The Learned Senior Counsel Sri. T.m v. Commissioner

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON WEDNESDAY, THE 7TH DAY OF MARCH 2018 / 16TH PHALGUNA, 1939 ITA.No. 232 of 2014 ------------------ ITA. NO.206/COCH/2013 OF INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH. .... APPELLANT/APPELLANT/ASSESSEE ---------------------------- THE ACADEMY OF MEDICAL SCIENCES,PARIYARAM, KANNUR-670 503, PAN : CHANO 0649F, REPRESENTED BY ITS DIRECTOR DR.B. RADHAKRISHNAN. BY SRI.T.M.SREEDHARAN, SENIOR ADVOCATE. SRI.V.P.NARAYANAN. ADVS. SMT.DIVYA RAVINDRAN, RESPONDENT/RESPONDENT/REVENUE : ------------------------------ THE COMMISSIONER OF INCOME TAX,SAHANA AUDITORIUM, MELE CHOWWA, KANNUR-670 511. BY SRI.JOSE JOSEPH, SC. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07-03-2018, ALONG WITH ITA NO.233 OF 2014 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: APPENDIX PETITIONER'S ANNEXURES: K. VINOD CHANDRAN & ASHOK MENON, JJ.-----------------------------------------------I.T.A. Nos.232, 233, 234, 235 & 236 of 2014&152 of 2015-----------------------------------------------Dated this the 7[th] day of March, 2018 JUDGMENT K. Vinod Chandran, J. The assessee is before this Court in sixappeals arising from the assessment years 2007-2008, 2008-2009 and 2009-2010. I.T.A Nos.233 & 236of 2014 and 152 of 2015 are with respect to thequantum addition made under Section 40(a)(ia).I.T.A. Nos.232, 234 & 235 of 2014 are with respectto recovery of the tax deduction at source (TDS);the assessee ought to have deducted and remitted,with respect to the expenses disallowed in theother appeals and the interest payable treating the appellant as an assessee in default under Section201(1). 2. The brief facts to be noticed are that theappellant/assessee credited lease rent to oneKerala State Co-operative Hospital Complex andCentre for Advanced Medical Services Ltd. Thecontention also is that no actual payment was made.But the liability in the subject years as also thecredit made to the accounts of the lessor, isadmitted. The appellant did not deduct tax for theamounts under Chapter XVII-B of the Income Tax Act,1961. The questions of law in the appeals are re-framed as follows: “(i) Whether the Tribunal erred innot deleting the additions made underSection 40(a)(ia), since the secondproviso introduced by Finance Act,2012 read with the first proviso ofsub-Section (1) of Section 201absolved the assessee from being treated as an assessee in default forreason of the payment of tax by theresident, who received the said amounts? (ii) Ought not the Tribunal have considered the provision, which wasinserted by Finance Act, 2012 witheffect from 01.04.2013 as curative innature and allowed the appeal of theassessee for the years; even prior tothe introduction of the proviso? (iii) Ought not the Tribunal havefound that the assessee, who obtainedregistrationasacharitable educational institution for theassessment year 2011-2012, could begranted the benefit of exemption frompayment of income tax in the previousyears?” 3. One additional question arising in the appeals from the order under Section 201(1), is asfollows: “Ought not the Tribunal haveconfined the recovery to the interestpayable on the TDS amounts when theresident–assessee had filed returnsshowing the income received by it, byway of lease rent and also computingthe taxable income including such I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 &152 of 2015 amounts; as has been held inHindustan Cocacola Beverage (P) Ltd.V. Commissioner of Income Tax [(2007) 293 ITR 226 SC].” 4. The learned Senior Counsel Sri. T.M. Sreedharan, appearing for the appellant, would takeus through Allied Motors (P) Ltd. V. Commissioner 3. One additional question arising in the appeals from the order under Section 201(1), is asfollows: “Ought not the Tribunal haveconfined the recovery to the interestpayable on the TDS amounts when theresident–assessee had filed returnsshowing the income received by it, byway of lease rent and also computingthe taxable income including such I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 &152 of 2015 amounts; as has been held inHindustan Cocacola Beverage (P) Ltd.V. Commissioner of Income Tax [(2007) 293 ITR 226 SC].” 