M/s. Velankani Information Systems Limited, Bangalore v. Deputy Commissioner of Income Tax, Bangalore

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN JUDICIAL MEMBER AND SHRI G. MANJUNATHA ACCOUNTANT MEMBER I TA NO. 218/BANG/2017 ASSESSMENT YEAR : 2012 - 13 VELANKANI INFORMATION SYSTEMS LTD. NO.43 ELECTRONIC CITY PHASE II HOSUR ROAD BANGALORE 560 009. PAN: AABCV 0552G VS. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 7(1)(2) BANGALORE. APP EL L ANT RESPONDENT ITA NO.283/BANG/2017 ASSESSMENT YEAR : 2012 - 13 THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 7(1)(2) BANGALORE. VS. VELANKANI INFORMATION SYSTEMS LTD. BANGALORE 560 009. PAN: AABCV 0552G APPELLANT RESPONDENT ASSESSEE BY : SHRI SUDHIR PRABHU CA REVENUE BY : DR. P.V. PRADEEP KUMAR ADDL. CIT(DR)(ITAT) BENGALURU. DATE OF H EARING : 10.09.2018 DATE OF PRONOUNCEMENT : .09. 2018 O R D E R PER N.V. VASUDEVAN JUDICIAL MEMBER ITA 218/B/2017 IS AN APPEAL BY THE ASSESSEE AND ITA 283/B/2017 IS AN APPEAL BY THE REVENUE. BOTH THESE APPEALS AR E DIRECTED AGAINST THE ITA NOS.218 & 283/BANG/2017 PAGE 2 OF 16 ORDER DATED 04.11.2016 OF THE CIT(APPEALS)-VII BEN GALURU RELATING TO ASSESSMENT YEAR 2012-13. 2. FIRST WE SHALL TAKE UP THE APPEAL OF REVENUE I N ITA NO.283/B/2017. THE GROUNDS OF APPEAL READS AS FOLLOWS:- 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO L AW AND FACTS OF THE CASE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE CIT(A) IS JUSTIFIED IN LAW IN HOLDING THAT CREDIT C ARD CHARGE DEDUCTED BY BANKS ARE NOT COVERED UNDER TDS U/S.194 H AND HENCE DISALLOWANCE U/S.40(A)(IA) IS NOT APPLICABLE. WHEREAS THE NOTIFICATION NUMBER 56/2012 DATED 31.12.2012 ISSUED BY THE CBDT COMES INTO FORCE FROM 01.01.2013 THE INSTANT C ASE RELATES TO PRIOR PERIOD. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) IS ERRED IN PLACING RELIANCE ON THE DECI SION OF THE HON'BLE ITAT BANGALORE BENCH IN ITA NO.308 TO 310 A ND 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 B ECOME 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 TH AT 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 BUSINES S OF DEVELOPMENT AND MAINTENANCE OF INDUSTRIAL PARK AND PROVIDING INFRASTRUCTURAL FACILITIES TO VARIOUS INDUSTRIES B ESIDES 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 ASSESSEES BANKS FOR REAL IZING PAYMENTS ON ITA NOS.218 & 283/BANG/2017 PAGE 3 OF 16 BEHALF OF ASSESSEE THROUGH CREDIT CARDS USED BY THE CUSTOMERS OF THE ASSESSEE TO MAKE PAYMENT TO THE ASSESSEE CHARGE CO MMISSION FROM THE ASSESSEE. THE ASSESSEE DOES NOT PAY ANY COMMISSION TO THE BANKS BUT THE BANKS DEDUCT THEIR CHARGES AND PAY THE ASSESSEE THE NET AMOUNT. THE AO WAS OF THE VIEW THAT THE CREDIT CARD COMMISSION PAID TO THE BANKS WAS IN THE NATURE OF COMMISSION WITHIN THE MEANING OF S ECTION 194H OF THE INCOME-TAX ACT 1961 [THE ACT] AND THEREFORE THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE ON THE CREDIT CARD COMMISSIO N EXPENSES. SINCE THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE THE AO DISAL LOWED THE CREDIT CARD COMMISSION EXPENSES OF RS.85 60 429 FOR NON-DEDUCTI ON OF TAX AT SOURCE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 4. ON APPEAL BY THE ASSESSEE THE CIT(APPEALS) FOUN D THAT IN RESPECT OF IDENTICAL CREDIT CARD