Ita/245/2018 Of M/S Toyota Kirloskar Motor P Ltd v. Income Tax Officer

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 27 DAY OF MARCH 727071 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’/BLE MR. JUSTICE M.G.S. KAMAL BETWEEN: LT.A. NO.245 OF 2ZO18 M/S. TOYOTA KIRLOSKAR MOTOR (P) LTD.,A LIMITED COMPANY REGISTERED|UNDER THE PROVISIONS OF COMPANIES ACT, 1956HAVING ITS OFFICE AT PLOT NO.1BIDADI IND. AREA, RAMANAGARA DISTRICTKARNA TAKA-562109REP. HEREIN BY ITS AUTHORISED SIGNATORY. ... APPELLAN| (BY SRI. S.S. NAGANAND, SR. COUNSEL FORSRI. S. SRIRANGA, ADV.,) AND" INCOME TAX OFFICER(TDS)-LTU, JSS TOWERSBSK III STAGEBANGALORE-560085. ~. RESPONDENT (BY SRI. JEEVAN J. NEERALGI, ADV.) THIS I.T.A. IS FILED UNDER SEC. J6O0-A OF INCOME TAXACT 1961, ARISING OUT OF ORDER DATED 31.10.2017 PASSEDIN ITA NO.1185/BANG/2014 FOR THE ASSESSMENT YEAR 2012-13, PRAYING TO: (i) FORMULATE THE SUBSTANTIAL QUESTION OF LAW.STATED ABOVE AND ANSWER THOSE IN FAVOUR OF THEAPPELLAN!. | (ii) SET ASIDE THE ORDER DATED 31.10.2017 IN ITA.NO.1185/BANG/2014 PASSED BY THE INCOME TAX APPELLATETRIBUNAL, ANNEXURE-J AND ALLOW THE SAID APPEAL IN TO.ait) HOLD THAT THE APPELLANT WAS NOT LIABLE TO.DEDUCT TAX AT SOURCE ON RS.8,71,32,998/- UNDER THEPROVISIONS OF CHAPTER XVII OF THE INCOME TAX ACT, AND.CONSEQUENTLY IS NOT AN “ASSESSEE IN DEFAULT UNDERSECTION 201(1) OF THE INCOME TAX ACT, 1961. THIS ILT.A. COMING ON FOR’ HEARING, THIS DAY, | ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (hereinafter referred to as the Act for short)nas been preferred by the assessee. The subject matterof the appeal pertains to the Assessment year 2012-13.The appeal was admitted by a bench of this Court videorder dated 09.11.2018 on the following substantial|questions of law:| “Whether in the facts and circumstances|of the present case, the ITAT was right in law.in affirming the order of CIT(A) in treating the|appellant as ‘assessee in default" underSection 201(1) of the Act for non deduction oftax|atSOUTCECfromtheaMount.Of|Rs.8,74,32,988/- wnen such amount had notaccrued to payee or any person at all?" 2 |Facts leading to filing of this appeal brieflystated are that the assessee is a Joint Venture and is a'subsidiary of Toyota Motor Corporation, Japan. Theassessee iS engaged in manufacturing and sale ofpassenger cars and multi utility vehicles. The assessee|follows mercantile system of accounting and as per its|accounting policies, the assessee at the end of the|financial year i.e., 31ist Marcn of every year makesprovision for marketing expenses, overseas expenses|and general expenses on estimate basis in respect of works / contracts / services, which are in progress of completed but vendor is yet to submit bills to ascertain.closest amount of profits / loss. The aforesaid provision.is made in conformity with Accounting Standard -29.Subsequently, aS and when invoices are received from.the vendors the invoice amount is debited to provision.already made with corresponding credit at the respective|vendors amount. Tne assessee aliso deducts Tax Deductibe as Source (hereinafter referred to as theTDS’ for short) h as required under the provision of theAct and remits the same along with interest to the|government. Deductibe as Source (hereinafter referred to as theTDS’ for short) h as required under the provision of theAct and remits the same along with interest to the|government. 3For the Assessment Year 2012-13, the.assessee had made provision towards marketing,|overseas and general expenses to the extent ofRs.1114,718,613/-. However, at the time of filing of the|return of income for the aforesaid Assessment Year the.provision which remained un-untilized as per books of.accounts as on 30.04.7012 and on 31.10.2017 iInrespect of overseas and domestic payments respectivelyfor an amount of Rs.9,27,41,239/- was not claimed as.deduction under Section 40a(i) and (ia) of the Act andthe same was offered to tax. Subsequent to filing of the|return, the assessee received invoices from the vendors|for the Assessment Year 2017-13 and the amount§mentioned in the invoices was debited to the provision.already made with a corresponding credit to the respective vendors account. The amount indicated in theinvoices for a sum of Rs.5,589,454/- was utilized againstthe provision and the TDS along with interest was also|discharged at the time of credit of the invoice amount tothe account of the vendor. Subsequently, the amount.whichremainedun-utilized>1.e.,|aSum)OF Rs.8,/71,32,988/-Intheprovision.ACCOUNT.aftercompletion of negotiation / finalization of services was|reversed in tne Dooks of accounts of the assessee. Tne.assessee received a communication on 30.07.7013|asking it to furnish details of computations of income,|audit report in Form 3CD for the year ending 31.03.2012reflecting the details of disallowances made underSection 4Q0a(i) and (ia) of tne Act. The assesseethereupon furnished the information vide communicationdated 17.08.2013. 