TMI Blog2015 (8) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... reported that there was tax deductible at source which was not deducted at all - Held that:- As decided Shri Rajeev Kumar Agrawal vs JCIT dated [2014 (10) TMI 492 - ITAT AGRA] the insertion of second proviso to section 40(1)(ia) is declaratory and curative in nature and hence it has retrospective effect from 1.4.2005 being the date from which sub-clause (ia) of section 40A was inserted by Finance No.(2) Act 2004. We uphold the grievance of the assessee principally and direct that the AO shall give due and fair opportunity of hearing to the assessee and decide the matter afresh in accordance with law by way of a speaking order after carrying out necessary verification regarding impugned payments having been taken into account by the recipients in the computation of their respective income, regarding payment of taxes in respect of such income and regarding filing of related income tax return by the recipients. Accordingly, sole cross objection of the assessee is allowed in principle and deemed to be allowed for verification by the AO in the manner as indicated above. - Decided in favour of assessee for statistical purposes. - I.T.A.No.2098/Del/2013,C.O. No. 177/Del/2013 - - - Dated: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease Pvt. Ltd., therefore, the provisions of section 2(22)(e) cannot be invoked and addition in this regard was rightly found as not sustainable by the CIT(A). The ld. Counsel of the assessee took us through the operative part of the impugned order and submitted that the CIT(A) was right in holding that the impugned addition in the hands of the assessee company cannot be sustained as the amount can be brought to tax only in the hands of the shareholder of the lender company i.e. Shri Ashish Anand and not in the hands of appellant company which is not a registered shareholder of the lender company. 5. On careful consideration of above submissions, from operative part of the impugned order, we note that the CIT(A) granted relief for the assessee with following observations and conclusion:- 7.4 Further, I find that in arriving at the above decision, the Hon'ble ITAT has relied on the decision of Hon'ble Rajasthan High Court in the case of CIT v. Hotel Hill Top (2009) 313 ITR 116 wherein it was held that deemed dividend cannot be brought to tax in the hands of a non-shareholder. It was held by the Hon'ble High Court that The liability of tax, as deemed dividend, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company from M/s R.D. Finlease Pvt. Ltd. satisfies the requirement of section 2(22)(e) of the Act as the assessee company is not a shareholder of M/s R.D. Finlease Pvt. Ltd. In the light of above legal proposition and dicta laid down by the Jurisdictional High Court of Delhi in the case of CIT vs Ankitech Pvt. Ltd., we are of the opinion that the action taken by the AO was not in accordance with law and letter and spirit of section 2(22)(e) of the Act which was rightly directed to be deleted by the CIT(A) by passing the impugned order. Hence we reach to a logical conclusion that the view taken by the CIT(A) does not carry any infirmity or perversity and we are unable to see any valid reason to interfere with the same. Accordingly, sole ground of the revenue being devoid of merits is dismissed. C.O. No. 177/Del/2013 of the assessee 8. Firstly, ld. Counsel of the assessee submitted that the assessee does not want to press ground no. 2 and the same is dismissed as not pressed. CO No. 3 and 4 are general in nature which need no adjudication on merits and we dismiss the same. The sole ground of C.O. No. 1 of the assessee reads as under:- That having regard to the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of ₹ 37,00,210/-, it was submitted that the same was calculated by the AO on the reasoning that TDS was ₹ 3,70,021/- which was deducted @ 10% and therefore, the interest payable must have been ₹ 37,00,210/-. However, the tax deductible was @ 22.66% on the interest payment of ₹ 16,32,925/- amounting to ₹ 3,70,021/-. It was submitted that the said interest income of ₹ 16,32,925/- had been accounted by JCB (India) Ltd. in its return of income for the AY 2009-10. The appellant produced a copy of certificate to this effect issued by JCB (India) Ltd. It was submitted that the AO did not appreciate the true position by assuming that the interest amount on this account would have been ₹ 37,00,210/- @ 10% on account of tax deductible at source of ₹ 3,70,021/- and was liable to be added back to the income of the appellant. I find force in the submissions of the appellant that the correct rate of TDS applicable on the interest payment was 22.66% and not 10% as applied by the AO. Therefore, the amount of interest payment on which TDS of ₹ 3,70,021/- was required to be made comes to ₹ 16,32,925/-. However, I do not agree with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding obligations under section 194A. It was in this backdrop that the Assessing Officer, having noted the undisputed position regarding applicability of section 194 A on the facts of this case, and having noted that the scope of section 40(a)(ia) restricting deduction in respect of sums in respect of which tax withholding liability is not discharged, disallowed ₹ 5,01,872 under section 40(a)(ia) r.w.s. 194A of the Act. Aggrieved, assessee carried the matter in appeal before the CIT(A). It was, inter alia, contended by the assessee that in view of the insertion of second proviso to Section 40(a)(ia) by the Finance Act 2012, and in view of the fact that the recipients of the interest have already included the income embedded in these payments in their tax returns filed under section 139, disallowance under section 40(a)(ia) could not be invoked in this case. It was also contended that even though this proviso is stated to be effective 1st April 