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M/s M. Arunachalam And Company Versus The Joint / Assistant Commissioner of Income Tax, Chennai

2016 (5) TMI 547 - ITAT CHENNAI

Disallowance of interest paid - whether in the absence of any material to establish that the assessee was not using the building for business purpose, disallowance of interest is not justified? - Held that:- no material is available on record to suggest that the assessee has used the building for its business. The assessee being in the business of engineering contract, it has to necessarily obtain license /permission to use the building from the local Municipal Corporation. The assessee also nee .....

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lding was used for its business in the year under consideration is farfetched one. When the building was demolished and new construction was started, at no stretch of imagination it can be said that the assessee used the building for its business - Decided against assessee

Claim of depreciation on the building - Held that:- The assessee claims depreciation on the building purchased on 24.09.2007. The fact remains that the building purchased was never put to use for the business of the .....

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disentitle the assessee to claim the same as expenditure in view of Section 40(a)(ia) of the Act. Soil testing and concrete mixer testing are nothing but technical services. Therefore, the assessee is liable to deduct tax at the time of payment or giving credit. Hence, the assessee cannot claim the same as expenditure unless the TDS was made. The payment made for centring work is nothing but sub-contract. Therefore, the assessee is liable to deduct tax under Section 194C of the Act. In view of .....

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13. Merely because the assessee has offered the same as income for the assessment years 2011-12 and 2012-13 that cannot be a reason to shift the income which is otherwise assessable for taxation for the assessment year 2010-11. In view of the above, this Tribunal do not find any reason to interfere with the order of the CIT(Appeals) and accordingly, the same is confirmed - Decided against assessee - ITA Nos.1352 & 1353/Mds/2015 - Dated:- 7-4-2016 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A .....

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2009-10 in I.T.A. No.1352/Mds/2015. 3. The first issue arises for consideration is with regard to disallowance of interest paid to the extent of ₹ 23,82,173/-. 4. Shri J. Chandrasekaran, the Ld. representative for the assessee, submitted that the assessee purchased a land and building at Lloyds Road, Royapettah, measuring 4161 sq.ft. with a built up area of 2774 sq.ft. on 24.09.2007 for a total consideration of ₹ 2,60,00,000/-. The total cost of land / building included stamp duty a .....

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a letter dated 08.12.2011. Since the property purchased was wholly used for the business of the assessee, the interest paid till 31.03.2009 was claimed as business expenditure. However, the Assessing Officer disallowed the claim of the assessee on the ground that the building itself was demolished during the financial year 2008-09 and a new building constructed was put to use only during the next financial year. Therefore, the Assessing Officer found that the interest payment of ₹ 23,82,1 .....

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g on 24.09.2007. Subsequently, the building was demolished and a new building was constructed. Referring to the order of the Assessing Officer, the Ld. representative submitted that the assessee has made necessary payments and charges for demolition of building and approval of new building to CMDA on 23.09.2008. In the absence of any material to show that the building was used for business purpose, according to the Ld. D.R., the interest paid on loan borrowed needs to be capitalized till the new .....

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ssee purchased the land and building, after borrowing loan, for a total consideration of ₹ 2,60,00,000/-. The cost of land, including stamp duty and registration charges, comes to nearly ₹ 2,81,48,318/-. The assessee claims that the property was used by the assessee for its business purpose. However, the Revenue claims that the building was demolished and new building was constructed. From the order of the Assessing Officer it appears that the assessee is engaged in the business of e .....

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ain license /permission to use the building from the local Municipal Corporation. The assessee also needs to register itself with sales tax authorities for payment of sales tax. Apart from that, the assessee also needs to get clearance from other statutory authorities for carrying out its business in the premises, which was purchased by using the borrowed funds. In this case, no material is available on record to suggest that the building was used for business. In fact, the assessee demolished t .....

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hesitation to confirm the order of the CIT(Appeals). Accordingly, the order of the CIT(Appeals) is confirmed. 8. The next ground of appeal is with regard to claim of depreciation on the building. 9. The assessee claims depreciation on the building purchased on 24.09.2007. The fact remains that the building purchased was never put to use for the business of the assessee and in fact, the building was demolished and new construction was started. When the building purchased on 24.09.2007 was demoli .....

