Sri Kesineni Srinivas., Vijayawada v. The ACIT, Circle-2(1)., Vijayawada

ITA 353/VIZ/2008 | 2005-2006
Pronouncement Date: 24-09-2010 | Result: Allowed

Appeal Details

RSA Number 35325314 RSA 2008
Assessee PAN ACRPK5878R
Bench Visakhapatnam
Appeal Number ITA 353/VIZ/2008
Duration Of Justice 2 year(s) 2 month(s) 29 day(s)
Appellant Sri Kesineni Srinivas., Vijayawada
Respondent The ACIT, Circle-2(1)., Vijayawada
Appeal Type Income Tax Appeal
Pronouncement Date 24-09-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 24-09-2010
Date Of Final Hearing 09-09-2010
Next Hearing Date 09-09-2010
Assessment Year 2005-2006
Appeal Filed On 25-06-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 353 /VIZAG/ 20 08 ASSESSMENT YEAR : 2005 - 06 KESINENI SRINIVAS VIJAYAWADA ACIT CIRCLE - 2(1) VIJAYAWADA (APPELLANT) VS. (RESPONDENT) PAN NO.ACRPK 5878R ITA NO.71/VIZAG/2010 ASSESSMENT YEAR : 2006 - 07 KESINENI SRINIVAS VIJAYAWADA ACIT CIRCLE - 2(1) VIJAYAWADA (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI V. RAGHAVENDRA RAO ADVOCATE RESPONDENT BY: SHRI J. SIRI KUMAR DR ORDER PER SHRI S.K. YADAV JUDICIAL MEMBER : - THESE APPEALS ARE PREFERRED BY THE ASSESSEE AGAINST THE RESPECTIVE ORDER OF THE CIT(A) ON VARIOUS COMMON GROUNDS BUT THEY ALL RELATE TO THE DISALLOWANCE OF PAYMENT OF FINANCIAL CHARGES ON THE GROUND THAT TDS WAS NOT DEDUCTED ON THESE PAYMENTS. 2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND DOCUMENTS PLACED ON RECORD. SINCE THE FA CTS OF BOTH THESE CASES ARE SIMILAR EXCEPT THE QUANTUM WE TAKE UP THE FACTS IN ITA NO.353 FOR THE SAKE OF REFERENCE ACCORDING TO WHICH THE ASSESSEE HAS CLAIMED FINANCIAL CHARGES OF RS.35 92 244/ - ON LOANS TAKEN FROM THE VARIOUS PARTIES FOR ACQUIRING BUSE S ON HIRE PURCHASE BASIS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS A.O. HAS NOTICED THAT NO TDS WAS DEDUCTED U/S 194A ON THESE PAYMENTS OF FINANCIAL CHARGES. HE ACCORDINGLY INVOKED 2 PROVISIONS OF SECTION 40A(IA) OF THE I.T. ACT ACCORDING TO WHICH ON NON - DEDUCTION OF TAX ON THE INTEREST PAYMENT THE SAME SHALL NOT BE ALLOWED AS DEDUCTION WHILE COMPUTING THE INCOME OF BUSINESS OR PROFESSION. THE ASSESSING OFFICER TREATED THE PAYMENT OF FINANCIAL CHARGES AS AN INTEREST PAYMENT AND WAS OF THE VIEW THAT S INCE THE ASSESSEE HAS NOT DEDUCTED TDS ON THESE PAYMENTS U/S 194A THE ENTIRE PAYMENT HAS TO BE DISALLOWED. HE ACCORDINGLY MADE THE DISALLOWANCE OF RS.35 69 482/ - U/S 40A(IA) OF THE ACT. 3 . THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) BUT DID NOT FIND FAVOUR WITH HIM. NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND PLACED A HEAVY RELIANCE UPON THE JUDGEMENT OF THE APEX COURT IN THE CASE OF CHARAN JIT SINGH CHAD H A AND OTHERS VS. SUDHIR MEHRA (2001) 7 SUPREME COURT CASES 417 IN WHICH IT IS HELD THAT IN HIRE PURCHASE CONTRACT THE FINANCIAL CHARGES REPRESENTS THE DIFFERENCE BETWEEN THE CASH PRICE AND THE HIRE PURCHASE PRICE. IT IS NOT IN THE NATURE OF INTEREST BUT THE SUM PAYABLE FOR PRIVILEGE OF BEING ALLOWED IN DISCHARGE OF PURCHASE PRICE BY INSTALMENTS. RELIANCE WAS ALSO PLACED UPON THE INSTRUCTION NO.1425 OF THE CBDT DATED 16.11.1981. THE BOARD HAS CLARIFIED THAT PROVISIONS OF SECTION 194A OF THE I.T. ACT CANNOT BE INVOKED AND THE PAYMENT OF FINANCIAL CHARGES. