Tax Case Appeals against the order of the Income Tax Appellate Tribunal passed in ITA. 1636/ MDS/ 2010 and CO.NO.133/MDS/2010 "A" Bench, Chennai dated 10th February 2012.
(Judgment of the Court was made by CHITRA VENKATARAMAN,J)
1. Tax Case (Appeals) are at the instance of the assessee against the order of the Tribunal by raising following questions of law:-
" 1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in not considering the issue raised by the Revenue in its grounds of appeal that the provisions of Finance Act, 2010 in Section 40(a)(ia) is retrospective or not?
2. Whether the Tribunal is right in law in holding that the additional evidence filed by the revenue is admissible and at the same time for holding that the assessee had not converted those additional evidence without adverting to the Chart filed at the instance of the assessee, thereby violating the principles of natural justice?
3. Whether the Tribunal is right in dismissing the cross objection filed by the assessee?
4. Whether the Tribunal is right in not remanding the case back to the files of the lower authorities for the proper disposal of the case before the lower authorities? "
2. The two appeals are filed by the assessee against the order of the Tribunal, one appeal is against the order passed in respect of appeal filed by the Revenue and another appeal is against the order passed by the Tribunal in the Cross Objection.
3. The facts leading to filing of the above appeals are as follows:-
The appellant herein filed its return of income for the assessment year 2007-08 on 2.11.2007, returning a loss of Rs.2,73,707/-. In respect of the payments made for the sub contract hire charges, the assessee is stated to have remitted tax deducted at source on such payment to the tune of Rs.3,42,30,735/- on 7.7.2007, which was well before the due date of filing return of income. The assessee pointed out that due to the hospitalization of the Managing Director and also due to acute fund crisis, the assessee company was unable to pay the T.D.S. amount on the due date. However, the remittance was made well before the due date for filing the return of income. But the Assessing Officer disallowed a sum of Rs.3,42,30,735/- under Section 40(a)(ia) of the Income Tax Act for the delay in remittance of tax deducted at source. The Assessing Authority, however, rejected the claim on the ground that the deduction had been made beyond the accounting year. Aggrieved by this, the assessee filed an appeal before the Commissioner of Income Tax (Appeals).
4. In considering the claim of the assessee for the assessment year 2007-08, the Commissioner of Income Tax (Appeals) referred to the contention taken by the assessee as regards the amendment brought forth with effect from 1.4.2005 under the Finance Act, 2008, mitigating the rigour of Section 40(a)(ia) and the circular dated 27.3.2009 that the amendment would apply on and from the assessment year 2005-06. Referring to the circular of the Board dated 27.3.2009, particularly with reference to the amendment brought under the Finance Act, 2008 with retrospective effect from 1.4.2005, the Commissioner of Income Tax (Appeals) held that since tax deducted at source had been paid well before the due date for filing the return of income, the assessee was entitled to have the deduction.
5. As against the substantive portion of the order, the Revenue went on appeal contending that the amendment brought under the Finance Act, 2010 are being retrospective one, as such, the question of granting relief, particularly, for the TDS liability pertaining to the period April 2006 and February 2007, did not arise.
6. On its part, the assessee took the contention that the Commissioner of Income Tax (Appeals) had not adverted to the fact that each transaction of the hire charges were less than Rs.20,000/- and hence, there was no obligation to deduct tax at source and hence, there was no violation of T.D.S. provisions and consequently, the question of disallowance of expenditure under Section 40(a)(i) of the Act did not arise. By a common order, the Tribunal considered the claim of the assessee as well as Revenue and ultimately pointed out that the assessee deducted the tax deducted at source throughout the relevant previous year and the assessee could not controvert the said T.D.S. ledger produced by the Department's representative. Going by the fact that the assessee had paid the TDS on transporting charges aggregating to Rs.3,42,30,735/- only on 17.7.2007 and not on 31.3.2007 and payment to each party during the year exceeded the aggregate amount of Rs.50,000/-, the Tribunal allowed the Revenue's appeal and rejected the cross appeal filed by the assessee. Aggrieved by this, present appeal is filed before this Court at the instance of the assessee.
7. Learned counsel for the appellant pointed out that a perusal of the order of the Assessing Authority shows that the entire assessment was made on a part verification of the accounts. Consequently, the view of the Tribunal as though the entire accounts had been gone through to come to the conclusion that the payment made on each occasion exceeded Rs.20,000/- and aggregate payment to one party was less than Rs.50,000/- was not correct. In any event, going by the circular, the Tribunal should have considered the relief granted by the Commissioner of Income Tax (Appeals) and rejected the case of the Revenue. In any event, a reading of the order of the Tribunal would show that the Tribunal never adverted to the relevancy of the Board's circular. Hence, the order of the Tribunal has to be set aside and the matter may be remitted back to the Tribunal for fresh consideration as to the applicability of the amended provision under the Finance Act, 2010.
