TaxTMI 
TaxTMI 
2016 (10) TMI 1038
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....me returned by the assessee. During the period relevant to assessment year under appeal, the assessee had paid rent of Rs. 1,15,90,000/- to M/s. Elpro International Ltd. without deducting any tax at source. The Pr. Commissioner of Income Tax issued notice u/s. 263 of the Act on 22-11-2015 to the assessee for not deducting tax at source on the rent paid to M/s. Elpro International Ltd. The contention of the assessee was that tax was not deducted on the basis of certificate issued by Department. On perusal of records it was found that certificate dated 24-09-2009 issued by the Department u/s. 197 of the Act was with respect to deduction of TDS at lesser rate i.e. 0.75% plus S.C. & E.C., as applicable. The Pr. Commissioner of Income Tax held that the Assessing Officer has erred in not disallowing the expenditure of Rs. 1,15,90,000/- u/s. 40(a)(ia) of the Act which has resulted in under assessment of income including interest u/s. 234B of the Act. The assessee was declared as assessee in default for non-deduction of TDS. The Pr. Commissioner of Income Tax further held that the second proviso to section 40(a)(ia) inserted by Finance Act, 2012 is applicable with effect from 01-04-2013 th....
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....rder and remitted the matter back to Assessing Officer to look into the provisions applicable with respect to TDS vis-à-vis rent paid by the assessee to M/s. Elpro International Ltd. 3.1 The ld. AR submitted that the Hon'ble Kerala High Court in the case of Prudential Logistics And Transports Vs. Income Tax Officer (supra) has held that the second proviso to section 40(a)(ia) inserted by Finance Act, 2012 is prospective in nature and is effective from 01-04-2013. The Hon'ble Delhi High Court on the other hand in subsequent judgment delivered on 26-08-2015 in ITA No. 160/2015 in the case of Commissioner of Income Tax Vs. Ansal Land Mark Township (P) Ltd. [377 ITR 635 (Delhi)] has upheld the view of Agra Bench of the Tribunal holding the said proviso is declaratory and curative and has retrospective effect from 1st April, 2005. The ld. AR further placed reliance on the following decisions of the Tribunal to support his contentions : i. New Alignment Vs. Income Tax Officer, 69 taxmann.com 122 (Kolkata-Trib.); ii. Reliance Communication Ltd. Vs. Assistant Commissioner of Income Tax (TDS), 69 taxmann.com 307 (Mumbai-Trib.); iii. R K P Company Vs. Income Tax Officer....
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....ue in the present appeal arising from the arguments made on behalf of both the sides is; Whether the second proviso to section 40(a)(ia) inserted by Finance Act, 2012, is applicable retrospectively or w.e.f. 01-04-2013. Before we proceed with the issue it would be relevant to first refer to the amendment brought in by the Finance Act, 2012 to section 40(a)(ia) by way of insertion of proviso. "40. 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- xxxxxxxxxx xxxxxxxxxx (ia) [any interest, commission or brokerage,[rent, royalty,] fees for 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 XVII-B and such tax has not been deducted or, after deduction, [has not been paid on or before the due date specified in sub-section (1) of section 139;] Provided that xxxxxxxxx....
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....sed to deduct tax at source @ 0.75%, in accordance with the low rate tax certificate issued by the Department. The Assessing Officer during the scrutiny assessment proceedings failed to take into consideration the rent paid by the assessee without deduction of tax at source. The Pr. Commissioner of Income Tax invoked the provisions of section 263 and directed the Assessing Officer to make disallowance u/s. 40(a)(ia) of the Act. While issuing aforesaid directions the Pr. Commissioner of Income Tax held that the assessee is not eligible to claim the benefit of the second proviso to section 40(a)(ia) inserted by Finance Act, 2012 as the amendment is effective from 01-04-2013. The Pr. Commissioner of Income Tax has further placed reliance on the decision of Hon'ble Kerala High Court in the case of Prudential Logistics And Transports Vs. Income Tax Officer (supra) to fortify his view. The contention of the assessee is that the amendment to section 40(a)(ia) by way of insertion of the second proviso is applicable with retrospective effect. To strengthen this contention support has been drawn from the judgment of Hon'ble Delhi High Court in the case of Commissioner of Income Tax V....
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....etation 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) does not add to the same. The provisions of Section 40(a)(ia), as they existed prior to insertion of second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee's tax withholding lapses....
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....find that Raipur Bench of the Tribunal in the case of R K P Company Vs. Income Tax Officer (supra) has considered the decision of Hon'ble Kerala High Court in the case of Thomas George Muthoot Vs. CIT (supra), in which the judgment rendered in the case of Prudential Logistics And Transports Vs. Income Tax Officer (supra) was considered. The Raipur Bench by following the judgment of Hon'ble Delhi High Court held that the amendment is retrospective in nature. The relevant extract of the findings of Raipur Bench of the Tribunal are reproduced here-in-below : "4. We find that Hon'ble Delhi High Court has specifically approved the stand taken by a coordinate bench of this Tribunal, in the case of Rajeev Kumar Agarwal Vs ACIT [(2014) 149 ITD 363 (Agra)], and upheld the action of the Tribunal in following the same. 9. ............................ Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though....
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....rt's decision in the case of Thomas George Muthoot Vs CIT [(2015) 63 taxmann.com 99 (Kerala)]; second, that even if insertion of second proviso to Section 40(a)(ia) can be construed as retrospective in effect, the corresponding rule in the Income Tax Rules 1962 is not, and has not been held to be, retrospective, and the second proviso to Section 40(a)(ia) cannot, therefore, be give retrospective effect; and, third, that there is no decision on this issue by Hon'ble jurisdictional High Court and, as such, the stand of the Assessing Officer cannot be faulted. 7. As for Hon'ble Kerala High Court's decision in the case of Thomas George Muthoot (supra), undoubtedly, outside the jurisdiction of Hon'ble Kerala High Court and outside the jurisdiction of Hon'ble Delhi High Court- which has decided the issue in favour of the assessee, there are conflicting decisions on the issue of restrospectivity of second proviso to Section 40(a)(ia). It is thus evident that views of these two High Courts are in direct conflict with each other. Clearly, therefore, there is no meeting ground between these two judgments. The difficulty arises as to which of the Hon'ble non jurisdictional High Court is to ....