2021 (9) TMI 1219 - AT - Income Tax

TDS u/s 194A - interest payment to APIIC State Government undertaking - 2nd round of litigation - whether the APIIC is covered u/sec. 194A(3)(iii)(b) of Act - Commissioner deleted the addition made by the AO u/sec. 201(1) 201(1A) of the Act by accepting the claim of the Assessee - HELD THAT - APIIC the payee company has been incorporated under the Companies Act 1966 holding of which is entirely held by the Government of Andhra Pradesh and therefore the provisions of section 194(A)(1) of the Act are not applicable qua interest paid/payable by the Assessee to the said organization APIIC as per section 194(3)(iii)(f) of the Act. Considering the peculiar facts and circumstances in totality we are in concurrence with the conclusion of the ld. Commissioner for covering the APIIC u/sec. 194A(3)(iii)(f) of the Act and to the effect as well that APIIC is an organization exempted u/sec. 11 of the Act having filed NIL taxable income is not liable to tax and therefore deduction of tax at source qua APIIC is not attracted. Consequently the conclusion drawn by the ld. Commissioner whereby deleted the addition made by the AO u/sec. 201(1) 201(1A) of the Act is liable to be affirmed. Whether APIIC is a financial corporation or not within the meaning of section 194A(3)(iii)(b)? - whether the ld. Commissioner was empowered to adjudicate the issue which was not the subject matter of the appeal and/or the original claim of the Assessee? - HELD THAT - APIIC is also exempt from TDS provisions as APIIC is held by GoAP and is the State Government undertaking thereby covered as per section 194(3)(iii)(f) of the Act however this fact was not considered by the ld. Commissioner. In appeal before the Hon ble Tribunal in the first round of litigation the said fact was not brought to the knowledge of the Bench and therefore the same remained un-noticed which resulted into remanding the issue to the file of the AO by the Hon ble Tribunal to find out the applicability of section 194(3)(iii)(b) instead of section 194(3)(iii)(f) of the Act. Therefore all sequences resulted into multi and prolonged litigations. However as the controversy has been settled by the Ld. Commissioner while considering and allowing the alternative claim of the Assessee raised by ground no. 7 wherein it was claimed that without prejudice the AO failed to consider the submission of the appellant that the interest paid to APIIC in which all the shares are held by the Government of Andhra Pradesh is an entity covered u/s 194A(3)(iii)(f) is exempted from TDS vide notification No. SO 3489 dated 22/10/1970 therefore there is no need to adjudicate ground Nos. 2 specifically as the same become infructuous hence dismissed.

Summary

Issues Involved:
1. Whether the Assessee was required to deduct tax at source on payments made to APIIC.
2. Whether APIIC qualifies for exemption under section 194A(3)(iii)(b) or 194A(3)(iii)(f) of the Income Tax Act.
3. The validity of the additions made by the AO under sections 201(1) and 201(1A) of the Income Tax Act.
4. The correctness of the Commissioner’s deletion of the additions made by the AO.
5. The authority of the Commissioner to adjudicate issues not initially raised by the Assessee.

Detailed Analysis:

1. Requirement to Deduct Tax at Source:
The Assessee made payments to APIIC without deducting tax at source. The Assessing Officer (AO) initially added Rs. 29,72,42,976 under section 201(1) and Rs. 17,83,45,620 under section 201(1A) of the Income Tax Act, 1961, deeming the Assessee in default for failing to deduct tax.

2. Exemption Qualification under Section 194A(3)(iii)(b) or 194A(3)(iii)(f):
The Assessee argued that APIIC, being a State Government undertaking, was exempt from TDS under section 194A(3)(iii)(f). The Commissioner initially deleted the additions, holding that APIIC was exempt under section 194A(3)(iii)(b) as a financial corporation. However, the Tribunal remanded the issue to the AO to determine if APIIC was indeed a financial corporation. The AO concluded that APIIC did not qualify under section 194A(3)(iii)(b) but was a company for infrastructure development.

3. Validity of Additions under Sections 201(1) and 201(1A):
In the second round of litigation, the Commissioner deleted the additions again, accepting the Assessee's claim that APIIC was exempt under section 194A(3)(iii)(f) as per Central Government notification No. SO 3489, dated 22/10/1970. The Commissioner noted that APIIC's income was exempt under section 11 of the Act, and thus no TDS was required.

4. Correctness of Commissioner’s Deletion of Additions:
The Revenue Department appealed, arguing that the Commissioner erred in holding that APIIC was exempt under section 194A(3)(iii)(f) without a specific notification. The Tribunal upheld the Commissioner’s decision, affirming that APIIC, being wholly owned by the Government of Andhra Pradesh, was covered under section 194A(3)(iii)(f) and exempt from TDS.

5. Authority of Commissioner to Adjudicate Additional Issues:
The Tribunal addressed whether the Commissioner could adjudicate issues not initially raised by the Assessee. Citing several Supreme Court judgments, it affirmed that appellate authorities have the power to consider additional grounds and fresh claims to ensure the correct assessment of tax liability. The Tribunal found that the Commissioner rightly considered the Assessee's claim under section 194A(3)(iii)(f), which was raised during the remand proceedings.

Conclusion:
The Tribunal dismissed the Revenue Department’s appeal, affirming the Commissioner’s decision to delete the additions under sections 201(1) and 201(1A). The Assessee’s appeal and cross-objection were also dismissed as they became infructuous following the dismissal of the Revenue’s appeal.