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT LOWER AUTHORITIES HAVE NOT EXAMINED THE IMPUGNED ISSUE IN THE LIGHT OF AFORESAID LEGAL PROPOSITIONS. THEREFORE ORDER OF THE CIT(A) DESERVES TO BE SET ASIDE. 4. THE LD. D.R. ON THE OTHER HAND HAS PLACED A HEAVY RELIANCE UPON THE ORDER OF THE CIT(A). 5. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES AND THE JUDGEMENT OF THE APEX COURT IN THE CASE OF CHARANJIT SINGH CHADHA AND OTHER VS. SUDHIR MEHRA (SUPRA) AND THE INSTR UCTIONS OF THE CBDT BEARING NO.1425 DATED 16.11.1981 AND WE FIND THAT UNDISPUTEDLY ASSESSEE HAD TAKEN THE BUSES ON HIRE PURCHASE AGREEMENT FROM DIFFERENT PARTIES AND ASSESSEE HAVE BEEN MAKING THE PAYMENT OF FINANCIAL CHARGES TO ALL THESE PARTIES ON WHICH D EDUCTION OF TDS U/S 194A WAS NOT DONE AND THE A.O. INVOKED THE PROVISIONS OF SECTION 40A(IA) OF THE ACT AND 3 MADE THE DISALLOWANCE OF THE PAYMENTS AFTER TREATING THE PAYMENTS OF FINANCIAL CHARGES TO BE IN INTEREST. IN THE CASE OF CHARANJIT SINGH CHADHA AND OTHERS VS. SUDHIR MEHRA (SUPRA) THE ISSUE OF NATURE OF FINANCIAL CHARGES CAME UP BEFORE THE APEX COURT AND THEIR LORDSHIP OF THE APEX COURT HAVE CATEGORICALLY HELD THAT HIRE PURCHASE AGREEMENTS ARE EXECUTORY CONTRACTS UNDER WHICH THE GOODS ARE LET ON HIR E AND THE HIRE R H AS AN OPTION TO PURCHASE IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT. THESE TYPE S OF AGREEMENTS WERE ORIGINALLY ENTERED INTO BETWEEN THE DEALER AND THE CUSTOMER AND DEALER USED TO EXTEND CREDIT TO THE CUSTOMER. BUT AS HIRE - PURCHASE SCH EME GAINED IN POPULARITY AND IN SIZE THE DEALERS WHO WERE NOT ENDOWED WITH LIBERAL AMOUNT OF WORKING CAPITAL FOUND IT DIFFICULT TO EXTEND THE SCHEME TO MANY CUSTOMERS. THEN THE FINANCIERS CAME INTO THE PICTURE. THE FINANCE COMPANY WOULD BUY THE GOODS FR OM THE DEALER AND LET THEM TO THE CUSTOMER UNDER HIRE - PURCHASE AGREEMENT. THE DEALER WOULD DELIVER THE GOODS TO THE CUSTOMER WHO WOULD THEN DROP OUT OF THE TRANSACTION LEAVING THE FINANCE COMPANY TO COLLECT INSTALMENTS DIRECTLY FROM THE CUSTOMER. UNDER H IRE - PURCHASE AGREEMENT THE HIRER IS SIMPLY PAYING FOR THE USE OF THE GOODS AND FOR THE OPTION TO PURCHASE THEM. THE FINANCE CHARGE REPRESENTING THE DIFFERENCE BETWEEN THE CASH PRICE AND THE HIRE - PURCHASE PRICE IS NOT INTEREST BUT REPRESENTS A SUM WHICH THE HIRER HAS TO PAY FOR THE PRIVILEGE OF BEING ALLOWED TO DISCHARGE THE PURCHASE PRICE OF GOODS BY INSTALMENTS. 6 . THE NATURE OF FINANCIAL CHARGES WERE ALSO CLARIFIED BY THE BOARD THROUGH ITS INSTRUCTION NO.1425 DATED 16.11.1981 AND IT HAS BEEN STATED T HERE IN THAT THE AGR EED AMOUNT PAYABLE BY THE HIRER IN PERIODICAL INSTALMENTS CANNOT THEREFORE BE CHARACTERIZED AS INTEREST PAYABLE IN ANY MANNER WITH THE MEANING OF SECTION 2(28 A ) OF THE I.T. ACT AS IT IS NOT IN THE RESPECT OF ANY MONEY BORROWED OR DEB T INCURRED. IN THIS VIEW OF THE MATTER IT IS CLARIFIED THAT PROVISIONS OF SECTION 194A OF THE INCOME TAX ACT ARE NOT ATTRACTED IN THESE TRANSACTIONS. WE HOWEVER FOR THE SAKE OF