2022 (11) TMI 776 - AT - Income Tax

TDS u/s 194A - addition u/s.40(a)(ia) - Non deduction of TDS - assessee in default - scope of second proviso to section 40(a)(ia) - failure of the assessee to deduct tax at source on interest paid by it to Muthoot Mini Finance Corporation Ltd. - HELD THAT - Legislature has given statutory recognition to the judgment in Hindustan Coca Cola Beverage 2007 (8) TMI 12 - SUPREME COURT amply demonstrates that the law declared by the Hon‟ble Supreme Court prevails even during the period 01-04-2012 to 30-06-2012 before the insertion of the proviso to section 201(1). Once a person is not deemed to be an assessee in default for failure to deduct tax at source or payment of tax after deduction, the logical consequence is that the provisions of section 40(a)(ia) do not get magnetized. Be that as it may, the relevant point to be accentuated in this regard is that the second proviso to section 40(a)(ia), considering failure of the assessee to deduct tax at source as not an assessee in default under the first proviso to section 201(1), unlike the first proviso to section 201(1), has been inserted w.e.f. 01-04-2013, which further strengthens the case of the assessee. The second point of view espoused by the AO as well as the ld. CIT(A) is that the assessee did not comply with the requirement of section 201(1) inasmuch as the certificate from the Chartered Accountant in Form 26A was not furnished. Admittedly, the assessee did not furnish it before the AO. For the first time, the assessee submitted a certificate from Muthoot Mini Finance Corporation Ltd. before the ld. CIT(A) that the income received from the assessee was included in the total income. Such certificate was not in Form 26A. However, during the course of the first appellate proceedings itself, the assessee furnished proper annexure to the certificate in Form 26A. CIT(A), on a remand report from the AO, has refused to take cognizance of it. In my opinion, the necessary requirement got fully satisfied once the certificate in the requisite form was obtained by the assessee and placed before the ld. CIT(A) and also the AO (during the course of remand proceedings). There is no qualitative difference between the first three certificates filed by the assessee before the CIT(A) for the first time for which the disallowance has been deleted and the fourth one, which was also filed before him for the first time for which the disallowance has been sustained. Ex consequenti, hold that the necessary condition has been satisfied and hence the assessee cannot be treated as an assessee in default. We ergo, delete the disallowance u/s.40(a)(ia) sustained in the first appeal. Appeal is allowed.

Summary

Issues:
Confirmation of addition under section 40(a)(ia) for failure to deduct tax at source on interest payment to Muthoot Mini Finance Corporation Ltd.

Detailed Analysis:

1. Issue of Addition under Section 40(a)(ia):
The appeal challenged the correctness of the order passed by CIT(A) confirming the addition of Rs.86,88,000 under section 40(a)(ia) of the Income-tax Act, 1961, related to the assessment year 2013-14. The Assessing Officer (AO) disallowed the amount due to the failure of the assessee to deduct tax at source on interest paid to Muthoot Mini Finance Corporation Ltd. The AO invoked section 40(a)(ia) for the period from 01-04-2012 to 30-06-2012, as the amendment to section 201(1) was made effective from 01-07-2012. The AO required the assessee to furnish a certificate in Form 26A from a Chartered Accountant, which was not provided. The CIT(A) deleted the disallowance for three parties but sustained it for Muthoot Mini Finance Corporation Ltd. The appeal before the Tribunal focused on this specific disallowance.

2. Legal Provisions and Precedents:
Section 201(1) states that a person failing to deduct tax at source shall be deemed an assessee in default. The first proviso to section 201(1) exempts the payer from default if the payee includes the income in their return, pays due taxes, and furnishes a certificate in Form 26A. Referring to the judgment in Hindustan Coca Cola Beverage India (P) Ltd. vs. CIT (2007), it was established that a payer is not an assessee in default if the payee has paid taxes on the income. The insertion of the first proviso to section 201(1) by the Finance Act, 2012 reinforced this principle. The absence of the certificate in Form 26A was a point of contention.

3. Decision and Reasoning:
The Tribunal analyzed the case in light of the legal provisions and precedents. It emphasized that the payer cannot be treated as an assessee in default if the payee has included the income in their total income and paid due taxes. The Tribunal held that the assessee fulfilled the necessary conditions by providing the required certificate in Form 26A during the appellate proceedings. The Tribunal found no qualitative difference between the certificates provided for the first three parties and the fourth party. Therefore, the disallowance under section 40(a)(ia) was deleted for the entire amount. The Tribunal's decision was based on the statutory amendments and the principles established in relevant judgments.

4. Conclusion:
The Tribunal allowed the appeal, overturning the disallowance under section 40(a)(ia) for the interest payment to Muthoot Mini Finance Corporation Ltd. The Tribunal emphasized the importance of fulfilling the conditions set out in the legal provisions and providing the necessary documentation. The decision highlighted the significance of statutory amendments and judicial precedents in interpreting tax laws and determining the default status of payers in such cases.

This detailed analysis of the judgment highlights the legal intricacies involved in the case, the application of relevant legal provisions, and the Tribunal's decision based on statutory amendments and judicial precedents.