2016 (4) TMI 750 - AT - Income Tax

Tribunal rulings on interest income, dividend tax, and prepayment premium allocation

The tribunal upheld the inclusion of interest received under section 244A as income, ruling that it had crystallized following the Tribunal's order. It ... Interest received u/s.244A in regard to interest on refunds due - treated as the income of the assessee - Held that:- In the case of the assessee there are no directions by the State Govt., for staying its income. The fact remains that by virtue of order of the Tribunal, the income has crystallized to the assessee in accordance with mercantile system of accounting. Merely an appeal filed by the Revenue before the Hon’ble High Court will not result in staying of such income/receipt unless an order is passed by the High Court to that effect. The other cases cited by the learned Authorized Representative are also not relevant to the facts in the case of the assessee Disallowance of pre-payment of premium made to IDBI pertaining to succeeding years - Held that:- It is evident that the assessee had paid premium of Rs. ₹ 3,80,56,306/- in order to reduce its interest liability from the relevant assessment years till the balance period of term loan. Therefore, it is necessary to link this expenditure with the benefit obtained by the assessee company for the balance period of term loan considering the matching principle of accountancy and the mercantile system of accounting in arriving at the correct income for the relevant assessment years. Moreover it is pertinent to mention that the balance period of the term loan and the income attributable to the savings in interest is ascertainable unlike in the case of deferred revenue expenditures where such period and the benefit derived in the succeeding years are not ascertainable. Therefore, the learned Assessing Officer is right in making such disallowance which is further confirmed by the learned Commissioner of Income Tax (Appeals). However, we hereby modify the orders of the Revenue, by directing the learned Assessing Officer, to ensure that the entire amount of ₹ 3,80,56,306/- be proportionately apportioned to the relevant period for which the benefit in quantum of reduction of interest is enjoyed by the assessee company in order to comply with the matching concept and mercantile system of accountancy which is stipulated in Accounting Standard-I and mandatory in the case of the assessee as it is a limited company and there by allow the deductions in the relevant assessment year and the relevant succeeding assessment years - Decided against assessee Disallowance of dividend tax paid u/s.115-O - Held that:- It is pertinent to mention that tax paid on dividend declared is nothing but appropriation of profit and therefore the same cannot be considered for arriving at the book profit of the assessee company as per the provisions of the company’s Act. Therefore for the purpose of computing tax under the provisions of 115JB of the Act dividend tax paid should not be reduced from the book profit of the assessee company. Moreover for the purpose of determining the income under the normal provisions of the Act also the payment of dividend tax cannot be considered because section 115-O of the Act specifically provides that dividend tax is payable in addition to the income tax chargeable in respect of the total income of a domestic company. For the aforesaid reasons, we do not find it necessary to interfere with the orders of the Revenue.- Decided against assessee Issues:1. Treatment of interest received under section 244A as income.2. Disallowance of prepayment premium made to IDBI.3. Disallowance of dividend tax paid under section 115-O.Issue 1 - Treatment of interest received under section 244A as income:The appellant contested the inclusion of interest received under section 244A as income, arguing that it had not crystallized due to an ongoing appeal by the Revenue. However, the tribunal upheld the decision, citing that the income had crystallized following the Tribunal's order, and no stay order by the High Court existed. The tribunal referred to the matching principle of accounting and previous decisions to support its ruling, ultimately confirming the Commissioner's decision.Issue 2 - Disallowance of prepayment premium made to IDBI:The appellant sought to deduct the entire premium paid for prepayment, arguing that the expense had crystallized in the relevant year. However, the Revenue disallowed a portion of the premium, attributing it to future interest rate reduction benefits. The tribunal agreed with the Revenue, emphasizing the need to link the expenditure with benefits obtained over the term loan period. The tribunal directed a proportional apportionment of the premium to comply with accounting principles, confirming the disallowance but modifying the order to ensure proper allocation over relevant periods.Issue 3 - Disallowance of dividend tax paid under section 115-O:The appellant contested the disallowance of dividend tax paid for computing book profit under section 115JB. The tribunal upheld the Revenue's decision, stating that dividend tax payment is an appropriation of profit and should not reduce the book profit. Additionally, the tribunal noted that dividend tax payment cannot be considered for normal income tax computation as per section 115-O. Consequently, the tribunal dismissed the appeal, maintaining the Revenue's orders on this issue.In conclusion, the tribunal upheld the decisions regarding the treatment of interest received under section 244A and the disallowance of dividend tax paid under section 115-O, while modifying the disallowance of the prepayment premium to ensure proper allocation over relevant periods.