THE issue before the Bench is - Whether where money has been paid by the flat buyer and the same remains as outstanding with the assessee, the payment of excess amount over and above the amount paid by the original buyer necessitated due to incapability of the original buyer to purchase the flat is to be treated as interest as per Sec 2(28A) and the same is liable to TDS u/s 194A. And the verdict favours the Revenue.
Facts of the case
A) The assessee company is engaged in the business of erection of machineries and equipments. It had entered into a contract with M/s Kone Elevators for erection and
commissioning of lift. The returns filed by assessee were taken for survey u/s 133A where it was found that an amount of Rs.62.87 lacs had been paid to Kone Elevators without deducting tax at source. Accordingly, the AO observed that the tax deductibles u/s 194C at 2% which worked out at Rs.1,25,740/-, was not made by the assessee. The assessee contended that since the payment were not made under works contract and it was only a contract of sale, the provisions of section 194C would not be applicable. The AO observed that the contract was purely for carrying out work of supply, erection and commissioning of lift and the payment had been made as per the invoice at Rs.18,00,000/-. There was no bifurcation of each items and the price schedule signed by both the parties and the invoice showed that the process of erection of lift would fall under the clause (iii) of the explanation to section 194C. Accordingly, he considered the assessee liable for TDS u/s 194C and also considered the assessee in default u/s 201(1). Further, the AO found that the assessee paid a total interest of Rs.31,37,341/- out of which Rs.8,23,250/- was paid to non residents on which TDS was deductible u/s 195 at the rate of 30.9% and for the balance amount u/s 194 at the rate of 10% which worked out to Rs.4,85,794/-. Accordingly, the AO considered the assessee in default u/s 201 and 201(1A). On appeal, the CIT(A) by placing reliance on the judgment of the Supreme Court in case of State of Andhra Pradesh vs M/s Kone Elevators (India) Ltd., allowed the claim of the assessee by observing that the contract was not a 'work contract' but only a 'contract for sale' and therefore, no TDS would be applicable. Consequently interest charged u/s 201(1A) was deleted.
B) The AO observed that there was a non-deduction of tax from payments made to certain customers debited in direct expenses under the head "excess payment refund" which was treated as indirect expenses by the assessee. It was submitted by the assessee that some payments were received by the assessee from customers who had initially booked the flat by making advance payment plus 1 or 2 installments, but due to various reasons had failed to fulfill the payment schedule and requested for refund. After certain period, the assessee identified some new customers and the flats were sold at higher rate than the previous price. After the sale, the assessee returned the payments received from previous customers with a margin, in order to maintain good business relationship and thus no TDS had been deducted. However, the AO observed that the expenses debited to P&L Account could not be treated as refund and on the other hand it was a payment of interest on the amount paid by the original customers which was liable for TDS u/s 194A. On appeal, the CIT(A) observed that the assessee was acting as an agent between the old customers and new customers. What the assessee was doing was passing on the sale consideration, including the excess amount received on sale of flats from new customers to old customers. The CIT(A) relying upon the decision of Bombay High Court in case of CIT vs Tata Teleservices Ltd., wherein it was held that the excess amount received on transfer of right in a property was in the nature of a capital receipt and therefore, held that the provisions of section 194A was not applicable in the transactions undertaken by the assessee. Accordingly the CIT(A) directed the AO to delete the addition made on this count. Consequently, the interest charged u/s 201(1A) in both the years was also deleted.
Having heard the parties, the Tribunal held that,
Payments under contract of sale
++ as regards deduction of TDS on payments made under such contract, we find that the same is covered by the judgment of the Supreme Court in the case of State of Andhra Pradesh vs Kone Elevators (India) Ltd. Being so, the CIT(A) has taken a plausible view and we do not find any infirmity in the order of the CIT(A) and the same is confirmed;
Excess payment refund
++ it is seen that during survey u/s 133A, it was found that the assessee has debited expenses in the P&L Account under the head "indirect expenses" an amount of Rs.31,37,341/- for excess payment refund in A.Y 2012-13. Similarly for the A.Y 2013-14 an amount of Rs.43,21,593/- on which the assessee has not made any TDS, was claimed as expenditure. The contention of the assessee that it is payment of excess amount collected by the assessee from the new customers as compared to the payment made by the original customers, who has entered into agreement for purchase of flat with the assessee. As per the assessee, the original owner has relinquished the right over the flats for which they entered into agreement and it is a capital gain in the hands of the purchaser and it cannot be treated as interest payment so as to attract section 194A;
++ it is admitted in this case that the person who has entered into agreement with the assessee for purchase of flats has paid money to the assessee which has been outstanding with the assessee. Meanwhile, due to change of circumstances, the original buyer of the flat was not able to purchase from the assessee which was sold to the new party. This necessitated the payment of excess amount over and above the amount paid by the original buyer of the flat and the assessee has debited the expenses in the P&L account under the head "excess payment refund", but it was actually in the nature of interest being paid in respect of the amount lying with the assessee. Mere nomenclature in the books of account will not change the character of actual payment which was precisely in the nature of interest as defined u/s 2(28A). It is crystal clear that from the plain reading of section 2(28A) that money paid in respect of amount borrowed or debt incurred, is interest payable in any manner. The definition of interest in Sec. 2(28A) after referring to the interest payable in any manner in respect of any moneys borrowed or debt incurred proceeds to include in the terms money borrowed or that incurred, deposits, claims and 'other similar rights or obligations' and further includes any service fees or other charges in respect of the money borrowed or debt incurred which would include deposit, claim or other similar rights or obligations as also in respect of any credit facility which has not been utilized. The definition of interest has been carried to the extent that even the amounts payable in transactions were money has not been borrowed and that has not been incurred, are brought within the scope of its definition, as in the case of service fees paid in respect of a credit facility which has not been utilized. Undisputedly, in the instant case, the amounts were paid in respect of an obligation in respect of purchase of flat through agreement, therefore, no fault can be found on the part of the AO for treating these charges as interest and making the assessee liable for TDS u/s 194A. The mere fact that the assessee did not choose to characterize such payment as interest, will not take such payment out of the ambit of the definition of "interest", in so far as payment made by the assessee was in respect of an obligation incurred with earlier flat agreement holder. The assessee has essentially incurred an expenditure and the amount of charges paid was with respect to the amount incurred by the flat agreement holder and the period for which money was so utilized by the assessee. In view of these discussions, we do not find any merit in the argument of the counsel for assessee and the payment should be treated as interest u/s 2(28A) as it is not liable for deduction at source u/s 194A. Accordingly, we reverse the order of the CIT(A) and restore it to that of the AO on this issue
No comments:
Post a Comment