2018 (12) TMI 1383 - AT - Income Tax

TDS u/s 194A - disallowance u/s 40(a)(ia) - non deduction of tds on interest paid - Held that - Assessee has placed on record the copy of the CA Certificate (this Certificate was also produced before CIT(A)) wherein the CA has certified that the payee (Tata Capital Finance Services Ltd.,) has accounted for interest received from the assessee as its income and has paid the tax on such interest. In such a situation, no disallowance u/s 40(a)(ia) is called for in view of the decision of CIT Vs. Ansal Land Mark Township Pvt. Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT wherein it has held that insertion of second provisio to Sec.40(a)(ia) of the Act is declaratory and curative in nature and has retrospective effect from 01.04.2005. As long as payee or resident has filed its return of income disclosing the payment received by and in which the income embedded by it and has also paid taxes on such income, then no disallowance can be made u/s 40(a)(ia). Before us Revenue has not pointed out any contrary binding decision in its support - no disallowance u/s 40(a)(ia) of the Act is called for in the present case and thus, the ground of the assessee is allowed.

Issues:
1. Disallowance of interest under section 40(a)(ia) of the Income Tax Act, 1961.
2. Application of the second proviso to section 40(a)(ia) of the Act.
3. Retrospective effect of the amendment to section 40(a)(ia) of the Act.

Issue 1: Disallowance of interest under section 40(a)(ia) of the Income Tax Act, 1961:

The appeal pertains to the disallowance of interest amounting to ?44,41,419 under section 40(a)(ia) of the Income Tax Act, 1961, due to non-deduction of TDS. The Assessing Officer (AO) disallowed the interest payment as TDS was not deducted by the assessee. The Commissioner of Income Tax (Appeals) upheld the AO's decision, citing the amendment inserted by the Finance Act, 2012, as not being retrospective. The assessee contended that the recipient of interest, Tata Capital Financial Services Limited, had included the interest as income, paid taxes on it, and submitted a CA certificate to support this claim. The Tribunal, after considering the submissions and relevant case law, held that no disallowance was warranted under section 40(a)(ia) of the Act, as the payee had accounted for the interest as income and paid taxes on it. The Tribunal relied on the decision of the Delhi High Court, which stated that the second proviso to section 40(a)(ia) was declaratory and curative, with retrospective effect from 01.04.2005. As there was no contrary binding decision presented by the Revenue, the Tribunal allowed the appeal, concluding that no disallowance was required.

Issue 2: Application of the second proviso to section 40(a)(ia) of the Act:

The controversy revolved around the application of the second proviso to section 40(a)(ia) of the Act. The AO disallowed the interest payment due to non-deduction of TDS, citing the non-retrospective nature of the amendment introduced by the Finance Act, 2012. The Commissioner of Income Tax (Appeals) agreed with the AO's decision, emphasizing the specific date of applicability of the amendment. However, the assessee argued that the second proviso was retrospective in nature, as evidenced by the CA certificate submitted, which indicated that the recipient had paid taxes on the interest received. The Tribunal, after analyzing the facts and relevant legal principles, held that the second proviso was declaratory and curative, with retrospective effect from 01.04.2005, as per the decision of the Delhi High Court. Consequently, the Tribunal allowed the appeal, stating that no disallowance was warranted under section 40(a)(ia) of the Act.

Issue 3: Retrospective effect of the amendment to section 40(a)(ia) of the Act:

The question of whether the amendment to section 40(a)(ia) of the Act had retrospective effect was a key aspect of the case. The AO and the Commissioner of Income Tax (Appeals) maintained that the amendment introduced by the Finance Act, 2012, was not retrospective. However, the assessee contended that the second proviso to section 40(a)(ia) was retrospective, citing a CA certificate to support the claim that the recipient had paid taxes on the interest received. The Tribunal, in line with the decision of the Delhi High Court, concluded that the second proviso was declaratory and curative, with retrospective effect from 01.04.2005. As there was no contradictory binding decision presented by the Revenue, the Tribunal allowed the appeal, ruling that no disallowance was necessary under section 40(a)(ia) of the Act.

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