2022 (9) TMI 1358 - AT - Income Tax

Non-deduction of TDS u/s 194C - Disallowance u/s 40(a)(ia) - nil tax liability of the payee - Scope of amendment to S. 40(ia) by Finance Act, 2010 by way of first proviso thereto - HELD THAT - The Apex Court has in CIT vs. Calcutta Export Company 2018 (5) TMI 356 - SUPREME COURT held the amendment to S. 40(ia) by Finance Act, 2010 by way of first proviso thereto as retrospective from the inception of the provision, i.e., w.e.f. AY 2005-06, being only toward mitigating a hardship to the tax payers and, thus, curative. Per the said proviso, the amount disallowed u/s. 40(a)(ia) shall be allowed for the year of payment, where it is deducted in a subsequent year, or where, though deducted, is paid after the due date specified u/s. 139(1). A second proviso was inserted by Finance Act, 2012, w.e.f. 01/4/2013, i.e., AY 2013-14 onwards, whereby the provision of sec. 40(a)(ia) shall not apply even where assessee fails to deduct or deposit tax deductible at source where the assessee is not deemed to be in-default under the first proviso to S. 201(1), which provision was simultaneously amended by insertion of the first proviso thereto, whereby the assessee, despite having failed to deduct tax at source in terms of Chapter-XVII would not be deemed to be in-default where the conditions listed therein are satisfied, being toward the satisfaction of his tax liability for the relevant year on the relevant sum by the payee-deductee. Assessee has before us made out a prima facie case by exhibiting nil tax liability of the payee, also claiming that the assessee has not claimed deduction in respect of the impugned sum for AY 2010-11, which becomes exigible in view of first proviso to S. 40(a)(ia). Regarding disallowace of 30% instead of 100% - HELD THAT - A total relief is in any case more desirable and appropriate than a partial one. We, accordingly, consider it appropriate to restore the matter to the file of the AO to verify the facts and decide in accordance with law.

Summary

Issues:
Disallowance under section 40(a)(ia) of the Income Tax Act for non-deduction of tax at source on contractual payments.

Detailed Analysis:

1. Issue of Disallowance under Section 40(a)(ia):
The appeal raised a single issue regarding the disallowance under section 40(a)(ia) of the Income Tax Act due to the non-deduction of tax at source by the assessee on contractual payments for printing charges on packing material. The default was admitted by the assessee, and the disallowance was confirmed in the first appeal. The assessee contended that the deductee had returned the sum as part of their income for the relevant year, reflecting nil tax liability. The matter was requested to be remitted to the Assessing Officer to verify the conditions of S. 40(a)(ia) as amended by the Finance Act, 2010, which has been held retrospective by various courts and the Tribunal.

2. Analysis of the Judgment:
The tribunal accepted the assessee's plea based on the retrospective nature of the amendment to S. 40(a)(ia) by the Finance Act, 2010. The amendment allowed for the disallowed amount to be allowed for the year of payment, even if deducted in a subsequent year. The tribunal directed the matter to be restored to the Assessing Officer to verify the facts and decide in accordance with law. The onus was placed on the assessee to satisfy the conditions of the second proviso to S. 40(a)(ia) to delete the disallowance. The tribunal emphasized the need for the Assessing Officer to ensure that no deduction had been claimed for the disallowance for the relevant year.

3. Retrospective Effect of the Amendment:
The tribunal acknowledged that the amendment per the second proviso to S. 40(a)(ia) was applicable from AY 2013-14 onwards, while the current year in question was AY 2007-08. However, the tribunal deemed the amendment to have a retrospective effect due to its curative nature and alignment with previous court decisions. The tribunal highlighted the genesis of the amendment in the default under section 194C and emphasized the importance of not recovering tax twice over.

4. Conclusion and Relief:
The tribunal allowed the assessee's appeal for statistical purposes, directing the Assessing Officer to verify the facts and make a decision in accordance with the law. The tribunal refrained from addressing the assessee's second claim regarding the reduction in the quantum of disallowance under section 40(a)(ia) by the Finance Act, 2014, as total relief was deemed more appropriate. The matter was kept open for further consideration.

In conclusion, the tribunal's judgment focused on the retrospective application of the amendment to section 40(a)(ia) and emphasized the need for the assessee to satisfy the conditions to delete the disallowance. The tribunal provided detailed reasoning for its decision and directed the Assessing Officer to proceed accordingly.