Madras High Court
The Commissioner Of Income Tax vs Prakash Foods & Feed Mills P. Ltd on 26 November, 2014
Bench: R.Sudhakar, R.Karuppiah
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 26.11.2014 CORAM THE HON'BLE MR.JUSTICE R.SUDHAKAR AND THE HON'BLE MR.JUSTICE R.KARUPPIAH T.C.(A).Nos.775 and 808 of 2014 The Commissioner of Income Tax Chennai. .. Appellant Vs. Prakash Foods & Feed Mills P. Ltd. JVL Towers, II Floor B, 117 Nelson Manickam Road Aminjikarai, Chennai 600 029. .. Respondent PRAYER: Appeals under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal 'A' Bench, Chennai, dated 10.2.2014 made in I.T.A.Nos.695 and 696/Mds/2012 for the assessment years 2004-2005 and 2005-2006 respectively. For Appellant : Mr.A.P.Srinivas for Mr.T.R.Senthil Kumar J U D G M E N T
(Delivered by R.SUDHAKAR, J.) These appeals are filed by the Revenue challenging the order of the Income Tax Appellate Tribunal 'A' Bench, Chennai, dated 10.2.2014 made in I.T.A.Nos.695 and 696/Mds/2012 for the assessment years 2004-2005 and 2005-2006 respectively, raising the following question of law:
Whether on the facts and in the circumstances of the case, the assessee is eligible for deduction under Section 43B of the Income Tax Act, 1961 on the interest amount paid from the Over Draft or Cash Credit Account towards the liability of term loan, while the Explanation 3C and 3D to Section 43B specifically deems that the interest paid from loan or borrowing and loan or advance as not to have been actually paid?
2.1. The facts in a nutshell are as under: The assessee is maintaining Cash Credit/Over Draft account with the bank. For the assessment years 2004-2005 and 2005-2006, interest was credited to the said account of the assessee. During re-assessment proceedings, the Assessing Officer held that the term 'paid' means that the amount should have been actually paid and mere transfer of amount from one account to another account cannot be treated as 'paid' and accordingly, he made disallowance under Section 43B of the Act, the interest amount.
2.2. The assessee preferred appeals to the Commissioner of Income Tax (Appeals), who dismissed the appeals confirming the order passed by the Assessing Officer.
2.3. Challenging the said order, the assessee preferred further appeals before the Tribunal. The Tribunal allowed the appeals filed by the assessee holding that the interest amount has actually been 'paid' by the assessee through Over Draft/Cash Credit account and that the interest amount has not been converted into loan or advance.
2.4. Calling in question the said order, the present appeals are filed by the Revenue on the question of law, referred supra.
3. We have heard the learned Standing Counsel appearing for the Revenue and perused the orders passed by the Tribunal and the authorities below.
4. Before adverting to the merits of the case, it would be apposite to refer to the relevant portion of Section 43B of the Act, which reads as under:
Section 43B. Certain deductions to be only on actual payment: Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of -
(a) ***
(b) ***
(c) ****
(d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State Financial Corporation or a State Industrial Investment Corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing, or
(e) any sum payable by the assessee as interest on any loan or advances from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan or advances, or
(f) *** Explanation 3C.- For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (d) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing shall not be deemed to have been actually paid.
Explanation 3D.- For the removal of doubts, it is hereby declared that a deduction of any sum, being interest payable under clause (e) of this section, shall be allowed if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or advance shall not be deemed to have been actually paid.
5. The department declined to grant the benefit of deduction on interest paid primarily on the plea that the amount has not been actually paid and transfer of amount from one account to another account cannot be treated as paid. However, the Tribunal repelled the said plea by interpreting Section 43B of the Act and held that overdraft/cash credit accounts are not similar to loan accounts. The Tribunal further observed that the interest amount has been actually paid by the assessee through Overdraft/Cash Credit account and, therefore, set aside the disallowance made under Section 43B of the Act.
6. A bare reading of Explanations 3C and 3D to Section 43B of the Act provides an answer to the problem by making it clear that where interest amount has not been converted into loan or borrowing (or) loan or advance, as the case may be, there is no question of denying the benefit of deduction. In the case on hand, the interest amount has been actually paid by the assessee through Overdraft/Cash Credit account and the same has not been converted into loan or borrowing (or) loan or advance, as the case may be.
7. For the foregoing reasons, these appeals are dismissed by answering the question of law against the Revenue and in favour of the assessee.
(R.S.J.) (R.K.J.)
26.11.2014
Index : Yes
Internet : Yes
sasi
To:
1. The Assistant Registrar,
Income Tax Appellate Tribunal
Chennai Bench "A", Chennai.
2. The Secretary, Central Board
of Direct Taxes, New Delhi.
3. The Commissioner of Income Tax
(Appeals)-V, Chennai 34.
4. The Assistant Commissioner of Income Tax
Company Circle V(2), Chennai.
R.SUDHAKAR,J.
and
R.KARUPPIAH,J.
(sasi)
T.C.(A).Nos.775 and 808 of 2014
26.11.2014