2017 (12) TMI 918 - AT - Income Tax

Disallowance u/s 40(a)(ia) - non deduction of tds on interest payment from unsecured loans - main contention of the ld.A.R is that the recipient of the payments had offered the income for taxation, as such there is no necessity to deduct tax on payment of interest - Held that - It is noticed that this issue is squarely covered by the judgement of Delhi High Court in the case of Ansal Landmark Township 2015 (9) TMI 79 - DELHI HIGH COURT as long as the payee/resident (which in this case is APIL) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the assessee would not be treated as a person in default. Thus remit this issue to the file of the Assessing Officer for fresh consideration in the light of above judgment. The ground raised by the assessee u/s.40(a)(ia) of the Act is partly allowed for statistical purposes.

Summary

Issues:
1. Disallowance under section 40(a)(ia) for non-deduction of TDS on interest payment.
2. Interpretation of provisions related to TDS and deduction under section 40(a)(ia).
3. Assessment of whether the assessee had fulfilled the conditions to avoid being treated as an assessee in default.

Issue 1: Disallowance under section 40(a)(ia) for non-deduction of TDS on interest payment:
The appellant contested the disallowance made by the Assessing Officer (AO) under section 40(a)(ia) for not deducting TDS on interest payments. The appellant argued that since the recipients of the interest had filed Form 15G and were income tax assesses who declared the interest in their tax returns, there was no obligation to deduct tax. The AO disallowed ?3,60,009 under section 40(a)(ia) due to non-deduction of TDS. The Commissioner of Income Tax (Appeals) upheld the AO's decision, citing issues with the acknowledgment stamp on the Form 15G. However, the appellant relied on legal precedents to support their contention that as long as the payee had filed returns and paid tax on the income received, the assessee should not be considered in default.

Issue 2: Interpretation of provisions related to TDS and deduction under section 40(a)(ia):
The judgment referred to the Delhi High Court's decision in Ansal Landmark Township case, emphasizing the provisions of section 201(1) and the first proviso, which benefit the assessee if the payee has filed their tax return. It also discussed the second proviso to section 40(a)(ia) as a provision intended to benefit the assessee by not treating them as defaulters if the payee has filed returns and paid tax. The judgment highlighted that the purpose of section 40(a)(ia) is not to penalize but to restrict deductions when income remains untaxed due to TDS lapses. It concluded that the second proviso should be given retrospective effect from April 1, 2005, as a curative and declaratory amendment.

Issue 3: Assessment of whether the assessee had fulfilled the conditions to avoid being treated as an assessee in default:
The Accountant Member of the ITAT Chennai remitted the issue back to the Assessing Officer for fresh consideration in light of the legal precedents cited. The decision partially allowed the appellant's appeal under section 40(a)(ia) for statistical purposes, emphasizing the need for the AO to reevaluate the case considering the retrospective effect of the second proviso. The judgment refrained from addressing other grounds of appeal, focusing solely on the applicability of the second proviso to section 40(a)(ia).

In conclusion, the ITAT Chennai partially allowed the appeal of the assessee under section 40(a)(ia) for statistical purposes, directing a fresh assessment by the Assessing Officer in line with the legal interpretation provided in the judgment. The decision highlighted the importance of considering the retrospective effect of the second proviso and ensuring that the assessee's obligations regarding TDS deductions are assessed in accordance with the law.