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essing Officer found that the assessee has not made any TDS, therefore, the total payment of ₹ 39,44,719/- was disallowed. According to the Ld. representative, a payment of ₹ 3,03,285/- was made to M/s Ready Power Services for hiring generator. The hiring charges paid to M/s Ready Power Services for hiring generator could not be treated as payment for sub-contract. It is only hiring charges, therefore, the assessee is not expected to deduct tax. 12. The Ld. representative for the ass .....

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according to the Ld. representative, the payment made by the assessee cannot be construed as payment for subcontract. Similarly, a payment was made to M/s Iyan Enterprises for centring work at the site. According to the Ld. representative, The centring work done by M/s Iyan Enterprises cannot be construed as sub-contract, it is only a payment of labour charges. Similarly, a payment of ₹ 1,22,460/- was made to M/s Nagadi Consultants Pvt. Ltd. for soil testing and another payment of ₹ .....

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abad High Court in CIT v. Vector Shipping Services (P.) Ltd. (2013) 357 ITR 642. 13. On the contrary, Sh. P. Radhakrishnan, the Ld. Departmental Representative, submitted that the assessment year under consideration is 2010-11. Section 194-I of the Act was amended with effect from 13.07.2006. When the assessee has paid charges/ rent for hiring equipment or machinery, the assessee has to necessarily deduct tax at 2% for use of any machinery or asset or any equipment. In this case, admittedly, the .....

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sarily deduct tax. Referring to the payment made to M/s Iyan Enterprises, the Ld. D.R. submitted that that this payment was made for performing centring work at the site. The centring work was, in fact, given to M/s Iyan Enterprises on sub-contract basis. This payment is made for sub-contract and liable for TDS under Section 194C of the Act. Hence it is not correct to say that the payment made by the assessee is not liable for TDS. 14. Referring to the judgment of Allahabad High Court in Vector .....

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ar (2013) 357 ITR 312 and Calcutta High Court in CIT v. Crescent Export Syndicate (2013) 262 CTR 525 examined the issue elaborately and found that the decision of Special Bench of this Tribunal in Merilyn Shipping and Transport (supra) is no longer a good law. Therefore, the CIT(Appeals) has rightly confirmed the disallowance made by the Assessing Officer. 15. We have considered the rival submissions on either side and perused the relevant material available on record. Though the payments were c .....

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) of the Act. Soil testing and concrete mixer testing are nothing but technical services. Therefore, the assessee is liable to deduct tax at the time of payment or giving credit. Hence, the assessee cannot claim the same as expenditure unless the TDS was made. The payment made for centring work is nothing but sub-contract. Therefore, the assessee is liable to deduct tax under Section 194C of the Act. In view of the above, this Tribunal is of the considered opinion that the assessee is liable to .....

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unts, therefore, the assessee is expected to deduct tax at the time of payment. The contention of the assessee that the tax has to be deducted only on the amount remains to be payable and the amount already paid cannot be a subject matter of disallowance under Section 40(a)(ia) of the Act is contrary to the scheme of Income-tax Act. In case the assessee gives credit in the books of account and the amount was not actually paid, then the assessee has to naturally deduct tax and claim the amount as .....

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the Gujarat High Court in Sikandarkhan N. Tunvar (supra) examined the issue elaborately. In fact, the Cochin Bench of this Tribunal in Shri Thomas George Muthoot v. ACIT in I.T.A. No. 63 & 64/Coch/2014 dated 28.08.2014, observed as follows:- 11. The next contention of the assessee is that the has already paid the amount, provisions of section 40(a)(ia) is applicable only in respect of amount which remains to be payable on the last day of the financial year. The Ld. representative placed his .....

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aw that the law laid down by the Apex Court is binding on all courts and authorities including this Tribunal under Article 141 of the Constitution of India. It is also equally settled principle that a dismissal of SLP without any discussion is not the law declared by the Apex Court. The Apex Court thought it fit that it was not a fit case to be admitted for consideration. Therefore, while dismissing the SLP, the Apex Court did not declare any law. Hence, we cannot say that the Apex Court has dec .....

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n Shipping & Transports (supra) found that the Tribunal has not committed an error. It is obvious that there is no discussion about the correctness or otherwise of the decision rendered by the Special Bench of this Tribunal in Merilyn Shipping & Transports (supra). However, we find that the Gujarat High Court in the case of CIT vs Sikandarkhan N Tunvar ITA Nos 905 of 2012, 709 & 710 of 2012, 333 of 2013, 832 of 2012, 857 of 2012, 894 of 2012, 928 of 2012, 12 of 2013, 51 of 2013, 58 o .....

