Income Tax Appellate Tribunal - Bangalore
S.S. Warad, Bangalore vs Assessee on 29 April, 2013
Page 1 of 15 1 ITA No.375/Bang/2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
BANGALORE BENCH 'A'
BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT
AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER
ITA No.375/Bang/2012
(Assessment year 2009-10)
Shri S S Warad, Prop: M/s The Addl.
Karnataka Roadlines No.13, Commissioner of
Rangappa Reddy Complex, R V vs Income Tax, Range-3,
Road, Minerva Circle, Bangalore-4. Bangalore.
PA No.AAFPW 6067Q
(Appellant) (Respondent)
Date of Hearing : 29.04.2013
Date of Pronouncement : 03.05.2013
Appellant by : Shri Krishnaswamy, C.A.
Respondent by : Shri Etwa Munda, CIT-III
ORDER
PER GEORGE GEORGE K :
This appeal at the instance of the assessee is directed against the CIT(A)'s order dated 21/2/2012. The relevant assessment year is 2009-2010.
2. The background of the case is as follows:-
This appeal was originally disposed off by the Tribunal vide its order dated 3/8/2012. Subsequently, the assessee filed a Miscellaneous Petition No.76/Bang/2012 for amending the Tribunal's order dated 3/8/12.
The M.P. was disposed off by the Tribunal by order dated 18/1/2013. The Page 2 of 15 2 ITA No.375/Bang/2012 Tribunal recalled its earlier order for the limited purpose of considering the assessee's grounds, namely, ground no.2(1) and 3, since the same were not adjudicated in the earlier order of the Tribunal dated 3/8/12. The relevant observation in the order of the Tribunal, which disposed off the assessee's Miscellaneous Petition No.76/12, reads as under:-
"We have heard the rival submissions and perused the materials on record. It is true that the assessee in support of his ground 2(i) and 3 had relied on the judgment of the Hon'ble High Court of Calcutta in the case of CIT v Virgin Creations and the order of the Tribunal in the case of ACIT v M K Gurumurthy (2012) 22 Taxman.com.72 (Bang.). The non-consideration of ground no.2(i) and 3 is a mistake apparent from record warranting rectification under section 254(2) of the Act. Hence, we recall our order dated 3/8.2012 and post the case for hearing on 18/02/2013. Since the parties are informed in the open court about the date of hearing, no fresh notice need be issued. It is ordered accordingly".
3. We shall now proceed to dispose off the ground no.2(1) and ground no.3, chronologically as under:-
Ground No.2(i): The learned CIT(A) and Addl. CIT erred in holding that the extended period of limitation for payment of tax deducted at source (before the due date for filing of return) was not retrospectively applicable to assessment year 2009-2010 as the amendment made by finance Act 2010 to Section 40(a)(ia) was not remedial and curative in nature.Page 3 of 15 3 ITA No.375/Bang/2012
3.1 The brief facts in relation to the above ground are as follows:-
The assessee is an individual. He is the Proprietor of M/s Karnataka Roadlines, which is engaged in transport contract. The assessee is deriving income from business, house property and other sources. The return of income was filed for the concerned assessment year disclosing a total income of Rs.3,11,82,064/-. The assessment was taken up for scrutiny by issuance of notice under section 143(2) of the Act. During the course of scrutiny assessment, it was noticed that the assessee had remitted the tax deducted at source for the month of January and February, 2009 only on 6/5/2009. According to the Assessing Officer, the assessee ought to have remitted the tax deducted at source on or before 31/3/2009. The details of nature of payment, the month on which the tax was deducted, the amount that was credited, tax that was credited and the payment dates are as follows:-
Nature Code Month Amount Tax Tax paid Challan No.
