TMI Blog2015 (6) TMI 323X X X X Extracts X X X X X X X X Extracts X X X X ..... ission or rent is found in these sections. Moreover as person responsible for making payment, it is the duty of the Assessee to deduct tax at source. Sec.194C, 194-J, 194-H and 194-I do not use the expression "Chargeable to tax". As we have already seen, it is not the case of the Assessee that the payments are not chargeable to tax in the hands of the payee. As we have already seen, the Assessee deducted tax on the provision made for various expenses in the subsequent financial years when the provision entries were reversed. The Assessee therefore cannot take a plea that the payments in question are not chargeable to tax and therefore there was no obligation on its part to deduct tax at source. As already held that the said CBDT circular No.30/2010 is applicable to banks and cannot be taken advantage by the Assessee who is not a bank. As we have already seen, the Assessee is fully aware of the payee but postpones credit to the account of the payee for want of receipt of invoice. We do not find any merit in the appeals that relate to challenge of levy of interest u/s.201(1A) of the Act. - Decided partly in favour of assessee. - ITA Nos. 749 to 752/Bang/2012 & 1588 to 1591/Bang/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss account and the provisions are credited to a provision account and not to the vendor accounts as these have not fallen due for payment. These expenses, although credited to the provision account, do not lose the colour of being ascertained liabilities. On the basis of its knowledge of having received the services and incurred an expense for it, the Assessee recognises such expenses by providing for it as of the year end. Such expense provisions are however created on reliable estimates of the payment that is expected to be made on the settlement dates in future, that fall in the next accounting year. In the subsequent financial years, the provision entries are reversed and on receipt of invoices in respect of the respective expenses, the same are recorded as liabilities due to the respective parties, at which point in time taxes are withheld at source and paid to the Government in the due course. 3. Even though liability for certain expenses might not have accrued or arisen to the Assessee in accordance with the mercantile system of accounting, the Assessee on the basis of scientific methodology estimates such expenses and creates a provision for such expenses every quarter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Recruitment 46079329 194C 2.26% 1041392 749802 Repair Maintenance 4420775 194C 2.26% 99909 71934 General Exp. Education Exp. 92581732 194C 2.26% 2092347 1506489 Rent 174993369 194I 22.66% 39653497 28550518 Other Expenses 16154003 194C 2.26% 365080 262857 Foreign payments 1134433077 195 10% 1344330 967917 TOTAL 2905450542 64461892 46412559 FY 2007-08 Particulars Amount Section Percentage Amt to be deducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61896520 2971032 Others 1368936161 194C 11.33% 155100467 74448224 Total 4065214831 510891043 218488400 5. According to the revenue, in respect of the provision so created by the Assessee in the books of accounts, tax at source was deductible in terms of the provisions of law referred in the chart given above as provided under chapter XVII-B of the Act. The last column in the chart referred to above gives the amount payable u/s.201(1A) of the Act, for failure to deduct and pay TDS within the time required. 6. In terms of Sec.40(a)(i) of the Act, if tax is deductible at source under Chapter XVII-B of the Act and where it is not so deducted at source on the amount of any interest or royalty, fees for technical services or other sum chargeable under the Act, which is payable outside India or in India to a non-resident, not being a company or to a foreign company, the same shall not be allowed as deduction while computing Income from Business . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut 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 during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation.-For the purposes of this sub-clause,- (i) commission or brokerage shall have the same meaning as in clause (i) of the Explanation to section 194H; (ii) fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (iii) professional services shall have the same meaning as in clause (a) of the Explanation to section 194J ; (iv) work shall have the same meaning as in Explanation III to section 194C; (v) rent shall have the same meaning as in clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3) of section 200. (2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1). 9. In view of the clear admission on the part of the Assessee that it was obliged to deduct tax at source in terms of Chapter XVII-B of the Act on the various amounts for the various Assessment Years in the chart set out above, by making disallowance u/s.40(a)(i) 40(a)(ia) of the Act of the amounts referred to in the chart above in the return of income filed for the various assessment years, the AO initiated proceedings u/s.201(1) 201(1A) of the Act against the Assessee. 