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2013 (7) TMI 963 - AT - Income TaxAddition u/s 40(a)(ia) - Held that - The majority views expressed in the case of Merilyn Shipping & Transports 2012 (4) TMI 290 - ITAT VISAKHAPATNAM that the disallowance u/s. 40(a)(ia) applies only to amounts payable as on 31st March of the previous year on which the TDS has not been deducted and no disallowance to be made in respect of sums paid during the previous year without deducting TDS are not acceptable. The submissions advanced by learned advocates have already been dealt with and rejected. TDS u/s 194C - Held that - We find force in the argument of the Learned Counsel that Sec. 194C has undergone amendment w.e.f. 01-06-2007 by the Finance Act 2007. In our opinion this aspect has not been examined by the authorities below. We therefore restore the grounds taken by the assessee in the Cross Objection to the file of the Assessing Officer to decide the same. Needless to say that the assessee should be given an opportunity of being heard as per the principles of natural justice
Issues Involved:
1. Applicability of Section 40(a)(ia) of the Income Tax Act to amounts paid versus amounts payable. 2. Obligation of an individual assessee to deduct tax at source under Section 194C before the amendment effective from 01-06-2007. 3. Interpretation of legislative intent and judicial precedents regarding Section 40(a)(ia). Detailed Analysis: Issue 1: Applicability of Section 40(a)(ia) to Amounts Paid vs. Payable The revenue challenged the deletion of disallowance of Rs. 39,43,046 by the CIT(A), arguing that Section 40(a)(ia) applies to all amounts, whether paid or payable. The CIT(A) had held that the provisions apply only to amounts payable as of the end of the financial year, based on precedents such as Jaipur Vidyut Vitran Nigam Ltd. vs. DCIT and M/s. Teja Constructions vs. ACIT. However, the Tribunal noted that recent judicial decisions, specifically CIT vs. Sikandarkhan N Tunvar and CIT vs. Crescent Export Syndicate, have clarified that Section 40(a)(ia) applies to amounts payable at any time during the year, not just those outstanding at the year-end. The Tribunal concluded that the CIT(A) erred in its interpretation, thus reversing the CIT(A)'s order and restoring the Assessing Officer's disallowance. Issue 2: Obligation of Individual Assessee to Deduct Tax at Source under Section 194C The assessee argued that as an individual, there was no obligation to deduct tax at source under Section 194C for the A.Y. 2007-08, as individuals were not included in the list of entities required to deduct tax before the amendment effective from 01-06-2007. The Tribunal noted that this aspect had not been adequately examined by the lower authorities. Therefore, the Tribunal remanded the issue back to the Assessing Officer to reconsider the applicability of Section 194C to the individual assessee for the relevant assessment year, ensuring the assessee is given a fair opportunity to present their case. Issue 3: Interpretation of Legislative Intent and Judicial Precedents The Tribunal discussed the legislative intent and judicial precedents regarding Section 40(a)(ia). It emphasized that the correct interpretation of the law is that Section 40(a)(ia) applies to all amounts on which tax is deductible under Chapter XVII-B, irrespective of whether they are paid or payable. The Tribunal criticized the Special Bench's decision in Merilyn Shipping and Transports, which had limited the disallowance to amounts payable at the year-end, as an incorrect interpretation. The Tribunal highlighted that the legislative intent was to ensure compliance with TDS provisions and that any leniency in interpretation would undermine this objective. The Tribunal cited various judicial decisions, including the Supreme Court's stance on legislative interpretation, to support its conclusion. Conclusion: The Tribunal allowed the revenue's appeal, reversing the CIT(A)'s order and upholding the disallowance made by the Assessing Officer under Section 40(a)(ia). The Tribunal also remanded the cross-objection raised by the assessee regarding the applicability of Section 194C to individuals for further examination by the Assessing Officer. The decision emphasized the importance of adhering to the legislative intent and judicial precedents in interpreting tax provisions. Pronouncement: The judgment was pronounced in the open court on 30-07-2013.
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