TMI Blog2017 (5) TMI 1737X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2015 as amended the provisions of section 40(a)(ia) w.e.f. 01.04.2015 though the Finance Minister explained the amendment that earlier disallowance of 100% of such expenditure has caused undue hardship to the assessee particularly where the rate of taxes only 1% to 10%. Therefore, only 30% of such payment instead of 100% will be disallowed. In the explanatory memorandum, the reasons were also given of reducing the hardship. However, it was stated that these amendment will take effect from 1st April, 2015 and accordingly apply for A.Y. 2015-16 onwards. We are not inclined to accept the contention of the Ld. AR that rate of disallowance reduced from 100% to 30% of the expenditure by the Finance Act, 2014 applies retrospectively -In the result this contention of assessee is rejected and we hold that amendment to section 40(a)(ia) with effect from 1-4-2015 of reduction in rate of disallowance coupled with the increase in scope of the disallowance is not retrospective in nature. Disallowance u/s. 40(a)(ia) should have if at all been restricted to the amount remaining payable at on the last date of the previous year - We have come across the recent decision in M/s. Palam Gas Servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rohit Jain, Adv. and Deepashree Rao, C.A. For Respondents: U.C. Dubey, Sr. D.R. ORDER Prashant Maharishi, 1. This miscellaneous application is filed by the assessee in ITA No. 5636/Del/2011 for the Assessment Year 2007-08 briefly narrating the error in the order of the Tribunal as under:-- 'Re: Modified Grounds of Appeal Nos. 6.7 to 6.9-- In these grounds of appeal, the applicant had challenged disallowance of ₹ 505,47,21,495 under section 40(a)(ia), being the amount of free airtime given to distributors on sale of prepaid sim-cards, by holding the same to be in the nature of 'commission' liable for deduction of lax at source under section 194H of the Act. In the original order dated 11.03.2014, the Hon'ble Tribunal, while dismissing the aforesaid grounds of appeal raised by the applicant, primarily relied on the decision of the Hon'ble Delhi High Court in the case of CIT v. Idea Cellular Limited 325 ITR 148 and concluded [2010] 189 Taxman 118 that the payments made by the applicant to the distributors was in the nature of 'commission' and therefore, tax was required to be deducted at source under section 194H of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ify and allow relief only to the extent of amount(s) on which tax was ultimately paid/deposited by the recipient(s). The relevant finding of the Tribunal is reproduced as under: 15. ** ** **. It is also been submitted by the Ld. AR that in all past years no such disallowances have been made or it has been held by the revenue that tax is required to be deducted on such discount on prepaid products sold to its distributors. In view of the divergent views of the Hon'ble High Courts and coordinate benches we are of the view that no fault can be found with the assessee in not deducting the tax at source on the above discount as held by the Hon'ble Bombay High Court. Hon'ble Bombay High Court has also held so for the reason that there is no loss to the revenue as presumably the recipient of income has discharged its tax liability. Therefore respectfully following the decision of the Hon'ble Bombay High Court in CIT versus Kotak securities Limited (supra) we also hold that disallowance under section 40(a)(ia) cannot be made in this case in view of the old practice of not deductions tax at source which has been accepted by the revenue and existence of bona fide belie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same paragraph of the judgment, reproduced below: In any event, in the facts of the present case, in view of the undisputed decade old practice, the assessee had bona fide reason to believe that the tax was not deductible al source under section 194J of the Act and, therefore, the Assessing Officer was not justified in invoking section 40(a)(ia) of the Act and disallowing the business expenditure by way of transaction charges incurred by the assessee.... (Emphasis Supplied) On perusal of the above extracts, it may be noted that the Court has, by way of a categorical finding, allowed relief to the assessee solely on the ground of bona fide belief regarding non-deduction of tax at source out of the payment in question. Pertinently, the aforesaid decision of the High Court has subsequently been followed by various co-ordinate Benches of the Tribunal, wherein relief has been allowed only on the ground of bona fide belief without any further caveat/condition for verification of payment of taxes by the recipient of income. In view of the aforesaid, it is submitted that while accepting the decision of the Hon'ble Bombay High Court in Kotak Securities (supra) in princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... junctive reliefs, viz. the applicant had claimed that no tax is required to be deducted at source under section 194H with respect to sale of pre-paid cards in view of the bona fide belief of the applicant that such transaction did not attract the