ORDER

1. The Revenue has preferred appeals for the assessment years 2007-08 and 2000-11 against the common order of the Commissioner of Income-tax (Appeals) Guntur dated 25.6.2014. The assessee has also filed its cross-objections under S. 253(4) of the Act. Since issues involved as well as the order impugned are common, all these appeals are being disposed of by this common order for the sake of convenience.

2. In both the appeals of the Revenue, the solitary issue involved is that the CIT (A) is not justified in deleting the additions made by the Assessing Officer by invoking the provisions of S. 40a(ia) of the Act, for non-deduction of tax on interest paid by the assessee in terms of S. 194A of the Act. In its cross-objections, the assessee has impugned the legality of the action of the Assessing Officer in reopening the assessments under S. 147 of the Act.

3. Facts of the case, common for both the years except for the amounts and dates etc. involved, as taken from the appeal for assessment year 2007-08, are that the assessee is a cooperative society carrying on banking activities. For the assessment year 2007-08, assessee originally field return of income on 29.10.2007 admitting loss of Rs. 4,73,54,180. The assessment was framed under S. 143(3) on 9.12.2009, determining the loss of the assessee at Rs. 1,15,28,930, after making certain disallowances of Rs. 3,58,84,050. The said assessment was thereafter reopened by issue of notice under S. 148 dated 20th January, 2012. The assessment was reopened to withdraw the house property loss wrongly adjusted and to recompute the business loss of the assessee. The Assessing Officer however completed the re-assessment determining the total income of the assessee at Rs. 5,25,22,858. While framing the re-assessment, the Assessing Officer inter alia made a disallowance of Rs. 6,37,64,249 being interest paid to individual members of the cooperative society and other institutions and societies and local bodies, without deduction of tax at source on such interest payments. The Assessing Officer observed that the assessee is not just a cooperative society, but a cooperative society engaged in the business of banking, as referred to in S. 194A(3)(i)(b) and therefore, the assessee-bank is required to deduct tax at source from the payments made to various persons. The Assessing Officer observed that the assessee could not produce any nil or lower deduction certificates issued by the income-tax officers of the respective deductees. The Assessing Officer also observed that Forms 15G/15H/60 etc. were also not furnished towards non-deduction. The Assessing Officer relied upon CBDT Circular No. 9 of 2002 dated 11.9.2009 and held that exemption under S. 194A(3)(v) would be available only to such members who have joined in application for the registration of the cooperative society and those who are admitted to membership after registration in accordance with the bye-laws and rules. He therefore held that interest paid to various persons requires to be disallowed for violation of S. 194A, in the light of provisions of S. 40a(ia). He accordingly inter alia disallowed the interest paid to the tune of Rs. 6,37,64,249 while framing re-assessment order.

4. Assessee preferred an appeal before the CIT (A) and raised two fold objections. The assessee firstly challenged that the reopening under S. 147 is not permissible since original assessment under S. 143(3) was made after verifying the relevant details and after certain sums were also disallowed. No new material/evidence has come to the notice of the Assessing Officer after the completion of the assessment. The entire assessment was reopened on the basis of the very same material, which is against the ratio laid down by the Apex Court in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 . Therefore, the action of the Assessing Officer in invoking S. 147 is without jurisdiction and thus vitiated in law.

4.1 On merits, the assessee pointed out before the CIT (A) that the payment of interest was made to its members and therefore, there is no requirement of deduction of tax on such interest payments and also interest payments did not exceed Rs. 10,000 individually to each member and therefore, there was no requirement to deduct tax at source. The assessee also furnished relevant Forms 15G/16H/60 in appropriate cases before the CIT (A) as additional evidence.

4.2 The CIT (A) after obtaining remand report from the Assessing Officer came to the conclusion that for the default committed by the assessee in obtaining Form 15G/15H/60, a different remedy is available to the Revenue. Accordingly, the learned CIT (A) held that provisions of S. 40a(ia) cannot be invoked under the circumstances or non-deduction of TDS. The relevant operative portion of the order of the CIT (A) is reproduced hereunder—

‘5.3.4 I have perused the submissions made in the remand report. The appellant has filed copies of the despatch registers of its branches as evidence of the fact that Forms 15G, 15H and Form 60 were being submitted to the Income Tax Authorities. In some branches, the forms were submitted to the ACIT (CIB) while in other cases these forms have been submitted to the O/o. CIT/ACIT, Tirupati. The Hon’ble ITAT, Mumbai in Karwat Steel Traders v. ITO (2013) (37 taxmann.com 190) has held as under:

”Since separate provisions were prescribed on default for non-filing or delayed filing of Form 15G/15H to Commissioner. non filing of such form would not invoke disallowance under section 40(a)(ia) and that where person responsible to deduct TDS received declaration in form 15G/form 15h non-filing or delayed filing of such form before Commissioner would not result in disallowance under section 40(a)(ia).”

Further, the Hon’ble ITAT, Jaipur in Shyam Sunder Kailash Chand v. ITO(2012) (19 taxmann.com)(342(JP)(2011) 3 DJ 126 (JP), has held as under:

“Where Form 15G received by the appellant from depositors was submitted to the assessing officer late by few days but before framing of the assessment, interest paid by the appellant to the depositors without deduction of tax at source could not be disallowed since said forms were available to assessing officer while framing assessment”

5.3.5 The A.O., in his remand report has made a general statement that PAN has not been quoted, without pointing out cases where PAN has been allotted to the depositor and has not been quoted. Similarly, the appellant has pointed out that village adresss do not contain street names or door numbers and hence they canto be called incomplete addresses.

5.3.6 Based on the decisions of the Hon’ble ITAT, Mumbai and the Hon’ble ITAT, Jaipur in the cases cited above, I am of the opinion that disallowance u/s. 40(a)(ia) in the case of a cooperative bank on the grounds that Forms l5G and 15H have not been properly filled in or that have been delivered at the local Income Tax Office as against O/o.CIT(CIB), Hyderabad or ITO(CIB) Tirupati is unfair and unjust under law. The appellant’s appeal on this ground is allowed.’

