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2016 (8) TMI 1291 - AT - Income TaxAddition U/s 40(a)(ia) - actual interest payment to the financial institutions - amount of paid and payable - Held that - Since the AR of the assessee has submitted that the amount of tax required to be deducted, has been paid by the creditor in view of 2nd proviso of Section 40(a)(ia) of the Act. This issue should be decided in favour of the assessee. As gone through judgment in the case of CIT Vs Ansal Plaza Mark Township P. Ltd. (2015 (9) TMI 79 - DELHI HIGH COURT) in fact the assessee has not raised this issue before the ld Assessing Officer as well as before the ld. CIT(A). This issue has a factual determination and verification, therefore, it will be in the interest of justice to remand the matter back to the file of the AO to verify the truthfulness on the submission made by the ld AR whereby it was contended that the creditors had already deposited the tax on the interest amount. In the light of the fact, the appeal is allowed for statistical purposes only. It is made clear that if the creditors have deposited the tax on the interest accrued in their favour after having received from the assessee, which was not deducted by the assessee, in that eventuality benefit be extended to the assessee in terms of amended section 40(a)(ia) of the Act. Appeal of the assessee is allowed for statistical purposes only.
Issues Involved:
1. Applicability of Section 40(a)(ia) of the Income Tax Act, 1961 on interest payments made without TDS deduction. 2. Interpretation of the term "payable" in Section 40(a)(ia) and its applicability to amounts paid during the year. 3. Retrospective application of the second proviso to Section 40(a)(ia). Issue-wise Detailed Analysis: 1. Applicability of Section 40(a)(ia) on Interest Payments Made Without TDS Deduction: The assessee appealed against the order of the CIT(A)-II, Jaipur, which sustained the addition of ?8,36,376/- made under Section 40(a)(ia) of the Income Tax Act due to non-deduction of TDS on interest payments to financial institutions. The Assessing Officer observed that the assessee made interest payments to NBFCs like India Bulls Credit Service Ltd., Tata Capital Ltd., Bajaj Finserve, and Magma Fincorp Ltd. without deducting TDS, thereby invoking Section 40(a)(ia) to disallow the expenses. 2. Interpretation of the Term "Payable" in Section 40(a)(ia): The CIT(A) upheld the Assessing Officer's order, citing multiple judicial precedents. The CIT(A) referenced the Special Bench decision in Merilyn Shipping & Transports v. Addl. CIT, which initially held that Section 40(a)(ia) applied only to amounts payable at the end of the financial year. However, this decision was under interim suspension by the Andhra Pradesh High Court. The CIT(A) further cited judgments from the Calcutta High Court and Gujarat High Court, which held that Section 40(a)(ia) covered amounts payable at any time during the year, not just at the year-end. The intention of the legislature was to disallow expenses if TDS was not deducted, irrespective of whether the amount was paid or payable. 3. Retrospective Application of the Second Proviso to Section 40(a)(ia): The assessee's counsel argued that the second proviso to Section 40(a)(ia) should be applied retrospectively, as it is declaratory and curative in nature. This proviso states that if the payee has paid the due tax, the disallowance under Section 40(a)(ia) should not apply. The counsel cited the Delhi High Court's decision in CIT v. Ansal Land Mark Township P. Ltd., which supported this view. The Tribunal noted that the Punjab & Haryana High Court in PMS Diesels v. CIT and other High Courts had discussed the issue of "paid" versus "payable," concluding that TDS deduction is mandatory, and non-deduction leads to disallowance under Section 40(a)(ia). Tribunal's Decision: The Tribunal acknowledged the conflicting judicial views but chose to follow the Delhi High Court's reasoning in CIT v. Ansal Land Mark Township P. Ltd. The Tribunal remanded the matter back to the Assessing Officer for verification of the assessee's claim that the creditors had already paid the due tax on the interest income. If verified, the benefit of the amended Section 40(a)(ia) should be extended to the assessee. Conclusion: The appeal was allowed for statistical purposes, with the matter remanded to the Assessing Officer for factual verification. If the creditors had indeed paid the due tax, the disallowance under Section 40(a)(ia) would not apply, in line with the second proviso to the section. The order was pronounced in the open court on 22/08/2016.
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