2017 (1) TMI 172 - AT - Income Tax

Tribunal allows appellant's contentions on bona fide belief & retrospective tax amendments

Bharti Airtel Ltd Versus Addl CIT, Range-2,

Bharti Airtel Ltd Versus Addl CIT, Range-2, - TMI Issues Involved:1. Disallowance under Section 40(a)(ia) for non-deduction of tax at source on discounts to distributors.2. Bona fide belief of non-deductibility of tax.3. Restriction of disallowance to amounts payable at year-end.4. Retrospective application of amendments to Section 40(a)(ia).5. Deduction of liability borne under Section 201(1).Issue-wise Detailed Analysis:1. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax at Source on Discounts to Distributors:The appellant challenged the disallowance of Rs. 505,47,21,495 for discounts allowed to distributors on prepaid products, disallowed by the Assessing Officer (AO) under Section 40(a)(ia) for non-deduction of tax at source. The AO considered these discounts as commission requiring TDS under Section 194H. The Tribunal, relying on the Delhi High Court's decision in CIT v. Idea Cellular Ltd., upheld the AO's decision. However, the Tribunal also acknowledged conflicting views from other High Courts, notably the Karnataka High Court in Bharti Airtel Ltd. v. DCIT, which held that such transactions were on a principal-to-principal basis, thus not attracting Section 194H.2. Bona Fide Belief of Non-Deductibility of Tax:The appellant argued that it had a bona fide belief that no tax was deductible on the discounts, supported by consistent past practice and no prior disallowance by the Revenue. The Tribunal referred to the Bombay High Court's decision in CIT v. Kotak Securities Ltd., which held that no disallowance under Section 40(a)(ia) is warranted if the assessee had a bona fide belief of non-deductibility, especially when the Revenue had not objected in the past. The Tribunal directed the AO to verify if the recipients had discharged their tax liability, which would support the appellant's bona fide belief.3. Restriction of Disallowance to Amounts Payable at Year-End:The appellant contended that disallowance under Section 40(a)(ia) should be restricted to amounts payable at the year-end, not amounts already paid. The Tribunal noted the Allahabad High Court's decision in CIT v. Vector Shipping Services (P) Ltd., which supported this view. The Tribunal directed the AO to restrict disallowance to amounts payable as of the last day of the previous year.4. Retrospective Application of Amendments to Section 40(a)(ia):The appellant argued that the amendments to Section 40(a)(ia) by the Finance Act, 2012, which provided relief from disallowance if the payee had paid tax, should apply retrospectively. The Tribunal, citing various decisions including the Delhi High Court in CIT v. Rajinder Kumar, held that the amendments were curative and thus retrospective. The Tribunal directed the AO to apply the amended provisions retrospectively.5. Deduction of Liability Borne Under Section 201(1):The appellant claimed that it should be allowed a deduction for liabilities borne under Section 201(1) for non-deduction of tax. The Tribunal noted that no order under Section 201 was passed for transactions amounting to Rs. 407,85,01,823, implying no default. Therefore, disallowance under Section 40(a)(ia) was unwarranted for these transactions. For the remaining transactions, the Tribunal directed the AO to allow deductions if the appellant's appeal against the Section 201 order was successful.Conclusion:The Tribunal allowed the appellant's contentions on the bona fide belief and retrospective application of amendments, directing the AO to verify the discharge of tax liability by recipients and apply the amended provisions retrospectively. The Tribunal restricted disallowance to amounts payable at year-end and allowed deductions for liabilities borne under Section 201(1) if the appellant's appeal was successful. The appeal was allowed for statistical purposes with specific directions to the AO.