4.3 However, as regards the legal ground challenging the assumption of jurisdiction under S. 147 by the Assessing Officer, the CIT (A) rejected the grounds of the Assessee. The relevant observations of the CIT (A) in this regard are reproduced hereunder—

‘4.3.2 I have perused the submissions made by the appellant. In the case of Kalyanji Mavji & Co. v. CIT (SC) 102 ITR 287, the Hon’ble Apex Court has held that the expression “has reason to believe” is wider than “is satisfied”. The reasons must have a live link with the formation of belief. The information based on which reopening is done would also include true and correct state of law derived from relevant judicial decisions either of the IT. Authorities or Courts of Law – Whether the ground on which the original assessment is based is held to be erroneous by Supreme Court in some other sense, that will also amount to a fresh information which comes into existence subsequent to the original assessment-tax payer would not be allowed to take advantage of an oversight to mistake committed by the taxing authority. In the case of CIT v. Bai Navajbai N. Gamadia (Bom.), 35 ITR 793, it was held that “retrospective amendment of IT. Act making certain receipts taxable as income which was not chargeable to tax earlier – is information for the purpose of reopening”. Moreover, in the case of Som Dutt Builders (P.) Ltd. v. DCIT (ITAT, Kol) 98 ITD 78, it has been held that “Change of opinion comes to rescue of assessee only when Assessing Officer has taken one of permissible views at the time of original proceedings – A wrong application of law cannot be held as permissible view and that can always be Changed for appreciating law’. Further, in the case of CIT v. Rinku Chakraborthy [2011] 56 DTR 227, it has been had that ” When an income liable to tax has escaped assessment in the original assessment proceedings due to oversight and inadvertence or a mistake committed by the ITO, he has jurisdiction to reopen the assessment. Re-assessment is permissible even if the information is obtained after proper investigation from the materials on record or from any enquiry or research into fats or law. Information need not be from external source”.

4.3.3 Thus, merely because certain information was available in the return of income, does not bar the assessing officer from reopening us. 147. Further, having issued notice u/s. 148, the assessing officer is within his rights and is in fact, duty bound to take into account any issue regarding escapement of income, which comes to light during the re-assessment proceedings. In the cases of CIT v. Sun Engineering Works P. Limited(SC) 198 ITR 297, V. Jaganmohan Rao & Ors. v. CIT(SC) 75 ITR 373, ITO v. Mewalal Dwarka Prasad(SC) 176 ITR 529, the Hon’ble Supreme Court has held that “ITO can bring to tax any income which escaped assessment and not only items which led to issuance of notice u/s. 148. Thus, the appellant’s appeal in respect of Ground No. 1 is dismissed and the A.O.’s action in reopening assessment by issue of notice u/s. 148 is upheld.’

5. Aggrieved by the order of the CIT (A) on merits, Revenue is in appeal before he Tribunal, whereas on the issue of legality of reopening of the assessment under S. 147, assessee has preferred the cross-objections.

6. The Learned Departmental Representative for the Revenue submitted that the assessee has not filed Form 15G/15H/60, etc. towards non-deduction before the appropriate authority, i.e. Commissioner of Income-tax. He relied upon the provisions of S. 194A and submitted that the assessee was under legal obligation to deduct TDS on interest payments to various depositors as mandated by law. He finally relied upon the order of the Assessing Officer and submitted that the Assessing Officer was fully justified in resorting to the provisions of S. 40a(ia) for non-deduction of tax at source.

7. The learned AR for the assessee, on the other hand, vehemently emphasised that the assessee is a cooperative society and interest was paid to its members and other cooperative societies. The assessee being a cooperative society carrying on banking activities is not obliged to deduct tax at source on interest payments to its members and other cooperative societies in view of S. 194A(3)(v) of the Act, and therefore, the Assessing Officer was wholly incorrect in applying the provisions of S. 40a(ia) in the case of the assessee. He further submitted that the reliance placed on the CBDT Circular No. 9 of 2002 dated 11.9.2002 by the Assessing Officer for denying exemption under S. 194A(3)(v) of the Act is misplaced. He pointed out that the aforesaid CBDT circular has been read down by the Hon’ble Bombay High Court in the case of Jalgaon District Central Co-operative Bank Ltd. v. Union of India [2004] 265 ITR 423 (Bom.) with regard to application of S. 194A to the co-operative societies. .

7.1 The learned AR on facts submitted that the payments have been made to other members or to other cooperative societies carrying on banking activities. He next submitted that the relevant prescribed forms were handed by the concerned depositors and the same were submitted to the Assessing Officer. Therefore, there is no warrant for disallowance of interest paid by the assessee to its depositors.

8. Learned AR thereafter adverted to the cross objections filed by the assessee and submitted that the action of the Assessing Officer in invoking the provisions of S. 147 is not sustainable, since such action is based on mere review of the exiting facts and records and merely owing to change of opinion thereon. For this proposition, he relied upon the decision of the Apex Court in the case of Kelvinator of India Ltd. (supra).

9. In rejoinder, the learned Departmental Representative, on the legality of reopening of the assessment by the Assessing Officer, strongly supported the order of the CIT (A).

10. We have carefully considered the rival submissions, orders of the authorities below and case-law cited. Substantive issue that arises for our consideration in the appeals of the Revenue is applicability of provisions of S. 194A in the facts of the case. The assessee is a cooperative society carrying on banking activities and stated to have paid interest on deposits received from its members and other cooperative societies carrying on similar banking activities.

10.1 The provisions of S.194A of the Act. 1961 deals with interest other than interest on securities. Sub-section (1) of S. 194A mandates deduction of income-tax at source in respect of payments by way of interest whereas sub-section 3 of S. 194A provides an exception to the applicability of the provisions of sub-section (1). S. 194A(3)(v) grants exemption from TDS to such person who is credited or paid interest by the cooperative society to a member thereof or to any other cooperative society. It is the case of the assessee that interest was paid to its members and other cooperative societies and therefore, it is not obliged to deduct tax at source on in the payments to its members and other cooperative societies in view of S. 194A(3)(v) of the Act. Therefore, S. 40A(ia) does not come in to play at all. In this context, we take note of Circular No. 9 of 2002 dated 11th September, 2002 relied upon by the Assessing Officer which restricts exemption under S. 194A(3)(v) only to such members, who have joined in application for registration of the cooperative society and those who are admitted to the members for the registration in accordance with bye laws and rules. We find that the Hon’ble Bombay High Court in the case of Jalgaon District Central Cooperative Bank (supra) has quashed and set aside the Board Circular No. 9 of 2002 relied upon by the Assessing Officer. The relevant portion of the head-note on page 424 of the Reports (265 ITR) as follows:—

“The Central Board of Direct taxes cannot issue a circular under Section119 of the Act which would override or detract form the provisions of the Income-tax Act. The Central board of Direct Taxes is empowered to issue only administrative instructions to its subordinate authorities for the purpose of proper administration and enforcement of the provisions of the Income Tax Act, 1961. Circular No. 9 of 2002 dated September 11, 2002, provides that the exemption is available only to such members who have joined in application for the registration of the cooperative society and those who are admitted to the membership after registration in accordance with the bye laws and rules; that the members eligible for exemption under section 194A(3)(v)must have subscribed to and fully paid for at least one share of the cooperative bank, must be entitled to participate and vote in general body meetings or special general body meetings of the co-operative bank and must be entitled to receive share from the profits of the cooperative ban. The circular which is in the form of a clarification with regard to the rights and privileges of a duly registered member and nominal member is outside the scope of section 119. What is not contemplated in the exemption clause under section 194A(3)(v) of the Act cannot be imported to deprive the exemption granted to the co-operative society by issuing the impugned circular. The circular is not valid and is liable to be quashed.”

