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

The facts giving rise to these civil appeals are as follows:Assessee (sole respondent in all the civil appeals) is a company incorporated under the Companies Act, 1956 engaged in the business of real estate and construction. A survey was conducted under Section 133A of the Act when cheque receipt registers and cheque payment registers were found in the business premises of the company. On examination of the said books, the Department detected taking of loans by the directors of the company (assessee) in their individual capacities from creditors in the name of the assessee-company. The loan amounts received by way of cheques in the name of the assessee were deposited in the bank account of the assessee and transferred to the account of the directors on the same day by issuing corresponding cheques. When the directors repaid the loan amount or interest thereon such payments were also routed through the assessee-company. The directors issued cheques in favour of the assessee and the assessee in turn issued cheques to the creditors/lenders of such directors. Receipt of loan amounts by the directors as also repayment of loans and interests were all reflected in the books of accounts of the respective directors. The receipts and outgoings were shown in the accounts of the directors with the assessee-company. The books of accounts of the assessee-company did not reflect the loans borrowed by the assessee-company. According to the assessee, neither the borrowing nor repayment nor payment of interest on the borrowing were reflected as transactions of the assessee in its books of accounts, they were only reflected in the accounts of the directors in the books of theA.O. found that when interest was paid by cheques issued by the company to the creditor, TDS was not deducted at source by the assessee on the interest payments as required under Section 194A(1) of the Act and, therefore, the A.O. applied the provisions of Section 201(1) of the Act by declaring the assessee-company as assessee-in-default and also applied Section 201(1A) of the Act imposing interest for not deducting TDS at source. The order passed by the A.O. was confirmed by the appellate authority. Before the Tribunal the assessee contended that the borrowings were routed through the company; that the company was merely a medium through which the borrowings and repayments were routed; that the loans were taken by the directors and not by the company which loans and interests thereon were not reflected in thebooks of accounts and that the company was merely disbursing the repayments of loans along with interests and, therefore, it was not liable to deduct TDS at source under Section 194A of the Act. This contention of the assessee has been accepted by the Tribunal. Hence, these civil appeals are filed by the Department.

Reasoning: 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.