2019 (5) TMI 1637 - AT - Income Tax

Addition u/s.40(a)(ia) - non deduction of TDS for interest paid to the Co-operative credit societies - Scope of amendment - whether the second proviso to section 40(a)(ia) is retrospective in nature - HELD THAT - Hon'ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (P) Ltd 2015 (9) TMI 79 - DELHI HIGH COURT as well as Pr. CIT-5 Vs. Perfect Circle India Pvt. Ltd. 2019 (1) TMI 1532 - BOMBAY HIGH COURT have taken a view that the second proviso to section 40(a)(ia) of the Act has retrospective effect from 01.04.2005 being the date from which sub-clause (ia) of section 40(a) was inserted by the Finance ( No.2) Act, 2004. Hon'ble Supreme Court has held in the Hindustan Coca Cola Beverages P Ltd. Vs. CIT 2007 (8) TMI 12 - SUPREME COURT that even in absence of second proviso to section 40(a)(ia) if it is noticed that the payee had already paid the tax, on the amount received under such circumstances, the Court held that the payer/deductor can at best be asked to pay the interest on delay in depositing tax and no further liability is warranted in the hands of the payer/deductor. AR has placed before us the additional evidences and necessary certificates from C.A. demonstrating that the taxes have been paid by the payee on the amount received as interest from assessee. These facts needs to be verified and established therefore, we set aside the order of the Ld. CIT(Appeals) and restore the matter back to the file of the Assessing Officer to verify the payments of taxes made by the payee and adjudicate the issue after providing reasonable opportunity of hearing to the assessee. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Addition made u/s.40(a)(ia) of the Income Tax Act, 1961 for non-deduction of TDS on interest paid to Tata Capital Housing Finance Ltd.
2. Retrospective applicability of the second proviso to section 40(a)(ia) of the Act.

Analysis:
1. The appeal pertains to the addition made under section 40(a)(ia) of the Act due to non-deduction of TDS on interest paid to Tata Capital Housing Finance Ltd. The assessee contended that the second proviso to section 40(a)(ia) is retrospective and hence, no disallowance was warranted. The assessee provided evidence that the interest amount had been offered to tax by the recipients, supported by CA certificates. The Tribunal referred to previous decisions and held that if the payee has paid the tax to the government, the payer cannot be held liable for TDS non-deduction. The matter was remitted back to the Assessing Officer for verification.

2. The key issue was the retrospective applicability of the second proviso to section 40(a)(ia) of the Act. The assessee argued for retrospective application from 01.04.2005, citing judgments supporting this view. The Tribunal noted that the Hon'ble Delhi High Court and the Hon'ble Bombay High Court had held the proviso to be retrospective from 01.04.2005. The Tribunal considered the certificates provided by the assessee showing tax payment by the payee and decided to set aside the CIT(A)'s order for further verification by the Assessing Officer.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for verification of tax payments by the payee to determine the applicability of the second proviso to section 40(a)(ia) and the consequent liability for TDS deduction. The decision highlighted the importance of documentary evidence and judicial precedents in resolving disputes related to TDS obligations under the Income Tax Act, 1961.