2014 (7) TMI 1152 - AT - Income Tax

Excess depreciation claimed on wind mill plant - CIT(A) deleted the disallowance - Held that - The various High Courts as well as Coordinate Bench of ITAT Jaipur in case of DCIT Vs. Vippy Solvex Products Ltd. 2007 (3) TMI 746 - MADHYA PRADESH HIGH COURT held that foundation of platform erection installation of plant and machinery preparation of crane platform for wind mill and other civil work carried out for installation are internal part of wind mill which have not independent use. Thus we are of the considered view that the assessee is entitled for 80% of depreciation on composite wind mill project including other expenditure for put to use for wind mill. Thus we confirm the order of learned CIT(A). - Decided in favour of assessee. TDS u/s 194H - disallowance u/s 40(a)(ia) on non deduction of TDS on commission payment to the bank on credit card - Held that - The assessee is in the business of hotel and restaurant. During the year under consideration the assessee provided service to foreign as well as Indian tourists by way of hire charges as well as supply of food and beverages. The customers paid this service through credit cards which is credited by the bank of credit card holders. The concerned bank transfers this money after charging of fees. It is fact that these services were rendered by the bank of credit card holders not by the bank of assessee. The appellant gets remaining amount after deducting the fees. As relying on case of Gems Paradise Vs. ACIT 2012 (2) TMI 521 - ITAT JAIPUR wherein held it is not the case that bank has advised the assessee to sell their goods to its customers then he will pay the commission. It is reversed in a situation as bank issued credit cards to the credit card holders on certain fees or whatever the case may be and the card holder purchases material from the market through his credit card without making any payment and that shop keeper presents the bill to the bank against whose credit card the goods were sold and on presentation of bill as stated above the bank makes the payment. Therefore in our considered view provisions of section 194H are not attracted in this type of transaction. Therefore we hold that addition made and confirmed by ld. CIT (A) was not justified - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition on account of excess depreciation claimed by the assessee on wind mill plant.
2. Disallowance of collection service charges deducted by the bank in respect of credit card payments under Section 40(a)(ia) for non-deduction of TDS.

Issue-Wise Detailed Analysis:

1. Excess Depreciation on Wind Mill Plant:

The Revenue's appeal challenged the deletion of Rs. 30,68,164/- added by the Assessing Officer (AO) due to excess depreciation claimed by the assessee on the wind mill plant. The assessee, engaged in running hotels, restaurants, bars, and shopping complexes, installed a wind mill costing Rs. 3,66,33,382/- and claimed 80% depreciation on the entire expenditure, including accessories and civil work.

The AO categorized the expenditure into civil work, accessories, and electrical items, and lease transfer charges, allowing only 10% depreciation on civil work and 15% on accessories and electrical items, disallowing the excess depreciation of Rs. 30,68,164/-. The AO's decision was based on Section 32 of the Income Tax Act, 1961, and Rule 5 of the Income Tax Rules, 1962, which specify different depreciation rates for energy-saving devices and other accessories.

The CIT(A) allowed the appeal by referencing the ITAT Jaipur Bench's decision in M/s Chiras Associates P. Ltd. and the Madhya Pradesh High Court's ruling in DCIT Vs. Vippy Solvex Products Pvt. Ltd., which held that civil work and installation expenses are integral parts of the wind mill and eligible for 80% depreciation.

The ITAT upheld the CIT(A)'s decision, confirming that the assessee is entitled to 80% depreciation on the composite wind mill project, including other expenditures necessary to put the wind mill to use.

2. Disallowance of Collection Service Charges:

The assessee's cross objection challenged the confirmation of disallowance of Rs. 7,88,442/- under Section 40(a)(ia) for non-deduction of TDS on collection service charges deducted by the bank for credit card payments. The AO treated these charges as commission under Section 194H, requiring TDS deduction, and disallowed the amount due to non-compliance.

The CIT(A) upheld the AO's decision, citing the principal-agent relationship between the assessee and the bank, which falls under the purview of Section 194H. The CIT(A) referenced various case laws and the Indian Contract Act to support the principal-agent relationship, concluding that TDS was required on the commission paid to the bank.

The ITAT, however, sided with the assessee, referencing the ITAT Jaipur Bench's decision in Gems Paradise Vs. ACIT, which held that bank charges for credit card transactions are not commission payments but fees for services rendered. The ITAT concluded that Section 194H does not apply to these transactions, and therefore, the disallowance under Section 40(a)(ia) was not justified.

Conclusion:

The ITAT dismissed the Revenue's appeal regarding excess depreciation on the wind mill plant and allowed the assessee's cross objection on the disallowance of collection service charges, confirming that TDS under Section 194H was not applicable. The order was pronounced in the open court on 25/07/2014.