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2016 (9) TMI 1286 - AT - Income TaxNon-deduction of tax at source on interest paid to NBFCs - amount already paid during the year or amount shown as payable as on 31st March of every year - Held that - In the case of Girdhari Lal Bargoti (2015 (11) TMI 746 - ITAT JAIPUR), it has been held that considering the issue of amount already paid during the year or amount shown as payable as on 31st March of every year, dealing with the provisions of Section 40(a)(ia) of the Act, different courts have taken mutually divergent views and as such, there is a diversion of legal opinion, which is both in favour of the assessee and in favour of the department. In such a situation, the Jaipur Tribunal has followed the Hon ble Supreme Court decision in the case of Vegetable Products Limited (1973 (1) TMI 1 - SUPREME Court) to decide the matter in favour of the assessee. Here, it is seen that clearly, the decision in the case of Vector Shipping (2013 (7) TMI 622 - ALLAHABAD HIGH COURT) is in favour of the assessee, whereas the decisions the case of CIT Vs. Crescent Export Syndicate 2013 (5) TMI 510 - CALCUTTA HIGH COURT , CIT Vs. Sikandar Khan N. Tunvar 2013 (5) TMI 457 - GUJARAT HIGH COURT and PMS Diesels Vs CIT (2015 (5) TMI 617 - PUNJAB & HARYANA HIGH COURT) are in favour of the department. Therefore, evidently, there is a cleavage of judicial opinion on the issue. In such a situation, the mandate of the law, as per decision of the Hon ble Supreme Court in the case of Vegetable Products Ltd. (supra) is to follow the view in favour of the assessee. That being so, by respectfully following the decision of the Coordinate Bench of Jaipur ITAT in the case of Girdhari Lal Bargoti (supra), the issue is decided in favour of the assessee.
Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 for non-deduction of tax at source on interest paid to NBFCs. 2. Interpretation of the term "payable" under Section 40(a)(ia) concerning amounts paid during the year versus amounts payable at the end of the year. 3. Applicability of the second proviso to Section 40(a)(ia) inserted by the Finance Act, 2012 w.e.f. 01/04/2013. 4. Binding nature of judicial precedents and the principle of per incuriam. Detailed Analysis: 1. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS: The assessee had debited ?6,94,574 towards interest paid to NBFCs in its profit and loss account. The Assessing Officer disallowed this amount under Section 40(a)(ia) for non-deduction of tax at source, as the payments were made to entities not classified as banks or financial institutions. The CIT(A) confirmed this disallowance, referencing various judicial decisions and CBDT Circular No. 10/DV/2013, which clarified that Section 40(a)(ia) applies to amounts paid during the year as well as those payable at the end of the year. 2. Interpretation of the Term "Payable": The CIT(A) referred to multiple judicial decisions, including: - The Special Bench decision in Meriiyn Shipping & Transport v. Addl. CIT, which held that Section 40(a)(ia) applies only to amounts payable at the end of the financial year. - The Calcutta and Gujarat High Courts' decisions in Crescent Exports Syndicate and Sikandarkhan N Tunvar respectively, which held that Section 40(a)(ia) applies to amounts payable at any time during the year. - The Allahabad High Court's decision in CIT v. Vector Shipping Service (P) Ltd., which supported the Meriiyn Shipping view but was not considered binding due to being per incuriam. The CIT(A) concluded that the term "payable" includes amounts paid during the year, aligning with the Gujarat and Calcutta High Courts' decisions and the CBDT Circular. 3. Applicability of the Second Proviso to Section 40(a)(ia): The second proviso to Section 40(a)(ia), inserted by the Finance Act, 2012, deems tax as deducted and paid if the payee has included the sum in their return and paid the tax. The CIT(A) noted that the assessee did not furnish the required CA certificate to prove that the payees had included the interest in their income and paid the tax, thus the proviso did not apply. 4. Binding Nature of Judicial Precedents and Per Incuriam: The CIT(A) deemed the Allahabad High Court's decision in Vector Shipping per incuriam due to the non-consideration of contrary decisions from other High Courts. The CIT(A) also noted that the ITAT Jaipur's decision in Girdhari Lal Bargoti was per incuriam for relying on Vector Shipping without considering the Gujarat and Calcutta High Courts' decisions. Final Judgment: The ITAT Jaipur, following the principle of judicial precedence and the Supreme Court's decision in CIT v. Vegetable Products Ltd., which mandates resolving ambiguities in favor of the assessee, ruled in favor of the assessee. The Tribunal held that there was a divergence of judicial opinion, and in such cases, the view favoring the assessee should be preferred. Consequently, the appeal of the assessee was allowed, and the disallowance under Section 40(a)(ia) was set aside. Conclusion: The appeal was allowed in favor of the assessee, emphasizing the principle of resolving ambiguities in favor of the taxpayer when judicial opinions diverge. The Tribunal's decision underscored the importance of adhering to binding precedents and clarified the interpretation of "payable" under Section 40(a)(ia).
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