10. In reply to the show cause notice issued u/s.201(1) 201(1A) of the Act, the Assessee submitted that invoices were not received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest amount exceeds specified limit. Further, Explanation to section 194A states that for the purpose of this section, where any income by way of interest as aforesaid is credited to any account, whether called 'Interest payable account' or 'Suspense Account' or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly . 2. Representations have been received from Indian Banks Association (IBA) seeking clarification regarding deduction of tax at source from payment of interest on time deposits by banks using Core-Branch Banking Solutions (CBS) software. In case of banks using CBS software, interest payable on time deposits is calculated generally on daily basis or monthly basis and is swept parked accordingly in the provisioning account for the purposes of macro-monitoring only. However, constructive credit is given to the depositor's / payee's account either at the end of the financial year or at periodic intervals as per practice of the bank or as per the depositor's / payee& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the accounts and claiming them as expenditure of the previous year was erroneous. 3. When invoices are received the Assessee claims to reverse the entries and record the liability in its books of accounts. At this point of time the Assessee withholds taxes. 14. According to the AO, the above procedure followed by the Assessee was contrary to the accounting policy because once expenditure is booked in the profit and loss account, it cannot be reversed. According to the AO, the reversal entry as well as the booking of expenses based on invoices done in subsequent year is routed through the profit and loss A/c. This shows that the reversals are taken as income and the expenses booked on receipt of invoices are included in current expenses of that year. Though it is considered that the whole of disallowance made in the computation U/s 40(a)(ia) is reversed since this amount is claimed as deduction in the computation in the year when TDS is made, whether the whole of the amount is again booked and subjected to TDS is questionable. The AO referred to the explanation offered by the AR of the Assessee at the time of assessment proceedings that there cannot be any doubt that the expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r); Actual Booking of expense liabilities (based on vendor invoices) and TDS thereon; and Payment of TDS to the credit of Central Government. 17. The following chart was produced by the Assessee with regard to Commission to selling agents - ORC commission to buttress the above argument:- Table 3 Month of entry Amount of Provisions Accrued/ (Reversed) in Rs.) Actual expenses booked in subsequent year against provision TDS thereon (in Rs.) March 2007 1,33,84,537 (A) 1,33,84,537 June 2007 (86,32,603) 89,71,547 5,07,693 July 2007 (20,49,382) 20,64,067 2,33,858 Sept. 2007 (10,79,806) 10,79,806 1,22,344 Oct. 2007 (10,40,888) 10,40,888 1,17,934 Nov. 2007 (5,81 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process. According to the Assessee, if the actual expenses booked were not allowed as a deduction in the subsequent year, it would result in double taxation of the same amount, once in the year when the provision was made and also in the year of reversal. The Assessee opined that it was a fundamental rule of law that the same income could not be taxed twice. Reliance was placed on Supreme Court ruling in the case of ITO, A Ward, Lucknow Vs Bachu Lal Kapoor [60 ITR 74] wherein this principle was considered that the provisions of the Income Tax Act did not envisage double taxation of same income. 19. The basis of quantification of the provision for expenses was explained by the Assessee as follows:- 3.3 As regards the basis for quantification of the provisions for expenses in r/o which disallowances were made u/s 40(a)(ia) in the 4 AYs concerned, the appellant, vide written submissions dt. 23-11-2011, submitted that there were broadly two ways of determining the provision amounts. Firstly, if the expenditure was by virtue of a contractual obligation, i.e., if a purchase order had been raised, the provision was made on the basis of the same. However, the vendor's invoice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the consolidated Provision A/c called for in r/o of all 4 AYs with opening balances, entries made relating to transactions made during the year and closing balances, vide its submissions dt. 30-12-2011, the appellant provided an illustration for sub-contracting expense provision created for AY 2007-08 to the tune of ₹ 87.03 crores comprising of the following 4 amounts:- Sub-contracting - SO Accrual ₹ 