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this Tribunal in Merilyn Shipping & Transports (supra) and found that the decision rendered by the Special Bench of this Tribunal is not the correct law. It is well settled principles of law that when different High Courts expressed different opinions on a point of law, then, normally, the benefit of doubt under the taxation law would go to the assessee. It is also equally settled principles of law that the judgment which discusses the point in issue elaborately and gives an elaborate reason .....

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referred when compared to the Allahabad High Court in M/s Vector Shipping Services (P) Ltd (supra). 13. For the purpose of convenience we reproducing below the observations made by the Calcutta High Court in Crescent Exports Syndicate & Another (supra) and Gujarat High Court in Sikandarkhan N Tunvar (supra): Calcutta High Court in Crescent Exports Syndicate & Another (supra) Before dealing with the submissions of the learned Counsel appearing for the assessees in both the appeals we have .....

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ht to be remedied or the object sought to be achieved by an amendment. This is precisely what was done by the Apex Court in the case of CIT Vs. Kelvinator reported in 2010(2) SCC 723. But the same comparison between the draft and the enacted law is not permissible. Nor can the draft or the bill be used for the purpose of regulating the meaning and purport of the enacted law. It is the finally enacted law which is the will of the legislature. The Learned Tribunal fell into an error in not realizi .....

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ion by virtue of which even the genuine and admissible expenses claimed by an assessee under the head income from business and profession : if the assessee does not deduct TDS on such expenses are disallowed . Having held so was it open to the Tribunal to seek to justify that this fiction cannot be extended any further and, therefore, cannot be invoked by Assessing Officer to disallow the genuine and reasonable expenditure on the amounts of expenditure already paid ? Does this not amount to deli .....

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missus which was not permissible and could only have been done by the Supreme Court in an appropriate case. Reference in this regard may be made to the judgment in the case of Bhuwalka Steel Industries vs. Bombay Iron & Steel Labour Board reported in 2010(2) SCC 273. Unprotected worker was finally defined in Section 2(11) of the Mathadi Act as follows:- unprotected worker means a manual worker who is engaged or to be engaged in any scheduled employment. The contention raised with reference t .....

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and received the assent of the Vice-President on 05-06-1969 and was first published in the Maharashtra Government Gazette Extraordinary, Part IV on 13-06-1969, the aforementioned words were omitted. Therefore, t his would be a clear pointer to the legislative intent that the legislature being conscious of the fact and being armed with all the Committee reports and also being armed with the factual data, deliberately avoided those words. What the appellants are asking was to read in that definiti .....

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part of the legislature. But, that is certainly not the case here. We shall now endeavour to show that no other interpretation is possible. The key words used in Section 40(a)(ia), according to us, are on which tax is deductible at source under Chapter XVII-B . If the question is which expenses are sought to be disallowed? The answer is bound to be those expenses on which tax is deductible at source under Chapter XVII-B. Once this is realized nothing turns on the basis of the fact that the legi .....

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account of interest, commission or brokerage, fees for professional services or fees for technical services because the words mounts credited or paid were used only in relation to a contractor of sub-contractor. This differential treatment was not intended. Therefore, the legislature provided that the amounts, on which tax is deductible at source under XVII-B payable on account of interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services or .....

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ground to read the same in a manner which was not intended by the legislature. This is our answer to the submission of Mr. Bagchi. The submission of Mr. Roychowdhuri that the second proviso sought to become effective from 1st April, 2013 should be held to have already become operative prior to the appointed date cannot also be acceded to for the same reason indicated above. The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It is not .....

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a) was accurate in its opinion. In this context, we would like to examine two aspects. Firstly, what would be the correct interpretation of the said provision. Secondly, whether our such understanding of the language used by the legislature should waver on the premise that as propounded by the Tribunal, this was a case of conscious omission on the part of the Parliament. Both these aspects we would address one after another. If one looks closely to the provision, in question, adverse consequence .....

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VIII-B. (c) Such tax has not been deducted or after deduction has not been paid on or before due date specified in sub- Section (1) of Section 39. For the purpose of current discussion reference to the proviso is not necessary. 24. What this Sub-Section, therefore, requires is that there should be an amount payable in the nature described above, which is such on which tax is deductible at source under Chapter XVII-B but such tax has not been deducted or if deducted not paid before the due date. .....

