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Commissioner of Income Tax-1 Versus Ansal Land Mark Township (P) Ltd.

2015 (9) TMI 79 - DELHI HIGH COURT

Retrospectivity of the second proviso to Section 40(a) (ia) - disallowance by the AO of the payment made by Assessee to Ansal Properties and Infrastructure Ltd. (‘APIL’) which payment, according to the Revenue, ought to have been made only after deducting tax at source under Section 194J - Held that:- The second proviso to Section 40(a) (ia) was inserted by the Finance Act 2012 with effect from 1st April 2013. The effect of the said proviso is to introduce a legal fiction where an Assessee fails .....

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AGRA) in which it was held that the second proviso to Section 40 (a) (ia) of the Act is declaratory and curative in nature and has retrospective effect from 1st April 2005, merits acceptance. No substantial question of law arises - Decided in favour of the Assessee - ITA 160/2015, ITA 161/2015 - Dated:- 26-8-2015 - Dr. S. Muralidhar and Mr. Vibhu Bakhru, JJ. For the Petitioner : Mr. Kamal Sawhney,Senior Standing counsel with Mr. Raghvendra Singh, Junior Standing counsel and Mr. Shikhar Garg, Ad .....

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2/Del/2012 and ITA No. 877/Del/2013 for the Assessment Years ( AYs ) 2008-09 and 2009-10 respectively. 4. At the outset, it is pointed out by learned counsel for the Revenue that the questions (a) to (e) as projected by the Revenue in para 2 of the memorandum of appeal concerning ITAT s order deleting certain additions stand answered in favour of the Assessee by the order dated 2nd March 2015 in ITA No. 162 of 2015 (CIT v. Ansal Land Mark Township (P) Ltd.) concerning and earlier AY. Consequentl .....

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first proviso to sub-section (1) of Section 201, then, for the purpose of this sub-clause, it 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. When it was pointed out to learned counsel for the Appellant that no question as such has been sought to be urged by the Revenue in the memorandum of appeal, learned counsel stated that an application has been filed to amend th .....

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ly after deducting tax at source under Section 194J of the Act. Before the ITAT, it was urged by the Assessee that in view of the insertion of the second proviso to Section 40(a) (ia) of the Act, the payment made could not have been disallowed. Reliance was placed on the decision of the Agra Bench of ITAT in ITA No. 337/Agra/2013 (Rajiv Kumar Agarwal v. ACIT) in which it was held that the second proviso to Section 40 (a) (ia) of the Act is declaratory and curative in nature and should be given r .....

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med 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 . 10. It is pointed out by learned counsel for the Revenue that the first proviso to Section 201 (1) of the Act was inserted with effect from 1st July 2012. The said proviso reads as under: Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with th .....

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nt in such form as may be prescribed. 11. The first proviso to Section 210 (1) of the Act has been inserted to benefit the Assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. No doubt, there is a mandatory requirement under Secti .....

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n default of deducting tax at source under certain contingencies. 12. Relevant to the case in hand, what is common to both the provisos to Section 40 (a) (ia) and Section 210 (1) of the Act is that the as long as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the Assessee would not be treated as a person in default. As far as the present case i .....

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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 su .....

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ust and equitable" interpretation of law- as is the guidance from Hon'ble Delhi High Court on interpretation of this legal provision, in our humble understanding, it could not be an "intended consequence" to disallow the expenditure, due to non deduction of tax at source, even in a situation in which corresponding income is brought to tax in the hands of the recipient. The scheme of Section 40(a)(ia), as we see it, is aimed at ensuring that an expenditure should not be allowed .....

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visions of Section 40(a)(ia), as they existed prior to insertion of second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee's tax withholding lapses did not result in any loss to the exchequer. Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to th .....

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