COMMISSION EXPENSES THE C IT(A) IN ASSESSEES OWN CASE FOR THE AY 2010-11 HAD ALLOWED THE EXPENSES BY FOLLOWING THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF TATA TELE SERVICES LTD. V. DCIT (TDS) [2013] 29 TAXMANN.COM 2 61 [BANG. ITAT] WHEREIN THE TRIBUNAL HELD AS FOLLOWS:- 34. AS FAR AS THE APPEALS OF THE REVENUE ARE CONCE RNED WE FIND THAT THE QUESTION INVOLVED IN THE AFORESAID APPEALS IS AS TO WHETHER THE PAYMENTS ON ACCOUNT OF CREDIT CARD CHAR GES SHOULD BE TREATED AS COMMISSION WITHIN THE MEANING OF SEC.194 H OF THE ACT. ON THIS ISSUE WE FIND THAT THE HONBLE ITAT HYDERABAD HAS HELD AS FOLLOWS: 4. WE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIV E AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND OTHER MATERIAL ON RECORD. ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF DIRECT RETAIL TRADING IN CONSUMER GOODS . ASSESSEE CLAIMED DEDUCTION OF RS.16 34 000 ON ACCOUN T OF COMMISSION PAID TO THE CREDIT CARD COMPANIES WHICH HAS BEEN DISALLOWED BY THE ASSESSING OFFICER IN TERMS O F S.40(A)(IA) ON ACCOUNT OF THE FAILURE OF THE ASSESS EE TO DEDUCT TAX AT SOURCE IN TERMS OF S.194H OF THE ACT WHILE ITA NOS.218 & 283/BANG/2017 PAGE 4 OF 16 MAKING THE SAID COMMISSION PAYMENTS. IT WAS THE CONTENTION OF THE ASSESSEE BEFORE THE LOWER AUTHORI TIES THAT THE ASSESSEE ONLY RECEIVES THE PAYMENT FORM TH E BANK/CREDIT CARD COMPANIES CONCERNED AFTER DEDUCTI ON OF COMMISSION THEREON AND THUS THIS IS ONLY IN THE N ATURE OF A POST FACTO ACCOUNTING AND DOES NOT INVOLVE ANY PA YMENT OR CREDITING OF THE ACCOUNT OF THE BANKS OR ANY OTH ER ACCOUNT BEFORE SUCH PAYMENT BY THE ASSESSEE. CONSID ERING THESE SUBMISSION OF THE ASSESSEE THE CIT(A) ACCEPTE D THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE AMOUNT O F RS.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 TH E PURVIEW OF S.194H. EVEN THOUGH THE DEFINITION OF TH E TERM COMMISSION OR BROKERAGE USED IN THE SAID SECTION IS AN INCLUSIVE DEFINITION IT IS CLEAR THA T THE LIABILITY TO MAKE TDS UNDER THE SAID SECTION ARISES ONLY WHEN A PERSON ACTS BEHALF OF ANOTHER PERSON. I N 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 THA T EVEN THE MERCHANT ESTABLISHMENT CONDUCTS THE TRANSACTION FOR THE BANK. THE SALE MADE ON THE BASI S OF A CREDIT CARD IS CLEARLY A TRANSACTION OF THE MERCHANTS ESTABLISHMENT ONLY AND THE CREDIT CARD COMPANY ONLY FACILITATES THE ELECTRONIC PAYMENT FO R 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 FOR MAKING TDS ON THE COMMISSION RETAINED BY THE CREDIT CARD COMPANIES THE DISALLOWANCE OF RS.16 34 000 IS DELETED.. WE FIND NO INFIRMITY IN THE ABOVE REASONING GIVEN B Y THE CIT(A). WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A) AND REJECT THE GROUNDS OF THE REVENUE WHICH ARE DEV OID OF MERIT. ITA NOS.218 & 283/BANG/2017 PAGE 5 OF 16 35. IN LIGHT OF THE AFORESAID DECISION OF THE HON BLE HYDERABAD BENCH WE ARE OF THE VIEW THAT PAYMENTS T O BANKS ON ACCOUNT OF UTILIZATION OF CREDIT CARD FACILITIES WO ULD BE IN THE NATURE OF BANK CHARGE AND NOT IN THE NATURE OF COMM ISSION WITHIN THE MEANING OF SEC.194H OF THE ACT. WE THEREFORE CONFIRM THE ORDER OF THE CIT(APPEALS) ON THIS ISSUE AND DISMISS THE APPEALS OF THE REVENUE. 