Commissioner Of Income Tax International Taxation 3 vs. Samsung Heavy Industries Company Limited

Facts of the case, in brief, are that Samsung Heavy Industries Company Limited (respondent herein) filed its return of income under Section 139(1) of the Income Tax Act, 1961 on 29.09.2012, declaring an income of ₹51,79,380/-; that the return of income was selected for scrutiny assessment and the notices under Section 143(2) and Section 142(1) of the Income Tax Act, 1961 were served upon the respondent; that on 12.05.2015, the Assessing Officer completed the assessment and passed the final assessment order under Section 143(3) of the Income Tax Act at total income of ₹117,11,60,400/-; that against the order passed by the Assessing Officer, the assessee (respondent herein) preferred an Appeal before the Commissioner of Income Tax (Appeals)-2, Noida; that the Commissioner of Income Tax, vide his order dated 19.12.2016 in Appeal No. 36/CIT(A)-2/2015-16, partly allowed the Appeal of the assessee but uphold the additions of ₹2,81,90,744/- and ₹4,20,03,868/- made for short-deduction of tax at source under Section 40(a)(ia) in respect of payments made for Interior and Electrification Works, and observed as under: “5.18 Recently, in the Kerala High Court in the case of P V S Memorial Hospital Ltd. held that if the tax is deductible under Section 194J of the Act but is deducted under Section 194C of the Act, the disallowance under Section 40(a)(ia) of the Act is still applicable. The High Court observed that the expression 2

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‘tax deductible at source under Chapter XVII- B’ occurring in Section 40(a)(ia) of the Act has to be understood as tax deductible at source under the appropriate provision of Chapter XVII-B of the Act. Further, the latter part of this Section that such tax has not been deducted again refers to the tax deducted under the appropriate provision of Chapter XVII-B of the Act.”

Against the order of learned Commissioner of Income Tax (A)-2, Noida for A.Y. 2012-2013 dated 19.12.2016, both, assessee and revenue filed Appeals before the Income Tax Appellate Tribunal. The grounds raised by the assessee in his Appeal, before the Income Tax Appellate Tribunal, are as under: - “1.2. Without prejudice to the above, the Ld. CIT(A) erred in applying the provisions of Section 40(a)(ia) without appreciating that the same is not applicable in the cases of short deduction of taxes.

1.3. Without prejudice to the above, the CIT(A) failed to understand that provisions of section 40(a)(ia) is applicable only to those expenses which are outstanding at the end of the year.”

Learned Income Tax Appellate Tribunal vide order dated 22.12.2023 allowed the Appeal filed by the assessee and held as under: - “13. The only issue is to be decided in this appeal of the assessee is whether the provisions of section 40(a)(ia) of the Act could be made applicable for short deduction of tax at source.

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payments to Arjun Engineering Pvt. Ltd. and Builcraft Interior Pvt. Ltd and deduced tax at source @2% thereon in terms of section 194C of the Act for carrying out electrification work and interior work respectively. The revenue concluded that the said work falls under the limb of professional services and fee for technical services warranting deduction of tax at source u/s 194J of the Act @10%. Since the assessee had not deducted tax at source in terms of section 194J of the Act, the ld AO proceeded to disallow the expenses u/s 40(a)(ia) of the Act. Now the short question that arises for our consideration is whether the provision of section 40(a)(ia) of the Act per se could be made applicable for short deduction of tax at source. This issue is no longer res integra in view of the decision of Hon’ble Calcutta High Court in the case of S. K. Tekriwal in ITA No. 183/2012 GA No. 2067/2012 dated 03.12.2012 wherein it had been categorically held that section 40(a)(ia) of the Act cannot be made applicable to short deduction of tax at source and the disallowance made was deleted. Further the Hon’ble Delhi High Court in the case of PCIT Vs. Future First info Services Pvt. Ltd in ITA No. 195/2022 dated 14.07.2022 had also given the same proposition. The ld CIT(A) however relied on the decision of the Hon’ble Kerala High Court in the case of PVS International Hospital Ltd reported in 380 ITR 284 (Ker) and decided the issue against the assessee. As could be seen above, none of the High Court decisions referred are the decisions rendered by the Hon’ble Jurisdictional High Court. The Hon’ble Supreme Court in the case of Vegetable Products Ltd reported in 88 ITR 192 had held that when there are divergent views of various non- Jurisdictional High Courts on an identical issue, the construction that is favourable to the assessee should be considered. Respectfully following the said decision of the Hon’ble Supreme Court, we are inclined to follow the ratio laid down by 4

