TaxTMI 
TaxTMI 
2024 (12) TMI 247
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....raised the following grounds of appeal: 1. On the facts of the case and in Law, the CIT(A) has grossly erred in considering the assessee as "Assessee in default" for non-deduction of TDS without accepting the fact that the interest paid on loan from group entities are in the nature of reimbursement and therefore not liable for deduction of TDS. 2. The appellant craves leave to add, to amend, alter / delete and / or modify the above grounds of appeal on or before the final date of hearing. 3. As per the facts of the case the assessee is a part of the Ruparel Realty Group which is engaged in the business of building and developing properties and selling flats and offices for residential and commercial use in various parts of Mumbai Metropolitan Region and generates income from business of building and developing properties and selling flats and offices for residential and commercial use. The assessee has filed return of income for the year under consideration i.e A.Y. 2016-17 on 17.10.2016 declaring total income at Rs. 13,39,060/-. 4. A search action u/s 132 of the Income Tax Act was conducted on the Ruparel Realty group on 25.11.2021.On the basis of the detai....
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....rs as the entity has to pledge the shares. If there is only one entity then securing finance from different lenders becomes difficult for the various reasons. v. to give share of the specific projects to the outsiders, wherever applicable. vi. many other reasons depending on case-to-case basis 3. All these entities are engaged in similar business activity of builders and developers. The group is mainly engaged in the business of re-development of slums (SRA Projects) and other old building structures. 4. All the companies and firms are family owned and have common shareholders and directors. 5. Area of the business operation of the group is Mumbai, Navi Mumbai and suburbs of Mumbai. The group is into real estate business since last more than 20 years. 6. The group needs finance for the various projects carried out by various entities of the group. The group has to mortgage various projects in order to borrow more money and fulfil security objectives of Lenders / Financial Institutes which ranges from 2-3 times of loan amount. This also helps in minimizing the paper work and other compliances. The objective of the groups is to se....
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....f individual entity. As per the method of accounting and stage of the completion of the project, the net interest is then included in the closing work in progress of project of the entity. 15. From the above it is evident that interest transactions between the group entities are pure reimbursement in nature. 16. The assessee has reimbursed interest amounting to a total of Rs. 1,59,32,156/- in the relevant A.Y. 2016-17 to its sister concerns. The details of the same has been tabulated below S. No. Name of the Sister Concerns Amount (Rs.) 1 Ruparel Developers India Pvt Ltd 59,065 2 Ruparel Estates India Pvt Ltd. 2,76,357 3 Ruparel Homes (I) Private Ltd. 1,33,38,962 4 Shree Sukhakarta Developers India Pvt Ltd 22,57,772 Total 1,59,32,156 17. The Ld. AO has determined an amount totalling to Rs. 1,27,458/- as an interest payable for failure to deduct TDS on the above-mentioned interest payments to its sister concerns. The details of the same has been tabulated below Sr. No. Name of the Sister Concerns Amount TDS Interest Due u/s 201(1A) 1 Ruparel Developers India Pvt Ltd 59,065....
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.... under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year. (5) The Central Government may, by notification in the Official Gazette, provide that the deduction of tax shall not be made or shall be made at such lower rate, from such payment to such person or class of persons, as may be specified in the said notification. Section 194A deals with deduction of TDS on interest other than interest on securities like Interest on Fixed Deposits, Interest on Loans and Advances other than banks. 1. This section is only applicable to a resident. Thus, the provisions of section 194A are not applicable in case of payment of interest to a non-resident. 2. Payments made to non-residents are also covered under TDS mechanism. However, tax in such a case is to be deducted as per Section 195. 3. The payer/Deductor shall deduct TDS if the amount of such interest paid or credited or is likely to be paid or credited in a financial year, exceed a. 10,000 where the payer is * Banking company or any bank or a banking institution * Co-operative so....
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....t that rate or those rates shall be charged for that year in accordance with, and subject to the provisions including provisions for the levy of additional income-tax of, this Act in respect of the total income of the previous year of every person: Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. (2) In respect of income chargeable under subsection (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act. From the aforesaid provisions of section 4(2), it is quite clear that income-tax is deductible at source, in respect of income chargeable to tax under section 4(1) of the Act. In other words, it is quite clear that tax is deductible at source, in respect of income, which is chargeable to tax under the Act. 2) Section 190 - Deduction at source and advance payment. Section 190 falls under Chapter XVII-A and its heading is 'Deduction at source and advance payment'. For the sake of ready reference, section 190 is repro....
