2015 (12) TMI 1689 - AT - Income Tax

Tribunal affirms CIT(A) decisions in tax case, dismissing Department's appeal. (A)Conclusions

Deputy Commr. of Income Tax, Circle-1, Jammu Versus Jammu & Kashmir Bank Ltd.

Deputy Commr. of Income Tax, Circle-1, Jammu Versus Jammu & Kashmir Bank Ltd. - TMI Issues Involved:1. Deletion of disallowance made under Section 40(a)(ia) of the Income Tax Act, 1961, on account of processing charges paid to SBI.2. Deletion of disallowance made under Section 40(a)(ia) on account of clearing house charges.3. Eligibility of Bari Brahmana Branch for deduction under Section 36(1)(viia).4. Allowance of 100% depreciation on wooden partitions.5. Deletion of disallowance made under Section 40(a)(ia) on account of non-deduction of tax on interest paid to Jammu Development Authority.Detailed Analysis:1. Deletion of Disallowance on Processing Charges Paid to SBI:The Assessing Officer (AO) disallowed Rs. 79,26,589 under Section 40(a)(ia) due to non-deduction of tax on processing charges paid to SBI, considering them as managerial services under Section 194J. The CIT(A) deleted the disallowance, stating that the processing charges were part of the interest and not managerial services, thus not attracting Section 194J. The Tribunal upheld this view, citing that the processing charges were included in the interest earned and no tax was required to be deducted.2. Deletion of Disallowance on Clearing House Charges:The AO disallowed Rs. 19,32,159 under Section 40(a)(ia) for non-deduction of tax on clearing house/MICR charges, considering them as technical services. The CIT(A) deleted the disallowance, relying on the Supreme Court decision in CIT vs. Bharti Cellular Ltd., which stated that human intervention is required for services to be considered technical. The Tribunal upheld this, noting that MICR clearance of cheques is a mechanized process without human intervention, thus not attracting Section 194J.3. Eligibility of Bari Brahmana Branch for Deduction under Section 36(1)(viia):The AO disallowed Rs. 8,17,28,840 claimed under Section 36(1)(viia), arguing that the Bari Brahmana Branch was not a rural branch due to its population exceeding 10,000. The CIT(A) deleted the addition, supported by the Tribunal's earlier decision that the branch's location at village Kartholi, with a population of 314, qualifies it as a rural branch under the Act. The Tribunal upheld this, rejecting the department's reliance on external statistics.4. Allowance of 100% Depreciation on Wooden Partitions:The AO restricted depreciation on wooden partitions to 10%, considering them permanent structures. The CIT(A) allowed 100% depreciation, following the Tribunal's earlier decision that wooden partitions in leasehold premises, redesigned as per business needs, do not provide enduring advantage and are eligible for 100% depreciation. The Tribunal upheld this view.5. Deletion of Disallowance on Interest Paid to Jammu Development Authority:The AO disallowed Rs. 2,93,15,880 under Section 40(a)(ia) for non-deduction of tax on interest paid to Jammu Development Authority (JDA), a taxable entity. The CIT(A) deleted the disallowance, referencing the Tribunal's earlier decision that JDA, incorporated under the J&K Development Act, is exempt from TDS under CBDT Notification no.3489. The Tribunal upheld this, noting no significant difference in facts from the previous assessment year.Conclusion:The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s deletions and allowances on all grounds. The decisions were based on consistent application of legal provisions and precedents, affirming that the processing charges, clearing house charges, rural branch eligibility, depreciation on wooden partitions, and interest payments to JDA were correctly treated by the CIT(A).