2013, since the amendment in declaratory and curative in nature, and, therefore, it should be given retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle seems to be that in the situations in which the assessee's tax withholding lapse have not resulted in any loss to the exchequer, and this fact can be reasonably demonstrated, the assessee cannot be treated as an assessee in default. The net effect of these amendments is that the disallowance under section 40(a)(ia) shall not be attracted in the situations in which even if the assessee has not deducted tax at source from the related payments for expenditure but the recipient of the monies has taken into account these receipts in computation of his income, paid due taxes, if any, on the income so computed and has filed his income tax return under section 139(1). There is also a procedural requirement of issuance of a certificate, in the prescribed format, evidencing compliance of these conditions by the recipients of income, but that is essentially a procedural aspect of the matter. The legislative amendment so brought about by the Finance Act, 2012, so far as the scheme of disallowance under section 40(a)(ia) is concerned, substantially mitigates the rigour of, what otherwise seemed to be, a rather harsh disallowance provision. 5. As for the question as to wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue and payable (Emphasis by underlining supplied by us) . Having noted the underlying objectives, Their Lordships also put in a word of caution by observing that, the provision should be interpreted in a fair, just and equitable manner . Their Lordships thus recognized the bigger picture of realization of legitimate tax dues, as object of Section 40(a)(ia), and the need of its fair, just and equitable interpretation. This approach is qualitatively different from perceiving the object of Section 40(a)(ia) as awarding of costs on the assessees who fail to comply with the relevant provisions by considering overall objective of boosting TDS compliance . Not only the conclusions arrived at by the special bench were disapproved but the very fundamental assumption underlying its approach, i.e. on the issue of the object of Section 40(a)(ia), was rejected too. In any event, even going by Bharti Shipyard decision (supra), what we have to really examine is whether 2012 amendment, inserting second proviso to Section 40(a)(ia), deals with an intended consequence or with an unintended consequence . 7. When we look at the overall scheme of the section as it exists now and the bigger ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intended consequence i.e. if it is an unintended consequence, even going by Bharti Shipyard decision (supra), removing unintended consequences to make the provisions workable has to be treated as retrospective notwithstanding the fact that the amendment has been given effect prospectively . Revenue, thus, does not derive any advantage from special bench decision in the case Bharti Shipyard (supra). 9. On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into account in computation of taxable income in the hands of the recipients of the payments. Such a policy motivated deduction restrictions should, therefore, not come into play when an assessee is able to establish that there is no actual loss of revenue. This disallowance does deincentivize not deducting tax at source, when such tax deductions are due, but, so far a s the legal framework is concerned, this provision is not for the purpose of penalizing for the tax deduction at source lapses. There are separate penal provisions to that effect. Deincentivizing a lapse and punishing a lapse are tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. 10. In view of the above discussions, we deem it fit and proper to remit the matter to the file of the Assessing Officer for fresh adjudication in the light of our above observations and after carrying out necessary verifications regarding related payments having been taken into account by the recipients in computation of their income, regarding payment of taxes in respect of such income and regarding filing of the related income tax returns by the recipients. While giving effect to these directions, the Assessing Officer shall give due and fair opportunity of hearing to the assessee, decide the matter in accordance with the law and by way of a speaking order. We order so. 5. We see no reasons to take any other view of the matter than the view so taken by us in the case of Rajeev Kumar Agarwal (supra). Respectfully following the same, we uphold the grievance of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laratory and curative in nature and it has retrospective effect from 1.4.2005. Hence, respectfully following the legal proposition advanced by ITAT, Agra, we do not see any reason to take a different view on the issue than the view taken by ITAT Agra in the case of Shri Rajeev Kumar Agarwal vs JCIT (supra). Respectfully following the same, we uphold the grievance of the assessee principally and direct that the AO shall give due and fair opportunity of hearing to the assessee and decide the matter afresh in accordance with law by way of a speaking order after carrying out necessary verification regarding impugned payments having been taken into account by the recipients in the computation of their respective income, regarding payment of taxes in respect of such income and regarding filing of related income tax return by the recipients. Accordingly, sole cross objection of the assessee is allowed in principle and deemed to be allowed for verification by the AO in the manner as indicated above. 15. In the result, the appeal of the revenue is dismissed and sole cross objection of the assessee is allowed for statistical purposes. Order pronounced in the open court on 29.07.2015. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
