THE ACADEMY OF MEDICAL SCIENCES vs. THE COMMISSIONER OF INCOME TAX

The brief facts to be noticed are that the appellant/assessee credited lease rent to one Kerala State Co-operative Hospital Complex and Centre for Advanced Medical Services Ltd. The contention also is that no actual payment was made. But the liability in the subject years as also the credit made to the accounts of the lessor, is admitted. The appellant did not deduct tax for the amounts under Chapter XVII-B of the Income Tax Act, 1961. The questions of law in the appeals are re- framed as follows: “(i) Whether the Tribunal erred in not deleting the additions made under Section 40(a)(ia), since the second proviso introduced by Finance Act, 2012 read with the first proviso of sub-Section (1) of Section 201 absolved the assessee from being & 152 of 2015 treated as an assessee in default for reason of the payment of tax by the resident, who received the said amounts? (ii) Ought not the Tribunal have considered the provision, which was inserted by Finance Act, 2012 with effect from 01.04.2013 as curative in nature and allowed the appeal of the assessee for the years; even prior to the introduction of the proviso? (iii) Ought not the Tribunal have found that the assessee, who obtained registration

One additional question arising in the appeals from the order under Section 201(1), is as follows: “Ought not the Tribunal have confined the recovery to the interest payable on the TDS amounts when the resident–assessee had filed returns showing the income received by it, by way of lease rent and also computing the taxable income including such & 152 of 2015 amounts; as has been held in Hindustan Cocacola Beverage (P) Ltd. V. Commissioner of Income Tax [(2007) 293 ITR 226 SC].”

The learned Senior Counsel Sri. T.M. Sreedharan, appearing for the appellant, would take us through Allied Motors (P) Ltd. V. Commissioner of Income Tax [(1977) 224 ITR 677 (SC)] and Commissioner of Income Tax v. Alom Extrusions Ltd. [(2009) 319 ITR 306 (SC)] to drive home the contention urged that the proviso inserted by Finance Act, 2012 is curative in nature. It is argued that the introduction of the proviso under Section 40(a)(ia) and Section 201(1) was with the intention of alleviating the hardship, in cases where the resident-receiver of amounts, paid tax on such receipts; even when the payer has failed to deduct tax at source. It is also & 152 of 2015 contended that the assessee had a certification in so far as having been declared a charitable educational institution entitled to exemption under Section 12AA from the year 2011-2012. The assessee also filed an application for condonation of delay, to make the certification retrospective for the previous years. Admittedly the said applications, in the course of the pendency of these appeals have been declined. The learned Senior Counsel would urge that despite the rejection having been made, for reason of a satisfactory explanation as to the delay having not been furnished, the issue is at large on merits and this Court could grant such exemption. The further hardship of the assessee is in the double jeopardy in paying up the amount of TDS under Section 201(1); being treated as an assesee in default and the liability to tax on the & 152 of 2015 additions with respect to the lease rent credited by the assessee to the accounts of the lessor. The hardship is projected to claim relief, at least in so far as the deletion of additions, on the assessee satisfying the entire TDS with interest.

Sri. Ravindranatha Menon, learned Senior Counsel and Sri.Christopher Abraham, appearing for the Revenue argued that the two pronged consequence, statutorily visits an assessee in default. Neither can the additions be deleted, nor the assessee absolved from the consequence of payment of TDS along with interest. It is also pointed out that the question of whether the provision is curative does not at all arise since the resident/receiver in the present case has not paid tax on the income and has filed a loss return, without any liability to pay tax, that too & 152 of 2015 belatedly. The learned Senior Counsel for the Revenue has placed reliance on Prudential Logistics and Transports v. Income Tax Officer [(2014) 364 ITR 689 Ker] and Thomas George Muthoot v. The Commissioner of Income Tax (2016) 2 287 CTR (Ker) 101 . Two different Division Benches of this Court have held that the proviso to Section 40(a)(ia) is only prospective in nature.

We have carefully gone through the decisions placed before this Court. In Allied Motors Pvt. Ltd. and Alom Extrusions Ltd.(both supra), the amendments to Section 43B was found to be curative. The learned

The applicable provisions are Section 40(a) (ia) and the second proviso thereof and the first proviso to Section 201(1) and we extract below those provisions as it existed in the relevant assessment year. Section 40(a)(ia) as amended by Finance Act, 2008, with retrospective effect from 01.04.2005 is as follows : “Section 40 : Amounts not deductible & 152 of 2015 Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”,- (a) in the case of any assessee- xxx xxx xxx “(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub- contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid- (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub- section (1) of section 139; or (B) in any other case, on or before the last day of the previous year. Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted. (A) during the last month of the previous year but paid after the said due date; or (B) during any other month of the previous year but paid after the end of the said previous year.

As per the first proviso to Section 201(1), & 152 of 2015 when a resident, who receives any sum from an assessee, has furnished his return of income under Section 139 and taken into account such sum for computing income, as also paid the tax due on the income declared by him in such return of income; then assessee would stand absolved from being treated as an assessee in default, despite the fact that the assessee had failed to deduct at source, the whole or any part of the tax in accordance with the provisions of Chapter-XVII-B. When an assessee has failed to deduct tax by virtue of the proviso to Section 201(1), he is not treated as an assessee in default, only when the person from whom tax was to be deducted has paid the tax. The cumulative effect of the second proviso to Section 40(a)(ia) and the first proviso to Section 201(1) would be that on payment of tax by the resident receiver, & 152 of 2015 the assessee who failed to deduct tax under Chapter-XVII-B on any sum paid to the resident receiver, would not be considered as an assessee in default and the additions under Section 40(a)(ia) would also not have to be made in the case of that assessee.

However, to avail of the beneficial provisos under Sections 40(a)(ia) & 201(1), there should be (i) return of income under Section 139(ii), with computation of income including such amounts received, as also (ii) payment of tax on such income. Only if all the three conditions are satisfied, would the beneficial provision be applicable to an assessee who failed to deduct tax at source. In the present case, admittedly, resident-receiver to whom the assessee paid or credited the lease rent has filed a return & 152 of 2015 belatedly and not paid any tax due on the income declared. When there is no tax paid on the income declared; even if for reason of a loss return, there cannot be any claim raised by the assessee in default to absolve him from the consequences flowing from Sections 201(1) and 40(a)(ia). He will then be treated as an 'assessee in default' and would be liable to pay the amount of TDS with interest as also subject to the expenses being disallowed.

There is an additional ground urged on the basis of Section 43(2) of the I.T.Act. The term “paid” has been defined as an amount paid or actually incurred and hence in the case of a loss return, even if there is no actual payment, the loss return, which does not raise a liability to pay, has to be liberally construed is the argument.

We cannot countenance the further argument of the learned Senior Counsel that the appellant/ assessee should be considered as a charitable educational institution under Section 12AA. Admittedly, the assessee had applied for such registration only in the year 2011-12. The & 152 of 2015 application for condonation of delay for the previous years stood rejected. There is no question of any exemption allowed in a year in which such registration was not available; especially by this Court exercising jurisdiction under Section 260A of the I.T. Act.

We, hence, answer question Nos.1 to 3 framed and extracted herein above against the assessee and in favour of the Revenue.

The only question remaining to be considered is as to the liability of the assessee under Section 201(1) being treated as an assessee in default. Hindustan Coca Cola Beverage (P) Ltd. (supra) was in a totally different circumstance, where the resident receiver had paid the tax, and the Honourable Supreme Court relying on a circular of the CBDT allowed the claim of the assessee with & 152 of 2015 respect to the actual TDS applicable. Therein, the assessee had paid amounts to one Pradeep Oil Corporation, on which, tax deduction at source was not effected. The resident-receiver had paid the tax due on the income received from the appellant/ assessee. Relying on the circular, the Supreme Court had held so in para 10:

It is also pertinent that therein, the Tribunal had reopened its order, specifically & 152 of 2015 considering the question of liability to tax, on an application filed by the assessee, on the ground of payment of tax by the receiver-resident. The reopening had not been challenged and had acquired finality. On consideration of the Tribunal’s order of re-opening, which attained finality, as also the Circular referred to above, it was held that the appellant therein would not be liable to pay the TDS amounts, but only the interest on the tax component, which was to be deducted at source till the date of payment of such tax by the resident- receiver. The facts in the present case are clearly distinguishable and we answer the fourth question also in favour of the Revenue and against the assessee. In view of the above, we reject these Income Tax Appeals answering the questions of law in & 152 of 2015 favour of the revenue and against the assessee. No Costs. K. VINOD CHANDRAN, JUDGE. ASHOK MENON, JUDGE. //// P.A. To Judge sp/jg/12/03/18