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....it may be seen that in the case of income, in respect of which provision is not made under Chapter XVII of the Act, for deducting income-tax at source at the time of payment and in any case where income-tax has not been deducted in accordance with the provisions of the said Chapter, income-tax shall be payable by the assessee directly. Thus, even from the provisions of section 191 of the Act, it is clear that tax is deductible at source only in respect of income. With respect to the above, relevant extracts of the judgement of Karnataka High Court in the case of - Hyderabad Industries Ltd Vs ITO [1991] 188 ITR 749 (Karn) is hereby reproduced : It was held in this case that amounts exempt under section 10A of the Act, do not constitute income for the purpose of section 195 and therefore, no tax is deductible at source, in respect of such amount. The relevant observations of the Hon. High Court on page 752 of the Report are reproduced as follows: The construction sought to be placed by the respondents is based on a distinction which has no substance in it. It is not understandable as to why a benefit which will not be included in the total income o....
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....ursement of expenses incurred by it. In view of the above discussion, none can find any merit in the order passed under section 201(1)/201(1A) in respect of one of the possible views taken by the Ld. AO. Even on merit, one can find that reimbursement of expenses does not come under the purview of interest income so as to make assessee liable for TDS under section194A. As already pointed out, an expenditure incurred by the payee cannot form part of income in his hands and therefore, no tax will be deductible at source therefrom. In other words, no tax will be deductible at source at the time of payment or reimbursement of the aforesaid expenses by the payer or the tax-Deductor to the payee or tax-deductee. In support of the aforesaid stand, reliance is placed on the following legal precedents: 1. Onward e-Services Ltd. v/s Assistant Commissioner of Income-tax, Central Circle 37-ITAT MUMBAI (IT APPEAL NOS. 97 AND 2974 (MUM.) OF 2010) Assessee-company was engaged in business of software development - It had taken over a banking division of its parent company - In view of taking over of banking division, assessee had to share interest cost burden of ....
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....expense in books of account by debiting account of group companies at the same rate of interest at which the principal borrower has taken the loan. 3. ITO Vs. Dr. Willmar Schwabe India (P) Ltd. [2005] 95 TTJ 53 (Del) In this case, one of the issues before the Hon. Bench of the Tribunal, was TDS in respect of reimbursement of conveyance expenses. As per agreement between the assessee company and Indochem Techno Consultants Ltd, a vehicle was to be provided by the assessee company to the said consultant for attending to its work and thus, the assessee company was to bear the vehicle expenses actually incurred by the said party. Bills for such expenses incurred by the said consultant were separately raised by him on the assessee company, in addition to bills for fees payable on account of technical services. It was held that since the amount of bills so raised was towards the actual expenses incurred by the consultant, there was no element of any profit or income involved in the said bills. It was, thus, a clear case of reimbursement of actual expenses incurred by the consultant and the same, therefore, was not of the nature of payment, requiring th....
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....arisen. As the reimbursement of expenses was not taxable in the hands of the payee, the assessee was not liable to deduct tax at source. 7. Expeditors International (India) P. Ltd VsAddl.CIT [2010] 2 ITR (Trib) 153 (Del) It was, inter alia, held in this case that the amount paid by the assessee company to its parent company, on account of reimbursement of expenses incurred in respect of global accounts manager, could not be treated as payment of salary, so as to attract the deduction of tax at source. It was a case of reimbursement of common expenses incurred by the parent company for the benefit of all the group concerns, including the assessee company, which do not attract any deduction of tax and disallowance could not be made by invoking the provisions of section 40(a)(iii) for non-deduction of tax from reimbursement. 8. Linklaters LLP Vs ITO (Int.Tax) [2011] 9 ITR (Trib) 217 (Mum) It was, inter alia, held in this case that reimbursements received by the assessee were in respect of specific and actual expenses incurred by the assessee and do not involve any mark up. Besides, there was reasonable control mechanism in place to ensure that these....
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.... a banking division of its parent company - In view of taking over of banking division, assessee had to share interest cost burden of parent company based on funds utilized because, parent company was enjoying borrowing facilities from banks for its group companies - On other hand, assessee-company was enjoying borrowing facilities from bank through its parent company and funds had actually been advanced to assessee as bank had not approved transferring said borrowing facility to assessee - Thus, to extent of funds utilized in respect of borrowing in name of parent company, interest cost was being reimbursed by assessee to parent company - Whether on facts, it was apparent that assessee had paid interest to bank only through its parent company and, thus, there was no statutory obligation on it to deduct tax at source under section 194A - Held, yes [In favour of assessee] HIGH COURT OF GUJARAT Principal Commissioner of Income Tax, Central, Ahmedabad v. Plastene India Ltd.* R/TAX APPEAL NO. 1284 OF 2018 Section 194A of the Income-tax Act, 1961 - Deduction of tax at source - Interest other than interest on securities (Letter of credit discount charges) - Assessment year 2008-09 ....
