IFC UNIVERSAL EXPRESS PRIVATE LIMITED,MUMBAI vs. INCOME TAX OFFICER-8(2)(1), MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

2. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in not appreciating the submissions tiled by the appellant, that the introduction to proviso to section 201(I)is explanatory/clarificatory and therefore should apply retrospectively and therefore payments of freight without TDS 2 A.Y. 2011-12 when other conditions are satisfied, ought not to have been disallowed u/s 40(a)(ia) of the Act.

at the time of hearing.”

3. The brief facts of the case are that the assessee filed its return of income on 28.09.2011 declaring total loss to the tune of Rs.4,51,902/-. The return was processed u/s 143(1) of the Act. Thereafter, the case was selected for scrutiny and notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee company is engaged in the business of Consolidators and wholesale Couriers. On verification, it was found that the assessee has paid the Freight & Courier charges in sum of Rs.4,58,04,754/- to different parties. Description is hereby mentioned as under.: - Particulars Amount(Rs)

4. The assessee failed to deduct the TDS at source, therefore, the notice of disallowance u/s 40(a)(ia) of the Act was given and after the reply of the assessee, the claim qua payment to Jet Airways in sum of Rs.7,15,765/-, M/s. Kingfisher in sum of Rs.50,38,699/- and British Airways in sum of Rs.77,86,668/- was disallowed u/s 40(a)(ia) of the Act and added to the income of the assessee. The income of the assessee was assessed to the tune of Rs.1,30,86,230/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who partly allowed the claim of the assessee, therefore, the assessee has filed the present appeal before us. GROUND NO. 1 5. Under this ground the assessee has challenged the disallowance of claim in respect of Jet Airways (India) Ltd. of Rs.7,15,765/- and Kingfisher Airlines Ltd. of Rs.50,38,699/- u/s 40(a)(ia) of the I.T. Act. The Ld. Representative of the assessee has argued that the case of the assessee has duly been covered with the decision of the Hon’ble ITAT in the case of ACIT-9(2)(2) vs. City Gold Investment P. Ltd. in for the A.Y. 2012-13, therefore, in the said circumstances, the claim of the assessee is liable to be allowed. It is specifically argued that the payee has already deposited the tax and in this regard the confirmation letter dated 25.09.2015 issued by Jet Airlines and the certificate of accountant u/s 201 of the Act issued by Kingfishers Airlines has duly been filed, therefore, in the said circumstances, the claim of the assessee is liable to be allowed. However, on the other hand, the Ld. Representative of the Department has 4 A.Y. 2011-12 refuted the said contention. On appraisal of the order of CIT(A) in question, we noticed that the CIT(A) has specifically held that the case of the appellant has duly covered by Second proviso to Section 40(a)(ia) of the Act which was brought on Statute by Finance Act, 2012 w.e.f. 01.04.2013. Therefore, it is specifically held that the amendment was prospective in nature, therefore, the claim of the assessee is not liable to be allowed by relied upon the law such as Prudential Logistics and Transports (2014) 51 taxmann.com 426 (Kerala) and Bharti Shipyard Ltd. (2011) 13 taxmann.com 101 (Mum) (SB). No doubt, in the case of CIT Vs. Ansal Land Mark Township Pvt. Ltd. (2015) 377 ITR 635 (Del), it is specifically held that proviso is declaratory and curative in nature and it has retrospectively effective from 01.04.2005. In the case of Prudential Logistics and Transports (2014) 51 taxmann.com 426 (Kerala) it is specifically held that the benefit to second proviso to Section 40(a)(ia) of the Act giving concession to assessee from deducting TDS in case of recipient of amount in question had already paid taxes on such amount would be available w.e.f. 01.04.2013 only. No doubt, it is difference of opinion in the above mentioned law. When contrary law is available on specific point then law in favour of the assessee is liable to be applicable in view of the decision of the Hon’ble Supreme Court in the case of The Commissioner of Income-Tax Vs M/S. Vegetables Products Ltd. (Supreme Court of India) Appeal Number : 1973 AIR 927,1973 SCR (3) 448,88 ITR 192 Date of Judgement/Order : 29/01/1973. Moreover, the Hon’ble ITAT has decided the issue in favour of the assessee in the case of ACIT-9(2)(2) vs. City Gold Investment P. Ltd. in ITA. No.4160/M/2016 for the A.Y. 2012-13 it is specifically held that the amendment in second proviso of Section 40(a)(ia) of the Act in inserted by Finance Act, w.e.f. 01.04.2013 is effected retrospectively w.e.f. from 01.04.2005. The relevant finding is hereby reproduced as under.: - 5 A.Y. 2011-12 “7. We have heard the rival submissions, perused the orders of the authorities below and the case laws relied on. The Assessing Officer disallowed interest expenditure for want of deduction of TDS. The Ld. CIT(A) referring to various decisions deleted the disallowance for the reason that the payees have accounted for the interest income and filed the returns and paid the taxes as per the second proviso to section 40(a)(ia) of the Act. Second Proviso of section 40(a) was inserted in Finance (No.2) Act w.e.f. 01.04.2013, so the question arises as to whether the said amendment is prospective or retrospective and this aspect