TaxTMI 
TaxTMI 
2012 (6) TMI 85
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.... Tax Act, 1961. 3. The facts which revealed from the record are as under. As observed by the A.O. the assessee company is engaged in the business of software development, trading of software and hardware and allied software and hardware services. It is stated that the assessee has taken over a banking division of its parent company i.e. M/s. Onward Technologies Ltd. (in short OTL). It is further stated that in view of the taking over of the banking division the assessee has to share the interest cost burden of M/S. OTL which is a parent company, based on the funds utilised as the parent company is enjoying borrowing facilities from the bank for its group companies. The assessee filed the return of income for the A.Y. 2005-06 declaring total income of Rs. 'Nil' and the said return was selected for scrutiny and assessment has been completed u/s.143(3) of the Act. It was noticed by the A.O. that the assessee had credited an amount of Rs.1,41,12,002/- in account of it's parent company namely 'M/S. OTL' towards the interest payment. 4. In the opinion of the A.O. the assessee should have deducted tax at source as per the provisions of sec.194A of the Act. The A.O. sought the explan....
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.... success. In the opinion of the Ld. CIT (A) whatever have been received by the parent company i.e. 'OTL' it is nothing but income on account of interest. The Ld. CIT (A) has also observed that the assessee itself has shown amount of loan in its balance sheet under head 'unsecured loans', which is payable to 'OTL'. In the opinion of the Ld. CIT (A) payment by the assesseecompany to the 'OTL' is nothing but interest irrespective of nomenclature assigned by the assessee-company. The Ld. CIT (A) confirmed the addition made by the A.O. by invoking the provisions of sec.40(a)(ia) of the Act. Now, the assessee is in appeal before us. 6. We have heard the rival submissions of the parties and perused the records. The Ld. Counsel submits that the assessee company is incorporated on 19.06.2003 as a subsidy of the 'OTL', which is a parent company. He submits that there is no income element in the reimbursement by the assessee to the parent company as the reimbursement is made on actual basis. The Ld. Counsel took us through paper-book, more particularly, copy of the 'Agreement to Assignment of Business' Page nos.4 to 20 of compilation. The Ld. Counsel referred to details of the liabilities ....
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....ing the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section. Explanation-For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (2) Omitted by the Finance Act, 1992, w.e.f. 1-6-1992. (3) The provisions of sub-section (1) shall not apply- (i) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed- (a) ten thousand rupees, where the payer is a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution, referred to in section 51 of that Act); ....
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....vious deduction or failure to deduct during the financial year.]Explanation.-[Omitted by the Finance Act, 1992, w.e.f. 1-6- 1992." 8. As per the language used by the Parliament what is contemplated is the 'interest in the form of income'. In the present case the argument of the assessee is that it is only reimbursement of the interest payment in respect of the funds utilised by the assessee towards borrowing facility of it's parent company. We find that as per the facts on record the assessee company was originally incorporated on 19.06.2003 with the name of 'Onsoft Technologies Ltd.' but the said name was subsequently changed to 'Onward eServices Ltd.'. Nowhere it is controverted that he assessee-company is a subsidy of 'OTL'. The assessee company entered into Agreement with the parent company dated 21.06.2003 and took over the business of providing 'Software Driven Solutions' vide Agreement of Assignment of Business. As per the terms of the said Agreement, the assessee also took over the different liabilities of the parent company along with assigned of its business, which included sundry creditors, advances from customers, provisions for salary and funds base working capital ....
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....IT (A) has observed that the assessee has shown the loan amount in the name of the 'OTL' (parent company). In our opinion, if the credit limit has not been not transferred in the name of the assessee but the credit facility is being enjoyed by the assessee through the parent company, then in such a situation the assessee cannot directly show the name of the bank but liability has to be shown on the name of the parent company. We further find that in the assessment year 2006-07 the AO has not made any disallowance even though the assessment is completed u/s.143(3). The AO has also made the reference in respect of the disallowance of Rs.1,41,12,002/- made u/s.40(a)(ia) of the Act but no disallowance is made in this year. We, therefore, hold that in the light of the above discussion, the assessee is under no statutory obligation to deduct the tax at source u/s.194A of the Act and, hence, there is no justification to invoke the provisions of sec.40(a)(ia) of the Act in making the disallowance. We, therefore, allow the grounds taken by the assessee and delete the addition made by the A.O. 11. Now, we take-up assessee's appeal for the A.Y. 2007-08 being ITA No.2974/M/2010. 12. The ....
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....xpenditure or alternatively it was pleaded that if the expenditure was treated as capital in nature then it should form the part of 'software development' and depreciation @ 60% had to be allowed. The Ld. CIT (A) was not convinced with the contention of the assessee and he confirmed the entire addition. In respect of the alternate plea of the assessee the Ld. CIT (A) has directed the A.O. to expeditiously dispose off the application filed by the assessee u/s.154 dated 20.02.2010. Now, the assessee is in appeal before us raising the grievance against the finding of the Ld. CIT (A). 16. We have heard the rival submissions of the parties and perused the records. The Ld. Counsel reiterated the submissions, which he made before the Ld. CIT (A). Main thrust of the argument of the Ld. Counsel is that the said expenditure relates to the R&D of the Software Solutions, which are provided by the assessee to the different banks and hence, the said expenditure is in recurring nature. Alternatively, it is pleaded that if the said expenditure is treated as a capital expenditure and it has direct nexus with the software development then the depreciation @ 60% may be allowed. We find that the as....