TMI Blog2018 (10) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... aning of sec. l94H. The fact that the revenue has preferred an appeal against the order of Tribunal in Tata Tele Services (supra) cannot be the basis not to follow the order of the coordinate Bench of the Tribunal, so long as the said decision has not been reversed by any higher judicial forum. We therefore dismiss the appeal of the revenue. Disallowance of interest paid on delayed remittances of service tax - Held that:- There remains no doubt that the interest expense on the delayed payment of service tax is allowable deduction. The above principles can be applied to the interest expenses levied on account of delayed payment of TDS as it relates to the expenses claimed by the assessee which are subject to the TDS provisions. The assessee claims the specified expenses of certain amount in its profit & loss account and thereafter the assessee from the payment to the party deducts certain percentage as specified under the Act as TDS and pays to the Government Exchequer. The amount of TDS represents the amount of income tax of the party on whose behalf the payment was deducted & paid to the Government Exchequer. TDS amount does not represent the tax of the assessee but it is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in placing reliance on the decision of the Hon'ble ITAT Bangalore Bench in ITA No.308 to 310 and 393 to 396(Bang) of 2011 and in deleting the disallowance made by the AO u/s.40(a)(ia) since the above decision has not become final and the department has filed further appeal. 4. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 5. The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above. 3. The assessee is a company engaged in the business of development and maintenance of industrial park and providing infrastructural facilities to various industries, besides running hotel business. In the course of assessment proceedings, the AO noticed that the assessee had debited in the Profit Loss (P L) account credit card commission expenses. The Assessee s banks for realizing payments on behalf of Assessee through credit cards used by the customers of the Assessee to make payment to the Assessee, charge commission from the Assessee. The Assessee does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 16,34,000 on the following reasoning- 9.8 On going through the nature of transactions, I find considerable merit in the contention of the appellant that commission paid to the credit card companies cannot be considered as falling within the purview of S.194H. Even though the definition of the term commission or brokerage used in the said section is an inclusive definition, it is clear that the liability to make TDS under the said section arises only when a person acts behalf of another person. In the case of commission retained by the credit card companies however, it cannot be said that the bank acts on behalf of the merchant establishment or that even the merchant establishment conducts the transaction for the bank. The sale made on the basis of a credit card is clearly a transaction of the merchants establishment only and the credit card company only facilitates the electronic payment, for a certain charge. The commission retained by the credit card company is therefore in the nature of normal bank charges and not in the nature of commission/brokerage for acting on behalf of the merchant establishment. Accordingly, concluding that there was no requirement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the amount retained by the bank was in the nature of commission within the meaning of Sec.194-H of the Act. For the reasons given above, we confirm the order of the CIT(Appeals) on this issue and dismiss the appeals of the Revenue. 5.7 The reliance of the AO on the CBDT Notification No.56/2012 dated 31.12.2012 is wrongly placed. This notification has been suppressed by notification no. SO 2143(E), No.47/2016 dated 17.06.2016 with certain addition but having no relevance to the instant case. This notification was passed u/s. 197A(1F) of the Act through which exemption from TDS was granted to certain categories of payments. One of such category is (vii) Credit card or Debit Card Commission for transaction between merchant establishment and acquirer bank and the same was effective from 01.01.2013. The assumption of AO that since such exemption was not available to the Appellant during the relevant assessment year thus deduction of tax has to be done, is not correct as this notification is clarficatory in nature and not making a fresh concession. 5.8. Respectfully following the decisions of the Hon ble ITAT, Bangalore in the above mentioned cases, the order of Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 37(1) of the Act, which lays down that any expenditure by an assessee for any purpose, which is an offence or which is prohibited by law, shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. 11. On appeal by the assessee, the CIT(Appeals) confirmed the order of the AO by placing reliance on the decision of the Hon ble Supreme Court in the case of Star India (P) Ltd. v. Commissioner of Central Excise, Mumbai Goa, 280 ITR 321 (SC) . 12. Aggrieved, the assessee has raised ground No.2 before the Tribunal. 