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2015 (6) TMI 123 - ITAT KOLKATA

2015 (6) TMI 123 - ITAT KOLKATA - [2015] 43 ITR (Trib) 687 (ITAT [Kolk]) - Disallowance of interest for non-deduction of TDS u/s. 194A invoking the provision of section 40(a)(ia) - Held that:- In order to provide clarity regarding discharge of tax liability by the resident payee on payment of any sum received by him without deduction of tax, it proposed to amend section 201 to provide that the payer who fails to deduct the whole or any part of the tax on the payment made to a resident payee shal .....

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by the resident payee shall be deemed to be the date on which return has been furnished by the payer.It is also proposed to provide that where the payer fails to deduct the whole or any part of the tax on the payment made to a resident and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the such resident, the interest under section 201(1A)(i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of in .....

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taxes by the payee, the, for the purpose of allowing deduction of such sum, it shall be deemed that the assessee had deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee. These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

The insertion of second proviso to sec. 40(a)(ia) of the Act is curative and it has retrospective effect .....

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ct argued by Ld. counsel is restored back to the file of the AO and assessee will provide all the details in terms of second proviso to sec. 40(a)(ia) of the Act. - Decided in favour of assesse for statistical purposes.

Disallowance of expenses - Held that:- The disallowances were made by the AO and confirmed by CIT(A) on the above disallowances @ 20% is excessive, thus the disallowances be restricted @ 10% of the expenses. - I.T.A. No.1905/Kol/2014 - Dated:- 4-3-2015 - Shri Mahavir S .....

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this appeal of assessee is against the order of CIT(A) confirming the disallowance of interest for non-deduction of TDS u/s. 194A of the Act by invoking the provision of section 40(a)(ia) of the act by the AO. For this, assessee has raised following ground nos. 1 to 4: 1. For that in view of the facts & circumstances the C.I.T.(Appeals) - XXXVI, Kolkata erred in law in confirming the disallowance of interest of ₹ 91929/- u/s 194A, for failure of the appellant to deduct tax at source o .....

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hout prejudice, the C.I.T.(A) erred in law in confirming the disallowance of interest of ₹ 91929/- in the spirit of instruction no. 275/201l95-IT(B) dated 29/0111997 issued by CBDT and approved by Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd [2007] 293 ITR 226 according to which the appellant cannot be forced to deduct tax at source if there is no tax liability in the hands of payee. This intent of law duly found it's place in the statute book by way o .....

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dments made to section 43B by Hon ble Supreme Court in the case of Allied Motors (P) Ltd. Vs. CIT (1997) 224 ITR 677 and CIT Vs. Alom Extrutions Limited (2009) 319 ITR 306. 3. Brief facts relating to above grounds of appeal are that the Assessing Officer during the course of assessment proceedings made a disallowance of interest paid by the assessee at ₹ 91,929/- by invoking the Section 40(a)(ia) of the Act for non-deduction of TDS u/s 194A of the Act. Aggrieved, assessee preferred appeal .....

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ee cannot be forced to deduct TDS if there is no tax liability in the hands of loan creditors. Ld. counsel for the assessee also argued that in view of the second proviso to Sec. 40(a)(ia) of the Act as inserted by the Finance Act 2012 with effect from 1-4-2013, which is retrospective, the assessee is not liable to deduct TDS. But the CIT(A) confirmed the action of the AO vide para 3.3 and 3.4 as under:- 3.3 Appellant s submission and facts available on record is carefully considered. In the pre .....

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loan being taken in individual capacity for non-business purposes, no expenditure could have been claimed for interest paid on such loan. 3.4 As regards assessee s other plea that no tax could be deducted, as the recipient of interest has paid tax on interest received, no such evidence of payment of tax by the recipient was produced. Appellant s submissions that as tax was paid by persons directly on receipts, where tax was not deducted, placing reliance on decision of the Hon'ble Supreme C .....

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O had correctly disallowed interest expense claimed, due to non-deduction of tax u/s. 194A as per the provisions of section 40(a)(ia) of the IT Act. The appeal made on this ground is dismissed. Aggrieved, assessee preferred second appeal before Tribunal. 5. I have heard rival contentions and gone through the facts and circumstances of the case. I find from first argument made by Ld. counsel for the assessee that the second proviso to section 40(a)(ia) of the Act inserted by the Finance Act, 2012 .....