Respectfully following the above decision of the Bombay High Court, we hold the reliance of the Assessing Officer on the above circular of the board as misplaced. The CIT (A) has granted relief to the assessee on the ground that the prescribed forms given by the depositors have been duly furnished by the assessee before the Assessing Officer albeit wrongly instead of CIT concerned. We do not find any infirmity in the conclusion of the CIT (A) on this regard. Thus, no interference with the order of CIT (A) is called for.

11. We have also examined the impugned issue from a different perspective, as sought to be canvassed by learned AR. The question is whether S. 40a(ia) can be invoked when the requisite forms as prescribed under statute for non-deduction has been obtained from the deductee although not filed before proper authority. The provisions of section 40(a)(ia) of the Act is reproduced hereunder to examine this aspect of the matter :—

“40. Amounts not deductible Notwithstanding anything to the contrary in Sections 30 to 38, the following mounts shall not be deducted in computing the income chargeable under the head “profits and gains of business or profession ,—

(a) In the case of any assessee –

(i). . . . . . . . . . . . . . .

(ii)

(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid. . . . . . . (only relevant portion extracted). ”

The provision noted above spells out that the amount cannot be allowed as deduction only in the event when tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid. In the present case, it is the case of the assessing officer that the assessee was required to deduct tax in terms of the provisions of section 194A. We note that Section 194A is further qualified by section 197A(1A) which is a non-obstante clause. Setion197A(1A) provides that liability to deduct tax under section 194A ceases when a declaration in writing in duplicate in prescribed form and verified in the prescribed manner received by a person responsible for paying income to the payee. The remedy towards default for non-furnishing of the declaration to the Commissioner of Income Tax as prescribed has been addressed under section 272A(2)(f) of the Act by imposing suitable penalty thereon. However, once Form No,15G/Form 15H were received by the persons responsible for deducting tax, there is no liability to deduct tax at source in view of section 194A r.w.s. 197 A. Once, it is held that tax is not deductible at source under section 194A on receipt of prescribed form, the mischief provided under section 40(a)(ia) is not attracted.

12. We find that no default can be said to have occurred in terms of the phraseology provided under section 40(a)(ia) of the Act in the facts of the case. Accordingly, we hold that the CIT (A) rightly cancelled the disallowance made by the assessing officer under section 40(a)(ia) of the Act due to mere non-filing of impugned Form No. 15G/15H etc. with the appropriate authority. We have also perused decision of the ITAT in the case of Karwat Steel Traders v. ITO [2013] 145 ITD 370  (Mum. – Trib.) relied upon by the CIT (A) in this regard. We find the facts in the present case are identical to the facts in the case of Karwat Steel Traders (supra) wherein the Tribunal has taken a favourable view on the similar facts. Respectfully, following the order of the Co-ordinate Bench of the Tribunal, we hold that TDS is not deductible on receipt of Form No. 15G etc., and accordingly, section 40(a)(ia) of the Act is not applicable in the facts of the case. Thus, assessee succeeds on this score also.

13. Adverting to the cross objections filed by the assessee challenging the legality and validity of the reopening under S. 147, we find that the learned AR, except for the reliance placed on the decision of the Apex Court in the case of Kelvinator of India Ltd. (supra), has not brought on record any factual evidence or plea to support the contentions raised in the cross-objections. No evidence/material has been furnished, before the Tribunal to substantiate the contentions of the assessee. Even the basic documents, such as reasons recorded by the Assessing Officer for reopening the assessment and also the original assessment order are not placed on record. In the absence of any material or evidence brought on record by the learned AR of the assessee the grounds are only abstract in nature. Therefore, we find no reason to interfere with the impugned order of the CIT (A) on this aspect also. We accordingly find no merit in the cross objections raised.

14. In the result, appeals of the Revenue as well as the cross objections of the assessee are dismissed.

JUDGMENT

Ms. Harsha Devani, J. – By this petition under Article 226 of the Constitution of India, the petitioner has challenged the communication dated 9th February, 2015 issued by the Income Tax Officer, TDS-1, Surat as well as the action of the second respondent of deducting and depositing an amount of Rs. 2,07,416/- towards 10% TDS from the total amount of interest and further seeks a direction to the second respondent to pay the amount of TDS, that is, Rs. 2,07,416/- to the petitioner.

2. The petitioner is the original claimant in Land Reference Case No. 1737/1999 which came to be decided by the learned Principal Senior Civil Judge, Junagadh by an award dated 23rd March, 2011 whereby the reference was partly allowed and additional compensation was awarded at the rate of Rs. 41.60 per square metre for the irrigated lands and Rs. 33.28 per square metre for non-irrigated lands along with other benefits under the Land Acquisition Act, 1894 (hereinafter referred to as the “Act of 1894”).

3. Pursuant to the award passed by the Reference Court, the second respondent – Executive Engineer, Junagadh Irrigation Scheme Division submitted a calculation sheet which showed an amount of interest of Rs. 20,74,157/- in Column No. 15 thereof and the amount of TDS to be deducted as per section 194A was shown to be Rs. 2,07,416/- in Column No. 18 thereof,. The petitioner made an application in Form No. 13 to the Income Tax Department on 9th January, 2015 under section 197(1) for deciding the tax liability of interest and to issue a certificate as to NIL tax liability. By the impugned communication dated 9th February, 2015 (wrongly typed as 09.02.2014 in the letter as per paragraph 5 of the affidavit-in-reply), the application has been rejected on the ground that the interest amount on the delayed payment of compensation and enhanced value of compensation is taxable as per the provisions of section 57(iv) read with sections 56(2)(viii) and 145A(b) of the I.T. Act. Being aggrieved, the petitioner has filed the present petition.