5.6 SIMILARLY IN THE DECISION OF M/S. MYSORE SAREE UDYOG P. LTD. VS DEPARTMENT OF INCOME TAX IN ITA NO.93/BANG/ 2014 DATED 27 TH MARCH 2015 THE HONBLE ITAT BANGALORE AGAIN RELI ED UPON THE DECISION IN THE CASE OF HONBLE ITAT HYDE RABAD IN THE CASE OF DCIT VS. VAN MAGNA RETAIN (P) LTD. (SUPRA) AND IT WAS FURTHER HELD THAT : 11. SIMILAR VIEW HAS BEEN EXPRESSED BY SEVERAL BENCH OF ITAT IN THE FOLLOWING CASES: 1. M/S.TATA TELESERVICES LTD. VS. DCIT ITA NO.393- 396/BANG/11 ORDER DATED 27.11.2012 2. ITO (TDS) VS. M/S.JET AIRWAYS ITA NO.7439- 41/MUM/2010 ORDER DATED 17.7.2013 3. M/S.GEMS PARADISE VS. ACIT ITA NO. 746/JP/2011 ORDER DATED 2.2.2012. 12. 12. IN LIGHT OF THE AFORESAID DECISIONS WE ARE OF THE VIEW THAT PAYMENTS TO BANKS ON ACCOUNT OF UTILIZATI ON OF CREDIT CARD FACILITIES WOULD BE IN THE NATURE OF BA NK CHARGE AND NOT IN THE NATURE OF COMMISSION WITHIN THE MEAN ING OF SEC.194H OF THE ACT. THE SAME CANNOT ALSO BE SAID TO BE IN THE NATURE OF PROFESSIONAL SERVICES AS SERVICES RENDERED BY BANKS IS NEITHER A SERVICE SPECIFIED IN THE SECT ION NOR NOTIFIED. THE CBDT BY NOTIFICATION U/S.197A OF THE AC T VIDE NOTIFICATION NO.56/2012 DATED 31.12.2012 SPECI FIED THAT CREDIT/DEBIT CARD COMMISSION FOR TRANSACTION B ETWEEN THE MERCHANT ESTABLISHMENT AND ACQUIRER BANK NEED N OT BE SUBJECT TO TDS. THE REVENUE HAS ARGUED BEFORE US THAT BEFORE THE SAID NOTIFICATION SUCH CHARGES WERE SUBJ ECT TO TDS. WE ARE OF THE VIEW THAT THE NOTIFICATION IS ON LY RECOGNITION OF THE POSITION AS IT ALWAYS PREVAILED AND AS INTERPRETED BY SEVERAL DECISIONS RENDERED BY THE DI FFERENT BENCHES OF ITAT. THE NOTIFICATION THEREFORE CANNOT B E THE ITA NOS.218 & 283/BANG/2017 PAGE 6 OF 16 BASIS ON WHICH IT CAN BE SAID THAT THE AMOUNT RETAI NED BY THE BANK WAS IN THE NATURE OF COMMISSION WITHIN THE MEANING OF SEC.194-H OF THE ACT. FOR THE REASONS GIV EN ABOVE WE CONFIRM THE ORDER OF THE CIT(APPEALS) ON T HIS ISSUE AND DISMISS THE APPEALS OF THE REVENUE. 5.7 THE RELIANCE OF THE AO ON THE CBDT NOTIFICATIO N NO.56/2012 DATED 31.12.2012 IS WRONGLY PLACED. THI S NOTIFICATION HAS BEEN SUPPRESSED BY NOTIFICATION NO . SO 2143(E) NO.47/2016 DATED 17.06.2016 WITH CERTAIN ADDITION B UT HAVING NO RELEVANCE TO THE INSTANT CASE. THIS NOTIFICATION W AS PASSED U/S. 197A(1F) OF THE ACT THROUGH WHICH EXEMPTION FROM TD S 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 A ND THE SAME WAS EFFECTIVE FROM 01.01.2013. THE ASSUMPTION OF A O THAT SINCE SUCH EXEMPTION WAS NOT AVAILABLE TO THE APPELLANT D URING 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 HO NBLE ITAT BANGALORE IN THE ABOVE MENTIONED CASES THE ORDER O F ASSESSING OFFICER FOR ADDITION OF RS.33 80 099/- U/S. 40(A)(I A) OF THE ACT FOR NON-DEDUCTION OF TAX AT SOURCE U/S. 194H OF THE ACT ON COMMISSION PAID TO CREDIT CARD COMPANIES IS DELETE D. 5. FOLLOWING THE AFORESAID ORDER IN ASSESSEES OWN CASE FOR THE AY 2010-11 THE CIT(APPEALS) DELETED THE ADDITION MADE BY THE AO. 6. AGGRIEVED THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. THE LD. DR REITERATED THE STAND OF THE REVENUE A S CONTAINED IN THE GROUNDS OF APPEAL FILED BEFORE THE TRIBUNAL. THE L D. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT THE DECISION O F THE CIT(A) FOR THE AY 2011-12 WHICH WAS FOLLOWED BY THE CIT(APPEALS) IN T HE IMPUGNED ORDER WAS SUBJECT MATTER OF APPEAL BY THE REVENUE BEFORE THE TRIBUNAL IN ITA ITA NOS.218 & 283/BANG/2017 PAGE 7 OF 16 NO.2046/BANG/2016 AND THE TRIBUNAL VIDE ITS ORDER D ATED 28.6.2017 UPHELD THE ORDER OF THE CIT(APPEALS) FOR THE AY 2011-12. COPY OF THE ORDER WAS PLACED ON RECORD. IT WAS ALSO BROUGHT TO OUR NOTIC E THAT FOR THE AY 2013-14 IN ITA NO.1650/BANG/2017 VIDE ORDER DATED 8.6.2018 THE TRIBUNAL IN ASSESSEES OWN CASE HAS UPHELD THE ORDER OF CIT(A) BY FOLLOWING THE DECISION OF THE TRIBUNAL FOR THE AY 2011-12. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ARE OF THE VIEW THAT THE ISSUE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN AY 2011-12 BY FOLLOWING THE DECISION OF THE TRIB UNAL BANGALORE BENCH IN THE CASE OF TATA TELE SERVICES (SUPRA). THE FACTS AND CIRCUMSTANCES REMAIN THE SAME IN THE PRESENT ASSESSMENT YEAR. IN OUR VIEW THERE IS NO MERIT IN THE APPEAL FILED BY THE REVENUE. THE FACT THAT THE REVENUE HAS PREFERRED AN APPEAL AGAINST THE ORDER OF TRIBUNAL I N 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 N OT BEEN REVERSED BY ANY HIGHER JUDICIAL FORUM. WE THEREFORE DISMISS THE APPEAL OF THE REVENUE. 9. SO FAR AS THE ASSESSEES APPEAL IN ITA NO.218 /B/2017 IS CONCERNED THERE ARE TWO ADDITIONS WHICH ARE DISPUT ED VIZ. (I) DISALLOWANCE OF INTEREST PAID ON DELAYED REMITTANCES OF SERVICE TAX OF RS.58 11 696 AND (II) INTEREST PAID U/S. 201(1A) OF THE ACT ON DELAY ED REMITTANCES OF TDS AMOUNTING TO RS.41 136. 10. AS FAR AS INTEREST PAID ON DELAYED REMITTANCES OF SERVICE TAX IS CONCERNED THE AO WAS OF THE VIEW THAT THE EXPENDIT URE WAS IN THE NATURE OF PENALTY AND WAS HIT BY EXPLANATION TO SECTION 37 (1) OF THE ACT WHICH LAYS DOWN THAT ANY EXPENDITURE BY AN ASSESSEE FOR ANY PU RPOSE 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 EXPENDIT URE. ITA NOS.218 & 283/BANG/2017 PAGE 8 OF 16 11. ON APPEAL BY THE ASSESSEE THE CIT(APPEALS) CON FIRMED THE ORDER OF THE AO BY PLACING RELIANCE ON THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF STAR INDIA (P) LTD. V. COMMISSIONER OF CENTRAL EXCI SE 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. COUNSE L 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/201 4 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 SERV ICE TAX AND INTEREST ON DELAYED PAYMENT OF TDS IS DIRECTLY COVERED BY THE J UDGMENT OF HONBLE APEX COURT IN THE CASE OF LACHMANDAS MATHURA VS. CI T REPORTED IN 254 ITR 799 IN FAVOUR OF ASSESSEE. THE RELEVANT EXTRACT OF THE JUDGMENT WAS AS BELOW : THE HIGH COURT HAS PROCEEDED ON THE BASIS THAT THE INTEREST ON ARREARS OF SALES TAX IS PENAL IN NATURE AND HAS REJECTED THE CONTENTION OF THE ASSESSEE THAT IT IS COMPENSATORY IN NATURE. IN TAKING THE SAID VIEW THE HIGH COURT HAS PLACED RELIANCE ON ITS FULL BENCH'S DECIS ION IN SARAYA SUGAR MILLS (P.) LTD. V. CIT [1979] 116 ITR 387 (ALL.) THE LEARNED COUNSEL APPEARING FOR THE APPELLA NT- ASSESSEE STATES THAT THE SAID JUDGMENT OF THE FULL BENCH HAS BEEN REVERSED BY THE LARGER BENCH OF THE HIGH C OURT IN TRIVENI ENGG. WORKS LTD. V. CIT [1983] 144 ITR 732 (ALL.) (FB) WHEREIN IT HAS BEEN HELD THAT INTEREST ON ARR EARS OF TAX IS COMPENSATORY IN NATURE AND NOT PENAL. THIS QUESTION HAS ALSO BEEN CONSIDERED BY THIS COURT IN CIVIL APPEAL NO. 830 OF 1979 TITLED SARAYA SUGAR MILLS (P. ) LTD. V. CIT DECIDED ON 