2013 (3) TMI 199 - HC - Income Tax

Court affirms Tribunal ruling on Income Tax Act proviso, upholding pre-insertion application. Circulars binding.

The Court upheld the Tribunal's decision, ruling that the second proviso to Section 194H of the Income Tax Act, 1961, inserted by the Finance Act, 2007, ... Short deduction of tax from the payment of commission paid by BSNL/MTNL to their public call office franchises - ITAT deleted the demand - Held that:- No substantial question of law arises for consideration, inter alia, for the reason that the Central Board of Direct Taxes vide circular dated 12.03.2008 has taken a stand that the demands are not to be enforced on BSNL and MTNL offices except in the cases where taxes have been deducted at source but not paid over to the revenue. The proviso is clarificatory in nature though it was inserted by the Finance Act, 2007 w.e.f. 01.06.2007. The nature of the amendment and the purpose which it seeks to achieve make it abundantly clear that it is a clarificatory amendment and would be applicable even in respect of assessment years prior to insertion of the said amendment. - Decided in favor of assessee. Issues:1. Interpretation of the second proviso to Section 194H of the Income Tax Act, 1961.2. Application of the amendment to assessment years prior to its insertion.Analysis:1. The judgment dealt with the interpretation of the second proviso to Section 194H of the Income Tax Act, 1961, inserted w.e.f. 01.06.2007 by the Finance Act, 2007. The Income Tax Appellate Tribunal held that the amendment was clarificatory in nature and applied even to assessment years before its insertion. The Revenue raised substantial questions of law regarding the Tribunal's decision, questioning the reversal of orders by the CIT (A) and Assessing Officer.2. The case involved an assessee, a Government of India undertaking, who paid commission to STD/PCO franchises without deducting tax at source as required by Section 194H. The Assessing Officer found the assessee in violation of the Act and imposed tax and interest. However, the Tribunal, relying on precedent, granted the benefit of the amendment to the assessee, considering it clarificatory. The Tribunal's decision was supported by circulars and instructions emphasizing that the amendment aimed to address specific tax liabilities.3. The Tribunal's decision was consistent with previous rulings by other benches, including the Pune Bench and New Delhi Bench, in similar cases. The judgment highlighted the importance of the circular dated 12.03.2008, which clarified that demands should not be enforced on certain entities unless taxes were deducted but not paid over to the revenue. The Tribunal emphasized that the proviso was clarificatory and applicable to prior assessment years, providing relief to the assessee.4. The Court found no substantial question of law warranting consideration, as the nature and purpose of the amendment indicated its clarificatory intent. The judgment emphasized the binding nature of circulars issued by the Central Board of Direct Taxes and concluded that the proviso was clarificatory, applicable even to assessment years preceding its insertion. Consequently, the appeals were dismissed based on the Tribunal's decision and the clarificatory nature of the amendment.