REFERENCE EXTRACT THE INSTRUCTIONS OF THE CBDT AS UNDER: 1. ON THE REPRESENTA TION OF THE FEDERATION OF INDIAN HIRE PURCHASE INSTALMENT PAID BY A HIRER TO THE OWNER UNDER A HIRE - PURCHASE CONTRACT CAN BE DEEMED TO CONSTITUTE PAYMENT OF INTEREST WITHIN 4 THE MEANING OF SEC.2(28A) OF THE I.T. ACT THEREBY ATTRACTING THE PROVISIONS OF SECT ION 194A OF THE SAID ACT THIS HAS BEEN EXAMINED BY THE BOARD IN CONSULTATION WITH THE MINISTRY OF LAW. 2. IN A HIRE - PURCHASE CONTRACT THE OWNER DELIVERS GOODS TO ANOTHER PERSON UPON TERMS ON WHICH THE HIRER IS TO HIRE THEM ON A FIXED PERIODICAL RENTAL. THE HIRER HAS ALSO THE OPTION OF PURCHASING THE GOODS BY PAYING THE TOTAL AMOUNT OF AGREED HIRE AT ANY TIME OR OF RETURNING THE SAME BEFORE THE TOTAL AMOUNT IS PAID. IT MAY BE POINTED OUT THAT PART OF THE AMOUNT OF THE HIRE - PURCHASE PRICE IS TOWARDS THE HIRE AND PART TOWARDS THE PAYMENT OF PRICE. THE AGREED AMOUNT PAYABLE BY THE HIRER IN PERIODICAL INSTALMENTS CANNOT THEREFORE BE CHARACTERIZED AS INTEREST PAYABLE IN ANY MANNER WITH THE MEANING OF SECTION 2(28A) OF THE INCOME - TAX ACT AS IT IS NOT IN RESPEC T OF ANY MONEY BORROWED OR DEBT INCURRED. IN THIS VIEW OF THE MATTER IT IS CLARIFIED THAT THAT PROVISIONS OF SECTION 194A OF THE INCOME - TAX ACT ARE NOT ATTRACTED IN THESE TRANSACTIONS. 3. A COPY EACH OF THE REFERRAL NOTE TO THE MINISTRY OF LAW AND ITS OPIN ION IS ATTACHED FOR INFORMATION. 4. THESE INSTRUCTIONS MAY PLEASE BE BROUGHT TO THE NOTICE OF ALL THE OFFICERS UNDER YOUR CONTROL. INSTRUCTION NO.1425 IN F.NO.275/9/80 - IT(B) DATED 16.11.1981. 7 . NOW THROUGH THIS JUDGEMENT OF THE APEX COURT AND THE INSTRUC TIONS OF THE CBDT IT HAS BEEN MADE CLEAR THAT THE PAYMENT OF FINANCIAL CHARGES CANNOT BE TERMED TO BE THE PAYMENT OF INTEREST ON THE BORROWED LOAN. THEREFORE THE PROVISIONS OF SECTION 194A CANNOT BE INVOKED IN THESE TRANSACTIONS. IN THE INSTANT CASE T HOUGH THE ASSESSEE HAS MADE THE PAYMENT OF FINANCIAL CHARGES BUT THE A.O. HAS TREATED IT TO BE THE PAYMENT OF INTEREST CHARGES AND INVOKED THE PROVISIONS OF SECTION 194A OF THE I.T. ACT. IN THE LIGHT OF AFORESAID PROPOSITION OF LAW WE ARE OF THE VIEW THA T REVENUE HAS WRONGLY TREATED THE PAYMENT OF FINANCIAL CHARGES AS A PAYMENT OF INTEREST AND DISALLOWED THE ENTIRE PAYMENT. WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A) AND HELD THAT FOR PAYMENT OF FINANCIAL CHARGES NO TDS IS REQUIRED TO BE DEDUCTED. T HEREFORE THE ASSESSEE IS ENTITLED FOR THE DEDUCTION OF THE ENTIRE PAYMENT OF FINANCIAL CHARGES. WE ACCORDINGLY DIRECT THE A.O. TO ALLOW THE DEDUCTION OF THE FINANCIAL CHARGES PAID BY THE ASSESSEE AFTER SETTING ASIDE THE ORDER OF THE CIT(A). 5 8 . IN THE R ESULT THE APPEALS OF THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 24.9 .20 10 SD/ - SD/ - (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DAT ED 24 TH SEPTEMBER 20 10 COPY TO 1 SRI KESINENI SRINIVAS S/O SRI RAMASWAMY 48 - 16 - 11/3B MAHANADU ROAD JAWAHAR AUTO NAGAR VIJAYAWADA 2 ACIT CIRCLE - 2(1) VIJAYAWADA 3 THE CI T VIJAYAWADA 4 THE CIT (A) VIJAYAWADA 5 THE DR ITAT VISAKHAPATNAM. 6 G UARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM