2012 (4) TMI 240 - AT - Income Tax

Provision gratuity u/s. 40A(9) - AO noticed that the assessee has made a provision for gratuity and debited the same to Income & Expenditure Fund assessee stated that corporation contributes to the approved gratuity fund of RBI by way of contractual obligation for its employees all of whom are on deputation from RBI - gratuity liability for the staff deputed to the Corporation has to be reimbursed to the RBI - AO observed that reimbursement to RBI does not in any way change the character of provision for gratuity Held that - confirmed the deletion of disallowance on account of provision for gratuity. Non deduction of TDS - disallowance u/s. 40(a)(ia) - assessee contended that since the person to whom the payment was made has already offered the same for taxation, hence provisions of sec.40(a)(ia) cannot be invoked. - applicability of decisions in the case of Hindustan Coca Cola (2007 -TMI - 1676 - SUPREME COURT OF INDIA ) and Mahindra & Mahindra (2009 -TMI - 59571 - ITAT BOMBAY-H ) held that - the principles laid down in these two decisions cannot be adopted for the purpose of interpreting sec.40 a ia . Further, we find that sec.201 deals with the mode of recovery of taxes and once tax due has already been paid then the same demand cannot be enforced again. However, sec.40 a ia deals with the disallowance of expenditure itself. Therefore, merely by invoking the Heydon s principle the statutory provisions cannot be rendered redundant. Therefore, we are of the opinion that once tax has not been deducted and even if such tax has been paid by the deductee, disallowance u/s.40 a ia can still be made.

Summary

Issues:
1. Deletion of additions made on account of provision gratuity u/s. 40A(9).
2. Deletion of addition made on account of charges paid to Clearing Corporation of India Ltd. without deduction TDS u/s. 40(a)(ia).

Issue 1: Deletion of additions made on account of provision gratuity u/s. 40A(9):
The AO disallowed the provision for gratuity made by the assessee under sec. 40A(7). The assessee explained that the provision was for staff deputed from the Reserve Bank of India, and the liability was to reimburse RBI, not directly to employees. The AO disagreed and disallowed the provision. The CIT(A) deleted the addition based on the order of his predecessor in earlier years. The Tribunal confirmed the deletion, citing previous decisions in favor of the appellant. The Tribunal upheld the CIT(A)'s order, considering the consistent rulings in similar cases.

Issue 2: Deletion of addition made on account of charges paid to Clearing Corporation of India Ltd. without deduction TDS u/s. 40(a)(ia):
The AO disallowed charges paid by the assessee to Clearing Corporation of India Ltd. without TDS deduction under sec. 40(a)(ia). The CIT(A) deleted the addition based on a precedent from an earlier assessment year. The Revenue argued that a recent decision by the Bombay High Court supported their stance. The assessee contended that the payee had already paid taxes on the charges, citing relevant case law and statutory provisions. The Tribunal analyzed the arguments and legal principles, distinguishing between sec. 201 and sec. 40(a)(ia). The Tribunal held that even if the payee had paid taxes, the disallowance under sec. 40(a)(ia) could still be made. It differentiated the applicability of the law for different assessment years based on precedents and factual circumstances. As a result, one appeal was dismissed, and the other was partly allowed.

This detailed analysis of the legal judgment provides a comprehensive understanding of the issues involved, the arguments presented by both parties, and the Tribunal's reasoning leading to the final decision.