Case: Commnr. Of Income Tax, Bangalore  Vs. M/S. Century Building Industries Pvt.Ltd

a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); or (b) time deposits with a co-operative society engaged in carrying on the business of banking; (c) deposits with a public company which is formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and which is eligible for deduction under clause (viii) of sub-section (1) of section 36 [***], [* * *] the aforesaid amount shall be computed with reference to the income credited or paid by a branch of the banking company or the co-operative society or the public company, as the case may be;] (ii) [***] (iii) to such income credited or paid to- (a) any banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies, or any co-operative society engaged 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) to such income credited or paid by a firm to a partner of the firm; (v) to such income credited or paid by a co-operative society [to a member thereof or] to any other co-operative society;] (vi) to such income credited or paid in respect of deposits under any scheme framed by the Central Government and notified by it in this behalf in the Official Gazette; (vii) to such income credited or paid in respect of deposits (other than time deposits made on or after the 1st day of July, 1995) with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); (viii) to such income credited or paid in respect of,- (a) deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank; (b) deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co-operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking;] (ix) to such income credited or paid by the Central Government under any provision of this Act or the Indian Income-tax Act, 1922 (11 of 1922), or the Estate Duty Act, 1953 (34 of 1953), or the Wealth-tax Act, 1957 (27 of 1957), or the Gift-tax Act, 1958 (18 of 1958), or the Super Profits Tax Act, 1963 (14 of 1963), or the Companies (Profits) Surtax Act, 1964 (7 of 1964), or the Interest-tax Act, 1974 (45 of 1974);] (x) to such income credited or paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid during the financial year does not exceed fifty thousand rupees;] (xi) to such income which is paid or payable by an infrastructure capital company or infrastructure capital fund or a public sector company in relation to a zero coupon bond issued on or after the 1st day of June, 2005 by such company or fund or public sector company.] Explanation 1.-For the purposes of clauses (i), (vii) and (viia), "time deposits" means deposits (excluding recurring deposits) repayable on the expiry of fixed periods. Explanation.-2 - Omitted. (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.” (emphasis supplied) 7. The material expression in Section 194A(1) of the Act is “at the time of credit of such income to the account of the payee”. When interest is debited to “Interest Account” the debit is for a specific amount calculated with reference to the liability of the deductor to a particular creditor in accordance with the terms and conditions of the loan. Therefore, whenever interest is credited to the account of the payee the payer has to deduct the TDS. The crux of the matter is that the debit is for a specific amount calculated with reference to the deductor’s liability to a particular creditor in accordance with the terms and conditions of the loan. In the present case, the lender had advanced the loan to the assessee-company. Debit was made by the assessee-company to the “Interest Account” for a specific amount calculated with reference to the deductor’s liability to a creditor. There is no resolution of the assessee-company placed before the A.O. whereby the company has agreed to act as a medium for routing the borrowings and repayments. In the circumstances it cannot be said that the assessee-company was in charge of disbursing the repayments made by directors in their individual capacities.8. Consequently, Department was right in invoking the provisions of Sections 201 and 201(1A) of the Act. However, on facts we are of the view that in the first instance over the years the Department should have not allowed non-deduction of TDS by the company and nothing prevented the A.O. from raising the objection to such practice.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]7. The material expression in Section 194A(1) of the Act isthe time of credit of such income to the account of theWhen interest is debited tohe debit is for a specific amount calculated with reference to the liability of the deductor to a particular creditor in accordance with the terms and conditions of the loan. Therefore, whenever interest is credited to the account of the payee the payer has to deduct the TDS. The crux of the matter is that the debit is for a specific amount calculated with reference to theliability to a particular creditor in accordance with the terms and conditions of the loan. In the present case, the lender had advanced the loan to the assessee-company. Debit was made by the assessee-company to theor a specific amount calculated with reference to theliability to a creditor. There is no resolution of the assessee-company placed before the A.O. whereby the company has agreed to act as a medium for routing the borrowings and repayments. In the circumstances it cannot be said that the assessee-company was in charge of disbursing the repayments made by directors in their individual capacities.8. Consequently, Department was right in invoking the provisions of Sections 201 and 201(1A) of the Act. However, on facts we are of the view that in the first instance over the years the Department should have not allowed non-deduction of TDS by the company and nothing prevented the A.O. from raising the objection to such practice.