Income Tax Appellate Tribunal - Jaipur
Assistant Commissioner Of Income Tax, ... vs M/S Shiv Kripa Hotels Pvt. Ltd. , Jaipur on 21 May, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM
vk;dj vihy la-@ITA No. 673/JP/2017
fu/kZkj.k o"kZ@Assessment Year : 2012-13
The ACIT, cuke M/s Shiv Kripa Hotels Pvt. Ltd.,
Circle-3, Vs. Opp. Sindhi Camp, Station Road,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAJCS 7773 C
vihykFkhZ@Appellant izR;FkhZ@Respondent
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s Assessee by : Shri Minish Agrawal (C.A.)
jktLo dh vksj ls@ Revenue by : Smt. Neena Jeph (JCIT)
lquokbZ dh rkjh[k@ Date of Hearing : 16/05/2018
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 21/05/2018
vkns'k@ ORDER
PER: VIJAY PAL RAO, J.M. This appeal by the Revenue is directed against the order dated 28.06.2017 of CIT(A), Jaipur for the assessment year 2012-13. The Revenue has raised the following grounds:-
" Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the disallowance u/s 40(a)(ia) made on account of non-deduction of TDS on interest payment to M/s Religare Finvest Pvt. Ltd. by invoking provisions of section 201 that were not applicable for the year under consideration."ITA No. 673/JP/2017
ACIT vs M/s Shiv Kripa Hotels Pvt. Ltd.
2. The assessee paid interest of Rs. 54,94,669/- to Religare Finvest Ltd. and Magma Fincorp Ltd. Non Banking Finance Companies (NBFC).
Since, the assessee did not deduct TDS on this payment of interest to the NBFC therefore, the AO disallowed the said amount u/s 40(a)(ia) of the Income Tax Act . The assessee challenged the action of the AO before the ld. CIT(A) and submitted that as per second proviso to section 40(a)(ia) of the Act if recipient of the interest as included the said amount in the income offered to tax then, no disallowance is called u/s 40(a)(ia) of the Act. The assessee relied upon the decision of Hon'ble Delhi High Court in case of CIT vs. Ansal Land Mark Township (P) Ltd. 234 Taxman 825 as well as the decision of this Tribunal in case of Shri Rajesh Tak vs. ITO in case of ITA No. 888/JP/2014. The ld. CIT(A) has accepted the contention of the assessee and deleted the addition to the extent of Rs. 53,93,858/- and sustained the remaining disallowance of Rs. 69,364/- paid to M/s Magma Fincorp Ltd. for which the certificate was not filed. Aggrieved by the order of the ld. CIT(A) the Revenue has filed the present appeal.
3. We have heard the ld. DR as well as ld AR and considered the relevant material on record. The ld. DR has relied upon the decision of Hon'ble Kerala High Court in case of Thoms George Muthoot Vs. CIT 2 ITA No. 673/JP/2017 ACIT vs M/s Shiv Kripa Hotels Pvt. Ltd.
63 Taxman.com 99 and submitted that when the second proviso to section 40(i)(ia) of the Act was inserted w.e.f. 01.04.2013 then the proviso is applicable prospective with effect from 01.04.2013 not retrospective.
4. On the other hand, the ld. AR has relied upon the decision of Hon'ble Supreme Court in case of CIT vs. M/s Calcutta Export Company 93 taxman.com 51 and submitted that the Hon'ble Supreme Court has upheld the decision of Hon'ble High Court in case of CIT vs. Ansal Land Mark Township (P) Ltd. (supra). He has further submitted that the Coordinate Bench of this Tribunal in case of Columbus Overseas Ltd. DCIT in ITA No. 445/JP/2017 vide order dated 05.02.2018 has considered and decided this issue in favour of the assessee.