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his income, no recovery of any tax can be made from the person who had failed to deduct the income tax at source from such amount. In Grindlays Bank v CIT, (1992) 193 ITR 457 (Cal) decided on September 5, 1989, it was held by the Hon'ble Calcutta High Court as follows at pages 469-470 of the reports: A point has been made by the assessee that as a result of this deduction the department is realizing the tax twice on the same income. It does not appear that this point was agitated before the .....

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sis supplied) That such was the legal position was accepted by the Central Board of Direct Taxes in its Circular No.275/201/95-IT(B) dated January 29, 1997. Reference in this behalf may also be made to the judgment of the Hon'ble Supreme Court in Hindustan Coca Cola Beverage P. Ltd. v CIT, (2007) 293 ITR 226 (SC) where the same view was taken. I find that the aforesaid settled position in law has also been legislatively recognized by insertion of a proviso in sub-section (1) of section 201 o .....

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d by the Finance Act, 2010, which has been held to be curative and therefore, retrospective in its operation by the Hon'ble Calcutta High Court in ITAT No. 302 of 2011, GA 3200/2011, CIT v Virgin Creations decided on November 23, 2011 provides for allowance of the expenditure in any subsequent year in which tax has been deducted and deposited. The intention of the legislature clearly is not to disallow legitimate business expenditure. The allowance of such expenditure is sought to be made su .....

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ia) by the Finance Act, 2012. There can be no doubt that the second proviso was inserted to supply an obvious omission and make the section workable. The insertion of second proviso was explained by Memorandum Explaining The provision in Finance Bill, 2012, reported in 342 ITR (Statutes)234 at 260 & 261, which reads as under:- E.RATIONALIZATION OF TAX DEDUCTION AT SOURCE (TDS) AND TAX COLLECTION AT SOURCE (TCS) PROVISIONS I. Deemed date of payment of tax by the resident payee. Under the exis .....

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ort deduction of tax only in cases where the payee has also failed to pay the tax directly. Therefore, the deductor cannot be treated as assessee in default in respect of non/short deduction of tax if the payee has discharged his tax liability. The payer is liable to pay interest under section 201(1A) on the amount of non/short deduction of tax from the date on which such tax was deductible to the date on which the payee has discharged his tax liability directly. As there is no one-to-one correl .....

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201 to provide that the payer who fails to deduct the whole or any part of the tax on the payment made to a resident payee shall not be deemed to be an assessee in dealt in respect of such tax if such resident payee- (i) Has furnished his return of income under section 139 ; (ii) Has taken into account such sum for computing income in such return of income ; and (iii) Has paid the tax due on the income declared by him in such return of income, and the payer furnishes a certificate to this effect .....

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the date on which such tax was deductible to the date of furnishing of return of income by such resident payee. Amendments on similar lines are also proposed to be made in the provisions of section 206C relating to TCS for clarifying the deemed date of discharge of tax liability by the buyer or lincensee or lessee. These amendments will take effect from 1st July, 2012. II. Disallowance of business expenditure on account of non-deduction of tax on payment to resident payee. A related issue to th .....

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n 40(a)(ia) to provide that where an assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, the, for the purpose of allowing deduction of such sum, it shall be deemed that the assessee had deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee. These beneficial provisions are pr .....

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C). Hon'ble Supreme Court in the case of Allied Motors (P) Ltd. (supra) held that the first proviso, which was inserted w.e.f. 01.04.1988 by the Finance Act, 1987 is remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation. Hon'ble Supreme Court held as under: Section 43B was, therefore, clearly aimed at curbing the activities of those taxpayers, who did not d .....

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tax within the statutory period prescribed for this payment, although the payment so made by them did not fall in the relevant previous year. This was because the sales tax collected pertained to the last quarter of the relevant accounting year. It could be paid only in the next quarter which fell in the next accounting year. Therefore, even when the sales tax had in fact been paid by the assessee within the statutory period prescribed for its payment and prior to the filing of the income tax r .....

