ASST CIT 9(2)(2), MUMBAI vs. CITYGOLD INVESTMENTS P.LD, MUMBAI

The Revenue has raised the following grounds in its appeal: - i) "Whether on the facts and in the circumstances of the case the learned CIT(A) was justified in deleting the addition of ₹.37,00,00,006/- made u/s 40(a)(ia) of the ignoring the facts that the assessee had not deposited the TDS within the due date."

Briefly stated the facts are that, the Assessing Officer while completing the assessment disallowed expenditure of ₹.37,00,00,006/- u/s. 40(a)(ia) of the Act for non-deduction/non remittance of TDS into Government account within due date for filing of return. Before the Ld.CIT(A) the assessee contended that out of expenses of ₹.37,00,00,006/- assessee had already disallowed ₹.9,21,85,291/- in the return of income filed u/s. 139 of the Act and therefore to this extant it is a double disallowance. It is also submitted that TDS of ₹.24,58,430/- corresponding to interest payment of ₹.2,45,84,297/- was remitted into Government account before due date for filing of return u/s. 139 of the Act. It was also contended that the other entities have also revised their returns and not claimed credit for TDS that was receivable but not received from the assessee company. It was also contended that second proviso was inserted by Finance Act, w.e.f 01.04.2013 amending section (A.Y: 2012-13) M/s. City Gold Investments P. Ltd., 40(a)(ia) is retrospective and since the payee has paid the taxes on the amount paid by the assessee before due date for filing of return by them there shall not be any disallowance u/s. 40(a)(ia) of the Act in the hands of the assessee. The detailed written submissions filed by the assessee before the Ld.CIT(A) were forwarded to Assessing Officer for comments and for verification. After independent verification made by the inspector with reference to the returns filed by the payees before the Assessing Officer, the Ld.CIT(A) noticed that interest income received by the payees had been incorporated in their return of income on which taxes due had been already paid by all the payees except M/s. ABP Realty Advisors P. Ltd. In the circumstances Ld.CIT(A) following the decision of the Hon'ble Bombay High Court in the case of CIT v. Ansal Landmark Township P. Ltd., [377 ITR 635] and various other decisions of the Tribunals and also the decision of the Apex Court in the case of Hindustan Coca Cola Beverages P. Ltd. v. CIT [293 ITR 226] deleted the disallowance of expenditure except the payment made/credited to the account of M/s. ABP Realty Advisors P. Ltd for the reason that payees have already considered the amount paid by the assessee in their return of income filed before due date for filing return u/s. 139 of the Act and paid the taxes.

Before us, the Ld. DR strongly supported the orders of the Assessing Officer. Ld. DR also placed reliance on the decision of the (A.Y: 2012-13) M/s. City Gold Investments P. Ltd., Mumbai Bench of the Tribunal in the case of ACIT v. DICGC Ltd., [14 ITR(T) 194] and submitted that the Coordinate Bench considered the decision of the Apex Court in the case of Hindustan Coca Cola Beverages P. Ltd. v. CIT (supra) and held that the decision has no application even if the payee accounted for the income in its hands and paid the taxes before due date for filing of return of income and disallowance needs to be made u/s. 40(a)(ia) of the Act.

On the other hand, Ld. Counsel for the assessee submitted that the Hon'ble Delhi High Court and various Tribunals have held that the second proviso to section 40(a)(ia) of the Act is retrospective in nature and since the payee’s have accounted for the income and paid taxes before due date for filing of return of income no disallowance is required to be made in the hands of the assessee u/s. 40(a)(ia) of the Act. He placed reliance on the decision of the Hon'ble Delhi High Court in the case of CIT v. Ansal Landmark Township P. Ltd (supra).

Ld. Counsel for the assessee further referring to the decision of the Pr.CIT v. Yamazaki Mazak India P. Ltd., in ITA.No.1535/PN/2016 dated 28.10.2016 submitted that the Hon'ble Tribunal considered various decisions applying the ratio laid down by the Supreme Court in the case of CIT v. Vegetable Products Ltd., [88 ITR 192] it has taken the view in (A.Y: 2012-13) M/s. City Gold Investments P. Ltd., favour of the assessee in view of conflicting decisions. Ld. Counsel for the assessee also placed reliance on the on the following decisions of the Mumbai Bench in support of his contentions: a. ITO v. D.J. Enterprises in ITA.No. 973/Mum/2015 dated 19.04.2017. b. DCIT v. Vardhavinayak Township Development P. Ltd., in ITA.No.7011/Mum/2016 dated 01.09.2017. c. E-Commerce Magnum Solution Ltd., v. DCIT in ITA.No. 3179/Mum/2016 dated 07.07.2016.

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 of (A.Y: 2012-13) M/s. City Gold Investments P. Ltd., 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 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).

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 (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.

As regards lack of guidance from Hon’ble jurisdictional High Court, that cannot be reason enough to disregard the decisions from non-jurisdictional High Courts. Hon’ble Courts above, being a higher tier of the judicial hierarchy, bind the lower forums not only in the jurisdiction of respective High Courts, but unless, there is anything contrary thereto by the jurisdictional High Courts, other jurisdictions as well. There cannot be any dispute on the fundamental proposition that in the hierarchical judicial system that we have, better wisdom of the Court below has to yield to higher wisdom of the Court above, and therefore we have to humbly bow before the views expressed by Hon’ble Courts above. Such a High Court being a non-jurisdictional High Court does not alter the position as laid down by Hon’ble Bombay High Court in the matter of CIT vs. Godavari Devi Saraf ([1978) 113 ITR 589 (Bom)] and as analysed by a coordinate bench of this Tribunal in the case of ACIT Vs Aurangabad Holiday Resorts Pvt Ltd [(2009) 118 ITD 1 (Pune)].”

The decision relied by the Ld. DR in the case of ACIT v. DICGC Ltd., (supra) was passed on 03.02.2012 which is prior to insertion of second proviso to section 40(a)(ia) of the Act, hence it has no relevance to the facts of the case.

In the case on hand as we have already observed above, the payees have considered the amounts as part of their income and filed returns u/s. 139(1) of the Act and paid taxes except M/s. ABP Realty Advisors P. Ltd and therefore the second proviso squarely applies to the (A.Y: 2012-13) M/s. City Gold Investments P. Ltd., facts of the case and hence there is no infirmity in the order passed by the Ld.CIT(A) in deleting the disallowance to that extant.

In the result, appeal of the Revenue is dismissed.