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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI SANJAY ARORA & SHRI G. PAVAN KUMAR
आदेश /O R D E R
Per Sanjay Arora, AM: This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-6, Chennai (‘CIT(A)’ for short) dated 26.07.2016, dismissing the assessee’s appeal contesting its assessment u/s. 143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) dated 24.01.2014 for the assessment year (AY) 2012-13.
I.T.A. No. 2405/Chny/2016 2 Elite Shipping Synergies Pvt. Ltd. v. ITO 2. The sole issue arising in the instant appeal is the maintainability in law, and in the facts and circumstances of the case, of the disallowance u/s. 40(a)(ia), made in the sum of Rs. 5,51,19,881/- in respect of payments/dues (on account of freight and delivery charges) on which tax, though deductible at source, stands admittedly not deducted. The assessee seeks relief in view of the second proviso to section 40(a)(ia), brought on the statute by Finance Act, 2012 w.e.f. 01.04.2013, which has been held in CIT v. Ansal Landmark Township Pvt. Ltd. (reported at [2015] 377 ITR 635 (Del)) as curative and, thus, retrospective, i.e., w.e.f. 01.04.2005, from which date sub clause(ia) was inserted in s.40(a) by Finance (No.2) Act, 2004. The said proviso excludes the assessee from the purview of section 40(a)(ia) where it cannot be regarded as in default or deemed to be in default in terms of section 201 of the Act, which stands also amended simultaneously by adding first proviso thereto, whereby an assessee furnishing a statement in the prescribed form (Form 26-A), together with a certificate from an Accountant that the sum allowed thereto by the assessee-payee had been duly returned and tax paid thereon, shall not be treated as in default (to the extent of the amount specified therein). The assessee had furnished Form 26-A from 8 parties (as listed at page 11 of the assessee’s paper-book) for an aggregate sum of Rs. 5,44,87,330/-. The disallowance thus could be made only for the balance of Rs. 6.33 lakhs (Rs.551.20 lacs minus Rs. 544.87 lacs). The Revenue’s reliance, in preference, on the decision in the case of Thomas George Muthoot v. CIT (reported at [2015] 235 Taxman 246 (Ker) did not find favour with the Tribunal in the assessee’s own case for AY 2011-12 (in ITA No.1031/Mds/2016 dated 23.09.2016/copy on record). The Revenue, on the other hand, relies on the decision in the case of Thomas George Muthoot (supra) and Dy. CIT v. CICGC Ltd. (in ITA Nos.2361 and 2524/Mum/2011 dated 03.02.2012/copy on record). The latter decision, though rendered prior to the amendment afore-referred to section 40(a)(ia), clarifies that the decisions rendered and the principles laid down in the context of section 201, which are essentially recovery proceedings, cannot be applied for interpreting section 40(a)(ia), which deals with the disallowance of the expenditure itself. As
I.T.A. No. 2405/Chny/2016 3 Elite Shipping Synergies Pvt. Ltd. v. ITO explained in PMS Diesels & Others v. CIT (in ITA N.716/2009 dated 29.04.2015 /copy on record), section 40(a)(ia) was introduced not merely to ensure collection of tax but also to enable the authorities to bring within their fold all such persons who are liable to come within the network of the taxpayers. As such, the amendment whereby the two sections, i.e., ss. 40(a)(ia) and 201, are now linked, is a substantive amendment, which therefore shall operate prospectively.
We have heard the parties, and perused material on record, including the case law cited. The first issue that we need to consider is if the matter is covered by the order of the Tribunal in the assessee’s own case for AY 2011-12. In this regard, we may firstly clarify that the issue of retrospectivity or otherwise of a provision being purely legal, it would matter little whether the said order is rendered in the assessee’s case or in the case of another. The tribunal decided the matter by following the dictum that where two views are possible, one in favour of the assessee is to be adopted. The proposition is based on the principle that where the language of the statute is amenable to two views, the subject should get the benefit of doubt, i.e., of an ambiguity in the language of the provision. Even as explained in CIT v. Mirza Atauallaha Baig [1993] 202 ITR 291 (Bom), the principle is to be applied with due care and circumspection. It is only when there is reasonable and genuine doubt in regard to the interpretation of a particular provison, that this would have application and cannot be stretched too far, allowing the taxpayer a benefit that the statute did not intend to give (page 297-D). As clarified in Mirza Atauallaha Baig (supra), the provision is cast in very categorical terms; the amendment, made effective from a particular date, confers an additional benefit, so that it is not curative or remedial in nature so as to be regarded as retrospective. The issue in the present case is thus not the interpretation of a provision, but whether it would apply retrospectively, being made effective from 01.04.2013, i.e., the previous year relevant to AY 2013-2014, or f.y. 2012-2013, the immediately succeeding year. The matter thus has to be seen with reference to the principle
I.T.A. No. 2405/Chny/2016 4 Elite Shipping Synergies Pvt. Ltd. v. ITO governing or the law in respect of retrospectivity, which is well-settled. It is on that basis alone that a decision is to be arrived at, while we find no discussion in the matter in the order of the Tribunal being relied upon, i.e., both qua the merits of the issue (restrospectivity) or as to a reasonable and genuine doubt obtaining in the matter. The tribunal, when placed with contrary decisions by the High Courts, none of which is binding, is to decide on the basis of what appeals to its conscience as the correct view (refer: CIT vs. Thane Electric Supply Ltd., [1994] 206 ITR 727 (Bob), Kanel Oil & Exports Inds. Ltd. v. Jt. CIT [2009] 121 ITD 596 (Ahd)(TM). The Hon’ble Delhi High Court has opined that the second proviso is curative in nature and, thus, retrospective. The Hon’ble Kerala High Court, on the other hand, has held the provision as substantive and, therefore, cannot be given a retrospective effect. Section 