Ita/310/2013 Of M/S.time Ads & Publicity v. The Commissioner Of Income Tax

PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR &THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE THURSDAY, THE 3RD DAY OF JULY 2014/12TH ASHADHA, 1936 ITA.No. 310 of 2013 ------------------------------ AGAINST THE ORDER IN ITA 226/COCH/2012(AY-2008-09) of I.T.A.TRIBUNAL,COCHIN BENCH, COCHIN ............ APPELLANT/RESPONDENT : M/S.TIME ADS & PUBLICITY, PARAMMEL HOUSE, SHENOY ROAD, KALOOR, ERNAKULAM NORTH, KOCHI - 682 017. BY ADVS.SMT.V.P.SEEMANTHINI (SR) SRI.M.R.ANISON SMT.T.B.REMANI SMT.P.A.RINUSA RESPONDENT/APPELLANT: THE COMMISSIONER OF INCOME TAX (CENTRAL), REVENUE BUILDING, I.S PRESS ROAD, COCHIN- 682 018. BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 08-01-2014, THE COURT ON 03-07-2014 DELIVERED THE FOLLOWING: Manjula Chellur, C.J. & A.M.Shaffique, J.------------------------------------------------------------- I.T.A.No.310 of 2013 ------------------------------------------------------------- Dated this the 3[rd] day of July, 2014 JUDGMENT Manjula Chellur, C.J. The substantial questions of law that arise for ourconsideration in this appeal are as under: “(i) Whether on the facts and circumstancesof the case, the Hon'ble Tribunal wasjustified in upholding the decision of theAssessing Officer invoking the provisionsof Section 40(a)(ia) against the appellant,for the revenue expenditure which arethe allowable deductions under Section28(1) of the Income Tax Act?of the case, the Hon'ble Tribunal wasjustified in upholding the decision of theAssessing Officer invoking the provisionsof Section 40(a)(ia) against the appellant,for the revenue expenditure which arethe allowable deductions under Section28(1) of the Income Tax Act? (ii) Whether in the facts and circumstances ofthe case, the Hon'ble Tribunal is justifiedin upholding the order issued by theassessing authority invoking Section 40(a)(ia) against the appellant, in the lightof the provisos to Section 40 of theIncome Tax Act, added w.e.f. 01.04.2005and substituted w.e.f. 01.04.2010.”the case, the Hon'ble Tribunal is justifiedin upholding the order issued by theassessing authority invoking Section 40(a)(ia) against the appellant, in the lightof the provisos to Section 40 of theIncome Tax Act, added w.e.f. 01.04.2005and substituted w.e.f. 01.04.2010.” 2. In brief, the facts that led to filing of this appeal are as under: Appellant is a partnership firm engaged inadvertisement business. The controversy before us pertainsto assessment year 2008-09. According to appellant/assessee, for this assessment year, on account ofunexpected administrative exigencies, delay occurred infiling the returns within the stipulated time, which resultedin delay in deducting and remitting the amount at sourceunder various heads payable to the Government accountwithin the time stipulated. In the return, a total income of `48,61,090/- was shown for the above assessment year. Theassessing authority disallowed total expenditure of `4,72,59,752/- already incurred by the appellant for earningthe business income under different heads invoking theprovisions under Section 40(a)(ia) of the Income Tax Act.Aggrieved by the same, an appeal came to be filed by theappellant/assessee before Commissioner of Income Tax(Appeals). Appellate Authority allowed the appeal settingaside the assessment order. Aggrieved by the same, ITA 310/13 Revenue approached the Income Tax Appellate Tribunaland the Tribunal, by order dated 27.07.2013, set aside theorder of CIT (Appeals). 3. According to appellant/assessee, order of the ITA 310/13 Revenue approached the Income Tax Appellate Tribunaland the Tribunal, by order dated 27.07.2013, set aside theorder of CIT (Appeals). 3. According to appellant/assessee, order of the Appellate Tribunal is a cryptic and non speaking order.Appellant/assessee raised a legal contention relying on thenon-obstante clause contained in Section 40(a)(ia) of the Actthat assessing authority is empowered to make deductiononly in respect of the items of expenses covered by theprovisions of Sections 30 to 38 and any items of expenditureallowable in respect of items of expenses covered by anysection preceding or succeeding Section 30 are not coveredby the statutory disallowances envisaged under Section 40of the Act. According to appellant/assessee, all the expensesrepresent direct costs already incurred by them to earnincome from the