2016 (1) TMI 1263 - AT - Income Tax

Disallowance under section 40(a)(ia) - Held that - We have noted that as held by the Hon ble Delhi High Court in the case of CIT vs. Ansal Landmark Township (P) Ltd, (2015 (9) TMI 79 - DELHI HIGH COURT) the second proviso to section 40(ia) even though it is stated to be effective from 01.04.2013 is to be taken as retrospective in effect and, therefore, as long as recipients of the income have discharged their tax liability, disallowance under section 40a(ia) cannot be made. As we note this legal proposition, we are alive to this fact that the authorities below have not addressed themselves to this aspect of the matter. In view of this legal and factual position, we deem it fit and proper to remit the matter to the file of Assessing Officer for the factual verification as embedded in the above legal proposition on the fact of this case.

Summary

Issues:
Challenge to correctness of order dated 18th August, 2011 passed by CIT(A) in assessment under section 143(3) for assessment year 2007-08 regarding disallowance under section 40(a)(ia) read with section 194D.

Analysis:
The appellant challenged the order passed by CIT(A) regarding the disallowance of Rs. 10,45,400 made by the Assessing Officer under section 40(a)(ia) read with section 194D for the assessment year 2007-08. The appellant, deriving income from insurance commission, claimed to have paid referral commission to four individuals without deducting tax at source. The Assessing Officer disallowed the commission amount, leading to the appeal. The appellant contended that the disallowance was incorrect. The Tribunal noted the legal position established by the Delhi High Court that the second proviso to section 40(a)(ia) is retrospective, and if the recipients have discharged their tax liabilities, disallowance cannot be made. However, the lower authorities did not consider this aspect. Therefore, the Tribunal remitted the matter to the Assessing Officer for factual verification. If the recipients have paid taxes, there should be no disallowance. Otherwise, the matter should be examined on merits, including the applicability of section 194D. The Tribunal refrained from making any observation on the merits of the case and allowed the appeal for statistical purposes, directing the Assessing Officer to re-examine the issue.

This judgment highlights the importance of factual verification and adherence to legal provisions in tax assessments. The Tribunal emphasized the retrospective effect of the second proviso to section 40(a)(ia) and the necessity for recipients to discharge their tax liabilities to avoid disallowance. The decision underscores the need for thorough consideration of legal positions and factual circumstances in tax matters to ensure fair and accurate assessments.