TaxTMI 
TaxTMI 
2020 (12) TMI 178
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....duct tax at source as per the provision of section 194A, therefore the provision of section 40a(ia) is not applicable in appellant's case. 3. BECAUSE in any case the recipient, M/s Tata Capital Ltd. has paid taxes on interest and Overdue charges therefore the appellant is not a assessee in default and in view of proviso to section 40a(ia) inserted by Finance Act, 2012 no disallowance is called for by invoking the provisions of section 40a(ia)." 2. The only issue arises in this appeal of the assessee is regarding disallowances of finance charges on hire purchase u/s 40(a)(ia) of the Income Tax Act. 3. The ld. AR of the assessee has submitted that the financial charges paid by the assessee in respect of hire purchase agreement do not fall under the ambit of section 194A of the Act for the purpose of TDS. He has further contended that the assessee has paid financial charges to M/s Tata Capital Ltd. (an NBFC) and therefore the financial charges paid under hire purchase agreement cannot be treated as interest paid subjected to TDS u/s 194A of the Act. He has relied upon the CBDT Instruction No.OP 275/9/80- IT(B) dated 25.01.1981 and submitted that CBDT has clarified that secti....
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....se agreement but the assessee is under no obligation to buy the asset. Thus, it is only an option with the assessee either to return the goods or to become its owner by payment in full of the hire charges. Therefore, this transaction of payment of hire charges and financial charges do not fall in the ambit of section 194A of the Act. Even, the Hyderabad Benches of Tribunal in the case of ACIT vs. M/s R. Balarami Reddy & Co. (supra) as relied upon by the ld. DR has held in para 5 & 5.1 as under: "5. We have heard the arguments of both the parties, perused the record and have gone through the orders of the authorities below. We find that the issue in dispute whether it is interest or not on hire purchase contract has been decided by the Hon'ble AP High Court in the case of CIT Vs. M/s M.G. Brothers Finance Ltd., vide ITTA Nos. 43,44,45, 50 of 2007 and 761 of 2006, judgment dated 05/12/2013, wherein the Hon'ble Court held as follows: "The owner of the goods, which are usable movable goods let out to the hirer on payment of certain amount either on monthly or quarterly or yearly basis and after payment of the entire amount as claimed by the owner being the price of the goo....
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.... section 40(a)(ia) is not applicable. However, we find that insertion of Explanation 1 to section after amendment of section 194A by Taxation Laws (Amendment) Act, 2006, with effect from 13/07/2006, payment by the assessee towards hire charges on hire purchase agreement to be liable for TDS u/s 194I of the Act. Accordingly, we direct the Assessing Officer to recompute the disallowance u/s 40(a)(ia) in the light of the amended provisions, which came into effect from 13/07/2006. Accordingly, this ground of appeal is partly allowed." 6. The applicability of section 194I is only in respect of the payment of rent which is not the case of the AO in the case in hand as the payment made by the assessee and claimed as financial charges is in nature of rent. 7. The Visakhapatnam Benches of Tribunal in the case of Kesineni Srinivas Vijayawada vs. ACIT (supra), after considering the CBDT instruction on the point as well as decisions of the Hon'ble Supreme Court has held in para 5 to 7 as under: "5. Having heard the rival submissions and from a careful perusal of the orders of the lower authorities and the judgement of the apex court in the case of Charanjit Singh Chadha and other Vs. Sudh....
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....f section 194A of the income tax act are not attracted in these transactions. We however, for the sake of reference extract the instructions of the CBDT as under: 1. On the representation of the Federation of Indian Hire Purchase instalment paid by a hirer to the owner under a hire-purchase contract can be deemed to constitute payment of interest within the meaning of sec.2(28A) of the I.T. Act thereby attracting the provisions of section 194A of the said Act, this has been examined by the board in consultation with the Ministry of Law. 2. In a hire-purchase contract the owner delivers goods to another person upon terms on which the hirer is to hire them on a fixed periodical rental. The hirer has also the option of purchasing the goods by paying the total amount of agreed hire at any time or of returning the same before the total amount is paid. It may be pointed out that part of the amount of the hire-purchase price is towards the hire and part towards the payment of price. The agreed amount payable by the hirer in periodical instalments cannot, therefore, be characterized as interest payable in any manner with the meaning of section 2(28A) of the Income-tax Act, as it is n....