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2016 (4) TMI 164 - ITAT BANGALORE

2016 (4) TMI 164 - ITAT BANGALORE - TMI - TDS liability - the provisions were made at the year end is reversed in the beginning of the next accounting year - Held that:- it cannot be said that income had accrued in the hands of the payee. - 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 deducting tax at source - Decided in favour of assessee - .....

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n law to the extent challenged thereon. 2. On the facts and circumstances of the case, 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 part .....

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ld.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 obligation to deduct tax at source on those items u/s 95, 194C, 194J etc. 5. Without prejudice, that the ld. CIT(A) ought to appreciate the general legal principles that the assessee cannot be subjected to double disadvantage for a single .....

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le of Injection equipments, auto electric items, portable electric power tools etc. The Income-Tax Officer (TDS) herein after referred to as TDS Officer had noticed from the state of total income filed for the assessment year 2012-13 that the assessee company made suo-mottu disallowances u/s 40(a)(i) and 40(a)(ia) of the IT Act, 1961 in respect of which no TDS was made. The TDS Officer vide letter dated 30-07-2013 had called upon the assessee company to furnish the details of payment made and th .....

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₹ 1,96,84,115/- and for an amount of ₹ 1,79,36,713/-no invoices were received. Therefore, the said amount was reversed in the beginning of the next accounting year. It was the contention of the assessee company that no TDS is required to be made. The contention of the aassesee company was not accepted by the TDS Officer by holding that the system of accounting followed by the assessee company is faulty and does not enable any verification and held since the assesee company is follow .....

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(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 expen .....

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he service provider or vendor had not raised any invoices nor acknowledgement by the assessee company made a provision for such expenses on a scientific basis and such provision was debited to its P&L account, on conformity with the provisions of accounting standard 29- pertaining to provisions, contingent liabilities and contingent assets issued by the Institute of Chartered Accountant of India (CAI) and such provision was reversed in the beginning of the next accounting year. It was furthe .....

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S on the basis of mere provision. b) The payees as well as the exact amount payable to them are not identifiable and therefore, no liability to deduct tax at source. c) The existence/accrual of income in the hands of payee is a pre-condition to fasten the liability of tax deduction at source in the hands of the payer and the last limb of his arguments is that the provisions of sec.195 stipulates that the payer has to deduct tax at source at the earlier point of time either at the time of crediti .....

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, learned Sr. DR submitted that on a plain reading of Sec.195, the liability to deduct tax at source had arisen the moment the amount is credited in the books of accounts, irrespective of fact whether the amount is paid or not. 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 .....

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ce 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 reproduced as under :- If the contention of the Department that the moment there .....

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ghted. Section 195 falls in Chapter XVII which deals with collection and recovery. Chapter XVII-B deals with deduction at source by the payer. On analysis of provisions of Chapter XVII one finds use of different expressions, however, the expression sum chargeable under the provisions of the Act is used only in section 195. For example, section 194C casts an obligation to deduct TAS in respect of any sum paid to any resident . Similarly, sections 194EE and 194F, inter alia, provide for deduction .....

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on to the Income tax Officer (TDS). It is a provision requiring tax to be deducted at source to be paid to the Revenue by the payer who makes payment to a non-resident. Therefore, section 195 has to be read in conformity with the charging provisions, i.e section 4,5 and 9. This reasoning flows from the words sum chargeable under the provisions of the Act in section 195 (1). The fact that the Revenue has not obtained any information per se cannot be a ground to construe section 195 widely so as t .....

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argeable 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 t .....

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192 one finds that it imposes statutory obligation on the payer to deduct TAS when he pays any income chargeable under the head salaries . Similarly section 195 imposes a statutory obligation on any person responsible for paying to a nonresident any sum chargeable under the provisions of the Act . Which expression, as stated above, do not find place in other sections of Chapter XVII. It is in this sense that we hold that the Income Tax Act constitutes one single integral inseparable code. Hence, .....

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ad with section 199 implies that only the recipient of the sum i.e. the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments, the payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words .....

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s liable to tax. The entire basis of the Department s contention is based on administrative convenience in support of its interpretation. According to the Department, huge seepage of revenue can take place if persons making payments to nonresidents are free to deduct TAS or not to deduct TAS. It is the case of the Department that section 195(2) , as interpreted by the High Court would plug the loophole as the said interpretation requires the payer to make a declaration before the Income tax Offi .....

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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 assesse .....

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f payments outside India which are chargeable under the Income-tax Act. This provision ensures effective compliance with section 195 of the Income tax Act relating to tax deduction at source in respect of payments outside India in respect of royalties, fees or other sums chargeable under the Income Tax Act. In a given case where the payer is an assessee he will definitely claim deduction under the Income-tax Act for such remittance and on inquiry if the Assessing Officer finds that the sums remi .....

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ought into force only from April 1, 2008. It will only apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act which would prevent revenue leakage. Applicability of the judgment in the case of Transmission Corporation (supra) In Transmission Corporation s case (1999) 239 ITR 587(SC) a nonresident had entered into a composite contract with the resident party making the payments. The said composite contract not onl .....

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y 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 th .....

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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 payment in which a certain proportion of payment has an element of income chargeable to tax in India. It is in this context that the Supreme Court stated, if no such application is filed, income tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such sum to deduct tax the .....

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misunderstood by the Karnataka High Court to mean that it is not open for the payer to contend that if the amount paid by him to the non-resident is not at all chargeable to tax in India ., then no TAS is required to be deducted from such payment. This interpretation of the High Court completely loses sight of the plain words of section 195(1) which in clear terms lay down that tax at source is deductable only from sums chargeable under the provisions of the Income Tax Act, i.e. chargeable unde .....

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