2015 (7) TMI 810

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.... For that reason, the interest paid was disallowed in terms of Section 40(a)(ia) of the Act. This order passed by the Assessing Officer was confirmed by the Commissioner (Appeals) and further appeals filed before the Tribunal were dismissed by a common order dated 28.08.2014. It is aggrieved by the orders passed by the Tribunal, the assessees have filed these appeals, formulating the following questions of law: (i) Whether on the facts and in the circumstances of the case, did not the Appellate Tribunal err in law in sustaining the addition of Rs. 6,28,28,000/- by invoking Sec.40(a)(ia) for the Assessment Year 2006-07? (ii) Did not the statutory Authorities and the Appellate Tribunal err in law in making addition u/s 40(a)(ia) when the payee has included the entire interest paid by the appellant in its total income and filed return of income accordingly? (iii) Did not the statutory Authorities and the Appellate Tribunal failed to follow the principle of law laid down by the Hon'ble Apex Court in M/s.Hindustan Coca Cola Beverages Pvt. Ltd. (293 ITR 226 (SC) where it was held that the payer is not liable to pay the amounts of short/non- deduction of tax u/s 201(1) in cases whe....

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....ious amounts that are specified for deduction of tax, clause (a) (ia) of Section 40, in so far as it is relevant, provides that in the case of any assessee any interest is payable to a resident on which tax is deductible at source under Chapter XVIIB and such tax has not been deducted. This is evident from the Section itself, which, at the relevant time, read as follows: "40. Amounts not deductible.- Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession".- (a) in the case of any assessee - (ia) any interest, commission or brokerage, rent, royalty, fees or professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub- contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVIIB and such tax has not been deducted or, after deduction, has not been paid,-- (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, or or before the....

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....e exemption provided in the Section, the burden is on them to establish that they, being individuals, satisfied the conditions specified in the proviso to the Section. From the orders impugned, we find that no such contention was urged before the statutory authorities. In fact the Tribunal has entered into a specified finding that; "in this case, business income of the assessee exceeded the limit prescribed u/s 44AB of the Act, therefore the assessee, even though an individual is liable to deduct tax while paying interest to the firm u/s 194A(1) of the IT Act". 10.No material whatsoever has been supplied by the appellants to contradict this specific factual finding recorded by the Appellate Tribunal. Therefore, this contention cannot be accepted. 11. The second contention raised was that second proviso to Section 40(a)(ia) of the Act, introduced by the Finance Act 2012, being retrospective in operation, disallowance could not have been ordered invoking Section 40 (a)(ia) of the Act. This contention was sought to be substantiated relying on the judgments in Allied Motor (P) Ltd. v. Commissioner of Income Tax [(1997) 224 ITR 677 (SC)] and Commissioner of Income Tax v. Alom Extrusi....

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....ve or remedial in nature, and even the appellants did not have such a case. Instead, by this proviso, an additional benefit was conferred on the assessees. Such a provision can only be prospective as held by this Court in Prudential Logistics and Transports (supra). Therefore, this contention raised also cannot be accepted. 16.Relying on the Apex Court judgment in Commissioner of Income Tax v. Hindustan Coca Cola Beverages Pvt. Ltd. [(2007) 293 ITR 226], learned Senior Counsel for the appellants contended that the recipients of the amounts paid by the appellants, the firms of which they are partners, have already paid tax and that therefore, it is illegal to disallow the interest paid. First of all, Section 40(a)(ia) is in very categoric terms and the provision is automatically attracted, on the failure of an assessee to deduct tax on the interest paid by him. Therefore, going by the language of Section 40(a)(ia), once it is found that there is failure to deduct tax at source, the fact that the recipient has subsequently paid tax, will not absolve the payee from the consequence of disallowance. In so far as the judgment in Hindustan Coca Cola case (Supra) is concerned, that was re....