of credited deducte and date of
payment d remittance
Lorry 94C Jan.'09 3,21,29,110 3,63,059 3,63,059 00009-
hire 06/05/2009
charges
Lorry 94C Feb.'09 3,97,67,080 4,49,368 4,49,368 00010-
Hire 06/05/2009
charges
Total 7,18,96,190
3.1.1 The Assessing Officer show-caused the assessee as to why the
above sum of Rs.7,18,96,190/- being the expenditure on which the TDS were remitted late in contravention to what is provided in Chapter XVIII-B of the Act should not be disallowed by invoking the provisions of section Page 4 of 15 4 ITA No.375/Bang/2012 40(a)(ia) of the Act. The assessee's authorized representative vide his letter dated 5/9/2011, submitted that the TDS has been remitted before the due date specified in section 139(1) of the Act and therefore, it would be sufficient compliance of the provisions. For the above proposition, the assessee relied on the following orders of the Tribunal :-
• Vinay Kumar Shetty v DCIT in ITA No.879/Bang/08-09 assessment year 2005-06;
• Sri Bapusahed Navasahed Dhumal v ACIT (2010) 40 SOT 361 (Mum) & • Bansal Parivahan (P) Ltd. v ITO (2011) 9 ITR (Trib) 565 (Mum).
It was elaborated that the provisions of section 40(a)(ia) as amended by Finance Act, 2010 has to be treated as retrospective with effect from 1st April, 2005, the date on which section 40(a)(ia) has been inserted by Finance Act,2005. It was thus contended that the amendment is remedial, curative in nature and has retrospective/clarificatory effect. The Assessing Officer, however, rejected the assessee's contentions by giving the following reasons:-
i) The tax deducted at source in January and February, 2009, which should have been remitted by the appellant on or before 31/3/2009, came within the mischief of the proviso B to section 40(a)(ia) and, hence, the entire payments representing expenditure of Rs.7,18,96,190/- is disallowable. Expenditure relating to payments made in March 2009 from which tax had been deducted on or before 31/3/2009 but paid before the due date for filing the return of income in Page 5 of 15 5 ITA No.375/Bang/2012 terms of section 139(1) of the Act would not come within the mischief of section 40(a)(ia).
ii) The amendment to section 40(a)(ia) is not retrospective in as much as the amendment is silent on that aspect.
iii) The Special Bench of the Hon'ble ITAT, Mumbai had, in the case of M/s Bharati Shipyard Ltd. v DCIT (ITA No.2404/Mum/2009 dated 9/9/2011), held that the amendment had no retrospective operation from 1/4/2005.
3.1.2 For the above mentioned reasons, the Assessing Officer disallowed a sum of Rs.7,18,96,190/- representing payments made to lorry owners by invoking the provisions of section 40(a)(ia) of the Act and brought the same to tax and completed the assessment vide order dated 3/10/2011. 3.2 The assessee being aggrieved carried the matter in appeal before the first appellate authority.
3.3 Before the first appellate authority, the first argument that was taken was the amendment to section 40(a)(ia) by Finance Act, 2010 has retrospective effect from 1/4/2005 and the said amendment is clarificatory in nature. Secondly it was argued that the assessee hired vehicles from persons in an unorganized sector like small scale truck owners and take full control of the vehicles for transportation of goods with attendant responsibilities for damages etc. and hence, such an arrangement does not constitute sub-contract for carrying on work. The third argument that was taken before the first appellate authority was that the TDS provisions was not applicable to payments amounting to less than Rs.20,000/- or Rs.50,000/- aggregate payment in a year as provided under the I T Act and Page 6 of 15 6 ITA No.375/Bang/2012 hence, such items are not hit by section 40(a)(ia) of the Act, although tax has been deducted. The fourth argument that was taken was that section 40(a)(ia) is applicable to only to items referred to in sections 30 to 38 of the Act and not to business income computation because of the non-obstante clause. Lastly it was argued that the application of provisions of section 40(a)(ia) of the Act is restricted to amounts payable if they are outstanding on the last day of the accounting year.
3.4 The CIT(A), however, rejected the above contentions raised by the assessee and dismissed the appeal. The relevant finding of the CIT(A) on rejection of the above ground reads as follows:-
"3.6 The main argument taken by the appellant is that the amendment to section 40(a)(ia) has retrospective effect from 1/4/2005 as the said amendment is clarificatory in nature. There is a clear date from which the said provision is applicable i.e. assessment year 2010- 11 onwards. It does not apply to the assessment year in question. This view has also been upheld by the Special Bench of the Hon'blt ITAT, Mumbai in the case of M/s Bharati Shipyard Ltd. v DCIT (ITA No.2404/Mum/2009 dated 9/9/2011) reported in 2011-TIOL-560-ITAT- Mum-SB, where it was held as follows:-
"56. In view of the foregoing reasons we are satisfied that the amendment carried out by the Finance Act, 2010 with retrospective effect from assessment year 2010-2011 cannot be held to be retrospective from assessment year 2005- 06".
(i) The claim is, therefore, rejected."Page 7 of 15 7 ITA No.375/Bang/2012
3.5 The learned AR submitted that the issue in question is squarely covered by the judgement of the Hon'ble High Court of Calcutta in the case of CIT v Virgin Creations in IT Appeal No.302 of 2011, dated 23.11.2011) (para 10) and the recent order of the Bangalore Bench of the Tribunal in the case of ACIT v M K Gurumurthy reported in (2012) 22 taxmann.com 72. 3.5.1 The learned DR present was duly heard.
3.6 We have heard the rival submissions and perused the materials on record. The Hon'ble High Court of Calcutta in the case cited supra had held that the amendment brought out by the Finance Act, 2010 was remedial and curative in nature and it has got retrospective application. The amendment brought out by Finance Act, 2010 wef 1/4/2010 to section 40(a)(ia) read as follows:-
"Amounts not deductible
40. Notwithstanding anything to the contrary in sections 30 to [38], the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession"
-
(a) in the case of any assessee -
(i) ...................................
............................................................ ............................................................. (ia) any interest, commission or brokerage, (rent, royalty) fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is Page 8 of 15 8 ITA No.375/Bang/2012 deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction [has not been paid on or before the due date specified in sub-section (1) of section 139]:
(portion underlined was inserted by Finance Act, 2010)"
3.6.1 The judgement of the Hon'ble High Court of Calcutta was followed by the recent order of the Bangalore Bench of the Tribunal in the case of ACIT v M K Gurumurthy (Supra) The Bangalore Bench of the Tribunal in the case of ACIT v M K Gurumurthy (supra) has followed the judgement of the Hon'ble High Court of Calcutta in preference to the Special Bench order of the Tribunal in the case of Bharathi Shipyard Ltd.
reported in 11 ITR (Trib) 599 (S.B.) (Mumbai), wherein it was held that the amendment brought out by Finance Act 2010 is not clarificatory/ retrospective. The relevant finding of the Bangalore Bench of the Tribunal in the case of ACIT v M K Gurumurthy (Supra) reads as follows :-
"13. As regards to the decision of Special Bench Mumbai in the case of Bharti Shipyard Ltd. v. DCIT (132 ITD 53) relied by the ld. DR is concerned, although that decision may support the revenue's case, particularly the observations in para 25 of the decision which read as under:-
"The amendment to s. 40(a)(ia) by the Finance Act, 2010 has been specifically made retrospectively applicable from the asst. yr. 2010-11. It has nowhere been expressly set out that the amendment is curative or merely declaratory of the previous law. The intention of the legislature as gathered from the Notes on Clauses and Page 9 of 15 9 ITA No.375/Bang/2012 the Memorandum Explaining the Provisions of the Finance Bill does not particularly indicate any relaxation in the provision retrospectively from asst. yr. 2005-06 by providing that the expenditure on which due tax was deducted upto February, 2005 but paid before the due date specified in s.
139(1) shall not suffer any disallowance in the asst. yr. 2005-06. "
14. However, the Hon'ble Calcutta High Court has taken a different view in the case of CIT v. Virgin Creations (supra) and the issue stands decided against the revenue. Therefore considering the precedent in the judicial hierarchy, we are bound to follow the decision of the Hon'ble Calcutta High Court because it is the only judgment of any High Court which is brought to our notice.
