2019 (1) TMI 640 - AT - Income Tax

Addition u/s 40(a)(ia) on account of interest paid to Tata Capital Ltd. - TDS liabilities - scope of amendment to section 40(a)(ia) - Held that - DR relied on Thomas George Muthoot Vs. CIT 2015 (7) TMI 810 - KERALA HIGH COURT in which, decided that amendment to section 40(a)(ia) is prospective in nature, while, the assessee has relied on the decision in the case of CIT Vs. Ansal Land Mark Township (P) Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT in which, the Hon ble Court adjudicated that the amendment is a curative in nature and it has effect of retrospective. By relying on the judgment in the case of CIT Vs. M/s Vegetable Products Ltd 1973 (1) TMI 1 - SUPREME COURT in which adjudicated that the amendment is a curative in nature and it has effect of retrospective. We hold that where two views are possible on an issue, the view, which is favourable to the assessee has to be preferred. We direct the AO to delete the addition made u/s 40(a)(ia) on account of interest paid to Tata Capital Ltd. - Decided in favour of assessee.

Issues involved:

1. Disallowance of interest paid to Tata Capital under section 40(a)(ia) of the Income-tax Act, 1961.
2. Interpretation of the amendment to section 40(a)(ia) by the Finance Act, 2012.
3. Rule of construction favoring the assessee in case of multiple interpretations.
4. Non-disposal of additional evidence petition under Rule 46A of the Income Tax Rules, 1962.
5. Liability to interest under section 234B of the Income-tax Act, 1961.

Issue-wise detailed analysis:

1. Disallowance of interest paid to Tata Capital under section 40(a)(ia) of the Income-tax Act, 1961:

The assessee company, engaged in software development, filed its return of income disclosing an income of ?2,37,22,810. The Assessing Officer (AO) disallowed ?3,11,519 paid as interest to Tata Capital under section 40(a)(ia) of the Income-tax Act, 1961. The CIT(A) upheld this disallowance, relying on the Kerala High Court's decision in Thomas George Muthoot Vs. CIT, which held that the amendment to section 40(a)(ia) was prospective.

2. Interpretation of the amendment to section 40(a)(ia) by the Finance Act, 2012:

The assessee argued that the amendment to section 40(a)(ia) by the Finance Act, 2012, which inserted a second proviso, should be applied retrospectively. This proviso deemed that the assessee had deducted and paid the tax on the date of furnishing the return of income by the resident payee, provided certain conditions were met. The assessee cited the Delhi High Court's decision in CIT vs. Ansal Landmark Townships Pvt. Ltd., which supported the retrospective application of the amendment. The Tribunal, referencing its earlier decision in Smt. M. Sailaja Vs. ITO and the Supreme Court's reasoning in CIT v. Alom Extrusions Ltd., held that the amendment was curative and should be applied retrospectively from 1st April 2005.

3. Rule of construction favoring the assessee in case of multiple interpretations:

The Tribunal emphasized the rule of construction that, if two reasonable constructions of a taxing provision are possible, the one favoring the assessee should be adopted. This principle was supported by the Supreme Court's decision in CIT Vs. M/s Vegetable Products Ltd. Given the conflicting views of the Kerala High Court and the Delhi High Court on the amendment's retrospective application, the Tribunal preferred the interpretation favorable to the assessee.

4. Non-disposal of additional evidence petition under Rule 46A of the Income Tax Rules, 1962:

The assessee contended that the CIT(A) erred by not disposing of the additional evidence petition filed under Rule 46A. However, the Tribunal did not specifically address this issue in its order, focusing instead on the main ground of appeal regarding the disallowance under section 40(a)(ia).

5. Liability to interest under section 234B of the Income-tax Act, 1961:

The assessee denied liability to interest under section 234B of the Act. The Tribunal's decision to allow the appeal and direct the AO to delete the addition made under section 40(a)(ia) implicitly addressed this issue, as the primary ground for the interest liability was the disallowed interest payment.

Conclusion:

The Tribunal allowed the assessee's appeal, directing the AO to delete the disallowance of ?3,11,519 made under section 40(a)(ia). The Tribunal favored the interpretation that the amendment to section 40(a)(ia) by the Finance Act, 2012, was retrospective, aligning with the Delhi High Court's decision in CIT vs. Ansal Landmark Townships Pvt. Ltd. The Tribunal's decision was based on the principle that the interpretation favoring the assessee should be preferred when multiple reasonable constructions are possible.

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