4Tne Assessing Officer initiated the proceedingunder Section 201 and 201(1A) of the Act and treatedthe assessee as assessee in default in respect of the amount made in provision, which was reversed / un-utilized for a sum of Rs.8,/71,32,988/- and the amount ofTDS and tnterest on the aforesaid amount under Section201(1A).WaScomputedaltRs.14,18,327/- andRs.25,195/- was levied for late remittance of TDS. Thus,|a total sum of Rs.1/7,10,8/79/- was determined apayable by the assessee. 5.|The assessee filed an appeal before theCommissioner of Income Tax (Appeals) who by an order.dated 20.06.2014 affirmed the order passed by theAssessing Officer. The assessee thereupon filed an/appeal before tne Income Tax Appellate’ Tridunal(nereinafter referred to as the tridDunal for snort). Tnetribunal by an order dated 31.10.2017 dismissed theappeal preferred by the assessee. In the aforesaidfactual background, this appeal has been filed. 6.|Learned Senior counsel for the assesseeSuDmitted tnat tne Autnorities under tne Act erred In law in holding that assessee was liable to deduct tax at.source under Section 195, 194C, 194J, 194H and 1941oftheAct.whenitcreditedtheamountofRs.8,/1,32,988/- to the provision for expenditureaccount for domestic and overseas payment. It is furthersubmitted that the amounts in respect of which aprovision was made and which remained un-utilized wasreversed in the books of accounts as the same was not.payable to anyone and therefore, no tax could be leviedon an amount which was payable to anyone and did notaccrue in any income. It is contended that no tax liability|can be fastened on the assessee on account of an entrymade in the books of accounts in the absence of anyincome and a machinery provision in a taxing statutenas to be interpreted with reference to the taxing event.It is further submitted that in the fact situation of the|case neither provision of Section 201 nor Section201(1A) could have been invoked. However, theaforesaid aspect of the matter nave Deen considered by. the authorities. In Support of aforesaid submissions,reliance has been placed on decisions in.‘DIRECTOR OFINCOME TAX VS. ERICSSON COMMUNICATIONS LTD.,(2015)378ITTR395,"KARNATAKAPOWERTRANSMISSION|CORPORATIONLIMITEDYS,JHEDEPUTYCOMMISSTONEROF|INCOMETAX(TDS)CIRLCE 26(2), (2016) 383 ITR 59, COMMISSIONEROF INCOME TAX, BOMBAY CIT I, BOMBAY VS. SHOORJIVALLABHDAS&|CO. , (1962)46|ITTR144,‘PR.COMMISSIONER OF INCOME TAX-4, AHMEDABADVS. SANGHI INFRASTRUCTURE LTD, R/TAX APPEALNO.404 OF 2018, SULTLEJ COTTON MILLS LIMITED VS.COMMISSIONE ROF INCOME TAX, CALCUTTA, (1978) 4SCT358,‘'TAPARIATOOLSLIMITEDVS,JOINT|COMISSIONER OF INCOME TAX SPECIAL RANGE-INASIK, (2015) 7 SCC 540, ‘CIT, BANGALORE VS.B.C.SRINIVASA SHETTY, (1981) 2 SCC 460, SUNILSIDARTHBHAI VS. COMMISSIONER OF INCOME TAX,|AHMEDABAD, GUJARAT, (1985) 4 SCC 519. 7On the other hand, learned counsel for therevenue submitted that TDS on the gross amount has to.be deducted as soon as the provision is made and on the.basis of the entries made in the books of accounts, the)order of assessment is passed. It is further submittedthat the Commissioner of Income Tax (Appeals) and thetribunal has rightly held that the assessee is liable to|deduct tax at source under Sections 195, 194C, 194],194H and 194I1 of tne Act. It Is also submitted that nointerference with the order of the tribunal is called for in.exercise of powers under Section 260A of the Act. 8.|We have considered the SUDMISSIONS made.by learned counsel for the parties and nave perused therecord. Before proceeding further, it is apposite to take.note of Section 201(1) and 201(1A) of the Act, which.reads as under: 201(1) Where any person, including the|principal officer of a company,— (a ) wno Is reguired to qeaquct any sum. in accordance with the provisions of this Act; Or (b ) referred to in sub-section (1A) ofsection 192, being an employer, does not deduct, or does not pay, or after|so deducting fails to pay, the whole or any.part of the tax, as required by or under this|Act,then,SUC)hperson),Shall,withoutprejudice to any other consequences which hemay incur, be deemed to be an assessee in)default in respect of such tax: Provided that any person, including the)principal officer of a company, who fails to.deduct the whole or any part of the tax in.accordance with thteprovisions of this Chapter|on the sum paid to a payee or on the sum.credited to the account of a payee shall not.be deemed to be an assessee /n default in.respect of such tax if such payee (i) has furnished his return of income_under Section 139; (il)has taken [nto account such sum.for computing income in such return’ ofincome and (iii) has paid the tax due on the income declared by him in such return of income, And the person furnishes a certificate to|this effect from an accountant In such form asmay be prescribed. 