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2019 (8) TMI 230 - AT - Income TaxTDS u/s 194C - Disallowance of Service Coupon u/s. 40(a) (ia) - default u/s 201(1) - HELD THAT - Payments made by the assessee to its dealers for providing free services in lieu of service coupons is not in the nature of any reimbursement of expenditure incurred by such dealers, and is in fact in the nature of payment of consideration pursuant to a contract, as per which the dealer provides such services to the ultimate customers. Accordingly, in our considered view the assessee was obligated to have deducted tax at source at the time of making of such payments towards service coupons to its dealers. As is discernible from the orders of the lower authorities, as the assessee had failed to deduct tax at source as per mandate of Sec.194C, therefore, the lower authorities had rightly concluded that the said amount was liable to be disallowed under Sec. 40(a)(ia) of the I-T Act. As the assessee which remained under an obligation to deduct tax at source under Sec.194C had failed to comply with the said statutory obligation, therefore, subject to our observations recorded herein below the provisions of Sec.40(a)(ia) were clearly attracted. Disallowance u/s 40(a)(ia) is assessee is not a Assessee in default under the first proviso to sub-section (1) of Sec.201 - Scope of second proviso of Section 201(1) inserted vide the Finance Act, 2012 w.e.f 01.04.2013 - HELD THAT - As per the second proviso of Sec. 40(a)(ia), where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum, but is not deemed to be an assessee in default under the first proviso to sub-section (1) of Sec.201, then, for the purpose of Sec. 40(a)(ia) it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee, subject to the condition that the said resident payee satisfies certain conditions viz. (i) has furnished his return of income under Sec.139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income. At this stage, we may herein observe that though the second proviso had been made available on the statute vide the Finance Act, 2012 w.e.f 01.04.2013, however, the same as held in the case of CIT Vs. Ansal Land Mark Township (P) Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT shall be applicable retrospectively, i.e even for the years prior to A.Y 2013-14. A similar view had also recently been taken by the Hon ble High Court of Punjab Haryana in the case of PCIT Vs. Mobisoft Telesolutions Pvt. Ltd. 2018 (10) TMI 989 - PUNJAB AND HARYANA HIGH COURT while disposing off the appeal of the assessee before them for A.Y 2011-12. We are of the considered view that in case the assessee satisfies the conditions envisaged in sub-section (1) of Sec.201, then it cannot be held to be an assessee in default, and as per the second proviso of Sec. 40(a)(ia) no disallowance would be called for in its hands. We thus for the said limited purpose restore the matter to the file of the A.O for making necessary verifications. In case the assessee is able to demonstrate before the A.O that it had duly complied with the conditions envisaged in the second proviso of Sec.40(a)(ia) r.w.s 201(1), then the disallowance to the said extent made under Sec. 40(a)(ia) in its hands shall stand vacated.
Issues Involved:
1. Disallowance of Service Coupon of ?35,49,01,000/- under Section 40(a)(ia) of the Income Tax Act, 1961. Detailed Analysis: Disallowance of Service Coupon of ?35,49,01,000/- under Section 40(a)(ia): Background: The assessee, engaged in manufacturing automobile vehicles, filed its return of income for A.Y. 2007-08 declaring total income at ?958,35,15,817/-. The original assessment was completed assessing its total income at ?2588,51,62,830/-. The matter went through appeals and cross-appeals, leading to the Tribunal restoring certain issues to the A.O for fresh adjudication. One such issue was the disallowance of payments made to dealers towards service coupons under Section 40(a)(ia). Assessee's Argument: The assessee contended that the payment made to dealers for service coupons was a reimbursement of expenses incurred by them for providing free services to the ultimate customers. Therefore, no tax was deductible under Section 194C. The relationship between the assessee and the dealers was on a principal-to-principal basis, not principal-to-agent. The assessee also argued that as it was not deemed an assessee in default under Section 201, no disallowance under Section 40(a)(ia) should apply. Additionally, the assessee cited the judgment of the Hon’ble High Court of Delhi in CIT Vs. Ansal Land Mark Township (P) Ltd. and the Hon’ble Supreme Court in CIT Vs. Kotak Securities Ltd. to support its case. Revenue's Argument: The Revenue argued that the payments made by the assessee to its dealers for providing services to the vehicles were contractual payments, necessitating tax deduction at source under Section 194C. As the assessee failed to comply with this obligation, the amount was rightly disallowed under Section 40(a)(ia). Tribunal's Findings: 1. Obligation to Deduct Tax: - The Tribunal observed that the payments made by the assessee to its dealers were not mere reimbursements but were in the nature of consideration pursuant to a contract. The dealers provided services to the ultimate customers in discharge of the assessee's obligation. Therefore, the assessee was obligated to deduct tax at source under Section 194C. - The Tribunal referred to a coordinate bench decision in the case of the assessee’s sister concern, Mahindra & Mahindra Automobiles Ltd. Vs. DCIT, which upheld the disallowance under similar circumstances. 2. Non-Deduction of Tax and Section 40(a)(ia): - Since the assessee failed to deduct tax at source, the provisions of Section 40(a)(ia) were attracted. The Tribunal noted that the lower authorities rightly concluded the disallowance under Section 40(a)(ia). 3. Applicability of Second Proviso to Section 40(a)(ia): - The Tribunal addressed whether the disallowance under Section 40(a)(ia) could apply if the assessee was not deemed an assessee in default under the first proviso to Section 201(1). The second proviso to Section 40(a)(ia) stipulates that if the resident payee has furnished their return of income, taken into account such sum, and paid the tax due, the disallowance under Section 40(a)(ia) would not apply. - The Tribunal remitted the matter to the A.O for verification. If the assessee could demonstrate compliance with the conditions in the second proviso to Section 40(a)(ia) read with Section 201(1), the disallowance would be vacated. 4. Distinguishing Case Law: - The Tribunal found the reliance on CIT Vs. Kotak Securities Ltd. distinguishable. The facts in Kotak Securities involved a bona fide belief regarding the liability to deduct TDS, which was not applicable in the present case. Conclusion: The appeal was partly allowed for statistical purposes, with the matter remitted to the A.O for verification regarding compliance with the second proviso to Section 40(a)(ia). The Tribunal upheld the obligation to deduct tax under Section 194C and the consequent disallowance under Section 40(a)(ia) due to non-compliance.
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