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Before: Shri A. Mohan Alankamony & Shri Duvvuru RL Reddy
O R D E R
PER DUVVURU RL REDDY, JUDICIAL MEMBER:
This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) 11, Chennai dated 16.02.2017 relevant to the assessment year 2012-13. The only effective ground raised in the appeal of the Revenue is that the ld. CIT(A) has erred in deleting the disallowance made under section 40(a)(ia) of the Income Tax Act, 1961 [“Act” in short] for non deduction of TDS for payment of rent/license fees.
Brief facts of the case are that the assessee is engaged in the business of providing logistics services and field its return of income on 30.09.2012 admitting income of ₹.1,22,34,724/-. The return field by the assessee was processed under section 143(1) of the Act and subsequently, the case was selected for scrutiny. The assessee filed all the details in response to statutory notices. On verification of the details filed by the assessee, the Assessing Officer observed that the assessee has not effected TDS deduction on license fee paid to Chennai Port Trust for an amount of ₹62,65,368/- out of the total license fee paid. Vide letter dated 10.02.2015, the AR of the assessee submitted that the assessee was under the impression that the said payments are outside the purview of withholding tax, on knowing the payments may attract TDS, the same was properly deducted and remitted from the month of September, 2011. However, the Assessing Officer has not accepted the submissions of the assessee. Since the assessee has not deducted TDS on or before the due date for filing the return of income under section 139(1) of the Act, the Assessing Officer disallowed the TDS amount and brought tax.
The assessee carried the matter in appeal before the ld. CIT(A). After considering the detailed submissions of the assessee as well as relying upon various decisions the ld. CIT(A) directed the Assessing Officer to verify the assessee’s claim and to delete the aforesaid addition if it is found to be factually correct with reference to assessment record.
Aggrieved, the Revenue is in appeal before the Tribunal. The ld. DR has submitted that the assessee has not deducted TDS before filing of return of income under section 139(1) of the Act. Moreover, the second proviso to section 40(a)(ia) of the Act was inserted by Finance Act, 2012 w.e.f. 01.04.2013 and hence not applicable to this case since the assessment year under consideration is 2012-13 and therefore pleaded that the order of the ld. CIT(A) should be set aside and restored that of the Assessing Officer.
On the other hand, the ld. Counsel for the assessee strongly supported the detailed order passed by the ld. CIT(A) and prayed for sustaining the same.
We have heard both sides, perused the materials available on record and gone through the orders of authorities below. Admittedly, the assessee has not deducted TDS before filing of return of income under section 139(1) of the Act. However, the assessee has deducted and remitted the TDS subsequently. During the course of appellate proceedings, by filing a certificate dated 30.01.2017 from the Chennai Port Trust, it was submitted before the ld. CIT(A) that the Chennai Port Trust has certified that the entire payment was taken into account while computing its return of income. It was also the submission that the amendment to section 40(a)(ia) r.w.s. 201(1) of the Act w.e.f. 01.04.2013 in which it was stated that if a payee certifies that the payment without TDS was taken into account for computing its return of income, then the disallowance under section 40(a)(ia) of the Act is not called for. Since the above certificate issued by the Chennai Port Trust was not available before the Assessing Officer and moreover, by observing that although the amended second proviso to section 40(a)(ia) of the Act is prospective, it is to be applied retrospectively as it is curative in nature, the ld. CIT(A) directed the Assessing Officer to verify assessee’s claim and to delete the aforesaid addition, if it was found to be factually correct. The dispute of the Revenue is that the second proviso to section 40(a)(ia) of the Act was inserted by Finance Act, 2012 w.e.f. 01.04.2013 and hence not applicable to this case since the assessment year under consideration is 2012-13.
6.1 With regard to applicability of second proviso to section 40(a)(ia) of the Act, though amended by Finance Act, 2012 with effect from 01.04.2013, the Agra Bench of the Tribunal in the case of Rajeev Kumar Agarwal v. Addl. CIT 45 Taxmann.com 555 (Agra – Trib) has held as under: “9. On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into account in computation of taxable income in the hands of the recipients of the payments. Such a policy motivated deduction restrictions should, therefore, not come into play when an assessee is able to establish that there is no actual loss of revenue. This disallowance does deincentivize not deducting tax at source, when such tax deductions are due, but, so far as the legal framework is concerned, this provision is not for the purpose of penalizing for the tax deduction at source lapses. There are separate penal provisions to that effect. Deincentivizing a lapse and punishing a lapse are two different things and have distinctly different, and sometimes mutually exclusive, connotations. When we appreciate the object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a “fair, just and equitable” interpretation of law- as is the guidance from Hon’ble Delhi High Court on interpretation of this legal provision, in our humble understanding, it could not be an “intended consequence” to disallow the expenditure, due to non deduction of tax at source, even in a situation in which corresponding income is brought to tax in the hands of the recipient. The scheme of Section 40(a)(ia), as we see it, 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, in our considered view, 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 penalty for tax withholding lapse per se is separately provided for in Section 271 C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40(a)(ia), as they existed prior to insertion of second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee’s tax withholding lapses did not result in any loss to the exchequer. Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an “intended consequence” to punish the assessees for non deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004.” 6.2 In view of legislative amendments made from time to time, which throw light on what was actually sought to be achieved by this legal provision, we are of the considered view that section 40(a)(ia) of the Act cannot be seen as intended to be a penal provision to punish the lapses of non deduction of tax at source from payments for expenditure- particularly when the recipients have taken into account income embedded in these payments, paid due taxes thereon and filed income tax returns in accordance with the law. As a corollary to this proposition, in our considered view, declining deduction in respect of expenditure relating to the payments of this nature cannot be treated as an “intended consequence” of section 40(a)(ia) of the Act. Moreover, the above decision of the Tribunal has not been reversed by any High Court, it can be safely interpret that the second proviso to section 40(a)(ia) of the Act shall effect retrospectively since the above ratio laid down by the Agra Bench of the Tribunal has been affirmed by the Delhi Benches of the Tribunal in the case of Ansal Landmark Township Pvt. Ltd. v. Addl.CIT in for the assessment year 2008-09 and in I.T.A. No. 877/Del/2013 for the assessment year 2009-10. Against the decision of the Delhi Benches of the Tribunal in the case of Ansal Landmark Township Pvt. Ltd. v. Addl.CIT (supra), the Department went in appeal before the Hon’ble Delhi High Court and vide its order dated 26.08.2015 by confirming the order of the Delhi Benches of the Tribunal, the Hon’ble Delhi High Court has held that the second proviso to section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 1st April, 2005.
6.3 The ld. DR could not controvert the decision of the Hon’ble Delhi High Court in the case of CIT v. Ansal Landmark Township Pvt. Ltd. 377 ITR 635 (Del) and the same was not reverted by the Higher Court. Under the above facts and circumstances, we find no reason to interfere with the order passed by the ld. CIT(A) and thus, the ground raised by the Revenue is dismissed.
7. In the result, the appeal filed by the Revenue is dismissed. Order pronounced on the 27th February, 2018 at Chennai.