5. Having considered the rival submissions as well as relevant material on record at the outset we note that this issue was considered by the Coordinate Bench of this Tribunal in case of Columbus Overseas Ltd. DCIT (supra) in para 5 as under:-
"5. We have considered the rival submissions as well as relevant material on record. There is no dispute that the assessee has not debited TDS in respect of the expenditure in question 3 ITA No. 673/JP/2017 ACIT vs M/s Shiv Kripa Hotels Pvt. Ltd.
though the TDS was required to deduct as per provisions of section 149C of the Act. However, the assessee claimed that the recipient of the amount have included the same while computing their income offered to tax. Therefore, in view of the second proviso to section 40(a)(ia) of the Act no disallowance is called for. In support of its contention the assessee relied upon the decision of the Hon'ble Delhi High Court in case of CIT vs. Ansal Landmark Township Pvt. Ltd. (supra). On the other hand, the ld. CIT(A) has relied upon the decision of Hon'ble Kerala High Court in case of Thoms George Muthoot Vs. CIT (supra). There are divergent views by the different High Courts on this issue of applicability of second proviso to section 40(a)(ia) of the Act with retrospective effect or prospective effect. The Hon'ble Delhi High Court in case of CIT vs. Ansal Landmark Township Pvt. Ltd. (supra) while considering this issue has held in para 9 to 14 as under:-
"9. It is seen that the second proviso to Section 40(a)(ia) was inserted by the Finance Act, 2012 with effect from 1st April 2013. The effect of the said proviso is to introduce a legal fiction where an Assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. Where such Assessee is deemed not to be an assessee in default in terms of the first proviso to sub-section (1) of Section 201 of the Act, then, in such event, "it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso".
10. It is pointed out by learned counsel for the Revenue that the first proviso to Section 201(1) of the Act was inserted with effect from 1st July 2012. The said proviso reads as under:
"Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall 4 ITA No. 673/JP/2017 ACIT vs M/s Shiv Kripa Hotels Pvt. Ltd.
not be deemed to be an assessee in default in respect of such tax if such resident--
(i) has furnished his return of income under section 139;
(ii) has taken into account such sum for computing income in such return of income; and
(iii) has paid the tax due on the income declared by him in such return of income;
And the person furnishes a certificate to this effect from an accountant in such form as may be prescribed."
11. The first proviso to Section 201(1) of the Act has been inserted to benefit the Assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. No doubt, there is a mandatory requirement under Section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfilment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a)(ia) also requires to be viewed in the same manner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies.
12. Relevant to the case in hand, what is common to both the provisos to Section 40(a)(ia) and Section 201(1) of the Act is that as long as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the Assessee would not be treated as a person in default. As far as the present case is concerned, it is not disputed by the 5 ITA No. 673/JP/2017 ACIT vs M/s Shiv Kripa Hotels Pvt. Ltd.
Revenue that the payee has filed returns and offered the sum received to tax.
13. Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar Agarwal's case (supra ), the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40(a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under:
'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 6 ITA No. 673/JP/2017 ACIT vs M/s Shiv Kripa Hotels Pvt. Ltd.
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 271C, 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.'
14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a)(ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance."
7 ITA No. 673/JP/2017ACIT vs M/s Shiv Kripa Hotels Pvt. Ltd.
We further note that a similar has been taken by the other High Courts including Hon'ble Allahabad High Court in case of Allahabad Wholesale Central Coop. Store vs. Pr. CIT 248 Taxmann 302. Further, the Coordinate Benches of this Tribunal in series of decisions have taken a consistent view that the second proviso to section 40(a)(ia) is declaratory in nature and therefore, it has to be given retrospective effect. Though a divergent view is taken by the Hon'ble Kerala High Court in case of Thomas George Muthoot Vs. CIT however, to maintain the rule of consistency of this Tribunal has been taking a view on this issue by following the decision of Hon'ble Delhi High Court in case of CIT vs. Ansal Landmark Township Pvt. Ltd. (supra). Accordingly following the decision of Hon'ble Delhi High Court as well as decisions of the Coordinate Bench of this Tribunal as relied upon by the assessee we hold that the second proviso to section 40(a)(ia) is applicable with retrospective effect. Consequently if recipient of the amount has considered the same for computation its income offered to tax then no disallowance is called for u/s 40(a)(ia) of the Act."
6. We further note that the Hon'ble Supreme Court in case of CIT vs. M/s Calcutta Export Company (supra) has also considered the this issue and held in para 26 to 31 as under :-
"26. TDS results in collection of tax and the deductor discharges dual responsibility of collection of tax and its deposition to the government. Strict compliance of Section 40(a)(ia) may be justified keeping in view the legislative object and purpose behind the provision but a provision of such nature, the purpose of which is to ensure tax compliance and not to punish the tax payer, should not be allowed to be converted into an iron rod provision which metes out stern punishment and results in malevolent results, disproportionate to the offending act and aim of the legislation. Legislature can and do experiment and intervene from 8 ITA No. 673/JP/2017 ACIT vs M/s Shiv Kripa Hotels Pvt. Ltd.
time to time when they feel and notice that the existing provision is causing and creating unintended and excessive hardships to citizens and subject or have resulted in great inconvenience and uncomfortable results. Obedience to law is mandatory and has to be enforced but the magnitude of punishment must not be disproportionate by what is required and necessary. The consequences and the injury caused, if disproportionate do and can result in amendments which have the effect of streamlining and correcting anomalies. As discussed above, the amendments made in 2008 and 2010 were steps in the said direction only. Legislative purpose and the object of the said amendments were to ensure payment and deposit of TDS with the Government.
27. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the Section, is required to be read into the Section to give the Section a reasonable interpretation and requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the Section as a whole.
28. The purpose of the amendment made by the Finance Act, 2010 is to solve the anomalies that the insertion of section 40(a)(ia) was causing to the bona fide tax payer. The amendment, even if not given operation retrospectively, may not materially be of consequence to the Revenue when the tax rates are stable and uniform or in cases of big assessees having substantial turnover and equally huge expenses and necessary cushion to absorb the effect. However, marginal and medium taxpayers, who work at low gross product rate and when expenditure which becomes subject matter of an order under Section 40(a)(ia) is substantial, can suffer severe adverse consequences if the amendment made in 2010 is not given retrospective operation i.e., from the date of substitution of the provision. Transferring or shifting expenses to a subsequent year, in such cases, will not wipe off the adverse effect and the 9 ITA No. 673/JP/2017 ACIT vs M/s Shiv Kripa Hotels Pvt. Ltd.
financial stress. Such could not be the intention of the legislature. Hence, the amendment made by the Finance Act, 2010 being curative in nature required to be given retrospective operation i.e., from the date of insertion of the said provision.
29. Further, in Allied Motors (P) Limited (supra) , this Court while dealing with a similar question with regard to the retrospective effect of the amendment made in section 43-B of the Income Tax Act,1961 has held that the new proviso to Section 43B should be given retrospective effect from the inception on the ground that the proviso was added to remedy unintended consequences and supply an obvious omission. The proviso ensured reasonable interpretation and retrospective effect would serve the object behind the enactment. The aforesaid view has consistently been followed by this Court in the following cases, viz., Whirlpool of India Ltd., v. CIT, New Delhi [2000] 245 ITR 3, CIT v. Amrit Banaspati [2002] 255 ITR 117 and CIT v. Alom Enterprises Ltd. [2009] 319 ITR 306.
30. Hence, in light of the forgoing discussion and the binding effect of the judgment given in Allied Moters (supra), we are of the view that the amended provision of Sec 40(a)(ia) of the IT Act should be interpreted liberally and equitable and applies retrospectively from the date when Section 40(a)(ia) was inserted i.e., with effect from the Assessment Year 2005-2006 so that an assessee should not suffer unintended and deleterious consequences beyond what the object and purpose of the provision mandates. As the developments with regard to the Section recorded above shows that the amendment was curative in nature, it should be given retrospective operation as if the amended provision existed even at the time of its insertion. Since the assessee has filed its returns on 01.08.2005 i.e., in accordance with the due date under the provisions of Section 139 IT Act, hence, is allowed to claim the benefit of the amendment made by Finance Act, 2010 to the provisions of Section 40(a)(ia) of the IT Act.10 ITA No. 673/JP/2017
ACIT vs M/s Shiv Kripa Hotels Pvt. Ltd.
31. In light of the forgoing discussion, we are of the view that judgment of the High Court does not call for any interference and, hence, the appeals are accordingly dismissed. In view of the above, all the connecting appeals, interlocutory applications, if any, transferred cases as well as diary numbers are disposed off accordingly. Parties to bear cost on their own."
In view of the decisions of Hon'ble Supreme Court as well as the Coordinate Bench of this Tribunal, we do not find any error or illegality in the impugned order of the ld. CIT(A) qua this issue.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 21/05/2018.
Sd/- Sd/-
¼Hkkxpan ½ ¼fot; iky jko½
(Bhagchand) (Vijay Pal Rao)
ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member
Tk;iqj@Jaipur
fnukad@Dated:- 21/05/2018.
*Santosh.
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- ACIT, Circle-3, Jaipur.
2. izR;FkhZ@ The Respondent- M/s Shiv Kripa Hotels Pvt. Ltd., Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File {ITA No. 673/JP/2017} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar 11