TMI Blog2017 (6) TMI 1354X X X X Extracts X X X X X X X X Extracts X X X X ..... eclaratory and curative in nature and has retrospective effect from 1st April, 2005 - Decided against revenue. - I T.A. No. 2164/Mds/2014 - - - Dated:- 21-6-2017 - Shri A. Mohan Alankamony, Accountant Member Shri Duvvuru RL Reddy, Judicial Member Appellant by : Shri A.V. Sreekanth, JCIT Respondent by : Shri A.S. Sriraman, Advocate ORDER PER DUVVURU RL REDDY, JUDICIAL MEMBER: This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) II, Coimbatore dated 29.05.2014 relevant to the assessment year 2010-11. The Revenue has raised the following grounds: 1. The order of the learned CIT(Appeals)-II, Coimbatore is against facts, law and circumstances of the case. 2. The CIT(A)-II, Coimbatore has erred in holding that since the recipient has admitted the sum received as income and paid taxes there on then the deductor (in this case the assessee) is absolved from deducting tax at source which is not the provision of law and against the legislative intent. 3. The CIT(A)-II, Coimbatore ought to have appreciated that the second proviso to Sec. 40(a)(ia) takes effect from 01.04.2013 only and it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions of the assessee and analyzing the facts of the assessee, the Assessing Officer has observed that though the agreement filed by the assessee detailing the bundle of services like rent, royalty, commission has been complied with by M/s. KPR Mills Ltd., for which they have received payments in the name and style of business promotion expenses and held that non-deduction of TDS on this payment is hit directly by the provisions of section 40(a)(ia) of the Act and hence, he disallowed the same and brought to tax. 3. The assessee carried the matter in appeal before the ld. CIT(A) and the the assessee has submitted that the purpose of Memorandum of Agreement dated 24.06.2009 between the Holding company and the 100% subsidiary company is to share the revenue at the end of the financial year through a Book entry on a fixed and predetermined portion i.e. percentage of revenue earned from garment exported to the customers list supplied by KPR Mill Limited (KPRML), goes to them and a percentage on turnover was retained by Quantum Knits (P) Ltd. (QKPL) for their work. In this case the two contracting parties act on Principal to Principal basis and one did not provide service to anoth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they have paid the tax on the same. Therefore, the assessee requested that they may be given the benefit under the Supreme Court decision in the case of M/s. Hindustan Coco Cola Beverages as well as the subsequent amendment in the Finance Act 2012. It is being noted that these issues were raised before the Assessing Officer during the course of assessment. 6.2 On a perusal of the return of income filed by KPR Mills it is noticed that they have accounted this amount under miscellaneous receipts totaling ₹.7,20,24,324/- of which ₹ 7,13,98,602/- are the amount received from M/s.Quantum Knits. Therefore relying on the decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd. Vs. CIT and subsequent decision of the ITAT Chennai in the case of M/s. Foxconn India Developers (P) Ltd. Vs. ITO TDS the assessee is entitled to relief. It is also to be noted that Finance Act 2012 has made an amendment to section 201 (1) to the effect that the deductee has discharged the tax liability attributable to such receipts and has filed the return of income the deductor need not be held to be an assessee in default despite failure to deduct tax at source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rores paid to M/s, United Breweries Ltd. However, since by virtue of the second proviso to section 40(a)(ia) of the Act, the related TDS is deemed to have been deducted and paid on 30.09.2010 being the date of filing of return of income by M/s. United Breweries Ltd. (the deductee), the assessee has claimed deduction by virtue of section 40(a)(ia) of the Act, since 30.09.2010 was also the due date for the assessee for filing the return of income under section 139(1) of the Act. It is an admitted fact that both the assessee and the deductee have filed their returns of income on the due date of filing of return in terms of section 139(1) of the Act. The only dispute raised by the Department is that the second proviso to section 40(a)(ia) of the Act is not applicable for the assessment year 2010-11 since the said second proviso is only operative from 01.04.2013 as per the amendment made by the Finance Act, 2012. The above ground has raised by the assessee before the ld. CIT(A) as an additional ground. Accordingly, the ld. CIT(A) asked comments of the Assessing Officer on the allowability of sum of ₹.31.00 crores as deduction under the first proviso to section 40(a)(ia) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. When we appreciate the object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a fair, just and equitable interpretation of law- as is the guidance from Hon ble Delhi High Court on interpretation of this legal provision, in our humble understanding, it could not be an intended consequence to disallow the expenditure, due to non deduction of tax at source, even in a situation in which corresponding income is brought to tax in the hands of the recipient. The scheme of Section 40(a)(ia), as we see it, is aimed at ensuring that an expenditure should not be allowed as deduction in the hands of an assessee in a situation in which income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271 C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40(a)(ia), as they existed prior to insertion of second proviso theret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal has been affirmed by the Delhi Benches of the Tribunal in the case of Ansal Landmark Township Pvt. Ltd. v. Addl.CIT in I.T.A. No. 2972/Del/2012 for the assessment year 2008-09 and in I.T.A. No. 877/Del/2013 for the assessment year 2009-10. Against the decision of the Delhi Benches of the Tribunal in the case of Ansal Landmark Township Pvt. Ltd. v. Addl.CIT (supra), the Department went in appeal before the Hon ble Delhi High Court and vide its order dated 26.08.2015 by confirming the order of the Delhi Benches of the Tribunal, the Hon ble Delhi High Court has held that the second proviso to section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 1st April, 2005. During the course of hearing, the ld. DR has relied on the decision in the case of Prudential Logistics and Transports v. ITO [2014] 364 ITR 689 (Ker.), wherein the Hon ble Kerala High Court has taken a view that the application of second proviso to section 40(a)(ia) of the Act is only prospective. Since there exists two contradictory decisions, we are of the considered opinion that the Hon ble Supreme Court in the case of CIT v. Vegetable Products Ltd. 88 ITR 192 has held that the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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