business under Section 28 of the Act.Therefore, such allowable expenditure will not come underthe purview of Section 40. In other words, expenses like ITA 310/13 ground rent, technical service fee, display expenses etc.represent the costs incurred by the assessee to earn incomewhich is assessable against revenue for the purpose ofdetermining the profits earned under Section 28(1) of theAct. Though, in appeal, the authority actually consideredthe argument, however, the Tribunal, which could haveunderstood the grave mistake committed by the assessingauthority, did not consider the contentions raised by theassessee, totally ignoring the law laid down in ThejaConstruction's case by Hyderabad Bench. The reasoning ofthe authorities is perverse and unsustainable is the stand ofthe assessee. 4. So far as facts of the case, appellant had deductedtax at source as stipulated under Chapter XVIIB of the Actand remitted the above amount to the Government accountwith late fee as stipulated in the Act and Rules. This has notresulted in any loss to revenue of the nation. Before all theauthorities, revenue admitted the deduction at source made ITA 310/13 by the appellant/assessee and the error is such amount wasremitted to the Government account with late fee asstipulated in the Act. The delay in filing the return by theassessee in that particular year was beyond their control. 5. Appellant/assessee also contends that the provisointroduced to Section 40 with effect from the assessmentyear 2012-13 clarifies the situation that where an assesseefails to deduct the whole or any part of the tax inaccordance with the provisions of Chapter XVII-B on anysuch sum, but is not deemed to be an assessee in defaultunder first proviso to Section 201(1), thus for the purpose ofthis sub clause, it shall be deemed that assessee hasdeducted and paid the tax on such sum on the date offurnishing of return of income by the resident payeereferred to in the said proviso. The first proviso to Section201(1) was also amended which clarifies the position thatthe person who failed to deduct the whole or any part of thetax in accordance with the Chapter on the sum paid to a ITA 310/13 resident or on the sum credited to the account of theresident, he shall not be deemed to be an assessee indefault, in respect of such tax, if the resident payee satisfiesfour conditions and the deductor furnishes a certificatefrom a Chartered Accountant. Under those conditions, it hasto be assumed that for the purpose of Section 40(a)(ia),deductor has deducted and paid the tax on such sum on thedate of furnishing return of income by the resident payee.Therefore, the provisos brought to the above two sectionsalso dilute the effect of Section 40(a)(ia) of the Act.Contending as stated above, appellant sought for settingaside the order of the Appellate Tribunal and thatdemanding a sum of ` 2,36,78,830/- towards tax payable isper se arbitrary and untenable in the eye of law. 6. Learned Senior Counsel arguing for the appellant-assessee relies on the following decisions in support of hiscontention: Vimaleshwar Nagappa Shet v. Noor AhmedSheriff & Ors. (AIR 2011 SC 2057) is with regard to ITA 310/13 concession made by counsel on question of fact whetherbinds his client. The litigation was in respect of specificperformance of agreement to sell. Incidentally co-ownerswere not parties to agreement claiming to purchase sharesof other co-owners. Counsel appearing for plaintiff givesconsent to such purchase by co-owner, who was not a partyto agreement, at reasonable market value within stipulatedperiod. This resulted in an order passed to execute saledeed in favour of co-owner, who was not a party and orderwas in the form of a consent order. Relevant paragraphs are11 and 12, which read as under: “11. The statement made by the counselbefore the High Court, as recorded in theimpugned judgment and order, cannot bechallenged before this Court.[vide: State ofMaharashtra v. Ramdas Shrinivas Nayak andAnr.(1982) 2 SCC 463 : (AIR 1982 SC 1249 :1982 Cri LJ 1581); Shankar K. Mandal andOrs. v. State of Bihar and Ors. (2003) 9 SCC519 : (AIR 2003 SC 4043 : 2003 AIR SCW2980); Roop Kumar v. Mohan Thedani (2003)6 SCC 595 : (AIR 2003 SC 2418 : 2003 AIRSCW2425);GuruvayoorDevaswomManaging Committee and Anr. v. C.K. Rajanand Ors. (2003) 7 SCC 546] : (AIR 2004 SC 561 : 2003 AIR SCW 6039). 