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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Chandra Poojari, AM & Shri George George K, JM
Per George George K, JM
These appeals at the instance of the assessee are directed against two orders of the CIT(A), both dated 15.10.2018. The relevant assessment years are 2010-2011 and 2012-2013. Common issues are raised in these appeals, hence, they were heard together and are being disposed of by this consolidated order.
We shall first adjudicate ITA NO.64/Coch/2019
ITA No.64/Coch/2019 : Asst. Year 2010-2011
The effective grounds raised read as follows:-
ITA Nos.64 & 65/Coch/2019 2 Sri.V.J.Francis. “1. The order of the Learned CIT Appeals is contrary to the facts and circumstances of the case and in law and the orders passed by the lower authorities are arbitrary, erroneous, without proper reasons, invalid and bad.
On facts and circumstances of the case, the Learned CIT Appeals has erred in disallowing under Sec 40(a)(ia) the payment of rent as perquisite employee amounted to Rs 2,88,000 made by the appellant on which TDS has already been deducted @ 30% u/s. 192 by treating the said payment as rent u/s. 1941. The Learned Assessing Officer as well as the Learned CIT (A) ought to have appreciated the fact that tax for the rent amount included as perquisite in salary was deducted in accordance with the provisions of Sec 192 of the Act and therefore no deduction u/s 1941 was required for the same and no loss to the revenue has been occurred.
On facts and circumstances of the case, the Learned CIT Appeals was not justified in sustaining the disallowance u/s 40(a)(ia) for non deduction of TDS on Terminal Handling Charges of Rs 6,40,432 by failing to take into consideration the necessary documents as provided in second proviso to Sec 40(a)(ia), The Learned CIT Appeals is unjustified in making reference and relying on judicial precedents which are not applicable to the facts of the Appellant, to conclude that the relief sought by your appellant under the second proviso to Sec 40(a)(ia) cannot be applied retrospectively.
The Learned CIT Appeals has not taken into consideration the judgement of Principal Commissioner of Income Tax V Manoj Kumar Singh, (2018) 402 ITR 238 where the Hon'ble Allahabad High Court had held that second proviso to Section 40(a)(ia) of the Act be given retrospective application
ITA Nos.64 & 65/Coch/2019 3 Sri.V.J.Francis. 4. In view of the above grounds and any other grounds advanced during the course of hearing, the order of the learned assessing officer may be negativated.”
The brief facts of the case are as follows:
The assessee is an individual, who is engaged in the business of manufacture and export of Coir Products. For the assessment year 2010-2011, the return of income was filed on 21.09.2010 declaring total income of Rs.8,96,930. The assessment u/s 143(3) r.w.s. 147 of the I.T.Act was completed vide order dated 11.12.2014 by making following additions u/s 40(a)(ia) of the I.T.Act :
(i) Disallowance of rent Rs.2,88,000 (ii) Disallowance of terminal handling charges Rs.6,40,432
Aggrieved by the reassessment order completed on 11.12.2014, the assessee preferred appeal to the first appellate authority. The CIT(A) confirmed the assessment order in regard to the above two disallowance of expenses. The finding of the CIT(A) as regards the disallowance of rent amounting to Rs.2,88,000 reads as follows:-
“4.2.4 During the appeal proceedings, the learned AR argued that the said expense was wrongly debited under the head `rent’ instead of `Salary’. However, on perusal of the Form 16 produced, it is observed that the amount of Rs.2,88,000 was shown as the value of the
ITA Nos.64 & 65/Coch/2019 4 Sri.V.J.Francis. perquisite under section 17(2) of the Act. This would imply that the Appellant had provided rent free accommodation to its Director and therefore, the Appellant is liable to deduct tax on the rent paid to the Builder separately. Further, the argument of the learned AR that the said amount was wrongly debited under the head `rent’ is not valid. The Appellant had not deducted tax on the rent paid to the Builder. Hence, the disallowance of Rs.2,88,000 under section 40(a)(ia) is upheld and the ground raised on this issue is dismissed.”
