Annexure D: True Copy Of The Order Of The Hon'ble Highcourt Of Calcutta In The Case Of The Dy. Cit v. Sk Tekriwaldated 3.12.2012 (Ita

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC &THE HONOURABLE MR. JUSTICE SHAJI P.CHALY MONDAY, THE 20TH DAY OF JULY 2015/29TH ASHADHA, 1937 ITA.No. 16 of 2014 ------------------------ AGAINST THE ORDER IN ITA 572/2011 of I.T.A.TRIBUNAL,COCHIN BENCH, DATED 16-08-2013APPELLANT: ---------------- THE COMMISSIONER OF INCOME TAX-1, KOCHI. BY ADVS.SRI.P.K.R.MENON, SR.COUNSEL, GOI (TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT:------------------------------------- M/S. P V S MEMORIAL HOSPITAL LTD KALOOR, KOCHI-682017. R1 BY ADV. SRI.P.BALAKRISHNAN (E) R1 BY ADV. SRI.MOHAN PULIKKAL R1 BY ADV. SRI.P.P.NARAYANAN R1 BY ADV. SRI.R.ANAS MUHAMMED SHAMNAD THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 20-07-2015,ALONG WITH ITA. 2/2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.No. 16 of 2014 APPENDIX PETITIONER'S ANNEXURES: ANNEXURE A: COPY OF THE ASSESSMENT ORDER UNDER SECTION143(3) DATED 4.12.2008 PASSED BY THE ASSESSING OFFICER FOR AY2006-2007. ANNEXURE B: COPY OF THE CIT(A)'S ORDER NO.ITA/86/R-11/E/CIT(A)-II/08-09 DATED 25.7.2011. ANNEXURE C: CERTIFIED COPY OF THE ITAT'S ORDER ITANO.572/COCH/2011 DATED 16-8-2013 FOR ASSESSMENT YEAR 2006-2007. ANNEXURE D: TRUE COPY OF THE ORDER OF THE HON'BLE HIGHCOURT OF CALCUTTA IN THE CASE OF THE DY. CIT VS. SK TEKRIWALDATED 3.12.2012 (ITA NO.183 OF 2012). // TRUE COPY // P.A. TO JUDGE ANTONY DOMINIC & SHAJI P. CHALY, JJ. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T.A.Nos.2 of 2012 & 16 of 2014 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -Dated this the 20[th] day of July, 2015 Antony Dominic, J. JUDGMENT ITA 2/12 is filed by the assessee challenging the order of the Tribunalin ITA 874/08 concerning the assessment year 2005-2006. The assessee, ahospital, had entered into Annexure D agreement dated 19[th] August 2002with M/S Lakeshore Hospital and Research Centre Limited by which, thelatter had undertaken to perform various professional services in theassessee's hospital. On the payments made during the assessment years2005-2006, the assessee deducted tax at the rate of 2% under Section194C. However, assessment was completed on the basis that taxdeductible was at 5% as prescribed under Section 194J and the entire taxin this regard was disallowed under Section 40(a)(ia)of Act. FirstAppellate Authority confirmed the assessment and the Tribunal alsorejected the appeal filed by the assessee concerning the assessment year2005-2006. 2. In ITA 572/11 filed against the order of assessment for theassessment year 2006-2007, the assessment order applying tax at the rate I.T.A.Nos.2 of 2012 & 16 of 2014 : 2 : of 5% prescribed under Section 194J was upheld. Thereafter, followingthe Calcutta High Court judgment in Commissioner of Income Tax v.S.K.Tekriwal [2014] 361 ITR 432 (Cal), the Tribunal held that theconditions laid down under Section 40(a)(ia) of the Act for makingaddition is that tax is deductible at source and such tax has not beendeducted. According to the Tribunal, if both the conditions are satisfied,then such payment can be disallowed under Section 40(a)(ia) of the Act.It was also held that where tax is deducted by the assessee, even if it isunder a wrong provision of law, as in this case, the provisions of Section40(a)(ia) of the Act cannot be invoked. According to the Tribunal, insuch a case, the recourse available to the Revenue is to declare theassessee as an assessee in default under Section 201 of the Act andproceed accordingly. Applying the Culcutta High Court judgment,Tribunal held the issue regarding the application of Section 40(a)(ia) ofthe Act in favour of the assessee. It is challenging this order of theTribunal that the Revenue has filed ITA 16/14. 3. The first question that arises for consideration is regarding theappropriate Section under which TDS has to be deducted. 4. Annexure D in ITA 2/12 is the agreement dated 19[th] August2002 entered into between the assessee and M/S Lakeshore Hospitaland Research Centre. Clauses 1, 4 and 5 of the agreement, beingrelevant, reads thus: 1. The second party hereby undertakes to run theGastroenterology, Gastrointestinal Surgery, Urology,Nephrology and Anaesthesiology departments of the FirstParty as provided herein below for a period of three (3)years from the date of starting the Second Party's Hospitalwhich is expected to be on 1[st] September, 2002. 4. Gastroenterology and G1 Surgery team headed byDr.Philip Augustine and Dr.H.Ramesh respectively togetherwith the Consultants in the said Departments i.e.,Dr.Mathew Philip. Dr.G.N.Ramesh, Dr.Roy J. Mukkada,Dr.Deepak Varma, Dr.A.Venugopal, Dr.Lekha, Dr.GeorgeJacob etc. the Urology team headed by Dr.GeorgeP.Abraham, the Nephrology team headed by Dr.Mohan AMathew would continue to extent their professional serviceson behalf of the Second Party to the First Party, for a periodof three (3) years from the date of their joining the SecondParty or till such time as they are in the services of theSecond Party by regular visitations and attending tosurgeries, conducting procedures, and other medicalservices at the Hospital of the First Party as required formaintaining and improving the overall services andfacilities of these departments in the First Party. 5. Who among the various Members of the respectiveTeams should attend at the First Party's Hospital by turnand the timings of their visit will be as mutually agreed toamong the parties hereto. I.T.A.Nos.2 of 2012 & 16 of 2014 : 4 : 5. As per these provisions of the agreement, M/S LakeshoreHospital and Research Centre had undertaken to render professionalservices to the assessee and this was not a case where they wereundertaking a contract work. If that be so, tax was deductible underSection 194J and not under Section 194C as done by the assessee. 