2011 (2) TMI 1451

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....t TDS on interest payment made to M/s. PCL in spite of the fact that such expenditure is debited to its P&L A/c. This is contraventions to provisions u/s. 194A of the Act. 3. Brief facts of the case are that the assessee is a subcontractor and entered into an agreement with another company viz., M/s. PCL-Intertech Lenhydro Consortium Joint Venture on 16.11.2002 in connection with execution of civil works of a dam, spillway and power house at Koteshwar as a sub contractor. It is a back to back contract wherein assessee company agreed to execute @ 92.96% of the rates approved by Tehri Hydro Development Corporation Ltd. (THDC), employer of the hydro electric project. Originally THDC assigned the contract of construction of civil works of da....

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....r provisions of section 194A of the Income-tax Act, 1961. The assessee was asked to explain as to why the total interest paid at Rs. 1,15,52,282 cannot be disallowed u/s. 40(a)(ia) as the assessee company failed to deduct tax on the interest. Section 40(a)(ia) calls for disallowance of total payment towards interest, commission, brokerage, contract charges and fees for technical services which are liable to TDS if TDS amount is not at all made or TDS is made but remitted beyond due date mentioned under section 200(1) of the Act. In reply the assessee company stated as under: "During the year, we have debited to Profit & Loss A/c. towards interest on mobilisation advance to THDC Rs. 1,15,52,282. The expenditure was deductible from RA bill....

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.... joint venture. M/s. Progressive Construction Ltd. in turn reduced 0.5% margin and mobilisation advances @ 2.5% and balance is remitted to assessee company. 6. During the course of assessment proceedings the AR of the assessee filed a copy of circular notification No. SO 3489 dated 22.10.1970 and argued that as per this notification income tax is not deductible on interest paid to any company in which all the shares are held by the Government. Therefore, tax is not deductible on interest paid to THDC, which is joint venture of Central Government and Government of UP. Originally mobilisation advance was released by THDC, employer of project to M/s. PCL-Intertech Lenhydro Consortium Joint Venture but not to assessee company. That is why TH....

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....er and accordingly he disallowed an amount of Rs. 1,15,52,282 paid by the assessee company towards interest on mobilisation advance u/s. 40(a)(ia) of the Act. 8. On appeal, the CIT(A) held that since the assessee has not made the payment towards mobilisation interest and it has been deducted by the principal - THDC while making payment towards Running Bill A/c. and since the THDC being a joint venture of Government of India and Government of Utttar Pradesh, as per circular of CBDT, it is not required to deduct TDS. Aggrieved, the Revenue is in appeal before us. 9. We have heard both the parties and also perused the material on record. It is an admitted fact that THDC is a joint venture of Government of India and Government of UP. The ....