4. Mr. Tushar Sheth, learned advocate for the petitioner invited the attention of the court to the statement showing the amount of compensation to be deposited in the court in terms of the award dated 23rd March, 2011 passed by the learned Principal Senior Civil Judge, to point out that the amount referred to in Column No. 15 was the amount of interest payable under section 28 of the Act of 1894. It was pointed out that in terms of Column No. 18 of the said statement, out of the amount of interest of Rs. 20,74,157/-, income tax of Rs. 2,07,416/- is required to be deducted at source. It was pointed out that the petitioner’s application for a certificate for no deduction of income tax under section 197 of the I.T. Act has been rejected on the ground that the interest amount on delayed payment of compensation and enhanced value of compensation is taxable as per section 57(iv) read with sections 56(2)(viii) and 145A(b) of the Income Tax Act. Reference was made to the decision of the Supreme Court in the case of CIT v. Ghanshyam (HUF) [2009] 182 Taxman 368, to point out that the court in the said case has held that interest under section 28 of the Act of 1894 is part of the amount of compensation whereas interest under section 34 thereof is only for delay in making payment after the compensation amount is determined. Interest under section 28 is a part of the enhanced value of the land which is not the case in the matter of payment of interest under section 34. The court, accordingly, held that interest paid on excess compensation under section 28 of the Act of 1894 has to be treated as part of compensation under section 45(5) of the Income Tax Act. It was submitted that, therefore, when the interest under section 28 of the Act of 1894 is to be treated as part of compensation and is liable to capital gains under section 45(5) of the I.T. Act, such amount cannot be treated as income from other sources and hence, no tax can be deducted at source by considering the same to be interest as contemplated under section 45(5) of the I.T. Act. It was submitted that subsequent to the refusal to grant the certificate under section 197 of the I.T. Act, the second respondent has deducted tax at source to the extent of Rs. 2,07,416/-. It was submitted that such action of the second respondent not being in consonance with the statutory provisions, the respondents are required to be directed to pay such amount to the petitioner. It was, accordingly, urged that the petition deserves to be allowed by quashing and setting aside the impugned communication dated 9th February, 2014 (sic. 2015) issued by the Income Tax Officer, TDS-1 refusing to grant the certificate under section 197 of the Act as well as holding the action of the respondents in deducting Rs. 2,07,416/- towards 10% TDS to be illegal and invalid.

4.1 In support of his submissions, the learned counsel placed reliance upon a decision of the Punjab & Haryana High Court in the case of Jagmal Singh v. State of Haryana rendered in Civil Revision No. 7740 of 2012 on 18th July, 2013, wherein the court placing reliance upon the decision of the Supreme Court in the case of Ghanshyam (HUF) (supra) observed that it was clear from the observations of the Supreme Court that interest under section 28 is, unlike under section 34 of the 1894 Act, an accretion in value and regarded as part of the compensation itself which is not the case of interest under section 34. The court held that any component of compensation that goes towards the discharge of liability under section 28 must be taken as part of the compensation to which section 194 LA shall apply and that compensation being the value of agricultural land, then the exclusion as provided under the section shall also be attracted. The court observed that in the facts of the said case, compensation assessed and the interest calculated were for acquiring agricultural land and the amount deposited represented the liability under section 28 of the Act of 1894 and hence, there was no requirement of collecting TDS for this amount. The court clarified that any liability which goes towards interest calculated under section 34 of the Act of 1894 would not obtain the benefit and if there is any deduction for TDS for such a component of interest, it shall be perfectly justified. While any deduction made under TDS will not cause any serious prejudice even if the amount ought not to have been deducted by enabling a party applying for refund, if, it might involve a large number of cases, it shall be quite unnecessary for the land owners to directly apply for income tax for refund in every case. Such a requirement is a needless circuitous exercise. What can be prevented even in the first place by not requiring a TDS to be applied for compensation relatable to sections 23(1A), 23(2) and 28 of the Land Acquisition Act, in respect of the acquisition of agricultural land, it shall not be unnecessarily gone through. The court, accordingly, issued a direction to the Collector not to make such TDS for deposit of money in the court in satisfaction of the award and further directed that the shortfall in the amount in the said cases shall be made good by depositing the same and left it open to the Collector to obtain refund of the amount remitted to the TDS account, without any such legal requirement, from the Income Tax Department, in accordance with law.

4.2 Reliance was also placed upon the decision of the Punjab & Haryana High Court in the case of Haryana State Industrial Development Corpn. Ltd. v. Savitri rendered in Civil Revision No. 2509 of 2012 on 29th November, 2013 wherein the court placed reliance upon its earlier decision in the case of Jagmal Singh (supra) and held that it is clear that no tax is to be deducted at source from compensation awarded in lieu of agricultural land. In respect of ‘interest’, it has to be seen as to whether interest is a part of the compensation. If the answer is in the affirmative, then tax cannot be deducted at source. However, if it is for delay in making payment it does not form part of the compensation and tax may be deducted at source. The court held that in the facts of the said case, the land was agricultural land and enhanced compensation and interest was awarded under section 28 and hence in view of the specific finding in Ghanshyam (HUF)’s case (supra) the amount awarded under section 28 of the Land Acquisition Act is accretion in value and interest therein forms part of compensation; income tax cannot be deducted at source since the land acquired is agricultural land. The learned counsel for the petitioner further pointed out that the land in question being agricultural land in the rural area, the same has not been taxed under the heading of capital gains under section 45(5) of the Act.

5. Opposing the petition, Mr. Sudhir Mehta, learned senior standing counsel for the respondents submitted that under the award passed by the Reference Court, the petitioner was to receive additional compensation and interest of Rs. 20,74,157/- on such additional compensation. Under the circumstances, the second respondent proposed deduction of income tax on interest of Rs. 20,74,157/- which was worked out at Rs. 2,07,416/- in terms of the provisions of section 194A of the Income Tax Act. It was submitted that the Income Tax Officer, TDS-1, Surat while rejecting the application made by the petitioner under section 197 of the I.T. Act, has taken into consideration the provisions of section 57(iv) read with section 56(2)(viii) and section 145A(b) of that Act. According to the learned counsel, the action of the Assessing Officer in rejecting the application is just, legal and valid because in terms of the provisions of section 57(iv) read with section 56(2)(viii) and section 145A(b) of the I.T. Act, tax is required to be deducted at source under section 194A of the I.T. Act at the rate of 10% from the interest payable under section 28 of the Act of 1894. Referring to the provisions of section 56 of the I.T. Act, it was pointed out that sub-clause (viii) of sub-section (2) thereof provides that income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A is chargeable to income tax under the head “Income from other sources”. It was pointed out that under sub-clause (iv) of section 57, in case of the nature of income referred to in clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent of such income is permissible. It was pointed out that under section 145A of the Act, interest received by the assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received. It was submitted that the interest on enhanced compensation under section 28 of the Act of 1894 being in the nature of enhanced compensation, is deemed to be the income of the assessee in the year under consideration and has to be taxed as per the provisions of section 56(2)(viii) of the Act, as income from other sources.