As regards non-deduction of tax at source on payment of terminal handling charges amounting to Rs.6,40,432, the finding of the CIT(A) reads as follows:-
“4.3.4. The arguments of the learned AR are considered. The learned AR sought relief from the disallowance under section 40(a)(ia) of the Act under section proviso of the section 40(a)(ia) of the Act. However, the second proviso was brought into the Act w.e.f. AY 2013-14. The question, whether the said proviso can be applied retrospectively, has been considered by Hon'ble High Court of Kerala in the case of Prudential Logistics And Transports, 51 taxmann.com 426, and it was held that the said benefit is available only from AY 2013-14. Following the said decision of Hon'ble jurisdictional Court, the disallowance of terminal handling charges of Rs.6,40,432 is upheld and the ground raised on this issue is dismissed.”
Aggrieved by the order of the CIT(A), the assessee has preferred the present appeal before the Tribunal. The learned AR has filed a written submission. The relevant portion of the written submission as regards the disallowance of rent read as follows:-
ITA Nos.64 & 65/Coch/2019 5 Sri.V.J.Francis. The appellant had made payment of rent amounting to Rs 2,88,000/- on behalf of Mr Christopher Mary, being technical director in the form of perquisites along with salary income on which TDS has been deducted at 30%. The said expense has been debited to Profit and Loss Account under the head Rent instead of Salary. Further Form 16 has been issued by your appellant was inclusive of the said Rent of Rs. 288,000/- and the copy of same has been produced before CIT (Appeals) to his satisfaction. Since there were no losses to the revenue in this regard, the disallowance of said rent was unwarranted.
6.1 As regards the non-deduction of tax on payment of terminal handling charges, the relevant portion of the written submission, reads as follows:-
The appellant had made payment of terminal handling charges of Rs.6,40,432/- to M/s DHL Lemuir Logistics.
The Learned Assessing Officer disallowed payment u/s 140(a)(ia) of the Income Tax Act, 1961 on the ground that the assessee has not deducted tax at source on terminal handling charges, Rs 6,40,432 is disallowed u/s 40(a)(ia).
During the course of appeal proceedings, the aforementioned disallowance was upheld by the Learned
ITA Nos.64 & 65/Coch/2019 6 Sri.V.J.Francis. CIT Appeals on the ground that the arguments of the learned AR are considered. The learned AR sought relief from the disallowance under section 40(a)(ia) of the Act under section proviso of the section 40(a)(ia) of the Act. However, the second proviso was brought into the Act w.e.f. AY 2013-14. The question, whether the said proviso can be applied retrospectively, has been considered by Hon'ble High Court of Kerala in the case of Prudential Logistics And Transports, 51 taxmann. com 426, and it was held that the said benefit is available only from A Y 2013-14. Following the said decision of Hon'ble jurisdictional Court, the disallowance of terminal handling charges of Rs. 6,40,432 is upheld and the ground raised on this issue is dismissed.
6.2 The learned Departmental Representative relied on the orders of the Income-tax authorities.
We have heard the rival submissions and perused the material on record. As regards the disallowance of rent paid amounting to Rs.2,88,000, the assessee had contended that expenses were wrongly debited under the head `rent’ instead of `salary’. It is not clear whether the assessee had taken the premises on rent or whether the rent paid by the employee was reimbursed by the assessee. Only on perusal of the rent agreement we can determine whether the assessee needs to deduct tax at source. If the premises have been directly taken by the employee, then the assessee is not under the obligation
ITA Nos.64 & 65/Coch/2019 7 Sri.V.J.Francis. to deduct tax at source on rent paid by the employee. The assessee claims that rent was duly included as part of HRA and tax was deducted at source u/s 192 of the I.T.Act on salary paid to employee. Unless we are able to peruse the rental agreement, we are not in a position to conclude whether TDS need to be deducted on the payment of Rs.2,88,000. Since the rental agreement is not on record, we deem it appropriate to restore the issue to the files of the Assessing Officer. The A.O., after perusing the rental agreement, shall determine whether the rent is paid by the assessee directly to the landlord and if so, the provisions of section 194-I shall have application. In such circumstances, the assessee was duty bound to deduct tax at source. With these observations, we restore the matter to the Assessing Officer to consider the issue afresh. Hence, ground No.2 is allowed for statistical purposes.