12. It is also clear that the High Court hasrecorded in the impugned judgment dated03.03.2009 that the counsel agreed withinstructions from the plaintiff and reiteratedthis fact in its order dated 28.08.2009 inMisc.Civil No. 13474 of 2009 in the above-mentioned RFA while rejecting the plea ofthe counsel for the appellant herein that hedid not give consent that he had noinstructions from his clients. A concessionmade by a counsel on a question of fact isbinding on the client, but if it is on a questionof law, it is not binding.[vide: NedunuriKameswaramma v. Sampati Subba Rao andAnr. (1963) 2 SCR 208, 225 : (AIR 1963 SC884), B.S. Bajwa and Anr. v. State of Punjaband Ors. (1998) 2 SCC 523, 525-526] : (AIR1999 SC 1510 : 1999 Lab IC 229)”. 7. From paragraphs 11 and 12 extracted above it is clear, if consent is given on question of fact by counsel, it isbinding. If consent is given on question of law, it is notbinding. It is contended on behalf of appellant that order ofTribunal is without considering legal issues, therefore, it iscryptic and non speaking order without touching legalissues. 8. Revenue approached Tribunal aggrieved by orderof deletion of disallowance made under Section 40(a)(ai) ofIncome Tax Act and also aggrieved by deletion ofdisallowance made out of repairs and maintenanceexpenses. According to Revenue, TDS amount came to beremitted beyond the due date, therefore, relevant expensesare not leviable during the year under consideration in viewof specific provision contained in said Section. In theabsence of proper vouchers pertaining to claim of repairsand maintenance, according to department, assessingofficer was justified in disallowing 10% of expenses on ad-hoc basis. To this, learned representative for assessee whilesupporting the order of CIT (Appeals) contended,expenditure could be claimed in the year of payment ofTDS. According to appellant, this concession made bycounsel pertains to question of law and not question of fact.Therefore, there was no justification for Income TaxAppellate Tribunal to set aside order of CIT (Appeals). 9. The next decision relied upon is Commissioner 9. The next decision relied upon is Commissioner of Income-Tax, West Bengal I v. Vegetable ProductsLtd. ((1973) 88 ITR 192 (SC)). This decision refers to taxingprovision, which is ambiguous or capable of more than oneinterpretation and how the benefit has to be extended toassessee. While considering calculation of penalty leviableunder Income Tax Act for non failure of filing returns ofincome within the time prescribed without reasonablecause, question arose with regard to the language used intaxing provision. Their Lordships held that if the languageof a taxing provision is ambiguous or incapable or capableof more meanings than one, then the Court has to adoptthat interpretation which favour the assessee, moreparticularly where the provision relates to imposition ofpenalty. 10.Commissioner of Income-Tax v. Alom Extrusions Ltd. ((2009) 319 ITR 306 (SC)) is relied upon tocontend that whenever provisions are amended to remove unintended consequences, they must be implementedretrospectively to give effect to. In such cases strictconstruction not preferred especially when it leads tounintended consequences. Their Lordships relied upon thecase of Commissioner of Income-Tax, Bangalore v.J.H.Gotla, 2 ((1985) 156 ITR 323), the relevant portion ofwhich reads as under: “We should find out the intention from thelanguage used by the Legislature and if strictliteral construction leads to an absurd result,i.e., a result not intended to be sub-served bythe object of the legislation found in themanner indicated before, then if anotherconstruction is possible apart from strictliteral construction, then that constructionshould be preferred to the strict literalconstruction. Though equity and taxation areoften strangers, attempts should be madethat these do not remain always so and if aconstruction results in equity rather than ininjustice, then such construction should bepreferred to the literal construction.” 11. Allied Motors (P) Ltd. v. Commissioner of Income-Tax ((1997) 224 ITR 677 (SC)) is also withreference to reasonable construction of provisions. Here, Their Lordships held that proviso inserted to remedyunintended consequences to be treated as retrospective. 