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2015 (11) TMI 744 - ITAT HYDERABAD

2015 (11) TMI 744 - ITAT HYDERABAD - TMI - TDS Sec.194C - disallowance u/s .40(a)(ia) - assessee has deducted the tax on payments made to sub-contractors but the same were paid belatedly in later years - Held that:- In this case, assessee has placed on record evidence that constituents has filed the returns of income and claimed TDS, whatever is deducted by the assessee which was also duly allowed. In view of this, there is no dispute that constituents have accounted for the incomes and also pai .....

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4 (12) TMI 613 - ITAT BANGALORE] - Decided in favour of assessee. - ITA No. 736/Hyd/2015, SA No. 36/Hyd/2015 - Dated:- 9-10-2015 - P Madhavi Devi, JM And B Ramakotaiah, AM For the Appellant : Mr P Raviseshagiri Rao For the Respondent : Smt Nivedita Biswas ORDER Per B. Ramakotaiah, AM This appeal by assessee is against the Order of the Ld. CIT(A), Tirupati dated 27.02.2015. Assessee is aggrieved on the disallowance made under the provisions of section 40(a)(ia) of entire sub contract payments at .....

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visions of Sec.194C have no application to the payments made by the appellant to its constituents and, therefore, no TDS need be made. 4. The learned Commissioner of Income-Tax (Appeals) ought to have considered the fact that the amounts were paid during the previous year under consideration and, therefore, the provisions of Sec. 40(a)(ia) of the I.T. Act are not applicable. 5. The learned Commissioner of Income-Tax (Appeals) ought to have seen that the appellant paid amounts to the partners of .....

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77; 82,800. A.O. noticed that assessee has deducted the tax on payments made to sub-contractors but the same were paid belatedly in later years. Therefore, as per provisions of section 40(a)(ia) the payments to an extent of ₹ 29,07,34,947 are to be disallowed under section 40(a)(ia). Assessee submitted that the provisions of TDS are not applicable to the assessee JV in the absence of any contractual relation between JV and its constituent members, provisions of section 194C are not applica .....

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d 6(3), Hyderabad in ITA.No.1114 & 1122/Hyd/2012 dated 31.12.2012. Assessee made an alternate plea that provisions of section 40(a)(ia) are not applicable when there are no outstanding sub-contract payments at the end of the year following the decision of ITAT, Special Bench in the case of M/s. Merilyn Shipping and Transports, Visakhapatnam in ITA.No. 477/Viz/2008 dated 29.3.2012. Ld. CIT(A) however, rejected the contention stating that assessee neither pressed this ground nor elaborated on .....

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eceived as part of the contract to its constituents. In fact, TDS made on the contract payments was claimed by the assessee and not by the constituents. Therefore, there exist some contractual relationship. Amounts received by the assessee were subjected to TDS by the principal and at the same time assessee also admits that TDS was done on the subcontract payments made to its constituents. The issue is not whether assessee is liable to deduct TDS or not. Assessee having deducted the tax, paid be .....

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the provisions of the Act, it cannot now contend that there is no need for deducting tax. The Coordinate Bench in the case of CTR-RAILONE-JV vs. ITO, Ward 6(3), Hyderabad (supra), examined similar facts and came to the conclusion as under : "15. … …. …… ….Before us the assessee made a claim that the it is not liable to deduct TDS u/s. 194C of the Act. As seen from the above table, the assessee credited the contract receipt to the Profit and Loss A/c and a .....

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treated the constituents as "sub-contractors" in its books of account and made necessary ' deduction of TDS on the payment made to them. Being so, once the assessee received the payment and credited the same to the Profit and Loss A/c. and thereafter payments were made to the subcontractors which was claimed in the assessee's books of account by deducting the TDS, now the assessee cannot plead that it is a back to back contract so as not to apply the provisions of section 194C .....

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tion 40(a)(ia) are in the nature of additional measures to ensure the deduction and deposit cash (TDS) within the time in the Government account. Thus, ground Nos. 2 and 3 are decided against the assessee." 3.1. Since the facts are similar to the above said case, we approve the action of the A.O. and Ld. CIT(A) in holding that assessee is liable for deduction of tax on the sub-contract amounts paid, based on the entries in the books of accounts as placed before us. 4. Now the issue is, whet .....

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under : - "The Finance Act, 2008 brought out amendment to section 40(a)(ia) w.e.f 1-4-2005 by relaxing earlier position to some extent It made two categories of defaults causing disallowance on the basis of the period of the previous year in which tax was deductible. The first category of disallowances included the cases in which tax was deductible and was so deducted during the last month of the previous year but there was failure to pay such tax on or before the due date specified in subs .....