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....rious banks year after year as per agreed terms - NCL had set a condition that 80 per cent of bank guarantee commission had to be reimbursed to it by assessee - Accordingly, assessee reimbursed certain amount to NCL - Assessee had not deducted TDS on these payments - Whether since there was no money borrowed or debt incurred and payment made to NCL was only in nature of reimbursement of expenses incurred by NCL and assessee, it did not come under purview of interest so as to make assessee liable for TDS under section 194A - Held, yes [Para 12] [In favour of assessee] HIGH COURT OF BOMBAY RupeshRashmi Kant Shah v. Union of India* WRIT PETITION NO.2902 OF 2016 Section 4 read with sections 2(28A) and 194A, of the Income-tax Act, 1961 - Income - Chargeable as (Interest on compensation) - Whether interest awarded on compensation in motor accident claim cases from date of Claim Petition till passing of award or in case of Appeal, till judgment of High Court in such Appeal, is not 'income' and therefore would not be eligible to tax - Held, yes - Whether further, provision of deducting tax at source cannot govern taxability of amount which is being paid, hence, section 194A p....
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....Proceeding dropped in case M/s. Home Builders and Infrastructure Pvt. Ltd. for AY 2016-17 (Assessee's sister concern) 3. Proceeding dropped in case M/s. Home Builders and Infrastructure Pvt. Ltd. for AY 2017-18 (Assessee's sister concern) 4. Proceeding dropped in case M/s. Home Builders and Infrastructure Pvt. Ltd. for AY 2018-19 (Assessee's sister concern) 5. Proceeding dropped in case M/s. Home Builders and Infrastructure Pvt. Ltd. for AY 2019-20 (Assessee's sister concern) 6. Proceeding dropped in case M/s. Home Builders and Infrastructure Pvt. Ltd. for AY 2020-21 (Assessee's sister concern) 7. Proceeding dropped in case M/s. Home Builders and Infrastructure Pvt. Ltd. for AY 2021-22 (Assessee's sister concern) 8. Proceeding dropped in case M/s. Home Builders for AY 2017-18 (Assessee's sister concern) 9. Proceeding dropped in case M/s. Home Builders for AY 2018-19 (Assessee's sister concern) 10. Proceeding dropped in case M/s. Home Builders for AY 2019-20 (Assessee's sister concern) 11. IN THE ITAT MUMBAI BENCH 'C' Onward e-Services Ltd. v. Assistant Commissioner of Income-tax, Central Circle....
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....on in the preceding paras (I) and (II), it is clearly established that - 1. Tax is deductible at source only in respect of payment of income or other sum comprising an element of income. 2. Reimbursement of expenses does not partake the nature of income, in the hands of the payee of such expenses. In view of the aforesaid reasons, tax is not deductible at source, in respect of payment or reimbursement of expenses incurred by the payee. Without Prejudice to the above, 1. Interest paid is nothing but reimbursement in nature: From the facts of the case, as stated herein above it is crystal clear that the interest paid by various entities until the principal borrower is nothing but reimbursement of the interest to the principal borrower who have paid the interest to the lender after duly deducting TDS, wherever applicable. Thus, TDS shall not be applicable on these payments of interest reimbursements. There is no mark up in respect of interest charged to the group entities and therefore there is no income embedded for the group entity receiving interest from another group entities. It is very clear from the provisions of section 194....
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....orders passed by the revenue authorities. 9. We have heard the counsels for both the parties and we have also perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. From the records, we noticed that the assessee has submitted relevant documents to prove that the payment of interest is a reimbursement in nature. As per the language used by the Parliament in section 194A 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 utilized by the assessee towards borrowing facility of it's group entities. As per the facts on record the assessee-company is a sister concern of 'Ruparel Realty Group'. The assessee-company borrowed a sum of money from its group entities which is repayable on demand. The same is evident from the presentation in the Balance Sheet of the period under consideration. In the balance sheet for year ending 31.03.2016,note no.6 under the head 'short-term borrowings' the 'Loans repayable on demand' from the group companies is disclos....