TaxTMI 
TaxTMI 
2017 (5) TMI 1737
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.... of appeal raised by the applicant, primarily relied on the decision of the Hon'ble Delhi High Court in the case of CIT v. Idea Cellular Limited 325 ITR 148 and concluded [2010] 189 Taxman 118 that the payments made by the applicant to the distributors was in the nature of 'commission' and therefore, tax was required to be deducted at source under section 194H of the Act. The said order of the Tribunal was recalled for adjudicating the alternate contentions raised without prejudice, regarding the applicability of provisions of section 40(a)(ia) of the Act projected vide ground Nos. 6.7 to 6.9 of the original memo of appeal. At the time of hearing of the recalled appeal, the following alternative contentions were accordingly raised by the applicant before the Hon'ble Tribunal: (a) Disallowance under section 40(a)(ia) of the Act was not at all warranted inasmuch as the applicant was under bona fide belief that tax was not deductible as source [contentions noted in para 6 of the order]; Without prejudice (b) Disallowance under section 40(a)(ia) of the Act should have, if at all been restricted to the amount remaining payable as on the last date of the previous ....
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....has discharged its tax liability. Therefore respectfully following the decision of the Hon'ble Bombay High Court in CIT versus Kotak securities Limited (supra) we also hold that disallowance under section 40(a)(ia) cannot be made in this case in view of the old practice of not deductions tax at source which has been accepted by the revenue and existence of bona fide belief of the assessee for non-deductibility of tax at source on such payments. However, the above direction is subject to verification by the Ld. Assessing officer that recipient of the income has discharged their own tax liability. In view of this we set aside this ground of appeal to the file of the Ld. Assessing officer for verification that recipient of the income has discharged their tax liability and if found so to delete the addition accordingly........." (Emphasis Supplied) It is respectfully submitted that the Hon'ble Tribunal has, while following the decision of the Hon'ble Bombay High Court in the case of Kotak Securities (supra), incorrectly applied the ratio decidendi of the said decision while directing the assessing officer to verify and restrict relief only to the extent of amount(s) on w....
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....us co-ordinate Benches of the Tribunal, wherein relief has been allowed only on the ground of bona fide belief without any further caveat/condition for verification of payment of taxes by the recipient of income. In view of the aforesaid, it is submitted that while accepting the decision of the Hon'ble Bombay High Court in Kotak Securities (supra) in principle, the direction by the Tribunal for restricting relief to the extent of payment of taxes by the recipient(s) is contrary to the said decision as also decision of various co-ordinate benches of the Tribunal, which clearly constitutes mistake apparent from record. The alternate proposition that if the payee had paid tax on income received from the applicant, there could be no disallowance under section 40(d)(ia) of the Act was raised vide contention (c) to the present appeal that amendments in the said section, being curative and procedural in nature, would apply retrospectively to the year under consideration and consequently: (i) deduction should be directed to be allowed in the subsequent year(s) when tax was paid by the payer/payee; (ii) disallowance should be directed to be restricted to 30% of the expenditure. ....
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....income, which was as pointed out earlier, even otherwise, not in consonance with the decision of the Hon'ble Bombay High Court accepted and relied upon by the Hon'ble Tribunal. In view of the aforesaid, it is respectfully prayed that paragraph 15 of the order dated 24.10.2016 may kindly be modified, by deleting the sentence beginning with the words "However the" and ending with the words "delete the addition accordingly". Contention referred in sub-point (ii) supra, namely, the disallowance should be restricted to 30% of the expenditure, though noted/recorded in para 8 has not been adjudicated in the order dated... Contention (b): It was submitted that disallowance under section 40(a)(ia) of the Act should have if at all been restricted to the amount remaining payable as on the last date of the previous year. The aforesaid contention, though noted/recorded in para 7 has not been adjudicated by the Hon'ble Tribunal in the order dated 24.10.2016. Contention (d): It was submitted that the assessing officer could not have, in any case, disallowed amount to the extent there was no order under section 201 treating the assessee to be in default under Chapter XVII-B o....
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....w and after giving a fair and reasonable opportunity of hearing to the assessed. The assessee is directed to make all such legal and factual submissions on this aspect, as he may deem appropriate, and the Assessing Officer shall adjudicate on the same by specifically dealing with the same by way of a speaking order. We direct so. 80. The additional ground of appeal, as set out above, is thus admitted in principle but remitted to the file of the Assessing Officer for adjudication on merits" (Emphasis Supplied) In the recalled order dated 24.10.2016, the Hon'ble Tribunal has not adjudicated the aforesaid additional ground on the erroneous premise that since relief had already been granted to the applicant in modified grounds of appeal Nos. 6.7 to 6.9 the issue raised in the additional ground of appeal was merely academic and required no separate adjudication. It is submitted that the aforesaid additional ground is an independent legal ground in itself which, in our respectful submission, would not be rendered academic, even if complete relief is allowed in ground Nos. 6.7 to 6.9. In the aforesaid additional ground the applicant has contended that amount paid in pursuance t....