29-2-1996. IN THAT VIEW OF THE MA TTER THE APPEAL IS ALLOWED AND QUESTION NOS. 1 AND 2 ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ITA NOS.218 & 283/BANG/2017 PAGE 9 OF 16 14. THE TRIBUNAL HELD THAT IN VIEW OF THE ABOVE JU DGMENT THERE REMAINS NO DOUBT THAT THE INTEREST EXPENSE ON THE DELAYED P AYMENT OF SERVICE TAX IS ALLOWABLE DEDUCTION. THE ABOVE PRINCIPLES CAN BE AP PLIED TO THE INTEREST EXPENSES LEVIED ON ACCOUNT OF DELAYED PAYMENT OF TD S AS IT RELATES TO THE EXPENSES CLAIMED BY THE ASSESSEE WHICH ARE SUBJECT TO THE TDS PROVISIONS. THE ASSESSEE CLAIMS THE SPECIFIED EXPEN SES OF CERTAIN AMOUNT IN ITS PROFIT & LOSS ACCOUNT AND THEREAFTER THE ASS ESSEE FROM THE PAYMENT TO THE PARTY DEDUCTS CERTAIN PERCENTAGE AS SPECIFIED U NDER 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 BEHA LF THE PAYMENT WAS DEDUCTED & PAID TO THE GOVERNMENT EXCHEQUER. THUS T HE TDS AMOUNT DOES NOT REPRESENT THE TAX OF THE ASSESSEE BUT IT I S THE TAX OF THE PARTY WHICH HAS BEEN PAID BY THE ASSESSEE. THUS ANY DELAY IN THE PAYMENT OF TDS BY THE ASSESSEE CANNOT BE LINKED TO THE INCOME TAX OF THE ASSESSEE AND CONSEQUENTLY THE PRINCIPLES LAID DOWN BY THE HO NBLE APEX COURT IN THE CASE OF BHARAT COMMERCE INDUSTRIES LTD. VS. CIT (19 98) REPORTED IN 230 ITR 733 CANNOT BE APPLIED TO THE CASE ON HAND. THE TRIBUNAL DISTINGUISHED THE DECISION IN THE CASE OF BHARAT COMMERCE INDUSTR IES LTD. (SUPRA) AS NOT APPLICABLE TO THE FACTS OF THE CASE. THE TRIBUNAL A LSO DERIVED SUPPORT FROM THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF LACHMANDAS MATHURA (SUPRA) WHEREIN DEDUCTION ON ACCOUNT OF INT EREST 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 HONBLE GUJARAT HIGH COURT IN T HE CASE OF CIT V. KAYPEE MECHANICAL INDIA (P) LTD. [2014] 45 TAXMANN.COM 363 (GUJARAT) WHEREIN THE HONBLE GUJARAT HIGH COURT IN THE CONTEXT OF LIABIL ITY OF SERVICE TAX AND INTEREST ON DELAYED PAYMENT OF SERVICE TAX TOOK THE FOLLOWING VIEW:- ITA NOS.218 & 283/BANG/2017 PAGE 10 OF 16 6. WE HAVE NO HESITATION IN UPHOLDING THE VIEW OF THE CIT (A) AS CONFIRMED BY THE TRIBUNAL. THE AMOUNT WAS E XPENDED BY THE ASSESSEE DURING THE COURSE OF BUSINESS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IF THE ASS ESSEE HAD TAKEN PROPER STEPS AND CHARGED SERVICE TAX TO THE SERVICE RECIPIENTS AND DEPOSITED WITH THE GOVERNMENT THERE WAS NO QUESTIO N OF ASSESSEE EXPENDING SUCH SUM. IT IS ONLY BECAUSE THE ASSESSEE FAILED TO DO SO THAT HE HAD TO EXPEND THE SAID AMO UNT THOUGH IT WAS NOT HIS PRIMARY LIABILITY. BE THAT AS IT MAY T HIS CANNOT BE STATED TO BE A PENALTY FOR INFRACTION OF LAW. REFER ENCE TO THE DECISION OF SUPREME COURT IN CASE OF HAJI AZIZ AND ABDUL SHAKOOR BROS. V CIT REPORTED IN [1961] 41 ITR 350 THEREFORE IS NOT OF ANY HELP TO THE REVENUE. IT WAS A CASE IN WH ICH THE ASSESSEE HAD IMPORTED DATES FROM IRAQ AT A TIME WH EN SUCH IMPORT WAS PROHIBITED. DUE TO THIS THE DATES IMPOR TED BY THE ASSESSEE BY STEAMERS WERE CONFISCATED BY THE CUSTOM S AUTHORITIES. THE ASSESSEE WAS GIVEN AN OPTION TO PAY REDEMPTION FINE AND HAVE THE DATES RELEASED. THE ASSESSEE HAVING ACCEPT ED SUCH AN OPTION CLAIMED THE REDEMPTION FINE AS A DEDUCTION IN COMPUTING ITS PROFIT AS ALLOWABLE EXPENDITURE. IN THIS BACKGR OUND THE SUPREME COURT HELD THAT NO EXPENSES WHICH WAS PAID BY WAY OF PENALTY FOR A BREACH OF THE LAW EVEN THOUGH IT MIG HT INVOLVE NO PERSONAL LIABILITY COULD BE SAID TO BE AN AMOUNT W HOLLY AND EXCLUSIVELY LAID FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. IN THE PRESENT CASE THE AMOUNT INVOLVED IS NOT BY WAY OF PENALTY. THE DECISION IN CASE OF HAJI AZIZ & ABDUL SHAKOOR BROS. [SUPRA] IS THUS DISTINGUISHABLE. 