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TMI Blog2016 (10) TMI 1038X X X X Extracts X X X X X X X X Extracts X X X X ..... 26A at pages 20 to 22 of the paper book to show that M/s. Elpro International Ltd. has paid tax on rental income received from the assessee. However, this fact requires verification. Therefore, we deem it appropriate to modify the impugned order and direct the Assessing Officer to pass fresh order after considering the fact that rent payment has been made by the assessee to M/s. Elpro International Ltd. without deducting tax at source and its implications under the provisions of the Act. The Assessing Officer shall pass assessment order in accordance with law, after affording sufficient opportunity of hearing to the assessee. - ITA No. 153/PN/2016 - - - Dated:- 28-10-2016 - R. K. Panda ( Accountant Member ) And Vikas Awasthy ( Judicial Member) For the Assessee : Nikhil Pathak For the Revenue : S. B. Prasad ORDER Vikas Awasthy ( Judicial Member) This appeal by the assessee is directed against the order of Pr. Commissioner of Income Tax-4, Pune dated 30-12-2015 passed u/s. 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) for the assessment year 2010-11. 2. The brief facts of the case as emanating from records are: The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee submitted that the Pr. Commissioner of Income Tax has erred in holding that the second proviso to section 40(a)(ia) is prospective in nature. The ld. AR admitted that the assessee has erred in not deducting tax at source on the rent paid to M/s. Elpro International Ltd. In the earlier assessment year the assessee did not deduct tax at source on rental income paid to M/s. Elpro International Ltd. on the basis of certificate issued by the Department. In the assessment under appeal the assessee was under bonafide belief that no tax is to be deducted in the present assessment year as well. However, in assessment year 2010-11, the Department issued certificate to deduct tax @ 0.75%. The assessee failed to take note of the same and made the payment without deducting tax at source. The ld. AR contended that although no tax has been deducted at source on the payment of rental income to M/s. Elpro International Ltd., yet the assessee cannot be held as an assessee in default. M/s. Elpro International Ltd. has disclosed rental income received from assessee in its return of income. Since, the rental income has already been offered to tax no disallowance u/s. 40(a)(ia) is warranted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the second proviso introduced by the Finance Act, 2012 applies w.e.f. 01-04-2013. The Hon'ble Kerala High Court in the case of Prudential Logistics And Transports Vs. Income Tax Officer (supra) has unambiguously held that the benefit of second proviso to section 40(a)(ia) giving concession to assessee from deducting TDS in case recipient of amount has already paid tax on such amount would be applicable w.e.f. 01-04-2013 only. The Pr. Commissioner of Income Tax by following the decision of Hon'ble Kerala High Court has given directions to the Assessing Officer to pass fresh assessment order. The decision of Hon'ble Delhi High Court on which the ld. AR has placed reliance has not considered the judgment of Hon'ble Kerala High Court. 5. Controverting the submissions of ld. DR, the ld. AR pointed that the Raipur Bench of the Tribunal in the case of R K P Company Vs. Income Tax Officer (supra) has taken into consideration the judgment of Hon'ble Kerala High Court in the case of Thomas George Muthoot Vs. CIT reported as 63 taxmann.com 99 (Kerala) in which the decision rendered in the case of Prudential Logistics And Transports Vs. Income Tax Officer (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ascertain whether the recipient of the amount in question had paid taxes on such amount. If the answer is in affirmative no disallowance u/s. 40(a)(ia) is warranted on such payment. The Memorandum explaining the insertion of new proviso reads as under : A related issue to the above is the disallowance under section 40(a)(ia) of certain business expenditure like interest, commission, brokerage, professional fee, etc. due to non-deduction of tax. It has been provided that in case the tax is deducted in subsequent previous year, the expenditure shall be allowed in that subsequent previous year of deduction. In order to rationalise the provisions of disallowance on account of nondeduction of tax from the payments made to a resident payee, it is proposed to amend section 40(a)(ia) to provide that where an assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, then, for the purpose of allowing deduction of such sum, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the Assessee would not be treated as a person in default. As far as the present case is concerned, it is not disputed by the Revenue that the payee has filed returns and offered the sum received to tax. 13. Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar Agarwal v. ACIT (supra) , the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40 (a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under: On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into account in computation of taxable income in the hands of the recipients of the payments. Such a policy motivated deduction restrictions should, therefore, not come into play when an assessee is able to establish that there is no actual loss of revenue. This disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et out earlier, we cannot subscribe to the view that it could have been an intended consequence to punish the assessees for non deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. 14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance. 15. In that view of the matter, the Court is unable to find any legal infirmity in the impugned order of the ITAT in adopting the ratio of the decision of the Agra Bench, ITAT in (Rajiv Kumar Agarwal v. ACIT). 8. Similar view has been taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. 10. In view of the above discussions, we deem it fit and proper to remit the matter to the file of the Assessing Officer for fresh adjudication in the light of our above observations and after carrying out necessary verifications regarding related payments having been taken into account by the recipients in computation of their income, regarding payment of taxes in respect of such income and regarding filing of the related income tax returns by the recipients. While giving effect to these directions, the Assessing Officer shall give due and fair opportunity of hearing to the assessee, decide the matter in accordance with the law and by way of a speaking order. We order so 5. In effect thus, Their Lordships have approved the action of the Tribunal in remitting the matter to the file of the Assessing Officer with a direction to ascertain whether the recipient has taken into account related payments into computation of his income and offering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court in the matter of CIT vs. Vegetable Products Ltd. [(1972) 88 ITR 192 (SC)]. Hon ble Supreme Court has laid down a principle that if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted . This principle has been consistently followed by the various authorities as also by the Hon ble Supreme Court itself. In another Supreme Court judgment, Petron Engg. Construction (P) Ltd. Anr. vs. CBDT Ors. (1988) 75 CTR (SC) 20 : (1989) 175 ITR 523 (SC), it has been reiterated that the above principle of law is well established and there is no doubt about that. Hon ble Supreme Court had, however, some occasions to deviate from this general principle of interpretation of taxing statute which can be construed as exceptions to this general rule. It has been held that the rule of resolving ambiguities in favour of taxpayer does not apply to deductions, exemptions and exceptions which are allowable only when plainly authorised. This exception, laid down in Littman vs. Barron 1952(2) AIR 393 and followed by apex Court in Mangalore Chemicals Fertilizers Ltd. vs. Dy. Commr. of CT (1992) Suppl. (1) SCC 21 and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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