TMI Blog2012 (6) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No.97/Mum/2010, ITA No.2974/Mum/2010 - - - Dated:- 9-5-2012 - J Sudhakar Reddy, R S Padvekar, JJ. For Appellant: Shri Paresh Shaparia For Respondent: Shri J Y Wagh Shri A C Tejpal ORDER Per: R S Padvekar, JM: These two appeals are filed by the assessee challenging the respective impugned orders of the Ld. CIT (A)-22, Mumbai for the A.Ys. 2005-06 2007-08. In both the appeals issues are common, hence, these appeals are disposed off by this consolidated order. 2. We first take the appeal for the A.Y. 2005-06 being ITA No.97/M/2010. The assessee has taken the following grounds: 1. The Learned CIT (A) erred in confirming the disallowance of re-imbursement of interest of Rs.1,41,12,002/-, paid to the parent company Onward Technologies Ltd., u/s.40(a)(ia) of Income Tax Act, 1961. 2. The Learned CIT (A) ought not to have confirmed the disallowances of re-imbursement of interest of Rs.1,41,12,002/-, paid to the parent company Onward Technologies Ltd., u/s.40(a)(ia) of Income Tax Act, 1961. 3. The facts which revealed from the record are as under. As observed by the A.O. the assessee company is engaged in the business of software development, trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount is carried to the profit and loss account. The assessee also stated that in the case of the parent company i.e. OTL; amount of interest reimbursed from the assessee company is reduced from the interest paid to the bank and net amount of the interest paid is taken to the profit loss account. The assessee also contended that as the interest payment by the assessee is only towards the reimbursement of the cost to the parent company and no income is earned by the parent company, hence, there is no obligation on the assessee to deduct the tax at source u/s.194A of the Act. 5. The A.O. was not impressed with the explanation of the assessee. In his opinion the assessee should have deducted tax at source u/s.194A of the Act from amount paid/credited to M/S. OTL. He invoked the provisions of sec.40(a)(ia) of the Act and disallowed the entire interest payment of Rs.1,41,12,002/- and made the addition to the total income of the assessee. The assessee carried the issue before the Ld. CIT (A) but without success. In the opinion of the Ld. CIT (A) whatever have been received by the parent company i.e. OTL it is nothing but income on account of interest. The Ld. CIT (A) has also obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y obligation, the provisions of sec.40(a)(ia) cannot invoked. The Ld. Counsel strongly relied on the decision in the case of ITO vs. Dr. Wilmar Schwer India P. Ltd. 3 SOT 71 (Del.), Jaipur Vidyut Vistar Nigam Ltd. Vs. ITO 123 TTJ (Jp) 888 . Per contra, the Ld. D.R. relied on the order of the Ld. CIT (A). 7. Sec.194A reads as under: (1) Any person not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section. Explanation-F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged in carrying on the business of banking (including a co-operative land mortgage bank), or (b) any financial corporation established by or under a Central, State or Provincial Act, or (c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or (d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or (e) any company or co-operative society carrying on the business of insurance, or (f) such other institution, association or body or class of institutions, associations or bodies] which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette; (iv) (v) (vi) .(x) Explanation 2.- (4) The person responsible for making the payment referred to in sub-section (1) may, at the time of making any deduction, increase or reduce the amount to be deducted 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.]Explanation.-[Omitted by the Finance Act, 1992, w.e.f. 1-6- 1992. 8. As per the language u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding business, as the transfer of the bank liability on the name of the assessee is awaited for the approval. 9. There are other aspects also to be considered. If it is an actual reimbursement of the interest by the parent company from the assessee in respect of the utilisation of the banking funds in respect of borrowing facilities enjoyed by the M/S. OTL , the parent company then it cannot be said to be the income of the parent company. In the assessment order, as per the explanation filed by the assessee, the OTL has reduced the amount of interest received from the assessee company from it s interest account and only the net amount of the interest is taken to the profit loss account. Moreover, as per the provisions of sec.194A, otherwise also there is no liability on the assessee to deduct the tax at source if the interest is paid to any banking company to which Bank Regulations Act, 1949 applies. In present case assessee has paid interest to bank only but through it s parent company. 10. The AO as well as Ld. CIT (A) has observed that the assessee has shown the loan amount in the name of the OTL (parent company). In our opinion, if the credit limit has not been not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture . The assessee has not claimed any depreciation on the said amount but has claimed entire amount as revenue expenditure in the income computation statement. The A.O. asked the assessee to file the details /break-up of said expenditure . The break-up given by the assessee is reproduced on page No.5 of the assessment order. The A.O. rejected the claim of the assessee giving reference to A.Y. 2006-07. The A.O. also did not allow any depreciation on the said amount i.e Rs.2,93,13,061/-. Before the Ld. CIT (A) the assessee pleaded that it has host of products in the Total Branch Automation and Core Banking Spehere as well as TBA applications , which were introduced by the assessee are successfully running across 4,000 branches of the various banks. It was pleaded that software is a ongoing process wherein features and modules of the software are revived and updated and modified and said process is a continuous process and required to be done each year. It was submitted that the same has to be allowed as revenue expenditure or alternatively it was pleaded that if the expenditure was treated as capital in nature then it should form the part of software development and deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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