7. IT IS EQUALLY WELL SETTLED THAT PAYMENT OF INTE REST IS COMPENSATORY IN NATURE AND WOULD NOT PARTAKE THE CH ARACTER OF PENALTY. REFERENCE IN THIS RESPECT CAN BE HAD TO TH E DECISION OF SUPREME COURT IN CASE OF CIT V. LUXMI DEVI SUGAR MILLS P. LIMITED REPORTED IN [1991] 188 ITR 41 AND IN CASE OF MAHALAKSHMI SUGAR MILLS COMPANY V. CIT DELHI REPO RTED IN (1980) 123 ITR 429(SC). 16. REFERENCE WAS ALSO MADE TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LUXMI DEVI SUGAR MILLS P. LIMITED (SUPRA) WHEREIN IT WAS HELD THAT INTEREST PAYABLE BY ASSESSEE UNDER U. P. SUGARCANE ITA NOS.218 & 283/BANG/2017 PAGE 11 OF 16 PURCHASE ACT 1971 ON FAILURE TO PAY CANE CESS AND PURCHASE TAX WAS ALLOWABLE BUSINESS EXPENDITURE U/S. 37(1) OF THE AC T. 17. THE LD. DR HOWEVER PLACED RELIANCE ON THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF STAR INDIA (P) LTD. (SUPRA) AND HE DREW OUR ATTENTION TO PARA 8 OF THE AFORESAID JUDGMENT WHER EIN THE HON'BLE SUPREME COURT EXPRESSED THE VIEW THAT LIABILITY TO PAY INTE REST WOULD ARISE ONLY ON DEFAULT AND IS REALLY IN THE NATURE OF QUASI-PUNISH MENT. SUCH LIABILITY ALTHOUGH CREATED RETROSPECTIVELY COULD NOT ENTAIL THE PUNISHMENT OF PAYMENT OF INTEREST WITH RETROSPECTIVE EFFECT. 18. AS FAR AS THE LIABILITY OF INTEREST PAYABLE ON DELAYED REMITTANCE OF TDS U/S. 201(1A) OF THE ACT IS CONCERNED THE LD. D R PLACED RELIANCE ON THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CA SE 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. 20 1(1A) OF THE ACT PARTAKES THE COLOUR OF TAX AND WAS THEREFORE IN THE NATURE O F INCOME TAX PAYABLE UNDER THE ACT AND CANNOT BE ALLOWED AS A DEDUCTION. 19. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. AS FAR AS PAYMENT OF INTEREST ON DELAYED PAYMENT OF SE RVICE TAX IS CONCERNED IT IS CLEAR FROM THE DECISION OF THE HON'BLE GUJARA T 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 PAYME NT OF INTEREST WAS ONLY COMPENSATORY IN NATURE AND WOULD NOT BE IN THE NATU RE 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 T HE PLEA OF THE LD. DR BY PLACING RELIANCE ON THE DECISION OF THE HON'BLE SUP REME 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 DECISION WILL NOT ITA NOS.218 & 283/BANG/2017 PAGE 12 OF 16 HELP THE CASE OF THE REVENUE. IN THE CASE OF STAR INDIA (P) LTD. (SUPRA) THE FACTS WERE THAT THE APPELLANT WAS A COMPANY INCORPO RATED UNDER THE COMPANIES ACT 1956 AND CARRIED ON BUSINESS IN IND IA. IT IS THE AGENT OF M/S. SATELLITE TELEVISION ASIAN REGION LIMITED HON G KONG (REFERRED TO AS 'STAR' HONG KONG). THE BUSINESS OF STAR WAS TO TEL ECAST CHANNELS FROM SATELLITES SITUATED OUTSIDE INDIA. SOME OF THE CHAN NELS ARE AVAILABLE AND ENJOYED BY THE CUSTOMERS IN INDIA. ACCORDING TO THE APPELLANT IT DOES NOT BROADCAST BUT MERELY SELLS TIME SLOTS FOR ADVERTIS EMENT AND OBTAIN SPONSORS FOR THE SERIALS PROGRAMMES OR LIVE EVENTS ETC. THUS