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llowance was to be made if the assessee failed to pay it before 31-3-2005. (Para 15). - Then came the amendment to section 40(a)(ia) by the Finance Act, 2010 with retrospective effect from 1-4-2010. (Para 16). - From the provision as amended by the Finance Act, 2010 with retrospective effect from 1-1-2010 it can be seen that the only difference which this amendment has made is dispensing with the earlier two categories of defaults as per the Finance Act, 2008, as discussed in the earlier para, c .....

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e the close of the previous year in case of deduction during the first eleven months, as a precondition for the grant of deduction in the year of incurring expenditure, has been altered. The hitherto requirement of the assessee deducting tax at source during the first eleven months of the previous year and paying it before the close of the previous year up to 31st March, of the previous year as a requirement for grant of deduction in the year of incurring such expenditure, has been eased to exte .....

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he year of incurring it, if the tax so deducted at source is paid on or before the due date u/s 139(1). This is the only difference which has been made by the Finance Act, 2010. (Para 17). - Further liberalization of provisions of section 40(a)(ia) was made through amendment brought by the Finance Act, 2012. With a view to liberalize provisions of section 40(a)(ia) of the Act Finance Act, 2012 brought amendment with effect from 1- 4-20] 3. (Para 21). - The provisions of section 40(a)(ia) are mea .....

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art of the Government as the payee would have also paid the taxes on such income. In order to remove this anomaly, this amendment has been introduced. In ease of payment to non-resident, the government does not have any other mechanism to recover the due taxes. Hence, no amendment was made in section 40(a)(i). The legislature has not given blanket deduction under section 40(a)(ia). The deduction as per amended section will be allowed only if the - (i) Payee has furnished his return of income und .....

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the purpose behind the proviso inserted by the Finance Act, 20] 2 in section 40(a)(ia) of the Act, it can be said to be declaratory and curative in nature and therefore, should be given retrospective effect from 1-4-2005, being the dale from which sub-clause (ia) of section 40(a) was inserted by the Finance (No 2) Act, 2004. (Para 25). - In CIT vs. Sikandarkhan N. Tunvar (2014) 220 Taxman 256/(2013) 33 taxmann.com 133 (Guj.), the Hon'ble Gujarat High Court held that in Merilyn Shipping & .....

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ibed, which is such on which tax is deductible at source but such tax has not been deducted or if deducted not paid before the due date. - The provision nowhere requires that the amount which is payable must remain so payable throughout during the year. If the assessee's interpretation is accepted, it would lead to a situation where the assessee who though was required to deduct the tax at source but no such deduction was made or more flagrantly deduction though made is not paid to the Gover .....

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hange is brought about. The Special Bench was wrong in comparing the language used in the draft bill to that used in the final enactment to assign a particular meaning to section 40(a)(ia). Accordingly, Merilyn Shipping & Transport (supra) does not lay down correct law. The correct law is that section 40(a)(ia) covers not only to the amounts which are payable as on 31st March, of a particular year but also which are payable at any time during the year. The Hon'ble Kolkatta High Court in .....

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e view taken by the Special Bench ITAT in the case of Merilyn Shipping & Transports (supra) in the case of CIT v. Vector Shipping Services (P.) Ltd., (2013) 357 ITR 642/218 Taxman 93/38 taxmann.com 77 (All.) (Para 29). - Thus there are two views on the issue, one in favour of the assessee expressed by the Hon ble Allahabad High Court and the other against the assessee expressed by the Gujarat & Calcutta High Courts. Admittedly, there is no decision rendered by the jurisdictional High Cou .....

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.) 565 (Del.) has considered the amendment in 2012 to the effect assessee not to be deemed in default, if recipient has filed return of income and paid taxes within the stipulated time. In that case, it was held as under : "10. We have heard rival submissions and perused the material on record. The second proviso to section 40(a)(ia) inserted by the Finance Act, 2012 reads as under : "Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance .....

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ribunal in the case of Rajiv Kumar Aggarwal in I.T.A.No. 337/Agra/2013 order dated May 29,2013, following the jurisdictional High Court in the case of CIT v. Rajinder Kumar reported in [2014] 362 ITR 241 (Delhi) and held that the second proviso is declaratory and curative in nature and has retrospective effect from April 1, 2005. The relevant findings of the Agra Bench of the Tribunal cited (supra) reads as follows : "6. However, the stand so taken by the Special Bench was disapproved by th .....

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lying 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 recognised the bigger picture of realisation 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 comp .....

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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 picture as it emerges after insertion of the second proviso to section 40(a)(ia) it is beyond doubt that the underlying objective of section 40(a)(ia) was to disallow deduction in respect of expenditure in a situation in which the income embedded in related payments remains untaxed due to non-deduction of t .....

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