DCIT, MADURAI vs. PENGUIN APPARELS (P) LTD., MADURAI

आदेश /O R D E R

Per Sanjay Arora, AM:

Penguin Apparels v. Dy. CIT 2. The only issue arising in this appeal is the maintainability or otherwise in law of the disallowance under section 40(a)(ia), effected by the Assessing Officer (AO) in the sum of Rs.91,18,822/- in view of the non-compliance of the provisions of section 194-C of the Act. The ld. CIT(A) has allowed relief to the assessee following the decision by the Tribunal in Asst. CIT v. Mohammed Suhail (in dated 13.02.2015). The assessee, though has admittedly not deducted tax at source on the various amounts, being van rent; staff pick up & drop - aggregating to the impugned sum, explained before the first appellate authority to be so in view of section 194-C(6) of the Act which provides for non-deduction where the payee-contractor certifies that he owns ten or less goods carriages at any time during the relevant previous year, and furnishes a declaration to that effect, along with his Permanent Account Number (PAN), to the payer, i.e., the person responsible for paying and crediting the relevant sum/s. The assessee had, it is claimed, been furnished their PAN by the different payees, so that there was compliance of s. 194 C(6). Sub-section (7) of s. 194-C further provides for the assessee-payer to furnish to the income tax authority or any person authorized by it, such particulars and in such form (Form-26Q) within such time as may be prescribed. The tribunal in the cited case has held that the sections 194-C(6) and 194-C(7) are independent and, therefore, non-compliance of the latter provision would not invite s.40(a)(ia). The assessee, therefore, though admittedly in default of the provision of s.194-C(7) in-as-much as no declaration was filed with the Income-tax authority, could not be visited with the disallowance u/s. 40(a)(ia). Besides, the amounts stand paid, while s. 40(a)(ia) is applicable only with reference to the amounts that are payable as at the end of the year, relying for the said proposition on the decision in CIT v. Vector Shipping Services Pvt. Ltd. [2013] 357 ITR 642 (All). The assessee being allowed relief on that basis, aggrieved, the Revenue is in appeal.

Penguin Apparels v. Dy. CIT 3. We have heard the parties, and perused the material on record. The issue before us is if there has been a failure on the part of the assessee to deduct tax in accordance with the provisions of Chapter XVII-B of the Act, which attracts disallowance u/s. 40(a)(ia). The first appellate authority has allowed relief, following the decision by the tribunal in Mohammed Suhail (supra) holding that the two sub sub-sections, i.e., (6) and (7) of s. 194-C, are independent, so that the contravention of the latter would not attract a disallowance u/s. 40(a)(ia). We find no basis to adopt the said decision in the present case in-as-much as there is no finding by the ld. CIT(A) as to the compliance of the provision of section 194- C(6). All that the assessee claimed before him is that it had received Permanent Account Numbers (PANs) from the payers, though had failed to furnish the same to the Revenue. Firstly, when were the same received, as only where it was so during the relevant year could the plea of non-deduction of tax on that score be validly taken. Then, the same by itself would not imply satisfaction of s.194-C(6) which requires furnishing a declaration as to the number of carriages by the payee- contractors. No such plea being raised before the AO, the same, even if contended to have been received along with the declarations, would require verification at the end of the assessing authority, i.e., prior to their acceptance, even as we observe no such verification by the ld. CIT(A) himself. In fact, no such declarations are on record nor any claim made of the same having been received, so that it would be presumptuous to consider them as so. No wonder, the ld. CIT(A) has not issued any finding as to the satisfaction of the conditions of s. 194-C(6). Continuing further, the said provision is applicable only where the payment is for hiring the services of ‘goods carriages’, while the charges in the instant case are in respect of ‘passenger carriages’, even as admitted by the ld. AR, the assessee’s counsel, before us. There is accordingly no question of the satisfaction of provision of s. 194-C(6) of the Act, which is inapplicable in the admitted facts of the case. The ld. CIT(A) has clearly misdirected himself in accepting the assessee’s said plea.

Penguin Apparels v. Dy. CIT On all this being expressed by the Bench during hearing, the ld. AR would change tack, stating that the second proviso to s.40(a)(ia), applicable in the instant case, is retrospective in nature, so that the same would cause to save the assessee from the obligation to deduct tax at source on the impugned expenditure, i.e., which outstands for payment as at the year-end, as that paid would stand excluded in view of Vector Shipping Services Pvt. Ltd (supra). The second proviso to s. 40(a)(ia) excludes the application of the said provision where the assessee is not in default under first proviso to s. 200(1). The same provides for the assessee being deemed not to be in default as a consequence of the failure to deduct tax at source where it furnishes a certificate to the effect that the payer has paid tax on the corresponding income, duly returning the same to the Revenue. The premise of the exception is that where the payee has admitted the income and paid tax thereon, the assessee should not suffer the consequence of non-deduction of tax at source in-as-much as tax deduction is only a mode of recovery of tax and does not discharge the obligation of the payee to pay tax thereon nor curtail the right of the Revenue to collect tax from him (refer ss.191 and 202). Though the second proviso to s.40(a)(ia) stands inserted in the statute- book by Finance Act, 2012 w.e.f. 01.04.2013, i.e., AY 2013-14 onwards, the Hon'ble High Courts, as in the case of CIT v. Ansal Land Mark Township Pvt. Ltd [2015] 377 ITR 635 (Del), have held the same as curative and, thus, retrospective in nature. Benches of this Tribunal are regularly following the said decision, as in the case of Elite Shipping Synergies Pvt. Ltd. v. ITO (in dated 16/12/2016). That being the case, the same would apply for the current year as well. The assessee in the present case has placed some declarations, along with the certificates from the payees (as Annexure A thereto), both dated 18/4/2015, on record (PB pgs. 1-46), claiming to have filed the same before the ld. CIT(A). We, accordingly, only consider it proper in the facts and circumstances of the case to, setting aside the impugned order, restore the matter back to the file of the AO to verify the satisfaction of the first proviso to s.40(a)(ia) qua the impugned Penguin Apparels v. Dy. CIT sum, and decide accordingly, issuing definite finding/s of the fact, of course upon allowing the assessee a reasonable opportunity of hearing. Before parting with this order, we may also advert to the reference to the Vector Shipping Services Pvt. Ltd (supra) by the ld. CIT(A). In our view the matter is squarely covered in favour of the Revenue by the decision by the Hon'ble High Courts as in the case of CIT v. Crescent Exports Syndicate [2013] 262 CTR 525 (Cal) and CIT v. Sikandar Khan Tunvar [2013] 357 ITR 312 (Guj), even as clarified by the tribunal in many a decision, as in the case of Asst. CIT v. Raviraj Relempaadu [2014] 29 ITR (Trib) 387 (Mum), rendered relying on the decision by the Hon’ble jurisdictional High Court in Tube Investments of India Ltd. v. Asst. CIT [2010] 325 ITR 610 (Mad). The observation with regard to ‘payable’ in Vector Shipping Services Pvt. Ltd. (supra), it stands abundantly clarified therein, does not represent the ratio of the said decision, being in fact merely by way of a passing reference without interpreting the provision, at best an obiter dicta, so that the same cannot be taken to be the view of the Hon'ble High Court in respect of the said provision. Reliance on the said argument by the assessee would thus be of no assistance. We decide accordingly.