5.1 As regards the decision of the Supreme Court in the case of Ghanshyam (HUF) (supra), Mr. Mehta submitted that such decision was rendered prior to the amendment in the I.T. Act whereby clause (b) which provides that interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income in the year in which it is received, came to be inserted in section 145A of the Act and hence, would not have any applicability in the facts of the present case. In support of his submissions, the learned counsel placed reliance upon the decision of the Punjab & Haryana High Court in the case of Hari Kishan v. Union of India [CWP No. 2290 of 2001 dated 30-1-2014] wherein the court has placed reliance upon its earlier decision in the case of CIT v. Bir Singh (HUF) ITA No. 209 of 2004 on 27th October, 2010, wherein the court after considering the decision of the Supreme Court in Ghanshyam (HUF)’s case (supra) has held that the interest received by the petitioner was on account of delay in making the payment of enhanced compensation which would not partake the character of compensation for acquisition of agricultural land and thus, was not exempt under the Income Tax Act. Once that was so, the tax at source had rightly been deducted by the payer.

5.2 Reliance was also placed upon the decision of the Punjab & Haryana High Court in the case of Bir Singh (HUF) (supra) wherein the court held thus:-

“25. The apex Court in the aforesaid decision has held that interest directed by the Collector is to be treated as part of compensation while the interest on the enhanced compensation directed by the Court is not. Even though there is little confusion in reference to the relevant sections but as per discussion, it is clear that interest directed by the Collector partakes the character of compensation and forms part thereof under Section 34 of the Act whereas the interest ordered by the Court falls under Section 28 of the Act.

5.3 Reliance was also placed upon the decision of the Punjab & Haryana High Court in the case of Manjet Singh (HUF) Karta Manjeet Singh v. Union of India [2016] 237 Taxman 116 , wherein the question for consideration in the petitions related to the nature of interest received by the land owner under section 28 of the 1894 Act namely, as to whether interest which is received by the land owner partakes the character of income or not and in such a situation whether it is taxable under the provisions of the Act. The court placed reliance upon the decision of the Supreme Court in the case ofDr. Shamlal Narula v. CIT [1964] 53 ITR 151, the decision of the Supreme Court in the case of T.N.K. Govindaraju Chettyv. CIT [1967] 66 ITR 465, the decision of the Supreme Court in the case of Bikram Singh v. Land Acquisition Collector[1997] 224 ITR 551  and held that the interest received as income on the delayed payment of compensation determined under section 28 or 31 of the Act is a taxable event. The court held that in view of the authoritative pronouncements of the apex court in the above referred decisions, the assessee cannot derive any benefit from the observations of the Supreme Court in the case of Ghanshyam (HUF) (supra) and dismissed the petitions.

5.4 Reliance was also placed upon the decision of the Delhi High Court in the case of CIT v. Sharda Kochhar 226 Taxman 199 (Mag.), wherein the question before the Delhi High Court was as to whether the amount received by the assessee during the previous year relevant to assessment year 1988-89 was taxable in view of the provisions of section 45(5)(b) of the Income Tax Act. The court following the decision of the Supreme Court in the case of Ghanshyam (HUF) (supra) held that the addition made by the Assessing Officer was in accordance with law, that is, section 45(5) of the Income Tax Act. It was submitted that thus, various High Courts have taken a consistent view that interest paid under section 28 of the Act of 1894 is in the nature of income from other sources and is taxable under section 56 of the Act. Under the circumstances, the second respondent was wholly justified in deducting tax at source under section 194A of the I.T. Act and that the first respondent was justified in rejecting the application for issuance of certificate under section 197 of the I.T. Act for no deduction of tax. It was, accordingly, urged that the petition being devoid of merits, deserves to be dismissed.

6. The facts as emerging from the record are that the petitioner’s agricultural lands came to be acquired under the provisions of the Act of 1894 for the public purpose of the Ozat-2 Irrigation Scheme. The award passed by the Collector came to be challenged by the petitioner before the learned Principal Senior Civil Judge, Junagadh (hereinafter referred to as the “Reference Court”), who by an order dated 20th March, 2011 awarded additional compensation of Rs. 5,01,846/- in favour of the petitioner together with other statutory benefits. Pursuant to such award, the second respondent calculated the amount payable to the petitioner and in terms of the statement showing the amount of compensation to be deposited in the court, computed an amount of Rs. 20,74,157/- as payable to the petitioner by way of interest under section 28 of the Act of 1894. In support of such statement, the second respondent has also issued a communication dated 12th October, 2015 certifying that the interest shown in Columns No. 13 and 14 indicates the interest under section 28 of the Act of 1894. It may be noted that Column No. 15 is comprised of the total amount of interest under Columns No. 13 and 14 of the above statement. Undisputedly, therefore, the amount of interest from which the income tax is sought to be deducted at source, is interest payable under section 28 of the Act of 1894.

7. At this juncture, reference may be made to the decision of the Supreme Court in the case of Ghanshyam (HUF) (supra) wherein, the court has examined the provisions of the Land Acquisition Act, 1894 as well as the provisions of section 45 of the I.T. Act and the intention behind insertion of sub-section (5) of section 45. The court noted that sub-section (5) of section 45 was inserted to provide for taxation of additional compensation in the year of receipt instead of in the year of transfer of the capital asset. The court considered the provisions of sections 23(1), 23(1-A) and section 23(2) of the Act as well as section 28 and section 34 of the Act of 1894 and observed that section 23(1-A) was introduced in the 1894 Act to mitigate the hardship caused to the owner of the land who is deprived of its enjoyment by taking possession from him and using it for public purpose, because of the considerable delay and offering payment thereof. To obviate such hardship, section 23(1-A) was introduced and the legislature envisaged that the owner is entitled to 12% per annum additional amount on the market value for a period commencing on or from the date of publication of the notification under section 4(1) of the 1894 Act up to the date of the award of the Collector or the date of taking possession of the land, whichever is earlier. The court held that the additional amount payable under section 23(1-A) of the 1894 Act is neither interest nor solatium. It is an additional compensation designed to compensate the owner of the land for the rise in price during the pendency of the land acquisition proceedings. It is a measure to offset the effect of inflation and the continuous rise in the value of properties. Therefore, the amount payable under section 23(1-A) of the Act is an additional compensation in respect to the acquisition and has to be reckoned as part of the market value of the land. The court further held that the award of interest under section 28 of the 1894 Act is discretionary. Section 28 applies when the amount originally awarded has been paid or deposited and when the court awards excess amount. In such cases, interest on that excess alone is payable. Section 28 empowers the court to award interest on the excess amount of compensation awarded by it over the amount awarded by the Collector. The compensation awarded by the court includes the additional compensation awarded under section 23(1-A) and the solatium under section 23(2) of the said Act. This award of interest is not mandatory but is left to the discretion of the court. It was further held that section 28 is applicable only in respect of the excess amount which is determined by the court after a reference under section 18 of the 1894 Act. Section 28 does not apply to cases of undue delay in making award for compensation. The court observed that interest is different from compensation. However, interest paid on the excess amount under section 28 of the 1894 Act depends upon a claim made by a person whose land is acquired whereas interest under section 34 is for the delay in making payment. This vital difference needs to be kept in mind in deciding the matter. Interest under section 28 is part of the amount of compensation whereas interest under section 34 is only for delay in making payment after the compensation amount is determined. Interest under section 28 is a part of the enhanced value of the land which is not the case in the matter of payment of interest under section 34. The court, thereafter, specifically considered the question as to whether additional amount under section 23(1-A), solatium under section 23(2), interest paid on excess compensation under section 28 and interest under section 34 of the 1894 Act, could be treated as part of compensation under section 45(5) of the 1961 Act and the court held thus:—

