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2016 (5) TMI 1222 - ITAT BANGALORE

2016 (5) TMI 1222 - ITAT BANGALORE - TMI - TDS liability on provisions made as at the end of the accounting year - Held that:- The undisputed fact is that the provisions, made at the end of the accounting year are reversed in the beginning of the next year. No payees are identified. The exact amount of liability also cannot be quantified. The provisions are made merely on for Management Information System. In our considered opinion, liability to deduct tax at source does not arise.

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ncome-tax (Appeals)- III, Bangalore [CIT(A)] dated 9/10/2014 for the assessment year 2006-07. 2. The assessee raised the following grounds of appeal: The grounds mentioned herein are without prejudice to one another. 1) That the order passed by the Learned Commissioner of Income-Tax (Appeals), LTU ['CIT(A)'] under section 250 of the Income-tax Act, 1961 ('Act') is contrary to the facts, is bad in law and liable to be quashed. 2) That on the facts and in the circumstances of the c .....

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rpose of complying with the mercantile system of accounting and taxes were withheld as and when the actual invoices were received from vendors. 4) That the Learned CIT(A) failed to appreciate that the provision for expenses were contingent in nature, and hence tax was not withheld on such provisions. 5) The Appellant prays for appropriate relief based on the above grounds of appeal and the facts and circumstances of the case and in deletion of the tax payable amounting to ₹ 29,82,454. 6) T .....

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alore,[hereafter referred as TDS Officer ] exercising his powers vested u/s 133(6) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short], directed the assessee-company to furnish details of payments made and tax deducted at source during the financial year 2011-12. During the course of such proceedings, the TDS officer had noticed that the assessee-company had not deducted TDS in respect of provision for various expenses made as on 31/3/2012 of ₹ 10,62,92,447 .....

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ing to the total income as no TDS was made and the claim for deduction was made only in the year in which TDS was made. The TDS officer had not accepted the submissions made and held that the assessee-company is in default as it had not deducted TDS on such amount of provision. However, he allowed relief in respect of an amount of ₹ 8,66,58,261/- in respect of which taxes have been deducted in the immediate succeeding year and demanded TDS on the balance amount of ₹ 195,44,231/- and .....

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iability had not crystallized in the hands of the assesseecompany and therefore, the question of deducting TDS at source does not arise. In support of this, learned AR of the assesseecompany has relied on the following decisions: i. Karnataka Power Transmission Corporation Ltd. vs. DCIT (Kar.) ii. E.D.Sassoon & Co.Ltd. vs. CIT (26 ITR 27)(SC) iii. Ramsh R.Saraiya vs. CIT (55 ITR 699)(SC) iv. Bharat Earth Movers vs. CIT (112 Taxman 61 (SC) v. Taparia Tools Ltd. vs. JCIT (126 Taxman 544)(Bom) .....

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ITA No.1583/Bang/2014)(ITAT, Bang) xiii. Pfizer Ltd. vs. ITO (TDS)(OSD) (28 Taxmann.com 17(ITAT, Mumbai) xiv. Industrial Development Bank of....vs. ITO (107 ITD 45)(ITAT, Mumbai) xv. xvi. Uttar Pradesh Financial Corporation vs. ITO (ITA Nos.642 l& 643/Lkw/2010)(ITAT,Lucknow) 5.2 On the other hand, learned DR relied on the orders of the lower authorities. 6. We heard the rival submissions and perused material on record. The issue in appeal relates to the liability of the assessee-company to d .....

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M/s.Bosch Ltd. vs. ITO in ITA No.1583/Bang/2014 dated 01/03/2016, to which one of us i.e. the Accountant Member is the author of the order, held as follows: 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. .....

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o 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 is remittance the obligation to deduct TAS arises is to be accepted then we are obliterating the words chargeable under the provisions of the Act in section 195(1). The said expression in section 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. The payer is bou .....

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, 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 of tax in respect of any amount referred to in the specified provisions. In none of the provisions we find the expression sum chargeable under the provisions of the Act , which as stated above, is an expression used only in section 195(1). Therefore this court is required to give meaning and effect to the said expression. It follows, .....

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rovisions 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 to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all. We cannot read section 195, as suggested by the Department, namely, that the moment there is remittance the obligation to deduct TAS arises. If we were to accept such a contention it would mean that on mere payment income would be .....

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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 ju .....

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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, the provisions relating to TDS applies only to those sums which are chargeable to tax under the Income tax Act. If the contention of the Department that any person making payment to a non-resident is necessarily required to deduct TAS then the consequence would be that the Department would be entitled to appropriate the moneys depo .....

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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 chargeable under the provisions of the Act to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. In our view, section 19 .....

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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 Officer (TDS) of payments made to nonresidents. 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 f .....

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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 amount to a non-resident out of India he claims deduction or allowances under the Income Tax Act for the said sum as an expenditure . Under Section 40(a)(i), inserted, vide Finance Act, 1988, with effect from April 1, 1989, payment in respect of royalty .....

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e 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 remitted outside India come within the definition of royalty or fees for technical service or other sums chargeable under the Incometax Act then it would be open to the Assessing Officer to disallow such claim for deduction. Similarly, vide the Finance Act, 2008, with effect from April 1, 2008, sub-section (6) has been inserted in sect .....

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ion 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 only comprised supply of plant, machinery and equipment in India, but also comprised the installation and commissioning of the same in India. It was admitted that the erection and commissioning of plant and machinery in India gave rise to income taxable in India. It was, therefore, clear even to the payer that payments required to be m .....

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ount 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 i .....

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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 thereon before making payment. He has to discharge the obligation to TDS . If one reads the observation of the Supreme Court, the words such sum clearly indicate that the observation refers to a case of composite payment where the payer has a doubt regarding the inclusion of an amount in such payment which is exigible to tax in India. .....

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tion 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 under sections 4,5 and 9 of the Income Tax Act. 10. Now to determine where there was income accrued or not considering the fact that the provisions were made at the year end is reversed in the beginning of the next accounting year goes to show that there was no income accrued. Mere entries in the books of accounts does not establish the .....

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ut an agreement to receive a lessor remuneration than what had been agreed upon. The assessee had in fact received only the lesser amount in spite of the entries in the account books, and this lesser amount alone was taxable. 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, ther .....

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, 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 deducting tax at source and therefore, we allow the grounds of appeal filed by the assessee co .....

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