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2016 (8) TMI 1129 - AT - Income TaxTDS u/s 194A - Disallowance on account of interest paid to non-banking Finance (NBFC) company for non deduction of tds - assessee submitted form No. 26A prescribed under rule 31ACB issued by the NBFC companies stating that in respect of income received from assessee the same is included in their taxable income and thereby erred in not following provisions of law (S.201 of I.T. Act. 1961) - Held that - The Hon ble Supreme Court in Hindustan Coca Cola Beverage Pvt. Ltd (supra) has held that where deductee recipient of income has already paid taxes on amount received from deductor department once again cannot recover tax from deductor on same income by treating deductor to be assessee-in-default for shortfall in its amount of tax deducted at source. We draw support from the judgement of Hon ble Supreme Court in the matter of CIT vs. Vegetable Products Ltd. (1973 (1) TMI 1 - SUPREME Court ) wherein the Hon ble Supreme Court has laid down the principle that f two reasonable constructions of a taxing provisions are possible that construction which favours the assessee must be adopted. In view of the above discussions we remit the matter to the file of the AO for limited verification of Form No. 26A prescribed under Rule 31ACB on the aspect as to whether recipient of payment has included the same in their computation of business income offered to tax and if found to be so delete the disallowance in question. With these directions the matter stands restored to the file of the Assessing Officer. - Decided in favour of assessee for statistical purposes.
Issues involved:
1. Disallowance of interest paid to non-banking Finance (NBFC) company under section 40(a)(ia) of the Income Tax Act, 1961. Detailed Analysis: The appeal was filed by the assessee against the order of Ld. CIT(A)-II, Jaipur regarding the disallowance of interest paid to a non-banking Finance (NBFC) company amounting to Rs. 3,48,284. The AO disallowed this amount under section 40(a)(ia) as the TDS liability had arisen due to non-deduction of TDS on the interest payment. The assessee contended that the NBFCs had declared and paid taxes on the income received, and thus, the disallowance was not justified. However, the ld. CIT(A) upheld the disallowance citing a judgment of the Hon'ble Kerala High Court regarding the prospective application of the second proviso to section 40(a)(ia). During the hearing, the assessee argued that the disallowance was unjustified as the NBFCs had declared and paid taxes on the interest received. The ld. CIT(A) had disregarded the provisions laid down by the Hon'ble Supreme Court in previous cases. The assessee relied on various decisions to support their argument, emphasizing that the legislation should apply to pending assessments post the Supreme Court's decision in the Hindustan Coca Cola case. The ld. DR supported the lower authorities' order and referred to judgments of the Hon'ble Punjab and Haryana High Court and Hon'ble Kerala High Court. The Tribunal considered the contentions of both parties and referred to relevant judgments. It highlighted the principle laid down by the Hon'ble Supreme Court that if two reasonable constructions of a taxing provision are possible, the one favoring the assessee should be adopted. Citing conflicting decisions of different High Courts on the retrospectivity of the second proviso to section 40(a)(ia), the Tribunal noted a recent decision by the Coordinate Bench favoring retrospectivity. Consequently, the matter was remitted to the AO for verification of whether the recipient NBFCs had included the interest payment in their taxable income. If so, the disallowance was directed to be deleted, and the appeal was allowed for statistical purposes.
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