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a specific situation. 7. Recently, Hon'ble Supreme Court in the case of CIT v. Vatika Township P. Ltd., (2014) 367 ITR 466 (SC) has held as under: We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such b .....

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doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are confronted with any such situation here. In such cases, retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability w .....

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construction appears very clearly in the terms of the Act or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors. I find that the Hon'ble Supreme Court interpreted the retrospectivity that an amendment made to a taxing statute can be said to be intended to remove hardships only of the assessee, not of the Department. Where benefit is conferred by legislation, the rule against retrospec .....

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'ble Supreme Court, where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. Similarly, as argued by Ld. counsel for the assessee in the present case before me, that the insertion of 2nd proviso by the Finance Act, 2012 is remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the assessee. 8. Further, Special Bench of this Tribunal in Bharti Auto Prod .....

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) of the Act. But the question whether second proviso to section 40(a))(ia) of the Act was curative did not fall for consideration of the Hon'ble Calcutta High Court in CIT v. Crescent Exports Syndicate (2013) 216 taxman 258 (Cal). In that case the following submission was made on behalf of one of the assessees:- 5. Ms. Roy Chowdhury, learned Advocate appearing for the assessee-respondent in ITAT No. 20 of 2013 reiterated the reasons advanced by the Special Bench in the case of Merilyn Shipp .....

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₹ 100 was paid on account of professional fees without deducting TDS. The aforesaid expenditure shall not in that case be allowed to be deducted. The recipient of the aforesaid sum of ₹ 100 may have offered the same for taxation. Therefore, the income in the hands of the recipient has been taxed but the payer did not get the benefit thereof. She concluded by submitting that a second proviso to Clause (ia) is intended to become effective from 1st April, 2013 which was enacted to less .....

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shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso. 6. She submitted that considering that the legislature was not in favour of creating undue hardship for an assessee, Clause (ia) should only be construed to apply to those cases where the payment is outstanding. (emphasis supplied) aforesaid submission was dealt with in paragraph 21 of the judgment as follows: …. .....

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e acceded to for the same reason indicated above. The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It is not the case of an inadvertent error. (emphasis supplied) Further, Hon'ble jurisdictional High Court in the case of Commissioner of Income Tax v. M/s Peerless Hospitex Hospital and Research Centre Ltd. in Tax Appeal No.126 of 2013 GA No. 4361 of 2013 dated 30-04-2014, wherein the Hon'ble jurisdictional High Court has hel .....

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en the rigour of Section 40(a)(ia) in a case where the assessee is not deemed to be an assessee in default. There is no factual background before us on the basis of which it can be said that it was ever the contention of the assessee that he could not in this case be considered as an assessee in default. Therefore, the case of the assessee does not even come within the second proviso introduced with effect from 1st April 2013. We, as such, have no occasion to consider whether the aforesaid provi .....

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t has not considered that the second proviso to Sec. 40(a)(ia) of the Act as inserted by the Finance Act, 2012 is retrospective or prospective. 9. It would thus appear that no submission was made before Hon'ble Calcutta High Court that the second proviso was curative or retrospective in operation. On the other hand, submission was that the second proviso effective from April 1, 2013 went to show that the legislature was not in favour of creating undue hardship for assessee and that clause (i .....

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outstanding amounts but also amounts paid. In deciding the said controversy, the Hon'ble Calcutta High Court was pleased to reject the submission on behalf of the assessee that the object behind the insertion of the second proviso with effect from April 1, 2013 should also guide the interpretation of the parent clause (ia). It was argued by Ld. counsel for the assessee that the observations of the Hon'ble High Court in paragraph 21 of its judgment dealt with the limited argument made on .....

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oncept of the obiter dictum thus: "A decision, it is well settled, is an authority for what it decides and not what can logically be deduced therefrom. The distinction between a dicta and obiter is well known. Obiter dicta is more or less presumably unnecessary to the decision. It may be an expression of a viewpoint or sentiments which has no binding effect. 10. Secondly, I am of the view that the insertion of second proviso to sec. 40(a)(ia) of the Act is curative and it has retrospective .....

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