13. We have heard the submissions of the ld. counsel for the assessee, who placed reliance on the decision of the Kolkata Bench of the Tribunal in DCIT v. Narayani Ispat Pvt. Ltd., ITA No.2127/K/2014, AY 2010-11, order dated 30.8.2017 , wherein the Kolkata Bench on an identical issue, took the view that the issue of delay in the payment of service tax and interest on delayed payment of TDS is directly covered by the judgment of Hon ble Apex Court in the case of Lachmandas Mathura Vs. CIT reported in 254 ITR 799 in favour of assessee. The relevant extract of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in the case of Lachmandas Mathura (Supra) wherein deduction on account of interest on late deposit of sales tax u/s 37(1) of the Act was allowed. 15. Further reliance was placed by the ld. counsel for the assessee on the decision of the Hon ble Gujarat High Court in the case of CIT v. Kaypee Mechanical India (P) Ltd. [2014] 45 taxmann.com 363 (Gujarat) wherein the Hon ble Gujarat High Court in the context of liability of service tax and interest on delayed payment of service tax took the following view:- 6. We have no hesitation in upholding the view of the CIT (A), as confirmed by the Tribunal. The amount was expended by the assessee during the course of business, wholly and exclusively for the purpose of business. If the assessee had taken proper steps and charged service tax to the service recipients and deposited with the Government, there was no question of assessee expending such sum. It is only because the assessee failed to do so, that he had to expend the said amount, though it was not his primary liability. Be that as it may, this cannot be stated to be a penalty for infraction of law. Reference to the decision of Supreme Court in case of Haji Aziz a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT v. Chennai Properties and Investment Ltd., 239 ITR 439 (Mad) wherein the Hon'ble High Court took the view that interest paid u/s. 201(1A) of the Act partakes the colour of tax and was therefore in the nature of income tax payable under the Act and cannot be allowed as a deduction. 19. We have given a careful consideration to the rival submissions. As far as payment of interest on delayed payment of service tax is concerned, it is clear from the decision of the Hon'ble Gujarat High Court in the case of Kaypee Mechanical India (P) Ltd. (supra) that service tax and interest paid on delayed deposit of service tax had to be allowed as a deduction. The Hon'ble Gujarat High Court took the view that payment of interest was only compensatory in nature and would not be in the nature of penalty which would be hit by Explanation to section 37(1) of the Act. Therefore, the same had to be allowed as a deduction. As far as the plea of the ld. DR by placing reliance on the decision of the Hon'ble Supreme Court in the case of Star India (P) Ltd. Star India (P) Ltd. (supra) is concerned, we are of the view that the reliance placed by the ld. DR on the aforesaid decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that persons situate like the appellants were not liable as service providers. This is also clear from the Explanation to the valuation section which says that no act or acts on the part of any person shall be punishable as an offence which would not have been so punishable if the section had not come into force. 8. The liability to pay interest would only arise on default and is really in the nature of a quasi-punishment. Such liability although created retrospectively could not entail the punishment of payment of interest with retrospective effect. 20. The observations of the Hon'ble Supreme Court in para 8 is only in the context of a question, whether there can be criminal liability imposed by retrospective law. The above observations cannot be read to mean that interest paid on delayed deposit of service tax is penal in nature and therefore cannot be allowed as a deduction under Explanation to section 37(1) of the Act. We, therefore, hold and direct that the deduction of interest on delayed deposit of service tax amounting to ₹ 56,11,697 should be allowed as a deduction. 21. As far as delay in remittance of tax deducted at source u/s. 201(1A) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an assessee could not possibly claim that it was borrowing from the State, the amounts payable by it as incometax, and utilising the same as capital in its business, to contend that the interest paid for the period of delay in payment of tax amounted to a business expenditure. (emphasis supplied) 22. The decision cited by the ld. counsel for the assessee of Kolkata Bench of the Tribunal on the issue is contrary to the decision of the Hon'ble Madras High Court. Though the decision of the Tribunal is later in point of time, judicial discipline demands that the decision of the Hon'ble Madras High Court is to be followed. It is also worthwhile to mention that the Kolkata Bench of Tribunal in the case of Narayani Ispat Pvt. Ltd. (supra), which was cited by the ld. counsel for the assessee, did not consider or did not have an occasion to consider the decision of the Hon'ble Madras High Court in the case of Chennai Properties and Investment Ltd. (supra) . In these circumstances, we follow the decision of the Hon'ble Madras High Court and uphold the order of the CIT(A) insofar as it relates to disallowance of interest on delayed remittance of tax deducted at source ..... X X X X Extracts X X X X X X X X Extracts X X X X
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