2021 (1) TMI 318 - AT - Income Tax

Tribunal rules no TDS deduction required for interest on deep discount bonds

DCIT TDS Circle, Ahmedabad Versus Nirma Limited

The Tribunal dismissed the Revenue's appeal, ruling that the assessee was not obligated to deduct TDS on interest expenses related to deep discount bonds ... TDS u/s 193 - Non-deduction of TDS on the interest expenses incurred on deep discount bonds - interest under section 201(1) and 201(1A) levied - CIT(A) deleted the demand raised by the AO by observing that the provisions of TDS under Section 193 of the Act with respect to deep discount bonds do not apply and same are subject to TDS under the provisions of Section 194 - CIT (A) held that there is no question of deducting TDS in the situation wherein the assessee has not claimed any expenditure on such deep discount bond - HELD THAT:- The provisions of “Chapter XVII, B Deduction at source” provides that person who is responsible for paying any income to a resident by way of interest, shall, at the time of credit of such income to the account of the payee or at the time of payment whichever is earlier, deduct tax at the rate prescribed under the law. If the assessee is not incurring any expense, the question of income in the hands of the payee does not arise. Accordingly, the provisions for deducting the TDS as provided under “Chapter XVII, B- Deduction at source” of the Act will not be attracted. Hence, if the contention of the learned AR is believed to be true then the question of TDS does not arise. There is no question for deducting the TDS on the interest expenses on the deep discount bond as alleged by the AO for the simple reason that the assessee has not claimed any interest expense. Hence the ground of appeal of the Revenue is dismissed. Issues Involved:1. Applicability of TDS under Section 193 or 194A on interest paid on deep discount bonds.2. Whether HDFC Bank, as the payee, has deposited the entire tax arising out of such payment in advance.3. Whether the assessee should pay interest on delayed deposit of tax by the payee.4. Whether the assessee was liable to deduct TDS at all considering the nature of payments.Issue-wise Detailed Analysis:1. Applicability of TDS under Section 193 or 194A on interest paid on deep discount bonds:The Assessing Officer (AO) treated the assessee as a defaulter under Section 201(1) of the Income Tax Act for not deducting TDS under Section 193 on interest expenses incurred on deep discount bonds. The AO raised a demand for TDS and interest under Sections 201(1) and 201(1A) amounting to Rs. 12,23,687 and Rs. 96,71,464, respectively. However, the CIT(A) deleted the demand, observing that the provisions of TDS under Section 193 do not apply to deep discount bonds, which are subject to TDS under Section 194A. The CIT(A) also noted that the assessee had not made any provision for the interest on deep discount bonds for the year under consideration, hence there was no question of deducting TDS.2. Whether HDFC Bank, as the payee, has deposited the entire tax arising out of such payment in advance:The Tribunal initially deleted the demand raised by the AO, reasoning that since HDFC Bank, the payee, had paid taxes on the income received from the assessee concerning the deep discount bonds, the issue of raising the demand of TDS in the hands of the assessee does not arise under Section 201(1) of the Act, as per the Supreme Court's judgment in Hindustan Coca-Cola Beverage Private Ltd. However, the Revenue argued that the interest earned on investment in deep discount bonds does not fall within the ambit of loans or advances, and therefore, HDFC Bank is not exempt from TDS.3. Whether the assessee should pay interest on delayed deposit of tax by the payee:The Hon'ble Gujarat High Court remanded the matter back to the Tribunal to examine this issue afresh. The Revenue contended that the assessee failed to prove that the interest received by HDFC Bank was included in the bank's total taxable income and that taxes were duly paid to the Government's account. The Tribunal noted that the assessee had not claimed any interest expenses on the deep discount bonds, thus the question of deducting TDS did not arise. The Tribunal further observed that the payee, HDFC Bank, had shown income received from the assessee, which was verified from the bank's reply.4. Whether the assessee was liable to deduct TDS at all considering the nature of payments:The Tribunal examined whether the assessee was liable to deduct TDS when it had not incurred any interest expenses on the deep discount bonds. According to the provisions of Chapter XVII-B, TDS is required to be deducted at the time of credit or payment of income to the payee. Since the assessee did not incur any expense or claim any deduction for interest on deep discount bonds, the question of income in the hands of the payee did not arise, and consequently, the provisions for deducting TDS were not attracted. The Tribunal found the contention of the assessee consistent with the records and held that there was no question of deducting TDS on the interest expenses on deep discount bonds as alleged by the AO.Conclusion:The Tribunal dismissed the appeal filed by the Revenue, concluding that the assessee was not liable to deduct TDS on the interest expenses on deep discount bonds since it had not claimed any interest expense. The order was pronounced on 04/01/2021 at Ahmedabad.