39,52,94,762/- Sub-contracting - ITS Accrual ₹ 7,03,51,510/- Sub-contracting - ITS Accrual ₹ 2,48,70,918/- Sub-contracting - Exports Accrual ₹ 37.98.73.472/- Total ₹ 87,03,90.662/- At the time of accounting the vendor invoice, in so far as TDS was concerned it was pointed out that broadly there could be four possibilities: - TDS applies on the amount mentioned in the vendor invoice (and accordingly TDS is made by IBM) - TDS doesn't apply on the vendor invoice owing to the vendor having provided a NIL withholding/lower with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out in the immediately succeeding financial year in r/o Sub-contracting and Commission expenses only. Its first step was to examine whether the expense provision accruals made (which were disallowed u/s 40(a)(ia) of the Act) were reconciled with the subsequent vendor payments made against these provisions. The matching exercise was done based on certain factors such as description and period of services mentioned in the vendor invoices. In the second step, all the payments for the services pertaining to prior year (indentified in Step 1 above) were traced into the electronically filed Tax Deduction at Source ( TDS ) statements, to identify and establish the TDS done on these payments. It findings were reported in the Annexure to its Report which is reproduced below:- Table - 5(a) Commission FY of 40a disallowance Amount as per Tax Audit Report Subsequent payments reconciled Reversal of provision Total Coverage 2005-06 88,23,629 89,97,179 - 89,977,179 102.0% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome in respect of the payment received from the Assessee was irrelevant. Thus the order u/s.201(1) 201(1A)of the Act were upheld in principle by the CIT(A). 22. Aggrieved by the order of the CIT(A), the Assessee has preferred the present appeals before the Tribunal. 23. We have heard the submissions of the learned counsel for the Assessee and the learned DR. The learned counsel for the Assessee at the outset brought to our notice that pending disposal of the appeals, the Assessee had furnished before the AO, details regarding the actual payment of TDS in subsequent financial year, on the provisions made in the various financial years. These details were verified by the AO. The AO has addressed a letter to the DR in which the AO after verification has found that the Assessee had deducted tax at source at the time when the provision made in one financial year is subsequently reversed and the expense booked in the subsequent financial year. The following are the contents of the said letter (copy filed by DR in Court), in so far as it relates to taxes deductible at source. 3. During the course of appellate proceedings before the Hon'ble ITAT the assessee company to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted time. The assessee company has deducted tax at source on these amounts in the subsequent year as and when the same were paid by it. Thus, it is liable for charging of interest u/s. 201(1A) for delayed deduction and remittance of tax to Govt. account. (emphasis supplied) 24. In view of the above, the demand on account of tax u/s.201(1) of the Act, in our view, will no longer survive. However the appeals will survive with regard to the liability of the Assessee to interest u/s.201(1A) of the Act. Therefore the appeals in so far as it relates to challenge to order u/s.201(1) of the Act have to be allowed. 25. As far as the question whether the TDS provisions are attracted when the Assessee makes a provision for expenditure in the books of accounts, the learned counsel for the Assessee made submissions which are identical to submissions made before the AO/CIT(A). His submissions were:- 1. When payee is not identified there can be no charge u/s.4(1) of the Act and therefore there can be no obligation to deduct tax at source. 2. The returns of TDS to be filed under the Income Tax Rules, 1962 contemplates furnishing of names of payees. 3. Judicial decisions recog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he hands of the payee or that the payment is not chargeable to tax in the hands of the payee in India. (6) The CBDT circular No.3/2010 is in the context of banks crediting interest on fixed deposits of customers and the decisions rendered by the judicial forums based on those circular are all not relevant as the same are relevant only in the case of Banks and cannot be pressed into service in other cases such as the case of the Assessee. 27. We have carefully considered the rival submissions. Provisions of Sec.40 of the Act start with a non obstante clause and provides that, Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession .Sec.40(a)(i) and 40(a)(ia) of the Act lists of certain items of expenditure and categories payees as Residents Non-Residents . In respect of the items of such expenditure there if there is an obligation to deduct tax at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, than the expenditure cannot be claimed as a deduction. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he account of the payee and the provisions of this section shall apply accordingly. Similar provision such as Sec.194(2) exists in Sec.194- H Explanation (ii) of the Act which applies when the payment made is in the nature of Commission or brokerage , in Sec.194-J Explanation (c) when payment made is Fees for Technical or Professional Service and Sec.195 Expln.-1 when payment is made to non-resident. The reason for introduction of provisions such as Sec.194(2) of the Act has been explained in CBDT circular No.550 dated 1.1.1990 as follows: 26.3 Under the existing provisions of section 193 of the Incometax Act, tax has to be deducted at source by the person responsible for making any payment in the nature of interest on securities at the time of payment. The liability to deduct tax at source was being postponed by making a provision for such payment. In order to prevent the postponement of liability to deduct tax and payment to the credit of the Central Government, the Finance Act has provided that tax will be deducted at source either at the time of credit to the account of the payee or at the time of payment thereof, whichever is earlier. For this purpose, credit to any suspe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax on such income under the provisions of Sec.4(1) of the Act. The statutory provisions therefore clearly envisage collection at source de hors the charge u/s. 4(1) of the Act. The sum collected by way of tax collection at source is appropriated as tax paid by the payee only on assessment in the hands of the payee. Sec.195 however uses the expression Chargeable to Tax . In the present case, it is not the case of the Assessee that payments made to non-residents are not chargeable to tax nor has the Assessee been able to demonstrate as to how payment made to non-resident is not chargeable to tax. The Assessee is a person making payment and the simple obligation cast upon him is to deduct a sum specified by the Act from and out of the payment and remit to the credit of the Central Government. The person making payment after deduction of tax at source gets a valid discharge in law for the entire amount paid. 33. As rightly contended by the learned DR, the CBDT Circular No.30/2010 is a specific circular applicable in the case of Banks and issued under peculiar circumstances. The Assessee cannot take shelter under the said Circular. 34. The argument that TDS provisions operate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Sec.194H of the Act was neither brought to the notice of the Tribunal, nor was that provision considered by the Tribunal. In that sense it can be said that the precedent is sub silentio and therefore not binding. Besides the above, in the present case the Assessee's claim that there was no accrual of liability, as we have already seen is not correct. 36. The next decision on which the learned counsel for the Assessee placed reliance was that of the ITAT Pune Bench in the case of DCIT Vs. Yeota Merchants Co-op.Bank Ltd., ITA No.805/PN/2011 for AY 07-08 order dated 31.8.2012. In the aforesaid case Provision for audit fees was disallowed u/s.40(a)(ia) of the Act for non-deduction of tax at source u/s.194J of the Act. The audit fee in question was payable to auditors who are appointed by the Co-operative Department, after the end of the relevant previous year. The Tribunal found that such audit fee was a statutory liability payable as per the provisions of the law of State of Maharashtra applicable for State Co-operative Societies. It was therefore held that there was neither accrual of liability nor was the payee known and therefore TDS provisions were not implemented due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the Assessee. 38. The next decision cited by the learned counsel for the Assessee is the decision of the Hon'ble Karnataka High Court in the case of M/S.Bharati Airtel Limited ITA No.637-644 of 2013 dated 14.8.2014. In this decision the question was whether the difference between the Maximum Retail Price (MRP) and the price at which prepaid cards used in cellular phones are sold to a dealer is commission on which Bharati Airtel Ltd., had to deduct tax at source u/s.194-H of the Act. The Hon'ble Karnataka High Court in para-63 observed that where existence of income in the hands of the payee is absent there can be no TDS obligation. The learned counsel for the Assessee has placed reliance on the above observation. In our view the question before the Court was different and the issue with which we are concerned in the present appeals was never under consideration by the Hon'ble High Court. It is possible to pick words from a decision and use it out of context. 39. In the case of UCO Bank Vs. Union of India others W.P.(C) 3563/2012 dated 11.11.2014, the question before the Hon'ble Delhi High Court was as to whether the Bank in which deposits are ke ..... 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