As regards the disallowance of expenditure of terminal handling charges amounting to Rs.6,40,432 is concerned, the only plea of the assessee is that as per 2nd proviso to section 40(a)(ia) of the I.T.Act since the payee had paid the tax on the income that is received by it from the assessee, the assessee cannot be held liable for tax deduction at source, and hence, the provisions of section 40(a)(ia) of the I.T.Act cannot be applied. The second proviso to section 40(a)(ia) was inserted with effect from 1st April, 2013. The Hon’ble jurisdictional High Court in the case of Prudential Logistics and Transports v. ITO [(2014) 364 ITR 689 (Ker.)] had held that said benefit is
ITA Nos.64 & 65/Coch/2019 8 Sri.V.J.Francis. available only from assessment year 2013-2014. In view of the judgment of the Hon’ble jurisdictional High Court, we hold that the benefit of 2nd proviso to section 40(a)(ia) of the I.T.Act cannot have application for the current assessment year. It is ordered accordingly. Hence, ground No.3 is rejected.
ITA No.65/Coch/2019 : Asst.Year 2012-2013 9. Three effective grounds are raised in this appeal. They read as follows:-
“2. On facts and circumstances of the case, the Learned CIT Appeals has erred in disallowing under Sec 40(a)(ia) the payment of rent as perquisite to employee amounted to Rs 3,38,000 made by the appellant on which TDS has already been deducted @ 30% u/s. 192 by treating the said payment as rent u/s. 1941. The Learned Assessing Officer as well as the Learned CIT (A) ought to have appreciated the fact that tax for the rent amount included as perquisite in salary was deducted in accordance with the provisions of Sec 192 of the Act and therefore no deduction u/s 1941 was required for the same and no loss to the revenue has been occurred.
On facts and circumstances of the case, the Learned CIT Appeals was no justified in sustaining the disallowance u/s 40(a)(ia) for non deduction of TDS on Terminal Handling Charges of Rs 10,09,740 by failing to take into consideration the necessary documents as provided in second proviso to Sec. 40(a)(ia). The Learned CIT Appeals is unjustified in making reference and relying on judicial precedents which are not applicable to the facts of the Appellant, to conclude that the relief sought by your appellant under the second proviso to Sec.40(a)(ia) cannot he applied retrospectively.
ITA Nos.64 & 65/Coch/2019 9 Sri.V.J.Francis.
The Learned CIT Appeals has not taken into consideration the judgement of Principal Commissioner of Income Tax V Manoj Kumar Singh, (2018) 402 ITR 238 where the Hon'ble Allahabad High Court had held that second proviso to Section 40(a)(ia) of the Act be given retrospective application.
On the facts and circumstances of the case, the Learned CIT Appeals was not justified in sustaining the disallowance u/s 40(a)(ia) for non deduction of TDS on Professional Charges 72,917 by failing to take into consideration the necessary documents as provided in second proviso to Sec 40(a)(ia).”
The issue raised in ground No.2 is with regard to disallowance of rent. Identical issue was considered by us in ITA No.64/Coch/2019. For the reasons stated in paragraph 7, we restore this issue to the A.O. for fresh consideration.
The issue raised in ground No.3 is regarding disallowance u/s 40(a)(ia) of the I.T.Act for non-deduction of tax on terminal handling charges amounting to Rs.10,09,740. This issue was already considered by us in ITA No.64/Coch/ 2019. For the reasons stated in paragraph 8, we reject ground No.3 raised in this appeal.
As regards the issue raised in ground No.4, the Assessing Officer had disallowed professional charges amounting to Rs.72,197 for the reason that the assessee had failed to deduct tax at source on this amount. The only contention raised by the assessee is that since payee had paid
ITA Nos.64 & 65/Coch/2019 10 Sri.V.J.Francis. taxes, there cannot be any disallowance in view of second proviso to section 40(a)(ia) of the I.T.Act. However, we noticed that the 2nd proviso was brought into effect with effect from assessment year 2013-2014. The Hon’ble jurisdictional High Court in the case of Prudential Logistics and Transports v. ITO [(2014) 364 ITR 689 (Ker.)] had held that the said benefit available only from assessment year 2013-2014. In view of the above said judgment of the Hon’ble jurisdictional High Court, we confirm the disallowance of professional charges amounting to Rs.72,917. Hence, ground No.4 is rejected.
In the result, the appeals filed by the assessee are partly allowed for statistical purposes.
Order pronounced on this 22nd day of March, 2019.
Sd/- Sd/- (Chandra Poojari) (George George K) ACCOUNTANT MEMBER JUDICIAL MEMBER
Cochin ; Dated : 22nd March, 2019. Devdas* Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The Pr.CIT Kottayam 4. The CIT(A) Kottayam. 5. DR, ITAT, Cochin 6. Guard file.
BY ORDER,
(Asstt. Registrar)