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the Hon'ble Calcutta High Court and decision rendered by the Hon’ble Delhi High Court referred (supra) and hold that section 40(a)(ia) of the Act cannot be made applicable for short deduction of tax at source. Accordingly, the ld AO is hereby directed to delete the disallowance thereon. The grounds raised by the assessee are allowed.”

“9. If Section 40(a)(ia) is understood in the manner as laid down by the Apex Court, it can be seen that the expression “tax deductible at source under Chapter XVII-B” occurring in the Section has to be understood as tax deductible at source under the appropriate provision of Chapter XVII-B. Therefore, as in this case, if tax is deductible under Section 194J but is deducted under Section 194C, such a deduction would not satisfy the requirements of Section 40(a)(ia). The latter part of this Section that such tax 5

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has not been deducted, again refers to the tax deducted under the appropriate provision of Chapter XVII-B. Thus, a cumulative reading of this provision, therefore, shows that deduction under a wrong provision of law will not save an assessee from Section 40(a)(ia).”

Per contra, Mr. Arijit Prasad, learned Senior Counsel assisted by Mr. Pulak Raj Mullick, learned counsel for the respondent (assessee) submitted that the Income Tax Appellate Tribunal has rightly relied on the law laid down by Hon’ble Calcutta High Court in the case of Commissioner of Income Tax Vs. S.K. Tekriwal, reported in [2014] 361 ITR 432 (Calcutta).

Learned Senior Counsel for the respondent placed reliance on the judgment rendered by Hon’ble Supreme Court in the case of Commissioner of Income Tax Vs. Vegetable Products Ltd., reported in [1973] 88 ITR 192 (SC), wherein it is held that when there are divergent views of various non-jurisdictional High Courts on an identical issue, the construction that is favourable to the assessee should be considered.

In view of the law laid down by Hon’ble Supreme Court in the aforesaid case, this Court has no hesitation in upholding the finding returned by learned Income Tax Appellate Tribunal, wherein it has held that Section 40(a)(ia) of the Income Tax Act, 1961 cannot be made applicable to short deduction of tax at source and the disallowance made was directed to be deleted. This finding of learned Income Tax Appellate Tribunal is 6

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based on the judgment rendered by Hon’ble Calcutta High Court in the case of Commissioner of Income Tax Vs. S.K. Tekriwal (supra). Learned Income Tax Appellate Tribunal have negated the submission of the revenue, which relied on the decision of Kerala High Court in the case of Commissioner of Income Tax Vs. PVS Memorial Hospital Ltd.(supra), by relying on the judgment passed by the Hon’ble Apex Court in the case of “Commissioner of Tax Vs. Vegetable Products”, reported in [1973] 88 ITR 192 (SC), wherein it was held that when there are divergent views of various non-jurisdictional High Courts on an identical issue, the construction that is favorable to the assessee should be considered.

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(G. NARENDAR, C.J.)

(ALOK MAHRA, J.) Arpan

ARPAN JAISWAL Digitally signed by ARPAN JAISWAL DN: c=IN, o=HIGH COURT OF UTTARAKHAND, ou=HIGH COURT OF UTTARAKHAND, 2.5.4.20=eabb68a3895e41937c266c23964c04853654 45e3a20dddb7393398f9fe45ba3e, postalCode=263001, st=UTTARAKHAND, serialNumber=060FC17022BEAE3DE215D68D9D454 C5109CB987446351E4DF04AADAA2C2CEA66, cn=ARPAN JAISWAL Date: 2025.07.10 11:32:35 +05'30'