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TMI Blog2016 (9) TMI 1041X X X X Extracts X X X X X X X X Extracts X X X X ..... made to doctors as allowable without deducting TDS - disallowance u/s 40(a)(ia) - Held that:- Respectfully following the judgment of Hon. Delhi High Court in the case of CIT vs. Ansal Landmark Township (P) Ltd. (2015 (9) TMI 79 - DELHI HIGH COURT) and Rajeev Kumar Agarwal vs. Addl. CIT (2014 (6) TMI 79 - ITAT AGRA) wherein it was held that the second proviso to section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 01.04.2005, we restore this issue to the file of Assessing Officer with the direction that assessee shall provide before him all the details with regard to the recipients of the income of having received ₹ 53,41,049/- and taxes paid by them. We further direct the Assessing Officer to carryout necessary verification in respect of the payments and taxes of such income and also filing of income-tax return by the recipients. Needless to mention that adequate opportunity will be provided to the assessee for filing necessary details to show that the said recipients have reflected the receipts in their books of account and offered the same to tax in the period under consideration. In case the Assessing Officer finds that the recipien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for ₹ 5,97,314/- by observing as under :- 5.4 I have considered the contentions of the A.O. and the submissions made by the appellant. I have also gone through the ledger copy of gift expenditures submitted by the appellant. The ledger accounts show that appellant has maintained two ledger accounts for gift expenditures. One ledger account is for gift given to the employees of the appellant. In this account, small sums mostly amounting to ₹ 500/-have been paid to employees as Diwali gift. The total of such expenditure comes to ₹ 47,385/-, Since these are payments made to the employees on the occasion of Diwali, birthday etc., hence, the same are allowable as expenditure for the purpose of business of the appellant as they are also covered by the provisions of FBT. , 5.5 So far as balance expenditures of ₹ 5,97,314/-, is concerned, these have been incurred for making gifts mostly to doctors and outsiders. In most of the cases, the names of the recipients of the expenditure have not been recorded. Thus, these expenditures are not verifiable. In order to prove that the expenditures were incurred for having cordial relationship with doctors, the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. The expense incurred are directly related to the business of the Assessee. In the case of ACIT v. Liva Healthcare Ltd. ITA No. 847/Mum/2012 for AY 2008- 09 similar addition was deleted. The AO had disallowed the foreign tour expenses of the doctors on the ground that sponsorship of overseas tour was not related to the business of the assesse. The addition was deleted on the ground that the expenses were related to the business of the Assessee- Refer para 5 to 7 of the decision on page 188 to 190 of Index - II. The Assessee being a corporate entity cannot have any expenditure of personal nature. Paying small sum by way of gift at the diwali. birthday and marriage ceremony etc is business related expenditure and allowable as deduction. [Polyplex Corporation Ltd. Vs. ITO.(2009) 122 TTJ (Del) 949] We rely on decision of the ITAT. Ahd in case of Surat Electricity Co. Ltd. Vs. ACIT [(2010) 128 TTJ (Ahd) 696J]where it was held that if the expenditure has been incurred by the assessee voluntarily, even without necessity, hut it is for promotion of business, the deduction would be permissible u/s. 37(1). We also rely on decision of Hon'ble Karnataka High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear that the same were signed by Dr. Dhiren S. Shah and the bills were raised by the assessee. Therefore, Assessing Officer invoked the provisions of section 40(a)(ia) of the Act and disallowed the expenditure of ₹ 53,41,049/- for nondeduction of TDS u/s 194J of the Act. Aggrieved, assessee when came in appeal before ld. CIT(A) but could not succeed as ld. CIT(A) sustained the addition by observing as under :- 6.6 I have considered the contentions of the A.O. and the agreement between the appellant and Dr. Dhiren Shah. From the Agreement clause (c), it is evident that the hospital has agreed to provide. facilities to Dr. Dhiren Shah for running the pathological laboratory in the allowed space in the hospital with a view to providing added services to the patients visiting or admitted in the hospital. It has been stated in clause (d) that the agreement is not for lease or give license to the Doctor, but is an arrangement for mutual benefit and accordingly the present agreement will not create any right of tenancy, licensees, lessee or other similar rights in favour of the Doctor. These two clauses clearly show that the appellant's claim that Dr. Dhiren Shah is not prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fessional services to the hospital and not directly to the patients. 