Thus, the court has held that interest under section 28 of the Act of 1894 is an accretion to compensation and forms part of the compensation and, therefore, exigible to tax under section 45(5) of the Act. Such decision was, therefore, rendered in favour of the revenue.

8. The above referred decision in the case of Ghanshyam (HUF) (supra) came to be followed by the Supreme Court in the case of CIT v. Govindbhai Mamaiya [2014] 367 ITR 498  wherein the court after referring to the above decision in the case of Ghanshyam (HUF) (supra) held that it is clear that whereas interest under section 34 of the Act of 1894 is not treated as a part of income subject to tax, the interest earned under section 28, which is on enhanced compensation, is treated as an accretion to the value and, therefore, part of the enhanced compensation or consideration making it exigible to tax under section 45(5) of the Income Tax Act.

9. Thus, the Supreme Court in the case of Ghanshyam (HUF) (supra) has held that the interest under section 28 of the Act of 1894 unlike interest under section 34 is an accretion to the value and hence, it is a part of the enhanced compensation or consideration which is not the case with interest under section 34 of the 1894 Act. Therefore, interest under section 28 of the Act of 1894 would form part of the enhanced compensation and would be exigible to capital gains under section 45(5) of the I.T. Act. In other words, in case of a transaction which is otherwise exigible to capital gains tax under section 45 of the I.T. Act, the interest received under section 28 of the Act of 1894 being an accretion to the value, would form part of the compensation and would be exigible to tax under section 45(5) of the I.T. Act, whereas the interest received under section 34 of the Act of 1894 would be “interest” within the meaning of such expression as envisaged under section 145A of the I.T. Act and would be deemed to be the income of the year under consideration, chargeable to tax as income from other sources under section 56 of the I.T. Act.

10. In the facts of the present case, it is an admitted position that the interest on which the tax is sought to be deducted at source under section 194A of the Act is interest under section 28 of the Act of 1894 and not under section 34 thereof. As noted hereinabove, the petitioner’s application for a certificate under section 197 of the I.T. Act for no deduction of tax at source has been rejected on the ground that the interest amount received under section 28 of the Act of 1894 is taxable as per the provisions of section 57(iv) read with section 56(2)(viii) and section 145A(b) of the I.T. Act. Section 145A of the I.T. bears the heading “Method of accounting in certain cases”. Section 145A(b) provides that notwithstanding anything to the contrary contained in section 145, interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received. Clause (viii) of sub-section (2) of section 56 of the I.T. Act provides for income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A which is chargeable as income from other sources. The first respondent Income Tax Officer seeks to tax the interest received by the petitioner under section 28 of the Act of 1894 as income from other sources under section 56(2)(viii) read with section 145A(b) of the I.T. Act. In the opinion of this court, in the light of the law laid down by the Supreme Court in the case of Ghanshyam (HUF) (supra), the interest received under section 28 of the Act of 1894 would not fall within the ambit of the expression “interest” as envisaged under section 145A(b) of the I.T. Act, inasmuch as, the Supreme Court in the above decision has held that interest under section 28 of the Act of 1894 is not in the nature of interest but is an accretion to the compensation and, therefore, forms part of the compensation. At this stage it may be apt to quote the following part of the decision of the Supreme Court in Ghanshyam (HUF)’s case (supra):

Thus, it is clear that the Supreme Court after considering the scheme of section 45(5) of the I.T. Act has categorically held that payment made under section 28 of the Act of 1894 is enhanced compensation, as a necessary corollary, therefore, the contention that payment made under section 28 of the Act of 1894 is interest as envisaged under section 145A of the I.T. Act and has to be treated as income from other sources, deserves to be rejected.

11. It has been vehemently contended on behalf of the first respondent that the above decision has been rendered prior to the substitution of section 145A of the I.T. Act by Finance (No. 2) Act, 2009 with effect from 1st April, 2010, and hence, would have no applicability to the facts of the present case. The scope and effect of the substitution (with effect from 1st April, 2010) of section 145A, as also amendment made in section 56(2) by Act 33 of 2009 have been elaborated in the following portion of the departmental circular No. 5/2010, dated 3.6.2010, as follows:

“Rationalizing the provisions for taxation of interest received on delayed compensation or on enhanced compensation.-

Thus, the substitution of section 145A by Finance (No. 2) Act, 2009 was not in connection with the decision of the Supreme Court in Ghanshyam (HUF)’s case (supra) but was brought in to mitigate the hardship caused to the assessee on account of the decision of the Supreme Court in Rama Bai v. CIT [1990] 181 ITR 400  whereby it was held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. Therefore, when one reads the words “interest received on compensation or enhanced compensation” in section 145A of the I.T. Act, the same have to be construed in the manner interpreted by the Supreme Court in Ghanshyam (HUF)’s case (supra).