15. Similar view has been taken in the Third Member decision in the case of Kanel Oil & Export Inds. Ltd. v. JCIT [2009] 121 ITD 596 (Ahd) (TM) wherein it has been held as under:-
"In the instant case, question that came up for consideration was as to whether the order of the Special Bench upholding the levy of interest in the light of sub-section (4) of section 115JA should be followed or the judgment of the Bombay High Court in Snowcem India Ltd.'s case (supra), also rendered in the context of section 115JA, had to be applied. Both the decisions were under section 115JA. One was of a Special Bench of the Tribunal, Ahmedabad and the other was of a High Court, though not a jurisdictional High Court. A simple answer Page 10 of 15 10 ITA No.375/Bang/2012 would be that the judgment of a High Court, though not of a jurisdictional High Court, prevails over an order of the Special Bench even though it is from the jurisdictional Bench (of the Tribunal) on the basis of the view that the High Court is above the Tribunal in the judicial hierarchy. But this simple view is subject to some exceptions. It can work efficiently when there is only one judgment of a High Court on the issue and no contrary view has been expressed by any other High Court. But when there are several decisions of non-jurisdictional High Courts expressing contrary views, it has been recognized that the Tribunal is free to choose to adopt that view which appeals to it."
16. On the issue under consideration, the lone decision of non-jurisdictional High Court i.e., the Hon'ble Calcutta High Court is available on the very same issue, so that has to be followed because it will prevail over the order of the Special Bench of the ITAT, Mumbai Bench, since the Hon'ble High Court in the judicial hierarchy is above the Tribunal. We, therefore considering the totality of the facts as narrated hereinabove, do not see any valid ground to interfere with the findings of the ld. CIT(Appeals).
17. In the result, the appeal of the department is dismissed".
3.6.2 In the light of the judgement of Hon'ble High Court of Calcutta in the case of CIT v Virgin Creations (supra) and the order of Bangalore Bench of the Tribunal in the case of ACIT v M K Gurumurthy (supra), we hold that the amendment to section 40(a)(ia) by Finance Act, 2010 is Page 11 of 15 11 ITA No.375/Bang/2012 retrospective. Therefore, in the instant case, since the assessee has paid to the Government Account the tax deducted at source before the due date of filing of return of income under section 139(1), the disallowance of expenditure by invoking the provisions of section 40(a)(ia) is not called for. It is ordered accordingly.
4. Ground No.3 : The learned CIT(A) and Addl. CIT ought to have appreciated that the appellant is a goods transport service provider and had entered into written contract with large companies and such contracts were not amenable to sub-contracting; he merely took trucks on hire and the truck owners were not sub-contractors and did not do any 'work' as contemplated under section 194C of the Income-tax Act, 1961; hence, the section did not apply to the payments made to them; the deduction of tax at source was however made out of abundant caution; mere deduction did not render it "deductible". 4.1 The learned CIT(A) rejected the above ground of the assessee by giving the following reasoning:-
"a) Such services as rendered cannot be conducted without the basic responsibility of the truckers. All requirements of a work contract exist.
b) Even if the appellant were to be only hiring a truck, without placing major responsibilities on the truckers, section 194C applies as is clearly brought out in the section. In fact, sub-section (6), which has been introduced with effect from 1/4/2009, reads as under:-
(6) No deduction shall be made from any sub credited or paid or likely to be credited or paid during the previous year to the account of a contractor during Page 12 of 15 12 ITA No.375/Bang/2012 the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum.
3.11 This sub-section in simplifying the requirement in the course of hiring goods carriages clearly brings out the requirement of TDS in cases of contracts for hiring of goods carriages as it has been provided in the Act even before this simplification. 3.12 It is also observed that the appellant has himself been observing the requirement for TDS in respect of his case for earlier years when the provisions so required (prior to 1/10/2010) that Form No.15H were to be obtained from the payee transporters for non-deduction of tax under section 194C, the appellant has complied with the provisions fully acknowledging the requirement as per section 194C. Even in the year under question, by deducting tax at source the appellant has himself acknowledged the said requirement as per law.
3.13 In the present circumstances, for the assessment year in question, this requirement of TDS cannot be denied".
4.2 The learned AR, apart from reiterating the submissions made before the Income Tax authorities, relied on the order of the Mumbai Tribunal in the case of Bhail Bulk Carriers v ITO reported in (2012) 50 SOT
622. It was submitted by the learned AR that the facts of the instant case and the facts of the case considered by the Mumbai Tribunal in the case of Bhail Bulk Carriers v ITO (supra) are identical. The Mumbai Tribunal had Page 13 of 15 13 ITA No.375/Bang/2012 held that the truck owners were not sub-contractors and did not do any 'work' as contemplated under section 194C of the I T Act, 1961. 4.3 The learned DR relied on the findings of the Income Tax authorities.
