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2013 (10) TMI 17 - HC - Income TaxDisallowance u/s 40(a)(i) for Non TDS – method of accounting - validity of circular - whether circular issued u/s 119 is contrary to section 145 - under the circulars, payments made in form of a commission or discount to the foreign party was not chargeable to tax in India under Section 9(1)(vii) - Held that:- Circular aided in uniform and proper administration and application of the provisions of the Act - The respondent-assessee was entitled to rely upon the circulars. In light of the judgments of the Supreme Court in CIT versus Eli Lilly Company (India) Private Limited, [2009 (3) TMI 33 - SUPREME COURT] and G.E India Technologies Centre Private Limited versus CIT, [2010 (9) TMI 7 - SUPREME COURT OF INDIA], once the income was not exigible or chargeable to tax, TDS was not required to be deducted. Money paid to the third parties, who did not have any office or permanent establishment in India, was exempt and not chargeable to tax. Thus on payments or income, TDS was not required to be deducted - Payments in question were made prior to circular No. 7/2009. On this aspect, there is no dispute – Deleted the addition made by the Assessing Officer under Section 40(a)(i) of the Act. The appeal, being devoid of merit, is dismissed – Decided against the Revenue. Mandatory nature of Circular – Held that:- No any inconsistency or contradiction between the circular issued and Section 145 of the Income Tax Act - In fact, the circular clarifies the way in which these amounts are to be treated under the accounting practice followed by the lender. The circular, therefore, cannot be treated as contrary to Section 145 of the Income Tax Act or illegal in any form. It is meant for a uniform administration of law by all the Income Tax Authorities in a specific situation and, therefore, validly issued under Section 119 of the Income Tax Act. As such, the circular would be binding on the Department. Relying upon the decision in the case of Catholic Syrian Bank Limited versus Commissioner of Income Tax, [2012 (2) TMI 262 - SUPREME COURT OF INDIA], it has been observed that the Central Board of Direct Taxes has statutory right to issue circulars under Section 119 of the Act to explain or tone down the rigours of law and to ensure fair enforcement of the provisions. Circulars issued have force of law and are binding of the Income Tax authorities though they cannot be enforced adversely against the assessee - Normally these circulars cannot be ignored. Thus a circular may not override or detract from the provisions of the Act but can seek to mitigate the rigour of a particular provision for the benefit of an assessee in specified circumstances
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