6.7 This is also evident from clause (j), which makes it mandatory on the doctor to maintain complete record of the expenses incurred by him for providing services in the laboratory and also to give access to such record to the company or any of its authorized agents/ consultants, officers, directors or staff for verifying the correctness and completeness of the records so maintained. Such clause can be included only on account of the fact that the hospital wants to keep a control on the doctor in order to see that he is not over charging them. Thus, these also shows that the doctor is providing professional services to the hospital only. 6.8 Similarly, clause (k) makes it obligatory on the doctor and his staff to follow the rules and regulations of the hospital and also abide by the directions given by the person in charge of the hospital from time to time for proper administration of the hospital. Similarly, clause (d) of section 3 makes it obligatory on part of the company to maintain complete records of the bills raised and amount collected for the services rendered by the doctor and also allow access to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be made applicable. But the facts of this decision are different from the case in hand. From the discussions made above, it is clear that the recipient of services rendered by Dr. Dhiren Shah and Dr Sudhir Rao is hospital run by the appellant company and not the patients. Hence, this decision is not applicable to the present case. 6.11 Without prejudice to the other submission made by the appellant in this regard, the appellant has also submitted that as per the decisions in the case of Jaipur Vidyut Vitaran Nigam Ltd. [123 TTJ 888 (JP)] and Teja Construction [129 TTJ 57 (Hyderabad)] only the amounts which have remained payable by the appellant at the end of the year to these laboratories can be disallowed u/s 40(a)(ia). The balance amounts which have already been paid during the relevant year cannot be disallowed u/s 40(a)(ia). It may be mentioned here that the decision in the case of Jaipur Vidyut Vitaran Nigam Ltd. came for consideration before ITAT, Kolkata B' Bench in the case of DCIT vs. Ashika Stock Brokings Ltd. 44 SOT 556 (Kol.) vide order dated 19.11.2010, the Bench has refused to follow the decision in the case of Jaipur Vidyut Vitaran Nigam Ltd. (supra) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid due taxes. In the following cases it has been held that second proviso inserted w.c.f 1-4-2013 in section 40(a)(ia) is declaratory and curative in nature and should be given retrospective effect w.e.f 1-4-2005 being the date from which section 40(a)(ia) was inserted by the Finance (No.2) Act, 2004. Frohberg Reaity Pvt. Ltd. v. ACIT ITA No. 2066/Ahd/2014 AY 2010- 11. Refer para 6 to 8.1 on page 194 to 196 of Index-II. Ansal Land Mark Township (P) Ltd. v. CIT ITA 160/2015 Delhi High Court. Refer para 5 to 14 on page 200 to 207 of Index - II. Selprint v. CITlA) - 33. Mumbai ITA No. 3688/Mum/2012 for AY 2008- 09. Refer para 3 to 6 on page 210 to 212 of Index - II. Santosh Kumar Kedia v. ITO ITA No. 1905/Kol/2014 AY 2007-08. Refer para 10 on page 226 of Index- II. Ballabh Das Agarwal v. ITO ITA NO. 1278/Kol/2011 AY 2008- 09. Refer para 5 to 7 on page 233 to 236 of Index - II. Shri G Shanker v. ACIT ITA No. 1832/Bang/2013 AY 2005-06. Refer para 5 to 5.4.2 at page nos. 246 to 250 of Index - II. 12. On the other hand, ld. DR relied on the orders of lower authorities. 13. We have considered the rival submissions and perused the material on recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nishing a lapse are two different things and have distinctly different, and sometimes mutually exclusive, connotations. When we appreciate the object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a fair, just and equitable interpretation of law- as is the guidance from Hon'ble Delhi High Court on interpretation of this legal provision, in our humble understanding, it could not be an intended consequence to disallow the expenditure, due to non deduction of tax at source, even in a situation in which corresponding income is brought to tax in the hands of the recipient. The scheme of Section 40(a)(ia), as we see it, is aimed at ensuring that an expenditure should not be allowed as deduction in the hands of an assessee in a situation in which income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271 C, and, section 40(a)(ia) doe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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