of the matter had already been considered by us while passing the order in the case of E-Commerce Magnum Solution Ltd., v. DCIT (supra) to which one of us is a party. By following the decision of the Hon'ble Delhi High Court in the case of CIT v. Ansal Landmark Township P. Ltd, (supra) we have held that second proviso to section 40(a)(ia) of the Act is applicable retrospectively from 01.04.2005 being the date from which second clause (ia) of section 40(a) was inserted by Finance (No.2) Act, 2004. The relevant portion of the decision is as under: - “5. We have heard the rival submissions and perused the material before us. We find that the assessee had, while finding its original return of income, had made a disallowance of Rs. 1.03 Crores, that it had not deducted tax at source as per the provisions of chapter XVII of the Act, that later on it withdrew the disallowance made under section 40(a)(ia) in the revised return, that it relied upon the case of Hindustan Coca-Cola Beverages Private Ltd.(293 ITR 226), that the AO and the FAA held that facts of Hindustan Coca-Cola Beverages Private Ltd. were distinguishable, that the provisions of section 40(a)(ia) were amended by the Finance act, 2012, that second proviso had been brought in statute book with effect from 01/04/2013, that the act of the assessee of deleting the addition under section 40(a)(ia) in the revised return for the assessment year 2012-13 was not in consonance with the judgment of the Hon’ble of Apex Court or the Act, that the assessee had claimed the reversal of TDS amount of Rs. 10,39,94,746/- in the balance sheet under the head inventories, that the assessee claimed that proviso to the section was applicable retrospectively. In our opinion, the core issue to be decided is as to whether the proviso is applicable from 1.4.2005 or from 01/04/2013. We find that the Hon’ble Delhi High Court has, in the case of Ansal Landmark Township Private Ltd. (377 ITR 635) dealt the issue at length and has held as under: “Section 40(a)(ia) of the Income-tax Act, 1961, 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 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 insertion of the second proviso to section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from April 1, 2005, being the date from which sub-clause (ia) of 6 A.Y. 2011-12 section 40(a) was inserted by the Finance (No. 2) Act, 2004. The first proviso to section 201(1) of the Act has been inserted to benefit the assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident, such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under section 139. What is common to both provisos to sections 40(a)(ia) and 201(1) of the Act is that as long as the payee or resident has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the assessee would not be treated as a person in default.” Considering the facts of the case and the above judgment, we hold that the proviso to the section is applicable from 01.04.2005, that the deductee had paid the taxes on the income that was subject of TDS provisions, that no action could be, against the assessee making the payment to HL. The basic aim of chapter XVII is to ensure that no portion of income remains untaxed. To ensure it, TDS provisions were introduced-the person making payment was made responsible to deduct tax and pay it with the government account. But, the proviso to section 40(a)(ia)made it clear that if the deductee pays the taxes on the entire income liable for taxation then no action would be taken against the deductor. The proviso is quite logical. It ensures that whole of the taxable income is taxed. Once the specific purpose is served there is no justification to indulge in unnecessary litigation. It is not the case of the AO or the FAA that the deductee had not paid the taxes on the taxable income or that it was not paid within the prescribed time limit. Therefore, reversing the order of the FAA we decide the effective ground of appeal

in favour of the assessee.”

8. The Raipur Bench of the Tribunal in the case of R.K.P Company v. ITO in ITA.No. 106/RPR/20016 dated 24.06.2016 also considered conflicting views of High Courts on the issue and following the decision of the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd., (supra) took a decision which is in favour of the assessee observing as under: “

6. When, however, we asked the learned Departmental Representative as to why we should also not remit the matter to the file of the Assessing Officer, with the same directions, he, alongwith his senior colleague Shri Darhan Singh, who happens to be the CIT(A) authoring the impugned order and who was on duty as CIT(DR) before us, had three points to make- first, that there are decisions in support of the stand of the Assessing Officer’s stand, by way of Hon’ble Kerala High Court’s decision in the case of Thomas George Muthoot Vs CIT [(2015) 63 taxmann.com 99 (Kerala)]; second, that even if insertion of second proviso to Section 40(a)(ia) can be construed as retrospective in effect, the corresponding rule in the Income Tax Rules 1962 is not, and has not been held to be, retrospective, and 7 A.Y. 2011-12 the second proviso to Section 40(a)(ia) cannot, therefore, be give retrospective effect; and, third, that there is no decision on this issue by Hon’ble jurisdictional High Court and, as such, the stand of the Assessing Officer cannot be faulted.

