CAROL INFO SERVICES LTD,MUMBAI vs. ADDL CIT 10(3), MUMBAI

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ITA 2145/MUM/2014Status: DisposedITAT Mumbai31 March 2016AY 2008-093 pages
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What did the Tribunal hold?

The Tribunal held that the second proviso to Section 40(a)(ia) is declaratory and curative with retrospective effect. If the payee has offered the income and reduced it from its expenditure, no disallowance should be attracted in the hands of the assessee.

What were the facts?

The assessee did not deduct TDS on payments made for staff support services to a group company. The assessee argued that since the recipient offered the income in its return, disallowance under Section 40(a)(ia) should not apply due to the retrospective effect of the second proviso.

What were the issues?

Whether disallowance under Section 40(a)(ia) is attracted when the recipient has offered the income, considering the retrospective nature of the second proviso. Verification of the recipient's treatment of the income.

Which sections of the Income-tax Act were involved?

Section 40(a)(ia)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI

Before: SHRI SANJAY GARG & SHRI RAMIT KOCHAR

For Appellant: Shri Ronak G. Doshi, A.R. &, Shri Abhitan Mehta, A.R
For Respondent: Dr. S. Pandian, D.R
Hearing: 31.03.2016Pronounced: 31.03.2016

Per Sanjay Garg, Judicial Member:

1.

The present appeal has been preferred by the assessee against the order dated 13.01.2014 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2008-09.

2.

The assessee has taken two effective grounds of appeal. Vide first ground of appeal, the assessee has agitated the finding of the lower authorities that the assessee was liable to deduct tax at source on the amount paid towards staff support services to the group company.

3.

The Ld. A.R. has stated at bar that as per the instructions of his client, he does not want to press this ground. This ground is accordingly dismissed as not pressed. 2 M/s. Carol Info Services Ltd.

4.

The assessee in the second/alternate ground has taken the plea that though the assessee had not deducted the tax at source, however, recipient had offered the income in its computation in the return of income and therefore the disallowance is not attracted in the case of the assessee as per the second proviso to section 40(a)(ia) of the Act. He, while relying upon the decision of the Hon’ble Delhi High Court in the case of “CIT vs. Ansal Land Mark Township (P) Ltd.” (2015) 61 taxman.com 45 (Delhi) wherein it has been held that the second proviso to section 40(a)(ia) is declaratory and curative and it has a retrospective effect from 01.04.05.

5.

We have considered the above submission of the Ld. A.R. and have also gone through the decision of the Hon’ble Delhi High Court in the case of “CIT vs. Ansal Land Mark Township (P) Ltd.” (supra). The Hon’ble Delhi High Court, considering the nature and scope of the second proviso to section 40(a)(ia), has categorically held that the second proviso is declaratory and curative and has retrospective effect. Under these circumstances, if the payee has taken into consideration the income received from the assessee while filing its return of income, then no disallowance would be attracted in the hands of payer i.e. the assessee before us. However, this fact needs verification at the hands of the AO. The Ld. A.R., at this stage, has stated that the payee i.e. M/s. Wockhardt Ltd. has reduced the amount received from the assessee on account of support services from its salary cost expenditure. He has also produced a copy of the form 26A issued by the director of the company along with certificate of the CA of the M/s. Wockhardt Ltd. wherein it has been mentioned that the amount of Rs.90 lakh upon which TDS was not deducted had been reduced from the salary cost. We accordingly direct the AO to verify that if the amount received from the assessee has been included by the payee in the receipts and reduced from the deductable expenditure and thus considered while computing the income, then to allow the claim of the assessee accordingly. 3 M/s. Carol Info Services Ltd.

6.

With the above observation, the appeal of the assessee is treated as allowed for statistical purposes.

Order pronounced in the open court on 31.03.2016.

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