PAYMENT OF INCOME-TAX BY VIRTUE OF EXPLN. 2 ADDED TO SECTION 10(15)(IV)(C) W ITH RETROSPECTIVE MR. HARNAMSINGH KULBIRSINGH MAKER ITA NOS.316 & 317/MUM/2014 6 EFFECT FROM 1ST APRIL, 1962 AND HENCE THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT, THE DISCOUNTING CHARGES ARE NOT IN THE NATURE OF INTEREST PAID BY T HE ASSESSEE. RATHER AFTER DEDUCTING DISCOUNT THE ASSESSEE RECEIV ED 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 DISCOUNT EARNED AND HENCE THE ASSESSEE IS NOT UNDER OBLIGATI ON TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT. ACCORDI NGLY, 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 ISS UED ONE CIRCULAR NO.65 WAY BACK ON 02.09.1971 CLARIFYING THE POSITIO N IN RESPECT OF INCOME BY WAY OF INTEREST UNDER SECTION 194 READ WI TH SECTION 197(1) AND (2) OF THE ACT AS UNDER: 1..... WHERE THE SUPPLIER OF GOODS MAKES OVER THE USANCE BILL/HUNDI TO HIS BANK WHICH DISCOUNTS THE SAME AND CREDITS ET AMOUNT TO THE SUPPLIER'S ACCOUNT STRAIGHTAWAY WITHOUT WAITING FOR REALIZATION OF THE BILL ON DUE DATE, THE PROPERTY IN THE USANCE BI LL/HUNDI PASSES ON TO THE BANK AND - EVENTUAL COLLECTION ON DUE DATE I S A RECEIPT BY THE BANK - OWN BEHALF AND NOT ON BEHALF OF THE SUPPLIER . FOR SUCH CASES OF IMMEDIATE DISCOUNTING THE NET PAYMENT MADE BY TH E BANK TO THE SUPPLIER IS IN THE NATURE OF A PRICE PAID FOR THE B ILL. SUCH A PAYMENT CANNOT TECHNICALLY BE HELD AS INCLUDING INTEREST AN D THEREFORE NO TAX NEED BE DEDUCTED AT SOURCE FROM SUCH PAYMENTS B Y 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 S UCH DISCOUNTED BILL INASMUCH AS THESE PAYMENTS ARE TO OR A BANKING CO-OPERATIVE MR. HARNAMSINGH KULBIRSINGH MAKER ITA NOS.316 & 317/MUM/2014 7 SOCIETY, CONFORMING TO THE EXEMPTION GRANTED BY SEC TION 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 EXP IRY OF THE PERIOD THE PAYMENT FOR THE BILL FROM THE BUYER ON B EHALF OF THE SUPPLIER AND CREDITS IT TO HIM ACCORDINGLY, THE BAN K RECEIVES INTEREST ON BEHALF OF THE SUPPLIER AND THE INSTRUCT IONS CONTAINED, IN BOARD'S ABOVE MENTIONED CIRCULAR 7TH NOVEMBER, 1970 , WOULD APPLY AND BUYER WILL HAVE TO DEDUCT THE TAX FROM TH E INTEREST.' 12. THERE IS ANOTHER CIRCULAR NO. 647 DATED 22.03. 1993 THE POINT AS IT RELATES TO TDS ON INTEREST OTHER THAN SECURIT IES'. 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 INS TRUMENTS SHOULD BE TREATED AS 'INTEREST' IN WHICH CASE IT WOULD BE LIABLE TO DEDUCTION OF TAX AT SOURCE UNDER SECTION 194A OF THE INCOME-T AX ACT, 1961, OR, IT SHOULD BE TREATED AS 'DISCOUNT' WHICH IS NOT LIA BLE TO DEDUCTION & AT SOURCE. 4. IT IS CLARIFIED FOR THE INFORMATION OF ALL CONCE RNED THE DIFFERENCE BETWEEN THE ISSUE PRICE AND THE FACE VALUE OF THE C OMMERCIAL PAPERS AND THE CERTIFICATES OF DEPOSITS IS TO BE TR EATED AS 'DISCOUNT ALLOWED' AND NOT AS 'INTEREST; PAID'. HENCE, THE PR OVISIONS OF THE INCOME-TAX ACT RELATING TO DEDUCTION OF TAX AT SOUR CE ARE NOT APPLICABLE IN THE 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 S TANDS SETTLED BY THE DICTA OF THE SUPREME COURT AS WELL AS CLARIFICA TION BY CBDT ITSELF. MR. HARNAMSINGH KULBIRSINGH MAKER ITA NOS.316 & 317/MUM/2014 8 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 I S DISMISSED. 2.2. WE NOTE THAT THE TRIBUNAL IN THE CASE OF ASSE SSEE ITSELF HAS DELIBERATED UPON THE ISSUE, WHEREIN, DIS CUSSION HAS BEEN MADE WITH RESPECT TO CBDT CIRCULAR NO.647 ALONG WITH THE DECISION IN CARGIL GLOBAL TRADING INDIA PV T. LTD. (126 TTJ 516) AND ALSO THE OBJECTIONS RAISED BY THE LD. DR HAS BEEN DULY CONSIDERED. THE DEFINITION OF INTERES T GIVEN U/S 2(28A) HAS ALSO BEEN DELIBERATED UPON AND THEN AFFIRMED THE FINDING OF THE LD. COMMISSIONER OF INC OME TAX (APPEALS). THE FACTS AND THE ISSUE BEING IDENTICAL , WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS), THUS, IN THE ABSENCE OF ANY CONTRARY FACTS OR JUDICIAL DECISION, WE DISM ISS BOTH THE APPEALS FILED BY THE REVENUE. FINALLY, BOTH THE APPEALS OF THE REVENUE ARE DISMIS SED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 23/06/2015. S D/ - (RAJENDRA) SD/ - (JOGINDER SINGH) ' # / ACCOUNTANT MEMBER $ # / JUDICIAL MEMBER MUMBAI; * DATED : 24/07/2015 F{X~{T? P.S/. .. !%$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. ,-./ / THE APPELLANT MR. HARNAMSINGH KULBIRSINGH MAKER ITA NOS.316 & 317/MUM/2014 9 2. 01./ / THE RESPONDENT. 3. 2 2 % 3$ ( ) / THE CIT, MUMBAI. 4. 2 2 % 3$ / CIT(A)- , MUMBAI 5. 560$ ! , 2 (! 7 , % / DR, ITAT, MUMBAI 6. 8'9 / GUARD FILE. / BY ORDER, 15$0$ //TRUE COPY// / (DY./ASSTT. REGISTRAR) , % / ITAT, MUMBAI