mischief of the said section: failing which, it was alternatively claimed that no disallowance under section 40(a)(ia) of the Act could be sustained in view of the fact that the payees had paid tax on their income, including income received from the applicant. The Hon'ble Tribunal has while dealing with the aforesaid disjunctive reliefs vide separate paragraphs forming part of overall paragraph 15 of the appellate order, inadvertently directed in the first part of para 15 that the relief on account of bona fide belief was subject to verification that the payees had paid tax on their income, which was as pointed out earlier, even otherwise, not in consonance with the decision of the Hon'ble Bombay High Court accepted and relied upon by the Hon'ble Tribunal. In view of the aforesaid, it is respectfully prayed that paragraph 15 of the order dated 24.10.2016 may kindly be modified, by deleting the sentence beginning with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted and adjudicated by the Hon'ble Tribunal for assessment year 2008-09 in ITA No. 5816/Del/2012 vide order dated 11.03.2014. The relevant extracts are reproduced hereunder for ready reference: 79. Having heard the rival contentions on this petition, we are inclined to admit the additional ground of appeal as it is purely a legal issue as to whether or not the liability borne by the assessee, under section 201 and which is not recovered from the recipients of payments without deduction of tax at source, is deductible in computation of assessee's income. However, as it involves factual verifications, we are not inclined to deal with the same, on merits, at this stage. We, therefore, deem it fit and proper to remit this issue to file of the Assessing Officer to adjudication de novo, by way of a speaking order, in accordance with the law and after giving a fair and reasonable opportunity of hearing to the assessed. The assessee is directed to make all such legal and factual submissions on this aspect, as he may deem appropriate, and the Assessing Officer shall adjudicate on the same by specifically dealing with the same by way of a speaking order. We direct so. 80. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stake apparent from record. Therefore, we reject the contention of the Ld. DR. As the substantial arguments have already been recorded exhaustively in the order of the bench and no further facts are required to be adduced by either party, instead of recalling the order for deciding merely the contentions and the additional ground, we proceed to decide the issue on merit itself. 4. The first contention of the assessee is that Hon'ble Bombay High Court in case of CIT v. Kotak Security Ltd. [2012] 340 ITR 33/20 taxmann.com 846 has held that disallowance u/s. 40(a)(ia) of the Act was not at all warranted as the applicant was under bona fide belief that tax was not deductible at source. The Hon'ble Bombay High Court in para No. 31 has stated that if both the parties for nearly a decade proceeded on the footing that section 194J of the Act is not attracted then in the assessment year in question no fault can be found with the assessee in not deducting the tax at source u/s. 194J of the Act and consequently no action could be taken u/s. 40(a)(ia) of the Act. The similar facts are also in the case of the assessee as it is undertaking similar transactions of sales of prepaid sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that above proviso inserted by the Finance Act, 2012 can be said to be declaratory and curative in nature and therefore, should be given retrospective effect from 1-4-2005. No other contrary decision was pointed out by the learned departmental representative. In view of this we accept the argument of the assessee that the 2nd proviso inserted by the Finance Act, 2012 should be given retrospective effect from 01/04/2005. Therefore this argument of the appellant is also set aside to the file of the Ld. Assessing Officer with a direction to give the benefit of the above proviso to the appellant in case the 1st contention of bona fide belief of the assessee does not survive on any amount. 5. The second contention of the assessee was with respect to alternative plea that disallowance, if any, for non-deduction of tax should be restricted to 30% of the expenditure. The claim of the assessee was that Finance Act, 2014 has amended the provisions of section 40(a)(ia) to restrict the disallowance for non-deduction of tax at source to the extent of 30% of the expenditure. Contention of the assessee has been recorded at page Nos. 28 to 31 of the order. We have carefully considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive applicability does not apply in the present case as both provisions are not comparable. (e) Impugned amendment has two effects, it increases the scope of the nature of payments covered for disallowance as well as reduction in the rates of disallowances. From one side it increases the burden on the assessee and from other side it reduces the rates of disallowances. Both the above provision are inseparable. For this reason we are guided by the decision of Honourable supreme court in case of CIT v. Vatika Township (P.) Ltd. [2014] 367 ITR 466/227 Taxman 121/49 taxmann.com 249 (SC) where in para Nos. 32-34 it has been held as under:-- 32. The obvious basis of the principle against retrospectivity is the principle of 'fairness', which must be the basis of every legal rule as was observed in the decision in L' Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. [1994] 1 AC 486. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors. (f) Further, the legislature itself has made it applicable from A.Y. 2015-16. In the result this contention of assessee is rejected and we hold that amendment to section 40(a)(ia) with effect from 1-4-2015 of reduction in rate of disallowance coupled with the increase in scope of the disallowance is not retrospective in nature, and 7. The next argument of the assessee was that disallowance u/s. 40(a)(ia) should have if at all been restricted to the amount remaining payable at on the last date of the previous year. The argument of the assessee is recorded at para No. 7 at page No. 10 to 16 of the order. We have carefully considered the rival contentions, however we have come across the recent decision of the Hon'ble Supreme Court in case of M/s. Palam Gas Services v. CIT in Civil Appeal No. 5512/2017, dated 03.05.2017, wherein Hon'ble Supreme Court has held that disallowance u/s. 40(a)(ia) cannot be restricted to amount payable at the end of the year only but also applies to the amount paid during the year also. In view of this, above argum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will not be allowed as deduction. 43. Therefore, it follows that there should be sum paid by assessee on which tax was deductible at source under Chapter XVIIB before 40(a)(ia) could come into play. Admittedly in the case of assessee, it has been held that the provisions of section 194H as well as provisions of section 194J are not attracted and therefore, there was no amount on which tax was deductible. Therefore, section 40(a)(ia) cannot come into play. The machinery provisions cannot operate independently and before the computation provisions contained in section 40(a)(ia) can come into the play, the effect of applicability of machinery provision has to be considered. 44. Now, if we accept the submissions advanced by Ld. CIT (DR) that the provisions of section 40(a)(ia) and provisions of section 201 operate in two independent fields then it would lead to contradictory findings by Tribunal for the same assessment year in respect of the same subject matter and issue. Had there been no decision of Tribunal in assessee's own case for the same assessment year, then in view of the decision of Hon'ble Jurisdictional High Court in the case of Idea Cellular Ltd. (supra) de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that in case if the amount is disallowed u/s. 40(a)(ia) of the Act, does it prohibit the Ld. Assessing Officer in recovering the tax and interest from the assessee by passing an order u/s. 201 of the Act. The obvious answer is No. (c) The second proviso to section 40(a)(ia) of the Act inserted with effect from 1.4.2013 by the Finance Act, 2012 also visualizes a situation that when the assessee is not 'deemed to be in default' u/s. 201 of the Act, and if the payee has filed the return, the disallowance u/s. 40(a)(ia) shall not be made. In view of this we do not agree with the contention of the assessee that unless there is an order u/s. 201 of the Act the impugned amount cannot disallowed u/s. 40(a)(ia) of the Act. 10. The next contention of the assessee is that additional ground of appeal admitted has not been adjudicated. The additional ground raised by the assessee is as under:-- That in the facts and circumstances of the case and in law, the assessee ought to be allowed deduction of liability borne by the assessee in pursuance of order(s) passed under section 201(1) of the Income-tax Act, 1961. ('the Act) 11. The assessee has submitted that similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before various appellate authorities. Further, part of the amount of tax demanded pursuant to orders passed under section 201 of the Act has, it is submitted, been paid by the applicant in various assessment years, without any admission of the liability to deduct tax at source, in the larger business interest, strictly in the capacity as a trader, in order to avoid any forceful/coercive steps by the Department. In the aforesaid circumstances, the applicant should be held entitled to deduction of the demands crystallized and/or paid during the year under consideration pursuant to orders passed under section 201 of the Act. In view of the aforesaid, it is respectfully prayed, that the amount of tax liability accrued/borne by the applicant in pursuance of the orders passed under section 201(1), should be directed to be considered for allowance as business deduction under sections 28/37 of the Act. Prayer: The aforesaid issue of allowability of payment of tax liability accrued/borne in pursuance of orders passed under section 201(1) of the Act is, it is submitted, purely a legal issue, and facts in relation to the same are already available on record. The additional ground of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
