TMI Blog2023 (1) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... - Assessee has entered into a tripartite agreement with the potential buyers and IHFL as per the terms of which the assessee would pay the pre EMI interest to the lender under interest subvention scheme. The lender while disposing the loan withheld the pre EMI interest - whether the subvention charges, which is in the form of pre-EMI interest paid by the assessee to IHFL is liable for TDS u/s.194A - HELD THAT:- A person who is responsible for paying any income by way of interest is liable to deduct tax at source u/s.194A. When a payment is made which is treated as interest income then the person responsible for making such payment is liable to deduct tax at source. A close reading of the provisions of section 2(28A) would make it clear that to call an amount received as interest at least one of the conditions should be satisfied that the amount has been received as due on account of any money either borrowed or debt incurred. In the given case money is borrowed by the buyer when IHFL extended to the housing loan to the buyer. Therefore there can be no dispute that the payments made are in the nature of income by way of interest and would attract the provisions of section 194A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating the Appellant as assessee in default with respect to non-remittance of TDS of Rs.9,18,59,358/- without appreciating the fact that non-remittance was due to genuine hardship and severe financial crisis faced by the Appellant. 3. The learned CIT(A) has erred in confirming the action of the AO in treating the Appellant as assessee in default without appreciating the fact that payees have filed their return of income and remitted the tax due and therefore by virtue of 1 proviso to section 201(1), the Appellant cannot be treated as assessee in default. 4. The learned CIT(A) has erred in confirming the action of AO in concluding that the Pre EMI interest borne by the Appellant on behalf of the buyers under subvention scheme is interest u/s 2(28A) of the Income Tax Act and is liable for TDS u/s 194A of the Income Tax Act. 5. The learned AO has erred in not appreciating that the responsibility to comply with TDS provisions was only on the buyer, who had availed the loan from NBFC and not the Appellant. 6. The Appellant denies its liability to be charged with interest under Section 201(1A) of the Act in the facts and circumstances of the case. 7. The App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see paid the pre EMI interest on behalf of the buyers. Therefore the assessee submitted that the liability to deduct tax at source under section 194A of the Act would not be applicable as the payment made does not fall within the definition of interest under section 2(28A) of the Act. The assessee further submitted that in a scheme of subvention interest wherein the borrowal/debt is incurred by the buyer of the residential unit and the interest liability payable by the buyer has been diverted to the assessee only for economic purposes and the primary liability to pay interest of the underlying loan continues to remain with the buyer. The AO did not appreciate the submissions of the assessee and passed an order under section 201 and 201(1A) of the Act treating the assessee as an assessee in default raising a demand of Rs.11,62,16,891/- which was subsequently rectified under section 154 to Rs.11,47,27,154/-. Aggrieved, the assessee preferred an appeal before the CIT(A) who confirmed the order of the AO by relying on various judicial pronouncements including the decision of the Madras High Court relied on by the AO in the case of Viswapriya Financial Services Securities Ltd vs ITO ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax if such payee- (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed57: 9. We are therefore of the considered view that the assessee cannot take shelter under the proviso to section 201(1). However we notice that the decision of the Hon ble Supreme Court in the case of Hindustan CocaCola Beverage (P.) Ltd (Supra) is applicable to assessee s case. The Hon ble Supreme Court in this case held that 10. Be that as it may, the Circular No. 275/201/95-IT(B), dated 29- 1-1997 issued by the Central Board of Direct Taxes, in our considered opinion, should put an end to the controversy. The ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed an appeal before the CIT(A). 12. Before the CIT(A), the assessee submitted that the responsibility to comply with TDS provisions was only on the buyer who availed the loan from IHFL and not on the assessee. The amount paid towards subvension interest is in the nature of marketing expenses incurred by the assessee to attract buyers and therefore it is a business expenditure. On this basis, the assessee submitted that there is no liability to deduct tax at source arising on payments made to IHFL. The CIT(A) did not agree with the arguments of the assessee by stating that as per section 194A of the Act, it is the person who is paying such interest is liable to deduct tax at source and in the given case, it is the assessee who is paying the interest. Further, the provisions of section 194A of the Act require deduction of tax at source if the amount paid is any income by way of interest and therefore if the amount in the hands of the payee is interest, the provisions of TDS would apply. The CIT(A) further stated that the accounting treatment in the books of accounts of the assessee is not relevant in this case. The CIT(A) relied on the decision of Cochin Bench of the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tripartite Agreement as reproduced below, there is an assumed responsibility by the assessee to pay the pre EMI interest. 3. The housing loan advanced to the borrower by IHFL shall be payable by the borrower by way of equated monthly installments (EMI). The date of commencement of EMI shall be the 1st day of the month following the month in which the disbursement of the loan will have been completed and consequently the due date of payment of 1st EMI shall in such a case. 1st day of the following month. Till the commencement of EMI the borrower shall pay pre- EMI which is the simple interest on the loan amount disbursed calculated at the rate of interest as mentioned in the respective loan agreement of the borrower. 4. The borrower has informed IHFL about the scheme of arrangement between the borrower under builder in terms thereof the builder hereby assumes the liability on account of interest payable by the borrower to IHFL during the period to be referred to as the Liability Period. in terms of .. months from the date of first disbursement of loan facility i.e. till 31/12/ 2019 and/or any other period as agreed by and between the borrower and the builder, more part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any credit facility which has not been utilised; 19. For the purpose of deciding whether the assessee is an assessee in default for failure to deduct tax at source u/s.194A, the following two tests are critical (i) Whether the payments made are in the nature of interest income (ii) Whether assessee is the person responsible for the paying the interest. 20. A close reading of the provisions of section 2(28A) would make it clear that to call an amount received as interest at least one of the conditions should be satisfied that the amount has been received as due on account of any money either borrowed or debt incurred. In the given case money is borrowed by the buyer when IHFL extended to the housing loan to the buyer. Therefore there can be no dispute that the payments made are in the nature of income by way of interest and would attract the provisions of section 194A. 21. Now coming to the issue of who is the person responsible for paying the interest . We notice that the Madhya Pradesh High Court in the case of KrantiKumarSaxena, In re (2003) 262 ITR 33 while considering the issue of person responsible for paying interest u/s.194A held that 8. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be subject to the Borrowers repayment capacity as assessed by IHFL and shall be secured against first and exclusive mortgage in favour of IHFL (Para 2 of Pg 4 of PB-I). (v) The housing loan advanced to the Borrower by IHFL shall be repayable by the Borrower by way of EMI (Para 3 of Pg 4 of PB-I). (vi) As per the tripartite agreement between the assessee, IHFL and the Buyer/borrower the assessee assumes the liability on account of interest payable to IHFL during the liability period. It further agreed between the parties that the assumption of liability by assessee in no manner whatsoever releases, relinquishes and /or reduces the liability of the Buyer/Borrower and that same shall not be affected in any manner on account of any difference and/or dispute between the Buyer/Borrower and assessee under the arrangement between them (Para 4 of Pg 5 of PB-I). (vii) The Borrower shall be liable to pay regular EMI as per the terms and conditions of the Loan Agreement, subsequent to completion of the Liability Period (Para 6 at page 5 of PB-I). (viii) As per the Memorandum of Understanding (MOU) between the Buyer/Borrower and the assessee, Buyer/Borrower is respons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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