8. Learned counsel for the appellant placed reliance on the circular of the Board dated 27.3.2009, particularly to Clause 12.1, wherein it is stated that as per the provisions of sub-clause (ia) of clause (a) of Section 40, any payment made on which tax is deductible at source and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of Section 200, such payment shall not be allowed as deduction. He also referred to the decision of the Calcutta Bench of Income Tax Appellate Tribunal rendered in ITA No. 302 of 2011 dated 23.11.2011, wherein, following the decisions reported in [1997] 224 ITR 677 (SC) ALLIED MOTORS P. LTD v. CIT and [2009] 319 ITR 306 (SC) CIT v. ALOM EXTRUSIONS LTD, it was held that Section 40(a)(ia) was inserted as a remedy to make the provision workable, and the same required to be treated with retrospective operation, so that reasonable deduction can be given.
9. Per contra, learned standing counsel for the Revenue pointed out that on the basis of the ledger entries, the Tribunal clearly pointed out that the payments made on each occasion by the assessee crossed over Rs.20,000/- and in none of the cases, it was below Rs.50,000/-. Apart from that, when the amendment of Finance Act, 2010 is not given retrospective effect, the question of extending the benefit of the circular relating to the year 2008 does not arise. When a specific query was raised by the Court, learned Standing Counsel sought time to get instructions from the Department. Though T.D.S. deduction from April, 2006 to February, 2007 was not deposited before 31.3.2007, having regard to the fact that the same was deposited only on 7.7.2007, the claim could be considered only for the next assessment year viz., 2008-09.
10. A perusal of the order of the Tribunal shows that in considering the claim of the assessee in the appeal preferred by the Revenue and from the rejoinder filed by the Revenue, it is seen that the total payments exceeded Rs.50,000/- in each case and payments were also in excess of Rs.20,000/-. In paragraph 12 of the order of the Tribunal, it was specifically pointed out that in Annexure 2 to the letter dated 5.1.2011, the assessee, during the relevant years, paid transporting charges to 15 parties aggregating to Rs.3,42,30,735/- and payment to each party during the year exceeded aggregate amount of Rs.50,000/-. The Tribunal pointed out that considering the fact that the payment in respect of entire T.D.S. of the expenditure of Rs.3,42,30,735/- was deducted in March 2007, whereas T.D.S. pertaining to expenditure of Rs.2,46,18,443/- was deducted by the assessee during the period April, 2006 to February, 2007, the Commissioner of Income Tax (Appeals) ought not to have granted the relief on the entire amount of Rs.3,42,30,735/-.
11. Even though learned counsel for the assessee raised a dispute that the Tribunal would not be justified in coming to the conclusion without affording opportunity to the appellant by placing reliance on the finding of the Assessing authority that he had partly verified the ledger account of the assessee, yet, the details from the assessee's ledger would show the extent of payment made to each of the parties to go for T.D.S. However, as regards the amendment brought to the provisions, it is relevant to note that the appeal before this Court is relating to the assessment year 2007-08. The provisions as it stood during the relevant year has to be seen.
Finance Act, 2008 amending Section 40(a)(ia) with effect from 1.4.2005
Section 40(a)(ia)
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'-
(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 deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid, -
(A) in a case, where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub Section (1) of Section 139 or
(B) in any other case, on or before, the last date of the previous year,
Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted -
(A) During the last month of the previous year but paid after the said due date ; or
(B) During any other month of the previous year but paid after the end of the said previous year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid."
12. Explaining the amendment under the Finance Act 2008, the Central Board of Direct Taxes issued the circular under CIRCULAR NO. 1/2009, dated 27th March 2009 as under:
" 12.1 As per the provisions of sub-clause (ia) of clause (a) of section 40, any interest, commission, brokerage, fees for professional services, fees for technical service payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work, rent and royalty on which tax is deductible at source and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 shall not be allowed as deduction. However, the sum is allowed as a deduction in the year of actual payment of the TDS.
12.2 To mitigate any hardship caused by the above provisions of section 40 while maintaining TDS discipline, the Act has amended provisions of sub-clause (ia) of clause (a) of section 40. The amendment allows additional time (till due date of filing of return of income) for deposit of TDS pertaining to deductions made for the month of March so that disallowance under sub-clause (ia) of clause (a) of section 40 is not attracted in such cases. Thus where the last date for filing the return of income in case of a taxpayer (deductor) is 30th September, he will get additional time of six months (April to September) for depositing the tax deducted at source on an expenditure incurred or payment made in the month of March so as to escape disallowance under sub-clause (ia) of clause (a) of section 40.
12.3 Applicability: This amendment has been made applicable with retrospective effect from 1st April, 2005 and shall accordingly apply for assessment year 2005-06 and subsequent assessment years. "
13. The contention of the appellant is that the Tribunal has not considered the provisions of law as applicable to the case on hand. As already pointed out, since the Tribunal had gone only on the aspect of the actual deduction and had not gone into the applicability of the provisions of law, which was, in fact, considered by the Commissioner of Income Tax (Appeals) for granting relief, we feel, in fitness of things, the proper course herein would be to remand the matter back to the Tribunal to consider the applicability of the circular and the applicability of the Finance Act, 2008 to the case on hand and pass orders after granting opportunity to both the parties.
14. With the above observation, the Tax Case Appeals are disposed of. Connected M.P.Nos.1 and 1 of 2012 in T.C.(A) Nos.124 and 125 of 2012 stand closed. No costs.