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....then in the assessment year in question no fault can be found with the assessee in not deducting the tax at source u/s. 194J of the Act and consequently no action could be taken u/s. 40(a)(ia) of the Act. The similar facts are also in the case of the assessee as it is undertaking similar transactions of sales of prepaid sim cards since 1995-96 without deducting tax at source and revenue also has not questioned non-deduction of tax at source by the assessee. The first time the disallowance has been made in the impugned assessment year. In view of this, it is contended that assessee was under a bona fide belief for almost more than a decade that provisions of tax deduction at source do not apply to the transaction of sale of prepaid sim cards. The revenue has not controverted that the belief of the assessee regarding non-deduction of tax at source was not bona fide. Therefore, respectfully following the decision of the Bombay High Court in Kotak Securities Ltd. (supra) we also hold that in such circumstances no action could be taken u/s. 40(d)(ia) of the Act. In the result, this contention of the assessee is allowed. In view of this, the modified paragraph 15 of the order dated 24.10....
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..... The claim of the assessee was that Finance Act, 2014 has amended the provisions of section 40(a)(ia) to restrict the disallowance for non-deduction of tax at source to the extent of 30% of the expenditure. Contention of the assessee has been recorded at page Nos. 28 to 31 of the order. We have carefully considered the rival contentions. Prior to amendment the section reads as under:-- "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)" The Finance (No. 2) Act, 2014, w.e.f. 1-4-2015 substituted the above with:-- "thirty per cent of any sum payable to a resident" 6. By Finance (No. 2) Act, 2015 has amended the provisions of section 40(a)(ia) w.e.f. 01.04.2015 to provide that the disallowance under the said sub-clause shall be restricted to 30% and the provisions of this section shall be applicable to all expenditure which is payable to resident on which tax is deductible under the heading B-deduction of tax at source of Chapter XVII. Theref....
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....hon Steamship Co. Ltd. [1994] 1 AC 486. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later. 33. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive ....
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....Palam Gas Services v. CIT in Civil Appeal No. 5512/2017, dated 03.05.2017, wherein Hon'ble Supreme Court has held that disallowance u/s. 40(a)(ia) cannot be restricted to amount payable at the end of the year only but also applies to the amount paid during the year also. In view of this, above argument of the assessee is rejected. 8. The next argument of the assessee was that Assessing Officer could not have disallowed the amount to the extent of no order u/s. 201 passed treating the assessee to be 'assessee in default'. The relevant arguments of the assessee are recorded at para No. 9 of the order. The assessee has relied upon the decision of coordinate bench in case of Bharti Hexacom Ltd. v. Asstt. CIT [2016] 68 taxmann.com 357 (Delhi-Trib.) for this proposition. We have carefully considered the rival contentions and we have also perused the decision of the coordinate bench in case of Bharti Hexcom Ltd. (supra). The issue before the coordinate bench was whether discount provided to the distributors on sale of prepaid vouchers is in the nature of commission and tax is not deducted on that sum u/s. 194H of the Act same is disallowable u/s. 40(a)(ia) of the Act. The coo....
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....y Tribunal for the same assessment year in respect of the same subject matter and issue. Had there been no decision of Tribunal in assessee's own case for the same assessment year, then in view of the decision of Hon'ble Jurisdictional High Court in the case of Idea Cellular Ltd. (supra) deduction could not be allowed to assessee. However, in view of the decision of Hon'ble Supreme Court, keeping in view the integrated scheme of the Act, we are of the opinion that Non-deduction of tax under Chapter XVIIB leads to consequences contemplated u/s. 201 and, therefore, Section 40(a)(ia) and provisions contained in chapter XVII-B constitute an integrated code and, accordingly, effect has to be given to the decisions of Tribunal's Guwahati and Jaipur Benches, which will operate as res-judicata. In any view of the matter, the view beneficial to the assessee is to be taken. We, accordingly, allow the assessee's appeal in respect of ground Nos. 1 and 1.1." 9. We are of the opinion that reliance on this decision is misplaced for the reason that in that case there were already orders u/s. 201 of the act in assessee's own case that tax is not required to be deducted on i....
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....:-- "That in the facts and circumstances of the case and in law, the assessee ought to be allowed deduction of liability borne by the assessee in pursuance of order(s) passed under section 201(1) of the Income-tax Act, 1961. ('the Act)" 11. The assessee has submitted that similar additional ground was admitted and adjudicated by coordinate bench for A.Y. 2008-09 in assessee's own case in ITA No. 5816/Del/2012, dated 11.03.2014. We have carefully perused the above decision which is as under:-- "78. The assessee has moved an application for admission of additional ground which is reproduced below for ready reference: The applicant craves leave to raise the following by way of additional ground of appeal: "That in the facts and Circumstances of the case and in law, the assessee ought to be allowed deduction of liability borne by the assessee in pursuance of order(s) passed under section 201(1) of the Income Tax Act, 1961 ('the Act')." Tax demands under section 201(1) of the Act has been raised against the applicant for various assessment years, for alleged default in deduction of tax at source under the provisions of the Act, in respect of the following transa....
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.... The aforesaid issue of allowability of payment of tax liability accrued/borne in pursuance of orders passed under section 201(1) of the Act is, it is submitted, purely a legal issue, and facts in relation to the same are already available on record. The additional ground of appeal is being raised on the applicant being recently advised of the correct legal position and the omission to raise the aforesaid additional ground of appeal earlier is neither willful nor deliberate. The additional ground of appeal calls for being admitted and adjudicated on merits in view of the discretion vested in your Honour under Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 and the decision of the Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT : 229 ITR 383. 79. Having heard the rival contentions on this petition, we are inclined to admit the additional ground of appeal as it is purely a legal issue as to whether or not the liability borne by the assessee, under section 201 and which is not recovered from the recipients of payments without deduction of tax at source, is deductible in computation of assessee's income. However, as it involves factual verification....