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TMI Blog2019 (12) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosing income of Rs. 8,90,84,580/- after claiming deduction u/s 80IB of the Act of Rs. 1,91,93,385/-. The case was selected for scrutiny and notices u/s 143(2) and 142(1) were issued. In response, ld. AR of the assessee appeared from time to time and made submissions on claim of deduction u/s 80IB(10) of the Act, Whereas AO dealt on the disputed issue at para.5 of the order and submissions of the assessee on 11/11/2016 for allowing the claim u/s 80IB(10) of the Act. Further Ld. AR submitted that in the assessee's own case for assessment years 2009-10 and 2010- 11, the co-ordinate bench of Tribunal has allowed deduction u/s 80IB(10) proportionately to profits derived from sale of residential unit whose built up area is less than 1500 sq.ft. Even though some of the residential units in the very same project exceeded the built-up area of 1500 sq.ft. But the revenue has filed an appeal against the Tribunal order in the Hon'ble High Court of Karnataka. Hence, AO has made proportionate disallowance of the claim as the Tribunal decision in the assessee's case for earlier year's is pending before the jurisdictional High Court of Karnataka. On the second issue, the assessee has made pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilt-up area is less than 1500 Sq.ft. even though some of the residential units in the very same project exceeds the built-up area of 1500 sq.ft the same has been decided by the Hon'ble High Court of Karnataka in the case of CIT v. SJR Builders in ITA No.32 of 2010 dated 19.03.12. The Hon'ble High Court has taken the view confirming the order of the Tribunal, by holding that where residential units exceed the built up area of 1500 sq.ft., such units, such units may be excluded for deduction, but the assessee will not lose the benefit of deduction u/s. 801B(10) in its entirety. It is only with reference to the flats which is more than the prescribed area that the assessee will lose the benefit of deduction. The Tribunal in its -decision had followed the ruling of the Special Bench of the Tribunal in the case of Brahma Associates v. JCIT (313 ITR (AT) 268 (Rune) (SB). Several other decisions of various benches of the Tribunal were filed in the paper book taking similar view. In view of the aforesaid decision of the Hon'ble High Court of Karnataka, we are not making any reference to those decisions. In view of the aforesaid decision of the Hon'ble Karnataka High Court, we are o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 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 bound to deduct TAS only if the tax is assessable in India. If tax is not so assessable, there is no question of TAS being deducted. One more aspect needs to be highlighted. 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, howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions 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 section 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 non-resident 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, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory 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 abovementioned 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, fees for technical services or other sums chargeable under the Income Tax Act would not get the benefit of deduction if the assessee fails to deduct TAS in respect of 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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt. 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 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 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. In our view, the above observations of this court in Transmission Corporation case (1999) 239 ITR 587 (SC) which are put in italics have been compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 company in this regard." The Hon'ble High Court of Karnataka in the case of Karnataka Power Transmission Corporation Ltd. vs. DCIT (2016) 383 ITR 59(Karn) held that for the purpose of deducting tax at source, the income which finally par takes character of income alone is allowable for deduction of income-tax. If the amount is not considered to be income in the hands of the deductee, the provisions of tax deduction at source would not be made applicable. The relevant paragraph of the judgment is as under: "We have examined the applicability of section 194A of the Act to the present case. Section 194A of the Act mandates the tax deductor to deduct "incometax" on "any income by way of interest other than income by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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