WHEN THE SERVICE OF BROADCASTING WAS INTRODUCED IN THE FINAN CE ACT 1994 AS A TAXABLE SERVICE WITH EFFECT FROM 16-7-2001 BY THE FINANCE ACT 2001 THE APPELLANT DISPUTED ITS LIABILITY TO MAKE ANY PAYMEN T OF SERVICE TAX ON THE GROUND THAT IT DID NOT IN FACT BROADCAST. THE CO MMISSIONER HOWEVER HELD AGAINST THE APPELLANT. THE APPELLANT APPEALED BEFOR E THE COMMISSIONER (APPEALS). WHILE THE APPEAL WAS PENDING THE FINANC E ACT 2001 WAS AMENDED BY THE FINANCE ACT 2002. THE EFFECT OF THE AMENDMENT INTER ALIA WAS TO MAKE AN AGENT SUCH AS THE APPELLANT LIABLE TO PAY SERVICE TAX AS BROADCASTER. THE QUESTION BEFORE THE HON'BLE SUP REME COURT WAS CAN A LIABILITY BE FASTENED ON AN ASSESSEE WITH RETROSP ECTIVE EFFECT? THE HON'BLE SUPREME COURT HELD THAT RETROSPECTIVE CIVIL LIABILITY CAN BE CREATED BY LEGISLATION AND THERE IS A PROHIBITION ONLY TO C REATE AN OFFENCE RETROSPECTIVELY. IT IS IN THIS CONTEXT THAT THE HO N'BLE SUPREME COURT HAD MADE THE FOLLOWING OBSERVATIONS IN PARA 8 OF ITS DE CISION. PARA 7 & PARA 8 HAVE TO BE READ TOGETHER WHICH READS AS FOLLOWS:- 7. IN ANY EVENT IT IS CLEAR FROM THE LANGUAGE O F THE VALIDATION CLAUSE AS QUOTED BY US EARLIER THAT THE LIABILITY WAS EXTENDED NOT BY WAY OF CLARIFICATION BUT BY WAY OF AMENDMENT TO THE FINANCE ACT WITH RETROSPECTIVE EFFECT. IT IS WELL ESTABLISH ED THAT WHILE IT IS PERMISSIBLE FOR THE LEGISLATURE TO RETROSPECTIVELY LEGISLATE SUCH RETROSPECTIVITY IS NORMALLY NOT PERMISSIBLE TO CREA TE AN OFFENCE ITA NOS.218 & 283/BANG/2017 PAGE 13 OF 16 RETROSPECTIVELY. THERE WERE CLEARLY JUDGMENTS DECR EES OR ORDERS OF COURTS AND TRIBUNALS OR OTHER AUTHORITIES WHICH REQUIRED TO BE NEUTRALISED BY THE VALIDATION CLAUSE. WE CAN ONLY A SSUME THAT THE JUDGMENTS DECREE OR ORDERS ETC. HAD IN FACT HE LD THAT PERSONS SITUATE LIKE THE APPELLANTS WERE NOT LIABLE AS SERV ICE PROVIDERS. THIS IS ALSO CLEAR FROM THE EXPLANATION TO THE VALU ATION SECTION WHICH SAYS THAT NO ACT OR ACTS ON THE PART OF ANY P ERSON 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 T HE PUNISHMENT OF PAYMENT OF INTEREST WITH RETROSPECTIVE EFFECT. 20. THE OBSERVATIONS OF THE HON'BLE SUPREME COURT I N PARA 8 IS ONLY IN THE CONTEXT OF A QUESTION WHETHER THERE CAN BE CRI MINAL LIABILITY IMPOSED BY RETROSPECTIVE LAW. THE ABOVE OBSERVATIONS CANNOT B E 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 EX PLANATION TO SECTION 37(1) OF THE ACT. WE THEREFORE HOLD AND DIRECT THAT THE DEDUCTION OF INTEREST ON DELAYED DEPOSIT OF SERVICE TAX AMOUNTIN G TO RS.56 11 697 SHOULD BE ALLOWED AS A DEDUCTION. 21. AS FAR AS DELAY IN REMITTANCE OF TAX DEDUCTED A T SOURCE U/S. 201(1A) OF THE ACT IS CONCERNED WE FIND THAT THE HON'BLE M ADRAS HIGH COURT HAS TAKEN A VIEW THAT INTEREST PAID U/S. 201(1A) IS ALS O IN THE NATURE OF TAX AND NOTWITHSTANDING THE FACT THAT IT IS NOT THE TAX LIA BILITY OF THE ASSESSEE THE SAME CANNOT BE ALLOWED AS A DEDUCTION. THE FOLLOWI NG WERE THE RELEVANT OBSERVATIONS OF THE HON'BLE MADRAS HIGH COURT:- '14. AS ALREADY NOTICED THE PAYMENT OF INTEREST TA KES COLOUR FROM THE NATURE OF THE LEVY WITH REFERENCE TO WHICH SUCH INTEREST IS PAID AND THE TAX REQUIRED TO BE BUT NOT PAID IN TIME WHICH RENDERED THE ASSESSEE LIABLE FOR PAYMENT OF INTERES T WAS IN THE NATURE OF A DIRECT TAX AND SIMILAR TO THE INCOME-TA X PAYABLE UNDER ITA NOS.218 & 283/BANG/2017 PAGE 14 OF 16 THE INCOME-TAX ACT. THE INTEREST PAID UNDER SECTION 201(1A) OF THE ACT THEREFORE WOULD NOT ASSUME THE CHARACTER OF BUSINESS EXPENDITURE AND CANNOT BE REGARDED AS A COMPENSATOR Y PAYMENT AS CONTENDED BY LEARNED COUNSEL FOR THE ASSESSEE. 