12. Rajendra Singh Verma (Dead) through LRs. and others v. Lieutenant Governor (NCT of Delhi) andothers ((2011) 10 SCC 1) is relied upon to contend that inan extraordinary case when the Court is convinced thatsome real injustice has happened, which ought not to havetaken place, has really happened and not merely becausethere could be any possible view, in such cases judicialreview has to be exercised. 13. In a case where Advocate General gives concession before court to grant benefit of an earlier date ofappointment to an employee and if such concession is onpoint of law, it does not bind State Government or otheremployee. In this regard, decision in B.S.Bajwa andanother v. State of Punjab and others (AIR 1999 SC1510) is relied upon. 14. The order of assessment came to be interferedwith by CIT (Appeals) by placing reliance in the case of TejaConstructions v. Assistant Commissioner of Income-Tax ((2010) 5 Taxmann.com 61 (Hyd.-ITAT)). Relevantportion of the order reads as under: 13. In a case where Advocate General gives concession before court to grant benefit of an earlier date ofappointment to an employee and if such concession is onpoint of law, it does not bind State Government or otheremployee. In this regard, decision in B.S.Bajwa andanother v. State of Punjab and others (AIR 1999 SC1510) is relied upon. 14. The order of assessment came to be interferedwith by CIT (Appeals) by placing reliance in the case of TejaConstructions v. Assistant Commissioner of Income-Tax ((2010) 5 Taxmann.com 61 (Hyd.-ITAT)). Relevantportion of the order reads as under: “The bare provision of s.40(a)(ia) providesfor non-deduction of amount which remainspayable to a-resident in respect of fees fortechnical services etc. It is not applicablewhere expenditure is paid. It is applicableonly in cases where the payments are dueand outstanding. The word 'payable' is notdefined though the word paid is definedunder s.43(2) to mean actually paid orincurred. Hence, by implication the wordpayable does not mean actually paid orincurred. Hence, by implication the word'payable' does not include paid. Thedifference in the word paid and payable isalso there in the rules for depositing the TDSand also for levy of interest under s.234Bwhere interest is worked out on the basis oftax actually deducted at source and not onthe basis of tax deductible. Sec. 40(a)(ia)otherwise being a legal fiction needs to beconstrued strictly in view of the decision ofSupreme court in CIT vs. Mother IndiaRefrigeration Industries. (P) Ltd. (1985)48CTR (SC) 176: (1985) 155 ITR 711(SC). TheCBDT Circular No.5 of 2005, dt. 15[th] July,2005 [(2005) augment compliance of TDSprovision in the case of residents and curb bogus payments to them. In the present casethe payment is not in dispute and on theissue whether tax is to be deducted at sourceon such payments is not free from doubt. Inany case, if the assessee has paid theimpugned amount and (the amount is) notpayable at the end of the year on the date ofbalance sheet then the provisions of s.40(a)(ia) are not applicable. It is only applicable inrespect of “payable amount” shown in thebalance sheet as outstanding expenses onwhich TDS has not been made. Further, taxis deductible under ss.193, 194A, 194C,194H and 194J either, at the time of paymentor at the time of giving credit to therecipient. However, s.40(a)(ia) is applicableonly in respect of TDS capital defaultsamount is “payable”. If amount is actuallypaid and tax is not deducted under the abovesection, s.40(a)(ia) is not applicable. There isdifference between the word 'paid' or'Payable', the legislature used the word verycarefully in s.40(a)(ia) and in all its wisdomat the time of incorporating the section byway of Finance (No.2) Bill, 2004. It wasinserted in s.40(a)(ia) that the amountpayable to contractor or sub-contractor liablefor disallowance, its TDS not deducted.Sec.40(a)(ia) has to be subjected to strictinterpretation. Going by the rule of strictinterpretation the default with reference toactual 'payment' of expenditure would notentail disallowance. This is because, thelanguage used in the s.40(a)(ia) is verysimple, clear and unambiguous. Literal ruleof interpretation has to be applied. Thespeech of Finance Minister or even otherprovisions of the Act can be pressed into service if there is some ambiguity about themeaning of the section. But the same was notthe case in the instant case. Even theprinciples of liberal interpretation cannot beapplied where the language is clear, simple,and the meaning of the word is apparent. Assuch, the provisions of s.40(a)(ia) are notapplicable in the present facts of the case.The disallowance if any required to be madeshall be restricted to the extent of payableshown in the balance sheet at the end of theyear. However, this is not the case in thepresent case because once the estimation ofincome is made, further disallowances areunwarranted.” 