12. On behalf of the first respondent, reliance has been placed upon decisions of different High Courts taking a different view. This court is not in agreement with the view adopted by the other High Courts which are not consistent with the law laid down in the case of Ghanshyam (HUF) (supra). In Manjet Singh (HUF) Karta Manjeet Singh’s case (supra), the Punjab and Haryana High Court has chosen to place reliance upon various decisions of the Supreme Court rendered during the period 1964 to 1997 and has chosen to brush aside the subsequent decision of the Supreme Court in Ghanshyam (HUF)’scase (supra) which is directly on the issue by observing that the assessee cannot derive any benefit from the observations made by the Supreme Court as quoted therein. In Hari Kishan’s case (supra), the Punjab and Haryana High Court has placed reliance upon its earlier decision in the case of Manjet Singh (HUF) Karta Manjeet Singh (supra). In Bir Singh (HUF)’s case (supra), the Punjab and Haryana High Court has held that under the scheme of the 1894 Act, interest under section 34 is part of compensation while interest under section 28 is not the interest which partakes the character of compensation and is treated differently. In the opinion of this court, the above view of the Punjab and Haryana High Court is contrary to what has been held in the decision of the Supreme Court in Ghanshyam (HUF)’s case (supra) wherein it has been held that interest under section 28 unlike interest under section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under section 34 of the 1894 Act. This court is in agreement with the view adopted by the Punjab and Haryana High Court in Jagmal Singh’s case (supra), which has been extensively referred to in paragraph 4.1 above. The decision of the Delhi High Court in Sharda Kochhar’s case (supra), having been rendered in the context of a different controversy would have no applicability to the facts of the present case.

13. The upshot of the above discussion is that since interest under section 28 of the Act of 1894, partakes the character of compensation, it does not fall within the ambit of the expression “interest” as contemplated in section 145A of the I.T. Act. The first respondent – Income Tax Officer was, therefore, not justified in refusing to grant a certificate under section 197 of the I.T. Act to the petitioner for non-deduction of tax at source, inasmuch as, the petitioner is not liable to pay any tax under the head “income from other sources” on the interest paid to it under section 28 of the Act of 1894.

14. The petitioner had earlier challenged the communication dated 9th February, 2015 whereby its application for a certificate under section 197 of the I.T. Act had been rejected, and subsequently, tax on the interest payable under section 28 of the Act of 1894 has already been deducted at source. Consequently, the challenge to the above communication has become infructuous and hence, the prayer clause came to be modified. However, since the amount paid under section 28 of the Act of 1894 forms part of the compensation and not interest, the second respondent was not justified in deducting tax at source under section 194A of the I.T. Act in respect of such amount. The petitioner is, therefore, entitled to refund of the amount wrongly deducted under section 194A of the I.T. Act.

15. For the foregoing reasons, the petition succeeds and is accordingly allowed. The second respondent having wrongly deducted an amount of Rs. 2,07,416/- by way of tax deducted at source out of the amount of Rs. 20,74,157/- payable to the petitioner under section 28 of the Act of 1894 and having deposited the same with the income-tax authorities, taking a cue from the decision of the Punjab and Haryana High Court in Jagmal Singh’s case (supra), the first respondent is directed to forthwith deposit such amount with the Reference Court, which shall thereafter disburse such amount to the petitioner herein. Rule is made absolute accordingly with costs.

Dr. K. Shivram for the Appellant. N.P. Singh for the Respondent.

ORDER

R.C. Sharma, Accountant Member – These are the appeals filed by the assessee against the order of CIT, Mumbai, for the assessment years 2010-11 & 2011-2012, in matter of order passed u/s.263 of the I.T. Act.

2. In both these appeals common grievance of assessee relates to CIT’s direction to subject the reimbursement of bank guarantee commission u/s.194A @10%, in place of deduction done by the AO u/s.194C @2%.

3. Rival contentions have been heard and record perused. Facts in brief are that the assessee company is engaged in the business of broadcasting. It has two channels namely Neo Cricket and Neo Sports. The assessee(NEO) is a step-down subsidiary of Zenith Sports Pvt. Ltd., a subsidiary of Nimbus Communication Ud.(NCL), the main company of the Nimbus Group. The group is engaged in the business of acquiring telecast rights of BCCl’s Cricket matches, apart from IPL, being organized in India and broadcasting the same through two of its sports channels namely Neo Sports(exclusively within Indian territory) and Neo Cricket (lndia as well as its neighbouring countries). The NCL has acquired the telecast rights from BCCI in respect of cricket matches played in India for which as per terms of agreement between BCCI and NCL, NCL was under obligation to provide for the Bank Guarantee to BCCI for Rs.2000 Crore. To secure this, NCL has been paying Bank Guarantee Commission (BGC) to various banks year after year as per agreed terms. NCL has entered into another agreement with the assessee (NEO) for telecast of the cricket matches for which NCL has set a condition that 80% of the BGC has to be reimbursed to it by the assessee. Accordingly during the F.Y.2009-10 relevant to A.Y.2010-2011 the assessee reimbursed Rs.21,31,28,582/- to Nibus Communication Limited(NCL). No tax has been deducted at source on these payments by the assessee. In order passed u/s.201(1)/201(1A) dt.18.03.2012, ITO(TDS)-2(4) treated that these payments are subject to TDS u/s.194C and passed order accordingly. However, the CIT did not accept the provisions of Section 194C invoked by the AO and held that payment of bank guarantee commission was in the nature of interest, therefore, assessee was liable for deduction of tax at source @10% u/s.194A. As per CIT, the order passed by AO was erroneous as well as prejudicial to the interest of revenue. Against this order of CIT u/s.263, the assessee is in further appeal before us.

4. It was argued by ld. AR Dr. K.Shivram that the AO after analyzing the nature of payment had applied the relevant provisions of law and made the assessee liable for payment of TDS u/s.194C. As per ld. AR if two views are possible revision cannot be done and for this purpose he placed reliance on the decision of Hon’ble Supreme Court CIT v. Max India Ltd. [2007] 295 ITR 282 (SC), Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) & CIT v. Fine Jewellery (India) Ltd. [2015] 372 ITR 303  (Bom.). He further contended that provisions of Section 194 is not applicable because there was no element of profit for the reimbursement so made. For this purpose he placed reliance on the decision of Hon’ble Bombay High Court reported at 375 ITR 364 (sic). In support of the proposition that bank guarantee commission is not in the nature of interest, he placed reliance on the decision of Hon’ble Delhi High court in the case reported at 355 ITR 94 (sic).

5. Ld. AR further placed reliance on the decision of the Mumbai Tribunal in the case of Kotak Securities Ltd. in support of the proposition that no TDS is required to be deducted in case of payment of bank guarantee commission to the bank, since the payment of commission was not principal to agent but was on principal to principal basis. Reliance was also placed on the decision of Mumbai Tribunal in the case of Holding Company ITO v. Nimbus Communications Ltd. [IT Appeal No.3156&3157 (Mum.) of 2014, order dated 6-11-2015], wherein the Tribunal held that no TDS is required to deduct tax on such bank guarantee commission and the AO was wrong in applying provisions of Section 201(1)&201(1)A of the Act.

