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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI RAMIT KOCHAR
सुनवाई क� तार�ख /Date of Hearing : 04-11-2015 घोषणा क� तार�ख /Date of Pronouncement : 01-02-2016 आदेश ORDER �ी अिमत शु�ला, �या. स.:- PER AMIT SHUKLA, J. M.: The aforesaid appeal has been filed by the revenue against impugned order dated 03.02.2014 passed by CIT(A)-27, Mumbai for the quantum of assessment passed under section 143(3) for the assessment year 2010-11, on the following grounds of appeal:- “1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the rate of tax deducted at source @ 2% instead of 10% u/s 194J of the act under the head professional and Technical Services as Royalty of Rs. 54,27,239/-.
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred n allowing TDS @ 2% u/s 194C deduction instead of @ 10% u/s 194J and not allowing the addition made by AO of Rs. 54,27,239/- u/s 40(a)(ia) as assessee failed to deduct tax as per Act which his mandatory and binding on the assessee”.
The facts in brief are that, the assessee is an individual deriving income from business as capital gains and other sources.
2 Shri Zubin J Gandevia In the course of the assessment proceedings the assessee has debited a sum of Rs. 54,27,239/- towards royalty and connection charges on which the assessee had deducted tax @ 2% under section 194C on the ground that the payment has been made in pursuance of a works contract. In response to the show cause notice as to why the TDS should not deducted under section 194J being payment on account of TDS on professional / technical services and why disallowance under section 40(a)(i) should not be made, the assessee submitted that, Royalty and connection charges do not fall within the ambit of “royalty”. In fact assessee was not required to deduct TDS, however, by way of abundant precaution it has debited tax-at-source @ 2% under section 194C. The payment does not fall within the ambit of royalty, because it is not for any transfer of rights nor in respect of the payments mentioned in section 9(1)(vi). However, the Ld. AO held that said payment was in the form of “royalty” and, therefore, assessee was required to deduct the TDS @ 10% under section 194J and accordingly, he made the disallowance under section 40(a)(ia).
The Ld. CIT(A) noted that in the AY 2009-10, the CIT(A) has decided this issue in favour of the assessee and accordingly, following the same, he allowed this issue in favour of the assessee.
Before us, the Ld. Counsel for the assessee submitted that in the AY 2009-10, the Ld. CIT(A) has decided this issue in favour of the assessee after relying upon the decision of ITAT Kolkata Bench in the case of DCIT vs S K. Tekriwal. Against the said appellate order no appeal was filed by the Department before the Tribunal. Thus, rule of consistency should be followed. In any case, now, there are various High Court decisions that, if the assessee has deducted tax under wrong provisions resulting into short- deduction of tax, then no disallowance can be made applicable under section 40(a)(ia). Such a proposition has been upheld by the Hon’ble Calcutta High Court in the case of CIT vs S K Tekriwal,
3 Shri Zubin J Gandevia 361 ITR 432. Following the said decision, the Tribunal in the case of Punit Securities Pvt Ltd. in has held that if the assessee has deducted tax under TDS under section 194C instead of 194J no disallowance under section 40(1)(ia) should be made on account of short deduction of tax at source. However, the Ld. Counsel very fairly, pointed out that there is one, Kerala High Court decision in the case of CIT vs M/S. PVS Memorial Hospital Ltd, in ITA No. 16 of 2014 order dated 20.07.2015 wherein the Hon’ble High Court has held that TDS has to be deducted under the right section, because the word “tax-deductible-at-source” should be under appropriate provision and their Lordships have not agreed with the ratio of the Hon’ble Calcutta High Court decision. The Ld. Counsel submitted that, once there are two conflicting High Court decisions of non- jurisdictional High Courts, then, one which favours one which favours the assessee should be followed. In support, he relied upon the decision of Supreme Court in the case of CIT vs Vegetable Products Ltd, reported in 88 ITR 192.
His other limb of argument was that the amount has been paid to M/s Hathway Cable and Datacom Ltd., which has been assessed to tax and has already offered this income in the return of income. Therefore, in view of the Second Proviso to section 40(a)(ia), brought in the statute by Finance Act, 2012, no disallowance can be made. Now there are catena of Tribunal decisions holding that this amendment though brought w.e.f. 01.04.2013 is retrospective in nature. Not the Hon’ble Delhi High Court in the case of CIT vs Ansal Landmark Township in Income Tax Appeal no. 160 & 161 of 2015 vide order dated 26.08.2015 has held that second proviso inserted by the Finance Act, 2012 w.e.f. 1st April, 2013 is directory and curative in nature and, therefore, should have be given retrospective effect.
4 Shri Zubin J Gandevia
On the other hand, Ld. DR relied upon the order of the AO and also the decision of the Kerala High Court, as referred by the Ld. Counsel. On the issue of alternative argument, he submitted that the aspect of payee showing the said income in the return of income can be verified.