1AWithout prejudice to the provisions of|Sub-Section (1), if any such person, principalofficer or company as is referred to in that.sub-section does not deduct the whole or anypart of the tax or after deducting fails to pay|the tax as required by or under this Act, he or.it shall be liable to pay simple interest- (1)at one per cent for every month orpart of a month on the amount of such tax.from the date on which such tax wesdeductible to the date on which such tax Is.deducted; and (il)at one and one-half per cent forevery month or part of a month on the.amount of such tax from the date on which|such tax was deducted to the date on which|such tax is actually paid, And such interest shall be paid beforefurnishing the statement in accordance with.the provisions of sub-Section (3) of Section|ZOO. 1AWithout prejudice to the provisions of|Sub-Section (1), if any such person, principalofficer or company as is referred to in that.sub-section does not deduct the whole or anypart of the tax or after deducting fails to pay|the tax as required by or under this Act, he or.it shall be liable to pay simple interest- (1)at one per cent for every month orpart of a month on the amount of such tax.from the date on which such tax wesdeductible to the date on which such tax Is.deducted; and (il)at one and one-half per cent forevery month or part of a month on the.amount of such tax from the date on which|such tax was deducted to the date on which|such tax is actually paid, And such interest shall be paid beforefurnishing the statement in accordance with.the provisions of sub-Section (3) of Section|ZOO. oiThus, it is evident that if an assessee fails to.deduct the TDS as required under the provisions of theAct, he is treated as assessee in default. Section194C(1) of the Act mandates that a person who makes apayment to any non resident Indian, has to deduct thetax at the time of payment. Similar language is|employed in Section 194J, 194H and 1941. Thus, the tax.is required to be deducted at the time when thepayment is made. In other words, when an income.accrues under the provisions of the Act. 10. Tne Supreme Court in SHOORJI VALLABH,DAS supra Nas held that income tax is a levy on income.and the Act takes into account two points of time atwhich the liability to tax is attracted i.e., accrual ofincome or its receipt but substance of the matter is theincome. It has further Deen neid tnat if the Income does.not result at all, there cannot be a levy of tax even. though in book keeping entry is made about a|hypothetical income which does not materialize. TheHigh Court of Delhi in Ericsson Communications Ltd.|Supra has also taken a view that in the absence of any.accrual of income, there is no obligation on the part of the assessee to deduct tax at source. Similar view has been taken by various other High Court's including this|COUrT. 11. In the light of aforesaid well settled legal.position, we may advert to the facts of the case on.hand. In the instant case, the provisions were createdduring the course of the year and reversal of entry was-alSo made in the same accounting year. Tne Assessing.Officer erred in law in holding that assessee should nave.deducted tax as per the rate applicable along with|interest. The authorities under the Act ought to Nave|appreciated that in the absence of any income accruing.to anyone under the Act, the liability to deduct TDS on.the assessee could not nave been fastened ands consequently, the proceeding under Section 201 and|201(1A) could not have been initiated. For theaforementioned reasons, the substantial question of law.is answered in favour of the assessee and against the|revenue. | In|theresult,theimpugned|ordersdated31.10.2017, 20.06.2014 and 11.03.2014 passed by the.tribunal, Commissioner of Income Tax (Appeals) and the.Assessing Officer respectively are hereby quashed. In|the result, the appeal is allowed. Sd/-JUDGE. SS| Sd/-—JUDGE.