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rage etc. is payable to a resident or amounts payable to a contractor or sub-contractor for carrying out any work. The language used is not that such amount must continue to remain payable till the end of the accounting year. Any such interpretation would require reading words which the legislature has not used. No such interpretation would even otherwise be justified because in our opinion, the legislature could not have intended to bring about any such distinction nor the language used in the .....

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amount remained payable till the end of the year. We simply do not see any logic why the legislature would have desired to bring about such irreconcilable and diverse consequences. We hasten to add that this is not the prime basis on which we have adopted the interpretation which we have given. If the language used by the Parliament conveyed such a meaning, we would not have hesitated in adopting such an interpretation. We only highlight tht we would not readily accept that the legislature desi .....

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e. However, this decision nowhere indicates that the events which take place during the accounting period should be ignored and the ascertainment of fulfilling a certain condition provided under the statute must be 19 I.T.A. Nos.1352 & 1353/Mds/15 judged with reference to last date of the accounting period. Particularly, in the context of requirements f Section 40(a)(ia) of the Act, we see no warrant in the said decision of the Supreme Court to apply the test of payability only as on 31st Ma .....

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n situation which does not require any further interpretation. This is the fundamental argument of the Tribunal in the case of M/s Merilyn Shipping & Transports vs. ACIT (supra) to adopt a particular view. 26. While interpreting a statutory provision the Courts have often applied Hyden s rule or the mischief rule and ascertained what was the position before the amendment, what the amendment sought to remedy and what was the effect of the changes. 27 to 36…………&hell .....

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o. 63&64m 83-85&7-72/Coch/2014 31st March of a particular year but also which are payable at any time during the year. Of course, as long as the other requirement of the said provision exist. In that context, in our opinion the decision of the Special Bench of the Tribunal in the case of M/s Merilyn Shipping & Transports vs ACIT (supra), does not lay down correct law. 14. By following the judgments of the Calcutta High Court in Crescent Export Syndicate (supra) and the Gujarat High C .....

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e squarely applicable to the facts of the case. Respectfully following the judgments of the Calcutta High Court in Crescent Export Syndicate (supra) and the Gujarat High Court in Sikandarkhan N Tunvar (supra), we do not see any infirmity in the orders of the lower authorities. Accordingly, the orders of the lower authorities are confirmed. This decision of Cochin Bench of this Tribunal was confirmed by the Kerala High Court by judgment dated 3rd July, 2015 in Shri George Muthoot v. CIT in ITA.No .....

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of Income Tax v. Vector Shipping Services (P) [(2013) 357 ITR 642 (All)]. Primarily, this contention should be answered with reference to the language used in the statutory provision. Section 40(a)(ia) makes it clear that the consequence of disallowance is attracted when an individual, who is liable to deduct tax on any interest payable to a resident on which tax is deductible at source, commits default. The language of the Section does not warrant an interpretation that it is attracted only if .....

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, which have been relied on by the Tribunal. In view of the above, this Tribunal is of the considered opinion that the judgment of Allahabad High Court in Vector Shipping Services (P) Ltd. (supra) may not be applicable to the facts of the case. By respectfully following the judgments of Calcutta High Court in Crescent Export Syndicate (supra), Gujarat High Court in Sikandarkhan N. Tunvar (supra) and Kerala High Court in Shri George Muthoot (supra), the orders of the lower authorities are confirm .....

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oof Structures P. Ltd. and M.S. Subramaniyam & Co. All the four parties confirmed that no outstanding from the assessee as on 31.03.2010. When this was brought to the notice of the assessee, the assessee explained that a sum of ₹ 17,95,370/- was payable to above sundry creditors and the same was, in fact, written off during the years 2011-12 and 2012-13. Therefore, according to the Ld. representative, the same was offered as income for the assessment years 2011-12 and 2012-13. The Asse .....

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he profit. Therefore, according to the Ld. representative, the above amount has to be naturally added to the income for the assessment years 2011-12 and 2012-13 and not for the assessment year 2010- 11. 20. On the contrary, Sh. P. Radhakrishnan, the Ld. Departmental Representative, submitted that the Assessing Officer, during the course of assessment proceeding, found that a sum of ₹ 17,95,370/- was shown as liability. In fact, the assessee has shown the liability in the name of following .....

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