We have considered the rival contentions and perused the relevant finding given in the impugned orders and also the decisions relied upon by the parties. The assessee has made payment towards connection charges to M/s Hathway Cable and Datacom Ltd. On which the assessee has deducted TDS under section 194C. The AO’s case is that, such payment is on account of “royalty” covered within the ambit of section 9(1)(vi) and therefore the TDS should have been deducted under section 194J. Accordingly he made the disallowance of the payment under section 40(a)(ia). The CIT(A) on the other hand relying upon the order of the first appellate order for AY 2009-10 wherein Tribunal decision in the case of CIT vs S K. Tekriwal, was followed, allowed the assessee’s ground and disallowance was deleted. Now, the said decision of the Tribunal has been upheld by the Hon’ble Calcutta High Court, wherein the Hon’ble High Court held that, if the assessee under a bona fide belief or under any wrong impression had deducted the tax under a wrong provision or section which has led to short-deduction of tax, then that itself will not lead to disallowance under section 40(a)(ia). In case of M/s Punit Securities Pvt Ltd (supra) the Tribunal following the said decision had observed and held as under : “6. We have heard the rival submissions and also perused the relevant findings given in the impugned order. Admittedly, the assessee has deducted TDS on transaction charges payable to stock exchange u/s 194C. The department’s case is that, TDS should have been deducted u/s 194J, as the transaction charges falls within the ambit of ‘fees for technical services’, as later on held by the Hon’ble Bombay High Court in the case of CIT Vs. Kotak Securities Ltd.
5 Shri Zubin J Gandevia (supra) and therefore, disallowance u/s 40(a)(ia) is to be made. The conditions as laid down u/s 40(a)(ia) for making the disallowance is that, the tax on the amount paid or payable which is deductible at source under chapter XVII B and such a tax, has not been deducted or after deduction has not been paid on or before the due date specified in 139(1). In other words, there are only twin conditions for disallowance u/s 40(a)(ia), firstly, tax which was deductable has not been deducted and secondly, after deduction has not been paid. If both the conditions are satisfied then only disallowance u/s 40(a)(ia) can be made. The section does not envisages that, if the assessee has deduced the tax under wrong provisions of the act or there is a short deduction of tax then also, it entails disallowance under section 40(a)(ia). There is nothing in the section to treat the assessee as defaulter for claiming a deduction, where there is a short fall in deduction. This proposition has been upheld by the Hon’ble Kolkata High Court in the case of CIT Vs. S.K. Tekriwal reported in (2014) 361 ITR 432 (Kol). In this case the assessee has deducted tax u/s 194C instead of 194J, the Hon’ble High Court held that the expenses cannot be disallowed u/s 40(a)(ia) merely on account of short deduction of tax at source. Similar view has been taken by the Co- ordinate Benches in the cases relied upon by the learned counsel, which has been referred in the foregoing para. Accordingly, we hold that no disallowance u/s 40(a)(ia) can be made merely because assessee has deducted TDS under section 194C instead of section 194J. Thus the ground raised by the assessee is allowed”.
8. Before us the Ld. Counsel has pointed out that there is a divergent view also taken by the Hon’ble Kerala High Court in the case of P V M Memorial Hospital (supra). But such a decision may not have a persuasive value as it is quite a trite law that if there are two conflicting decisions of non-jurisdictional High Courts, then the decision in favour of the assessee should be taken. We agree with such a contention raised by the assessee that, if there are to 6 Shri Zubin J Gandevia High Court, decision one favourable to the assessee should be preferred and this proposition has been long back settled by the Hon’ble Supreme Court in the case of Vegetable Products Ltd (supra). Thus, we hold that, no disallowance under section 40(a)(ia) should be made on short deduction of tax under different or wrong provision of the section.
Moreover, in this case, Ld. Counsel has pointed out that the amount paid to Hathway Cable and Datacom Ltd. has been offered to tax in the return of income filed by the said concern, therefore, in view of the second proviso to section 40(a)(ia) no disallowance under section 40(a)(ia) should be made. This proposition now has been settled by the Hon’ble Delhi High Court in the case of CIT vs Ansal Land Work, wherein the Hon’ble High Court held that such an amendment is directory and curative in nature. Thus the assessee succeeds on this issue also.
In the result, appeal of the revenue is dismissed. Order pronounced in the open court on 1st February, 2016.
Sd/- Sd/- (रिमत कोचर) (अिमत शु�ला) लेखा सद�य �याईक सद�य (RAMIT KOCHAR) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 1st February, 2016 ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent. 3) The CIT(A) -27, Mumbai. 4) The Commissioner of Income Tax- 16, Mumbai. 5) िवभागीय �ितिनिध “जी”, आयकर अपीलीय अिधकरण, मुंबई/ The D.R. “G” Bench, Mumbai. 6) गाड� फाईल \ Copy to Guard File.