7. As for Hon’ble Kerala High Court’s decision in the case of Thomas George Muthoot (supra), undoubtedly, outside the jurisdiction of Hon’ble Kerala High Court and outside the jurisdiction of Hon’ble Delhi High Court- which has decided the issue in favour of the assessee, there are conflicting decisions on the issue of retrospectivity of second proviso to Section 40(a)(ia). It is thus evident that views of these two High Courts are in direct conflict with each other. Clearly, therefore, there is no meeting ground between these two judgments. The difficulty arises as to which of the Hon’ble non jurisdictional High Court is to be followed by us in the present situation. It will be wholly inappropriate for us to choose views of one., the High Courts based on our perceptions about reasonableness of the respective viewpoints, as such an exercise will de facto amount to sitting in judgment over the views of the High Courts something diametrically opposed to the very basic principles of hierarchical judicial system. We have to, with our highest respect of both the Hon’ble High Courts, adopt an objective criterion for deciding as to which of the Hon’ble High Court should be followed by us. We find guidance from the judgment of Hon’ble Supreme Court in the matter of CIT vs. Vegetable Products Ltd. [(1972) 88 ITR 192 (SC)]. Hon’ble Supreme Court has laid down a principle that "if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted". This principle has been consistently followed by the various authorities as also by the Hon’ble Supreme Court itself. In another Supreme Court judgment, Petron Engg. Construction (P) Ltd. & Anr. vs. CBDT & Ors. (1988) 75 CTR (SC) 20 : (1989) 175 ITR 523 (SC), it has been reiterated that the above principle of law is well established and there is no doubt about that. Hon’ble Supreme Court had, however, some occasions to deviate from this general principle of interpretation of taxing statute which can be construed as exceptions to this general rule. It has been held that the rule of resolving ambiguities in favour of taxpayer does not apply to deductions, exemptions and exceptions which are allowable only when plainly authorised. This exception, laid down in Littman vs. Barron 1952(2) AIR 393 and followed by apex Court in Mangalore Chemicals & Fertilizers Ltd. vs. Dy. Commr. of CT (1992) Suppl. (1) SCC 21 and Novopan India Ltd. vs. CCE & C 1994 (73) ELT 769 (SC), has been summed up in the words of Lord Lohen, "in case of ambiguity, a taxing statute should be construed in favour of a tax-payer does not apply to a provision giving tax-payer relief in certain cases from a section clearly imposing liability". This exception, in the present case, has no application. The rule of resolving ambiguity in favour of the assessee does not also apply where the interpretation in 8 A.Y. 2011-12 favour of assessee will have to treat the provisions unconstitutional, as held in the matter of State of M.P. vs. Dadabhoy’s New Chirmiry Ponri Hill Colliery Co. Ltd. AIR 1972 (SC) 614. Therefore, what follows is that in the peculiar circumstances of the case and looking to the nature of the provisions with which we are presently concerned, the view expressed by the Hon’ble Delhi High Court in the case of Ansal Landmark (supra), which is in favour of assessee, is required to be followed by us. Revenue does not, therefore, derive any advantage from Hon’ble Kerala High Court’s decision in the case of Thomas George Muthoot (supra).

8. The second issue is with respect to the second proviso to Section 40(a)(ia) being held to be retrospective, without corresponding enabling provision in the rules being held to be retrospective. That is a hyper technical argument and too pedantic an approach. The second proviso to Section 40(a)(ia) was held to be retrospective in in the context of finding solution to the problem to the taxpayer, and the matter was set aside to the file of the Assessing Officer with certain directions about factual verifications on the recipient having included the same in the receipts based on which taxable income is computed, and the income having been offered to tax. It is this action of the coordinate bench that was upheld by the Tribunal and the course of action so adopted by the coordinate bench approved by Their Lordships. It is impermissible to pick up one of the aspects of the decision of the judicial authority and read the same in isolation with other aspects. The decision is not on the retrospectivity of the proviso alone, its also on deletion of disallowance in the event of the recipient having taken into account these receipts 9 ITA NO.4160/MUM/2016 (A.Y: 2012-13) M/s. City Gold Investments P. Ltd., in the computation of income. The judge made law is as binding on the authorities below as is the legislated statue. The hyper technical stand of the Departmental Representatives, therefore, does not merit our approval.