15. Learned counsel appearing for assessee reliesupon another decision of Appellate Tribunal, Mumbai in thecase of Bansal Parivahan (I) P.Ltd. v. Assessee (ITA2355/M/10M). The issue was also with regard to groundNo.2, which relates to disallowance of certain amountsmade by assessing officer, which came to be confirmed byCIT (Appeals) in respect of transport charges under Section40(a)(ia) of Income Tax Act. At paragraph 28 relevant factsare discussed, which reads as under: “28. The assessee in the present case thushad not only deducted tax at source from the payments of freight charges made during theperiod 1.4.2005 to 28.2.2006, but the tax sodeducted was also entirely paid by him to thecredit of the Government although beyondthe due date as stipulated in section 200 butbefore the due date of filing of his return ofincome for the year under consideration. Therelevant TDS provisions thus weresubstantially complied by him and he was in aposition to establish such compliance byfiling the required documentary evidencealong with his return of income. Still he wasmade to suffer by way of a disallowance offreight charges for which he was otherwiseeligible for deduction giving rise to a hugedemand as per the provisions of section 40(a)(ia) which was never the legislative intentionbehind enacting the said provisions. Theprovisions of section 40(a)(ia) as stood priorto the amendments made by the Finance Act2010 thus were resulting into unintendedconsequences and causing grave and genuinehardships to the assessees who hadsubstantially complied with the relevant TDSprovisions by deducting the tax at source andby paying the same to the credit of theGovernment before the due date of filing oftheir returns u/s.139(1). In order to remedythis position and to remove the hardshipswhich was being caused to the assesseesbelonging to such category, amendmentshave been made in the provisions of section40(a)(ia) by the Finanance Act 2010. The saidamendments, in our opinion, thus are clearlyremedial/curative in nature as held byHon'ble Supreme Court in the case of AlliedMotors Pvt. Ltd. (supra) and Alom ExtrusionsLtd. (supra) and the same therefore would apply retrospectively w.e.f. 1[st] April, 2005. Inthe case of R.B.Jodha Mal Kuthiala 82 ITR570, it was held by the Hon'ble SupremeCourt that a proviso which is inserted toremedy unintended consequences and tomake the provision workable, requires to betreated as retrospective in operation so that areasonable interpretation can be given to thesection as a whole. In the present case, theamount of tax deducted at source from thefreight charges during the period 01/04/2005to 28/02/2006 was paid by the assessee in themonths of July and August 2006 i.e wellbefore the due date of filing of its return ofincome for the year under consideration. Thisbeing the undisputed position, we hold thatthe disallowance made by the A.O andconfirmed by the learned CIT(A) on accountof freight charges by invoking the provisionsof section 40(a)(ia) is not sustainable as perthe amendments made in the said provisionsby the Finance Act, 2010 which, beingremedial/curativeinnature,haveretrospective application. Accordingly, wedelete the said disallowance and allowground No.2 of this appeal.” 16. In the present case, Tribunal, without applyingits mind whether CIT (Appeals) was justified in relying upondecision of Hyderabad Bench in similar circumstances withregard to similar issues simply based on the concessiongiven by counsel proceeds to opine that expenditure could be claimed in the year of payment of TDS. The law involvedand how the interpretation has to be made was neverdiscussed. Further consequences which would result inincurable hardship to assessee was never discussed. In the light of above reasoning, we are of theopinion, the matter deserves to be remitted back to Tribunalfor fresh consideration regarding the provisions which arerelied upon by assessee. Accordingly, the Income TaxAppeal is disposed of directing the Tribunal to reconsiderthe matter afresh in the light of above observations. Manjula Chellur, Chief Justice A.M.Shaffique, Judge tkv/vgs