6. The second question is regarding the applicability of Section 40 (a)(ia) of the Act. The Section 40(a)(ia) as it stood at the relevant timereads thus: “(ia) any interest, commission or brokerage, rent, royalty,fees or professional services or fees for technical servicespayable to a resident, or amounts payable to a contractoror sub-contractor, being resident, for carrying out anywork (including supply of labour for carrying out anywork), on which tax is deductible at source under ChapterXVII-B and such tax has not been deducted or, afterdeduction, has not been paid during the previous year, orin the subsequent year before the expiry of timeprescribed under sub section (1) of Section 200.” 7. Reading of this provision shows that any fees or professional services or fees for technical services payable to a resident 'on which'tax is deductible at source under Chapter XVII-B and such tax has notbeen deducted or, after deduction, has not been paid during the I.T.A.Nos.2 of 2012 & 16 of 2014 : 5 : previous year, or in the subsequent year before the expiry of the 'timeprescribed' under Section 200(1) of the Act, this provision is attracted. 8. This provision is attracted in cases where fee for professionalservices or technical services is 'payable' on which tax is 'deductible atsource' and 'such tax' has not been deducted or after deduction notpaid. As rightly contended by the Senior Standing Counsel for theRevenue, provision of Section 40(a)(ia) (supra) is not a charging Sectionbut is a machinery Section and such a provision should be understoodin such a manner that the provision is workable. It has been so held bythe Apex Court in its judgment inGurusahai Saigal v. Commissioner of -Income Tax, Punjab [ITR (XLVIII 1963)]which reads thus: : 5 : previous year, or in the subsequent year before the expiry of the 'timeprescribed' under Section 200(1) of the Act, this provision is attracted. 8. This provision is attracted in cases where fee for professionalservices or technical services is 'payable' on which tax is 'deductible atsource' and 'such tax' has not been deducted or after deduction notpaid. As rightly contended by the Senior Standing Counsel for theRevenue, provision of Section 40(a)(ia) (supra) is not a charging Sectionbut is a machinery Section and such a provision should be understoodin such a manner that the provision is workable. It has been so held bythe Apex Court in its judgment inGurusahai Saigal v. Commissioner of -Income Tax, Punjab [ITR (XLVIII 1963)]which reads thus: Now it is well recognised that the rule of construction onwhich the assessee relies applies only to a taxingprovision and has no application to all provisions in ataxing statute. It does not, for example, apply to aprovision not creating a charge for the tax but layingdown the machinery for its calculation or procedure forits collection. The provisions in a taxing statute dealingwith machinery for assessment have to be construed bythe ordinary rules of construction, that is to say, inaccordance with the clear intention of the legislaturewhich is to make a charge levied effective. Referencemay be made to a few cases laying down this distinction.In Commissioner of Income tax v. Mahaliram Ramjidas itwas said: : 6 : “The section, although it is part of a taxing Act,imposes no charge on the subject, and deals merely withthe machinery of assessment. In interpreting provisionsof this kind the rule is that that construction should bepreferred which makes the machinery workable, ut resvaleat potius quam pereat.” In India United Mills Ltd. v. Commissioner of ExcessProfits Tax this court observed: “That section is, it should be emphasised, not acharging section, but a machinery section and amachinery section should be so construed as toeffectuate the charging sections.” 9. If Section 40(a)(ia) is understood in the manner as laid down by the Apex Court, it can be seen that the expression “tax deductible atsource under Chapter XVII-B” occurring in the Section has to beunderstood as tax deductible at source under the appropriate provisionof Chapter XVII-B. Therefore, as in this case, if tax is deductible underSection 194J but is deducted under Section 194C, such a deductionwould not satisfy the requirements of Section 40(a)(ia). The latter partof this Section that such tax has not been deducted, again refers to thetax deducted under the appropriate provision of Chapter XVII-B. Thus,a cumulative reading of this provision, therefore, shows that deductionunder a wrong provision of law will not save an assessee from Section I.T.A.Nos.2 of 2012 & 16 of 2014 : 7 : 40(a)(ia). 10. In so far as the judgment of the Calcutta High Court in Commissioner of Income Tax v. S.K.Tekriwal [2014] 361 ITR 432 (Cal),which was relied on by the Tribunal is concerned, with great respect, forthe aforesaid reasons, we are unable to agree with the views that if taxis deducted even under a wrong provision of law, Section 40(a)(ia)cannot be invoked. 11. Therefore, we confirm the order passed by the Tribunal,which is challenged by the assessee in ITA 2/12 concerning theassessment order 2005-2006, and set aside the order of the Tribunal,which is challenged by the Revenue in ITA 16/14 concerning theassessment year 2006-27, answering the questions of law in favour ofthe Revenue. ITA 2/12 is dismissed and ITA 16/14 is allowed. Sd/- ANTONY DOMINIC JUDGE jes Sd/- JUDGE SHAJI P. CHALY