6. On the other hand, ld. CIT DR contended that incorrect interpretation of law and facts by the AO renders the order of AO erroneous as well as prejudicial to the interest of revenue, therefore, the CIT was justified in invoking his power u/s.263. He placed reliance on the order of Hon’ble Madras High Court in the case of Viswapriya Financial Services & Securities Ltd. v.CIT [2002] 258 ITR 496 in support of the proposition that any charges paid for services rendered is coming under the definition of the interest u/s.2(28A), accordingly CIT has correctly held that assessee was required to deduct tax on such bank guarantee commission u/s.194A.

7. We have considered rival contentions, carefully gone through the orders of authorities below and deliberated the judicial pronouncements cited by ld. AR and DR as well as relied on by the lower authorities in their respective orders. From the record we found that an agreement was entered between assessee Neo Sports Broadcast Private Limited (Neo) and Nimbus Communications Limited (NCL) for transfer of media rights of BCCI matches. It was agreed that New Shall reimburse NCL 80% of the cost incurred in providing Bank Guarantee to BCCI and thereby to the extent of 80% of Bank Guarantee was joint and several liability, primarily of assessee, who had acquired the rights from NCL and secondary liability was of NCL who had acquired rights from BCCI. BCCI was concerned with the Bank Guarantee for the media rights fees to be received from NCL/Neo. It is not the case that NCL has given any guarantee to BCCI for and on behalf of Neo. NCL has received the reimbursement of the Bank Guarantee Commission (BGC) paid to the Banks from Neo towards its 80% share. We found that only one bank Guarantee was taken jointly by Neo and NCL which was given to BCCI and there is BGC payment to banks either by NCL directly to the extent of 20% or by Neo directly to the banks to the extent of 80%. In case BGC payment is first made by NCL to the banks, 80% of BGC is reimbursed by Neo to NCL. We found that AO has dealt with the issue very elaborately and after taking into consideration the provisions of Section 194H and 194C came to the conclusion that assessee was liable to deduction of tax on the reimbursement of bank guarantee u/s.194C of the Act.

8. As regards applicability of TDS provisions, not two but three views exist on the impugned issue – (i) TDS u/s 194H – which was discussed by AO in the assessment order dt. 18/3/2012; TDS u/s 194C – which was discussed and upheld by AO in the assessment order dt. 18/3/2012; TDS u/s.194A – (which the assessee does not agree with) and not sought to be taken by CIT. Revision of order u/s 263 cannot be done if two views are possible on the issue. Hon’ble Supreme Court in the case of Max India Ltd. (supra) held as under :—

“The phrase ‘prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopts one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law.”

Hon’ble Supreme Court in the case of Malabar Industrial Co.Ltd. (supra) held as under :—

In case of a debatable issue on which more than one plausible view is reasonably possible and if Assessing Officer takes one plausible view, it cannot be said that assessment is erroneous or prejudicial to interest of revenue.”

In the case of Grasim Industries Ltd. v. CIT [2010] 321 ITR 92  (Bom.), it has been held as under :–

“If the Assessing Officer has taken a possible view, it cannot be said that the view taken by him is erroneous nor the order of the Assessing Officer in that case can be set aside in revision. It has to be shown unmistakably that the-order of the Assessing Officer is unsustainable. Anything short of that would not clothe the Commissioner with jurisdiction to exercise power under section 263.”

9. With regard to CIT’s contention that bank guarantee commission is in the nature of interest, therefore, the AO was required to deduct tax u/s.194A, we found that as per CBDT Notification No.56, no tax is required to be deducted on various commission paid to the bank including bank guarantee under any provisions of Income Tax Act. It is a matter of record that Neo has not obtained any services from NCL and in no circumstances it can be treated as interest within the definition of section 2(28A) of the Income Tax Act, 1961. Furthermore, the ultimate beneficiary of bank guarantee commission (name itself suggests guarantee commission paid to the banks) is Bank and it cannot be treated as BGC paid to NCL since NCL has not provided any guarantee for and on behalf of Neo to any third party or BCCI. The provisions of Section 194A are not applicable on any payment made to any baking company to which the Banking Regulation Act, 1949 applies as in the case of assessee, the payment reimbursed to NCL towards BGC is what is paid by NCL to Banks. The case law relied on by the ld. DR is not applicable to the facts of the instant case, insofar as the assessee has not taken any loan or deposit from the investors. In case decided by Hon’ble Madras High Court in the case of Viswapriya Financial Services & Securities Ltd. (supra), the assessee was required to pay 1.5% to the investors, which was held by the Hon’ble High Court as subject to deduction of tax u/s.194A.

10. Section 194A(1) is applicable only to “income by way of interest”. However, the impugned transaction is that of reimbursement of bank guarantee commission and does not involve payment of interest. There is no borrowing whatsoever. “Interest” as per sec. 2(28A) means “interest payable … in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred … ” In the case of CIT v. Cargill Global Trading (I.) Co. (P.) Ltd. [2011] 335 ITR 94 (Delhi), Hon’ble Delhi High Court held as under :–

“It is clear from the provisions of section 2(28A) that before any amount paid is construed as interest, it has to be established that the same is payable in respect of any money borrowed or debt incurred. In the instant case, on the aforesaid facts appearing on record, the Tribunal rightly held that the discounting charges paid were not in respect of any debt incurred or money borrowed, instead, the assessee had merely discounted the sale consideration respectively on sale of goods.”

CBDT Circular No. 202 dt. 5/7/1976 – [1976J 105 ITR (St.) 17, pg. 24 para 12.1, provides that :-

“Definition of interest u/s 2(28A) covers “interest payable in any manner in respect of loans, debts, deposits, claims and other similar rights or obligations. This definition will be applicable for all purposes of the Income-tax Act.”

11. CBDT circulars are binding on the Revenue. Therefore, Department cannot invoke provisions of sec. 194A r.w.s. 2(28A) to the impugned transaction which does not relate to loans, deposit, money etc. as held by Hon’ble Supreme Court in the case of UCO Bank v. CIT [1999] 237 ITR 889

12. In the instant case, there is no money borrowed or debt incurred. Therefore, provisions of sec. 2(28A) and sec. 194A do not apply. Payment made to NCL is not “income by way of interest”. The impugned receipt would be in the nature of reimbursement of expenses incurred by it. In view of the above discussion, we do not find any merit in the order passed u/s.263 in respect of one of the possible view taken by the AO. Even on merit, we found that bank guarantee commission does not come under the purview of interest so as to make assessee liable for TDS u/s.194A.

13. In the result both appeals of the assessee are allowed.