Deputy Commissioner of Income Tax (Intl Taxn) Circle-1(1), Bangalore M/s Coffeeday Enterprises Limited , Bangalore

This Income Tax Appellate Tribunal case involves an appeal by the Deputy Commissioner of Income Tax against an order concerning M/s. Coffee Day Enterprises Ltd. The core issue revolves around when interest liability and the corresponding tax withholding obligation arose for the financial year 2011-12. The Revenue argued that interest accrued in FY 2010-11, making the tax deduction due in that year, while the CIT(A) had determined the liability fell within FY 2011-12.

IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCHES, BANGALORE

BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT
AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER

ITA No.2931/Bang/2018 & C.O. No. 42/Bang/2019
(Assessment Year : 2011-12)

Deputy Commissioner of Income-tax,
Intl. Taxn., Circle-1(1), Bengaluru
PAN AAACT 5435F ….Appellant

Vs.

M/s. Coffeeday Enterprises Ltd.,
No.23/2, Coffeeday Square, Vittal Mallya Road,
Bangalore-560 001.
PAN:
……Respondent.

Assessee By: Shri C. Ramesh, CA
Revenue By: Shri Muzzaffar Hussain, CIT (D.R)
Date of Hearing : 24.11.2020
Date of Pronouncement : 16.12.2020.

O R D E R

PER SHRI CHANDRA POOJARI, AM :

The appeal filed by the Revenue is directed against the order of the CIT(A) dated 12/04/2018. The assessee has filed Cross Objection in C.O. No.42/Bang/2019. The relevant assessment year is 2011-12.

2. The Revenue has raised the following grounds of appeal:

1. The Ld. CIT(A) erred in holding that the interest was due on 30/01/2011and the liability of interest payment arose in FY 2011-12and not in FY 2010-11. The CIT(A) should have appreciated the facts that as per theagreement entered by the assessee company with M/s. Arduino HoldingsLimited on 27/03/2010, the assessee company was required to pay interest at7% per annum for 2 years from the date of issue and allotment of CCDs i.e.from 27.03.2010. Hence, as per the agreement, it was clear that interestaccrued for the period 27.03.2010 to 27.03.2011(i.e. for FY 2010-11), was tobe payable on 30.04.2011which means the interest accrued for FY 2010-11 was payable in FY 2011-12. This was wrongly construed by the CIT(A) as interest accrued for and payable in FY 2011-12.

2. The Ld. CIT(A) erred in not appreciating that as per the provisions of section 195 of the I.T. Act, the liability to withhold tax arises at the time ofcredit of interest income to the account of the payee or at the time of payment whichever is earlier. In the present case, the assessee company was required to pay interest for the FY 2010-11and hence the expenditure has accrued for the assessee (as per the agreement) and hence the liability to deduct also has accrued in FY 2010-11. Just because the payment/credit was not paid till 31.03.2011, this does not absolve the assessee’s responsibility of deducting the taxes on interest accrued which was to be paid.

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