4.4 We have heard the rival submissions and perused the materials on record. The Hon'ble Mumbai Tribunal in the case of Bhail Bulk Carriers v ITO (supra), while considering the facts of that case, held that the assessee merely took trucks on hire and the truck owners were not sub- contractors and did not do any 'work' as contemplated under section 194C of the Income-tax Act, 1961; hence, the section did not apply to the payments made to the lorry/truck owners. The relevant finding of the Mumbai Tribunal reads as follows:-
"The appellant was solely responsible for executing the contract on behalf of its principal. For fulfilling its transportation commitment, the assessee besides using its own tankers was also hiring the tankers from outside parties as and when required. In such a case of hiring from outside, the responsibility of successful completion of transportation work rested upon the appellant. From the record or the findings of the authorities below nowhere it is borne out that there was any kind of written or oral contract with the principals by such outside tank owners that they will share the risk and responsibility with the appellant.
It is not in dispute that the department's case is that in the present case provisions of section 194C(1) are applicable and not section 194C(2). Once it is held that it is a case of section 194C(1), then it would be seen that Page 14 of 15 14 ITA No.375/Bang/2012 this section applies to any payment made to a person for carrying out any work in pursuance of a contract between the contractor and the person making the payment. If the condition of 'carrying out any work in pursuance of a contract' is not fulfilled then the provisions of this section will not be applicable at all. In instant case, the contract for carrying out the work was between the BPCL and the appellant. The appellant alone had risk and responsibility for carrying out the contract work as per the agreement entered into by it with its principal, i.e. BPCL. There is no material on record to suggest that there was any contract or sub-contract whether written or oral with the outside tank owners and the assessee, whereby the risk and responsibility which was associated with a contract had also been passed on to these outside parties. Once the Commissioner (Appeals) has accepted the fact that the outside tank owners do not had any responsibility or liability towards the principal, then it cannot be held that these outside parties were privity to the contract between the appellant and its principal. Thus, the payment made to the outside parties do not come or fall within the purview of section 194C, as the 'carrying out any work' indicates doing something to conduct the work in pursuance of contract and in instant case, it was solely between appellant and its principal.
Thus, in view of the findings given above and the law laid down by the Madras High Court in CIT v Poompuhar Shipping Corpn. Ltd. (2006) 282 ITR 3/153 Taxman 486, it is held that the appellant was not liable to deduct TDS under section 194C(1) or payments made to the outside parties and, consequently, the disallowance made under section 40(a)(ia) by the authorities below is deleted".
4.4.1 The learned AR had asserted that the facts of this case and the facts considered by the Mumbai Tribunal in the case of Bhail Bulk Carriers v ITO (supra) are identical and inspite of the Mumbai Tribunal's Page 15 of 15 15 ITA No.375/Bang/2012 order being brought to the notice of the learned CIT(A), the same was not considered in the impugned order of the CIT(A). 4.4.2 There is nothing on record to suggest that the above order of the Mumbai Tribunal is brought to the notice of the learned CIT(A); however, in the interest of justice and equity and since there is no detailed discussion on the facts as to how the assessee operate/hire trucks from the owner, the matter needs denova consideration at the level of the Assessing Officer. The Assessing Officer shall examine whether the facts considered by the Mumbai Tribunal in the case of Bhail Bulk Carriers v ITO (supra) is identical to the instant case and shall take appropriate decision in accordance with law. The issue shall be disposed off as expeditiously as possible after affording reasonable opportunity of hearing to the assessee. It is ordered accordingly.
5. In the result, the appeal of the assessee is partly allowed as indicated above.
The order pronounced on the 3rd day of May, 2013 at Bangalore.
Sd/- Sd/-
(N BARATHVAJA SANKAR) (GEORGE GEORGE K)
VICE PRESIDENT JUDICIAL MEMBER
Copy to : 1) The Assessee (2) The Revenue (3) The CIT(A) concerned. (4) The CIT concerned. (5) The DR (6) Guard File.
MSP/ By Order Senior Private Secretary, ITAT, Bangalore.