15. COUNSEL FOR THE ASSESSEE IN SUPPORT OF HIS SUB MISSION THAT THE INTEREST PAID BY THE ASSESSEE WAS MERELY COMPEN SATORY IN CHARACTER BESIDES RELYING ON THE CASE OF MAKALAKSHM I SUGAR MILLS CO. ALSO RELIED ON THE DECISION OF THE APEX COURT I N THE CASES OF PRAKASH COTTON MILLS PVT LTD. V. CIT [1993] 201 ITR 684 ; MALWA VANASPATI AND CHEMICAL CO. V. CIT [19971 225 ITR 383 AND CIT V. AHMEDABAD COTTON MANUFACTURING CO. LTD. [1994] 205 ITR 163. IN ALL THESE CASES THE COURT WAS CONC ERNED WITH AN INDIRECT TAX PAYABLE BY THE ASSESSEE IN THE COURSE OF ITS BUSINESS AND ADMISSIBLE AS BUSINESS EXPENDITURE. FURTHER LIA BILITY FOR INTEREST WHICH HAD BEEN INCURRED BY THE ASSESSEE TH EREIN WAS REGARDED AS COMPENSATORY IN NATURE AND ALLOWABLE AS BUSINESS EXPENDITURE. 16. THE RATIO OF THOSE CASES IS NOT APPLICABLE HER E. INCOME-TAX IS NOT ALLOWABLE AS BUSINESS EXPENDITURE. THE AMOUN T DEDUCTED AS TAX IS NOT AN ITEM OF EXPENDITURE. THE AMOUNT NOT D EDUCTED AND REMITTED HAS THE CHARACTER OF TAX AND HAS TO BE REM ITTED TO THE STATE AND CANNOT BE UTILISED BY THE ASSESSEE FOR IT S OWN BUSINESS. THE SUPREME COURT IN THE CASE OF BHARAT COMMERCE AN D INDUSTRIES [1998] 230 ITR 733 REJECTED THE ARGUMEN T ADVANCED BY THE ASSESSEE THAT RETENTION OF MONEY PAYABLE TO THE STATE AS TAX OR INCOME-TAX WOULD AUGMENT THE CAPITAL OF THE ASSE SSEE AND THE EXPENDITURE INCURRED NAMELY INTEREST PAID FOR THE PERIOD OF SUCH RETENTION WOULD ASSUME CHARACTER OF BUSINESS EXPEND ITURE. THE COURT HELD THAT AN ASSESSEE COULD NOT POSSIBLY CLAI M THAT IT WAS BORROWING FROM THE STATE THE AMOUNTS PAYABLE BY IT AS INCOME- TAX AND UTILISING THE SAME AS CAPITAL IN ITS BUSIN ESS TO CONTEND THAT THE INTEREST PAID FOR THE PERIOD OF DELAY IN P AYMENT OF TAX AMOUNTED TO A BUSINESS EXPENDITURE. (EMPHA SIS SUPPLIED) 22. THE DECISION CITED BY THE LD. COUNSEL FOR THE ASSESSEE OF KOLKATA BENCH OF THE TRIBUNAL ON THE ISSUE IS CONTRARY TO T HE DECISION OF THE HON'BLE MADRAS HIGH COURT. THOUGH THE DECISION OF THE TRIB UNAL IS LATER IN POINT OF ITA NOS.218 & 283/BANG/2017 PAGE 15 OF 16 TIME JUDICIAL DISCIPLINE DEMANDS THAT THE DECISION OF THE HON'BLE MADRAS HIGH COURT IS TO BE FOLLOWED. IT IS ALSO WORTHWHIL E 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 TH E 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 T AX DEDUCTED AT SOURCE U/S. 201(1A) OF THE ACT. 23. THUS THE APPEAL BY THE ASSESSEE IS PARTLY ALLO WED. 24. IN THE RESULT THE APPEAL BY THE ASSESSEE (ITA NO.218/BANG/2017) IS PARTLY ALLOWED AND THE APPEAL BY THE REVENUE (ITA N O.283/BANG/2017) IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF SEPTEMBER 2018. SD/- SD/- ( G. MANJUNATHA ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED THE 12 TH SEPTEMBER 2018. / D ESAI S MURTHY / ITA NOS.218 & 283/BANG/2017 PAGE 16 OF 16 COPY TO: 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT 4. THE CIT(A) 5. THE DR ITAT BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT BANGALORE.