TMI Blog2016 (4) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... , whether the AO justify in making the addition of ₹ 95,48,855/- 2. That the ld.CIT(A) erred in upholding the action of the ITO(TDS) LTU in treating the assessee as in default u/s 201(1). 3.That the ld.CITA) erred in holding that the assessee had liability to deduct tax at source from the amounts credited to provision account, even in respect of those items which were subsequently written back, either partially or fully and further erred in coming to the following conclusion inpara-5 on page-06 of impugned order which is extracted below; Where the provisioned amount as higher than the invoiced amount, the balance has clearly not suffered tax. Since it has been held (Supra) that the liability for tx deduction existed o n the company at the time of making the provision the default for non-deduction of tax at source is to be limited only to the surplus over and above the invoice amount . 4. That theld.CIT(A) ought to have accepted assessee s plea that, the word credit n section 195, 194C, 194J etc. refers to constructive credit and when assessee disallows voluntarily certain items gets effaced ab initio and consequently the assessee would not have had any obl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is assessee in default u/s 201(1) of the IT Act and remanded TDS of ₹ 17,93,677/- apart from interest of ₹ 4,24,965/-. 4. Being aggrieved by this order, an appeal was filed before the CIT(A), LTU, Bangalore who vide impugned order confirmed action of the of the AO by holding that the suo-mottu disallowance under the provisions of sec.40(a)(ia) of the Act, does not absolve the assessee company of the responsibility of deducting tax at source. However, learned CITA) directed the TDS Officer to exclude those amounts in respect of which TDS has been made on the dates on which invoices have been raised. 5. Being aggrieved, the assessee company is in appeal before us. Learned counsel for the assessee company submitted and explained during the course of hearing that the procedure adopted in the books of accounts, accounting the expenditure which are outstanding as on 31st March of every financial year. It was submitted that the assessee company incurred certain expenditure towards service support charges, professional charges etc. where invoices have been raised by service provider or vendor and are acknowledged by the assessee company, were accounted in the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He further submitted that the provision of taxing statutes should be construed strictly that there is no place for any inference and therefore, he supported the orders of lower authorities. 8. We have heard the rival submissions and perused the material on record. 9. The undisputed facts in this case are that he provisions were made at the end of the year and the same were reversed in the beginning of the next accounting year. The short point that arises for our consideration is whether the liability for deduction of tax at source has arisen the moment the amount is credited in the books of accounts. Having regard in the scheme of tax deducted at source, under Chapter-XVII-B of the IT Act, we are of the considered opinion that the liability to deduct tax at source arises only when there is accrual of income in the hands of the payee. We are holding so, keeping in view the ratio laid down by the Hon ble Apex Court in the case of M/s GE India Technology Centre P. Ltd. Vs. CIT and another 327 ITR 456 (SC) wherein the Hon ble Supreme Court held that if payment is not assessable to tax there is no question of tax at source being deducted. The relevant portion of the judgment is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on mere payment income would be said to arise or accrue in India. Therefore, as stated earlier, if the contention of the Department was accepted it would mean obliteration of the expression sum chargeable under the provisions of the Act from section 195(1). While interpreting a section one has to give weightage to every word used in that section. While interpreting the provisions of the Income Tax Act one cannot read the charging sections of that Act de hors the machinery sections. The Act is to be read as an integrated code. Section 195 appears in Chapter XVII which deals with collection and recovery. As held in the case of CIT vs. Eli Lilly and Co. (India) (P) Ltd. (2009) 312 ITR 225 the provisions for deduction of TAS which are in Chapter XVII dealing with collection of taxes and the charging provisions of the Income Tax Act form one single integral, inseparable code and, therefore, the provisions relating to TDS apply only to those sums which are chargeable to tax under the Income-Tax Act. It is true that the judgment in Eli Lilly (2009) 312 ITR 225 was confined to section 192 of the Income Tax Act. However, there is some similarity between the two. If one looks at sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plug the loophole as the said interpretation requires the payer to make a declaration before the Income tax Officer (TDS) of payments made to non-residents. In other words, according to the Department, section 195(2) is a provision by which the payer is required to inform the Department of the remittances he makes to non-residents by which the Department is able to keep track of the remittances being made to non-residents outside India. We find no merit in these contentions. As stated hereinabove, section 195(1) uses the expression sum chargeable under the provisions of the Act . We need to give weightage to those words. Further, section 195 uses the word payer and not the word assessee . The payer is not an assessee. The payer becomes an assessee-in-default only when he fails to fulfill the statutory obligation under section 195(1). If the payment does not contain the element of income the payer cannot be made liable. He cannot be declared to be an assessee-in-default. The above-mentioned contention of the Department is based on an apprehension which is ill founded. The payer is also an assessee under the ordinary provisions of the Income Tax Act. When the payer remits an amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S was applicable only to pure income payments and not to composite payments which had an element of income embedded or incorporated in them. The controversy before us in this batch of cases is, therefore, quite different. In Transmission Corporation case (1999) 239 ITR 587 (SC) it was held that TAS was liable to be deducted by the payer on the gross amount if such payment included in it an amount which was exigible to tax in India. It was held that if the payer wanted to deduct TAS not on the gross amount but on the lesser amount on the footing that only a portion of the payment made represented income chargeable to tax in India then it was necessary for him to make an application under section 195(2) of the Act to the Income Tax Officer (TDS) and obtain his permission for deducting TAS at lesser amount. Thus, it was held by this court that if the payer had a doubt as to the amount to be deducted as TAS he could approach the Income-tax Officer (TDS) to compute the amount which was liable to be deducted at source. In our view , section 195(2) is based on the principle of proportionality . The said sub section gets attracted only in cases where the payment made is a composite pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable. Income-tax is a levy on income. Though the Income-tax Act, takes into accounts two points of time at which the liability to tax is attracted, viz. the accrual of the income or its receipt, yet the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income;, which does not materialize. Where income has, in fact, been received and is subsequently, given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account . Thus, having regard to the ratio laid down by the Hon ble Apex Court, it cannot be said that income had accrued in the hands of the payee. We, therefore, hold that there was no liability in the hands of the assessee company to deduct TDS, merely on the provisions made at the year end. Hence, the assessee company cannot be treated as assessee in default for not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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