40(a)(ia) was brought on the statute by Finance (No.2) Act, 2004 w.e.f. 01.04.2005. Explanatory Notes to Finance (No.2) Bill, 2004, in its relevant part, extracted in PMS Diesels (supra), clarifies that the same is brought as a measure to promote/ensure the compliance of TDS provisions in respect of specified payments. That being its avowed object, a link between the two, i.e., compliance of TDS provisions and section 40(a)(ia), is intrinsic to the provision. TDS, however, is only a mode of recovery of tax (s. 202), so that its non- compliance does not prevent the Revenue to seek tax directly from the payee or abate his obligation to pay tax on the relevant income, which he is obliged to pay (s. 191). That is, the TDS provisions by themselves are only to promote the recovery of tax due. It is only this premise that informs the decision by the Hon’ble Supreme Court in Hindustan Coca Cola Beverages (P.) Ltd. v. CIT [2007] 293 ITR 226 (SC), preventing the collection of tax (on the relevant income) by the Revenue from the both the payer and the payee. The same in fact articulates the position in law which the Revenue itself, per the Board Circular (No. 275/201/95 – IT(B) dated 29/1/1997) admits of. Why, in most cases, the tax liability may not agree with the tax deductible, so that either additional tax is payable by, or refundable to, the payee. Sec. 40(a)(ia), however, as it stood prior to the amendment by insertion of the second proviso, operated on a stand-alone basis, i.e., independent of whether
I.T.A. No. 2405/Chny/2016 5 Elite Shipping Synergies Pvt. Ltd. v. ITO the tax liability of the payee on the corresponding income stands discharged or not. The payer would thus suffer the consequence of non-deduction, and was obliged to deduct and deposit the tax deductible at source so as to avail deduction in respect of the corresponding payment/expenditure. This is apart from the consequences that may follow for not observing the (TDS) provisions themselves, i.e., under Chapter XVII of the Act, which have, together with the Rules, an in-built mechanism, on following the procedure laid down, for recovery of the tax deductible. The provision would thus apply even where in view of the payment/recovery of tax by/from the payee no tax deductible at source was required to be deposited with the Central Government, i.e., in view of Hindustan Coca Cola Beverages (P.) Ltd. (supra) or, where deposited, only stands to be refunded to the deductee along with interest. Why, the Tribunal has in many a case, following Hindustan Coca Cola Beverages (P.) Ltd. (supra), on it being exhibited that no further tax was outstanding on the relevant income, discharged the payer from the TDS obligation, restricting his liability only to the interest for the interim period, i.e., commencing from the time when the tax deductible at source was required to be deposited till the said tax was actually paid by the payee himself. However, the law [s. 40(a)(ia)], as it stood prior to the insertion of the second proviso, meant that tax would be required to be deducted and deposited with the Central Government even if no tax liability of the deductee obtained or even if the TDS provisions could not be enforced in view thereof, so as to either prevent invocation of s. 40(a)(ia) or, where invoked, seek remission there-under by complying with the TDS provisions. The amendment by way of second proviso to s. 40(a)(ia) bridges this gap in law, providing for a mechanism (procedure) ensuring the invocation of the said section only whether its avowed object – the recovery of tax on the corresponding income, is not met. The same thus only operationalizes the mandate of Hindustan Coca Cola Beverages (P.) Ltd. (supra), statutorily recognizing it. As regards the argument of, besides collection of tax, bringing the persons liable to tax in the network of taxpayers, the same is achieved simultaneously, as it is only on the
I.T.A. No. 2405/Chny/2016 6 Elite Shipping Synergies Pvt. Ltd. v. ITO basis of return of income that it could be shown that the tax liability on the corresponding income obtains no longer. The Legislature seeking to, through s.40(a)(ia), recover tax on one’s income from another, is obliged to have regard to whether the tax liability obtains in the case of the former or not. And this is what the second proviso in effect does. The second proviso, though seeking to provide for abatement/saving from a substantive provision and, thus, substantive in nature, is therefore in our view curative in nature. On facts, however, we observe no finding by any of the Revenue authorities that the assessee has satisfied the conditions set out in the second proviso to s.40(a)(ia). The said satisfaction is not automatic on the assessee furnishing the relevant documents, and is to be recorded, particularly where the application of the provision is an issue. The manner and extent of verification for the purpose of said satisfaction, is to the discretion of the Assessing Officer (AO), who thus is to be satisfied with the conditions of the second proviso being met. The Revenue authorities in the present case proceeded on the basis that the second proviso is not applicable for the current year, precluding verification. The assessee, as it appears, has also furnished the relevant documents only for 06 out of a total of 08 cases (aggregating to Rs.544.87 lacs) for which it claims remission on the basis of Form- 26A (refer pg. 2 of the assessment order/PB pg. 11), further admitting to not satisfying the provision to the extent of Rs. 6.33 lacs. The matter accordingly shall travel to the file of the AO for necessary verification, i.e., regarding the amendment as retrospective, and determining the disallowance u/s. 40(ia) on issuing definite findings of fact. We decide accordingly.
In the result, the assessee’s appeal is allowed. Order pronounced on December 16, 2016 at Chennai. Sd/- Sd/- (जी. पवन कुमार) (संजय अरोड़ा) (G. Pavan Kumar) (Sanjay Arora) �या�यक सद�य/Judicial Member लेखा सद�य/Accountant Member
I.T.A. No. 2405/Chny/2016 7 Elite Shipping Synergies Pvt. Ltd. v. ITO चे�नई/Chennai, �दनांक/Dated, December 16, 2016. Edn. आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT, 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF