2015 (11) TMI 1211 - HC - Income Tax

Disallowance made u/s.40(a)(ia) - non deduction of tax at source towards sub-contracting of work of the joint venture? - ITAT deleted the disallowance holding that the insertion of second proviso to Section 40(a)(ia) by Finance Act, 2012 with effect from 01.04.2013 is retrospective in operation - Held that - The Tribunal, as a matter of fact, found that a sum was not received by the assessee from the Department and that payment was made over directly to one M/s.Kranti Constructions, who are sub-contractors and who had in fact executed the work in terms of Memorandum of Understanding that was entered into by the assessee. The Tribunal also found that the Department made T.D.S. on payments made to M/s.Kranti Constructions and the same is reflected in the returns. In other words, the Tribunal, as a matter of fact, found that these amounts paid to M/s.Kranti Constructions could not be made as forming part of the assessment of the assessee. In that view of the matter, invocation of Section 40(a)(ia) itself would not arise. This finding of fact is not challenged before us. Hence, the appeal is liable to be dismissed on this ground alone. However, the Tribunal, having rendered a finding that the facts of the case under Section 40(a)(ia) could not be invoked, went on to discuss the retrospective effect given to Section 40(a)(ia) by Finance Act, 2012 with effect from 01.04.2013 while relying on the order of Antony D. Mundackal v. A.C.I.T. 2013 (12) TMI 67 - ITAT COCHIN . Inasmuch as there was no necessity for the Tribunal to enter into this arena since the order of the Tribunal is erroneous to the extent of rendering the finding with regard to the retrospective aspect of the Finance Act, 2012, the issue is left open to the respective parties to canvass the matter in appropriate forum. - Decided against revenue

Summary

Issues:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act on payment made to subcontractor without deducting tax at source.
2. Retrospective operation of the second proviso to Section 40(a)(ia) by Finance Act, 2012.

Analysis:
1. The appeal filed by the Revenue under Section 260-A of the Income Tax Act, 1961, challenged the Order of the Income-Tax Appellate Tribunal (ITAT) regarding disallowance under Section 40(a)(ia) for the assessment year 2007-2008. The Tribunal found that the payment made to a subcontractor, M/s.Kranti Constructions, was not received by the assessee but directly paid by the Department to the subcontractor. The Tribunal noted that the Department had deducted T.D.S. on payments to M/s.Kranti Constructions, which was reflected in the returns. Consequently, the Tribunal held that the disallowance under Section 40(a)(ia) could not be made as the amounts paid to the subcontractor did not form part of the assessee's assessment. This factual finding was not challenged, leading to the dismissal of the appeal solely on this ground.

2. Despite the above finding, the Tribunal delved into the retrospective effect of the Finance Act, 2012, which inserted the second proviso to Section 40(a)(ia) with effect from 01.04.2013. The Tribunal referred to a case from the Cochin Bench and discussed the retrospective operation of this provision. However, the High Court deemed this discussion unnecessary as the Tribunal's finding on the retrospective aspect was erroneous. The High Court held that there was no need for the Tribunal to address this issue, and it was left open for the parties to raise in an appropriate forum. Consequently, the appeal was dismissed, and no costs were awarded. Any pending Miscellaneous Petitions were also disposed of as infructuous in light of the appeal's dismissal.