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2019 (9) TMI 850 - AT - Income TaxDisallowance u/s 40(a)(ia) - non-deduction of TDS on payment of interest - Assessee s case is that the aforesaid interest paid by the assessee has been considered as income by M/s. Sun Infrastructure Pvt. Ltd., in its return of income and has also paid taxes on the same - HELD THAT - Decision of CIT Vs. Ansal Land Mark Township Pvt. Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT held that insertion of second proviso to Sec.40(a)(ia) of the Act is declaratory and curative in nature and has retrospective effect from 01.04.2005. CIT(A) relying on the decision in the case of CIT Vs. Ansal Land Mark Township Pvt. Ltd., (supra) has given a finding that M/s. Sun Infrastructure Pvt. Ltd., has included the amount of interest paid by the assessee in its return of income and has paid taxes on the same. Considering the aforesaid facts, CIT(A) has rightly deleted the addition - Decided in favour of assessee.
Issues:
1. Non-deduction of TDS on interest payment. 2. Applicability of second proviso to section 40(a)(ia) retrospectively. 3. Disallowance of interest expenses under section 40(a)(ia). Issue 1: Non-deduction of TDS on interest payment The appeal filed by the Revenue challenged the order of the Commissioner of Income Tax (A) regarding the non-deduction of TDS on interest payment of ?4,69,57,184. The Assessing Officer (AO) disallowed the interest expenses under section 40(a)(ia) as TDS was not deducted on the payment. The assessee contended that the interest paid was included in the Profit and Loss account and was not liable for disallowance. The AO disagreed, stating that the second proviso to section 40(a)(ia) was not applicable for the assessment year in question. The Commissioner, relying on precedents, ruled in favor of the assessee, noting that the interest income was accounted for by the recipient and taxes were paid on it. The Commissioner directed the AO to delete the disallowance under section 40(a)(ia). Issue 2: Applicability of second proviso to section 40(a)(ia) retrospectively The Revenue contended that the second proviso to section 40(a)(ia) should not be applied retrospectively, citing a decision of the Kerala High Court. However, the Commissioner, supported by the decision of the Delhi High Court in the case of CIT Vs. Ansal Land Mark Township Pvt. Ltd., held that the proviso was declaratory and curative, with retrospective effect from 01.04.2005. The Commissioner emphasized that the recipient had included the interest income in their return and paid taxes on it, thus the assessee was not in default. Issue 3: Disallowance of interest expenses under section 40(a)(ia) The dispute revolved around the disallowance of interest expenses under section 40(a)(ia) due to non-deduction of TDS. The Revenue argued for disallowance, while the assessee maintained that the interest payment was accounted for by the recipient. The Commissioner, in line with previous decisions, ruled in favor of the assessee, emphasizing that the recipient had paid taxes on the interest income. The Tribunal upheld the Commissioner's decision, dismissing the Revenue's appeal. In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the Commissioner's decision to delete the disallowance of interest expenses under section 40(a)(ia) based on the recipient's inclusion of the interest income in their return and payment of taxes on it.
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