4. The learned Senior Counsel Sri. T.M. Sreedharan, appearing for the appellant, would takeus through Allied Motors (P) Ltd. V. Commissioner of Income Tax [(1977) 224 ITR 677 (SC)] andCommissioner of Income Tax v. Alom Extrusions Ltd.[(2009) 319 ITR 306 (SC)] to drive home thecontention urged that the proviso inserted byFinance Act, 2012 is curative in nature. It isargued that the introduction of the proviso underSection 40(a)(ia) and Section 201(1) was with theintention of alleviating the hardship, in caseswhere the resident-receiver of amounts, paidtax on such receipts; even when the payer hasfailed to deduct tax at source. It is also I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 &152 of 2015 contended that the assessee had a certification inso far as having been declared a charitableeducational institution entitled to exemption underSection 12AA from the year 2011-2012. The assesseealso filed an application for condonation of delay,to make the certification retrospective for theprevious years. Admittedly the said applications,in the course of the pendency of these appeals havebeen declined. The learned Senior Counsel wouldurge that despite the rejection having been made,for reason of a satisfactory explanation as to thedelay having not been furnished, the issue is atlarge on merits and this Court could grant suchexemption. The further hardship of the assessee isin the double jeopardy in paying up the amount ofTDS under Section 201(1); being treated as anassesee in default and the liability to tax on the I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 &152 of 2015 additions with respect to the lease rent creditedby the assessee to the accounts of the lessor. Thehardship is projected to claim relief, at least inso far as the deletion of additions, on theassessee satisfying the entire TDS with interest. 5. Sri. Ravindranatha Menon, learned SeniorCounsel and Sri.Christopher Abraham, appearing forthe Revenue argued that the two prongedconsequence, statutorily visits an assessee indefault. Neither can the additions be deleted, northe assessee absolved from the consequence ofpayment of TDS along with interest. It is alsopointed out that the question of whether theprovision is curative does not at all arise sincethe resident/receiver in the present case has notpaid tax on the income and has filed a loss return,without any liability to pay tax, that too I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 &152 of 20157 belatedly. The learned Senior Counsel for theRevenue has placed reliance on Prudential Logistics and Transports v. Income Tax Officer [(2014) 364 ITR 689 Ker] and Thomas George Muthoot v. TheCommissioner of Income Tax (2016) 2 287 CTR (Ker)101 . Two different Division Benches of this Courthave held that the proviso to Section 40(a)(ia) isonly prospective in nature. 6. We have carefully gone through the decisions placed before this Court. In Allied Motors Pvt. Ltd.and Alom Extrusions Ltd.(both supra), theamendments to Section 43B was found to be curative.ThelearnedSeniorCounselforthe appellant/assessee relying on the said decisionsargued that the amendments made by Finance Act, 2012 on a similar interpretation could beconsidered to be curative and not merely I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 &152 of 2015 and Transports v. Income Tax Officer [(2014) 364 ITR 689 Ker] and Thomas George Muthoot v. TheCommissioner of Income Tax (2016) 2 287 CTR (Ker)101 . Two different Division Benches of this Courthave held that the proviso to Section 40(a)(ia) isonly prospective in nature. 6. We have carefully gone through the decisions placed before this Court. In Allied Motors Pvt. Ltd.and Alom Extrusions Ltd.(both supra), theamendments to Section 43B was found to be curative.ThelearnedSeniorCounselforthe appellant/assessee relying on the said decisionsargued that the amendments made by Finance Act, 2012 on a similar interpretation could beconsidered to be curative and not merely I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 &152 of 2015 prospective. We notice that the two DivisionBenches of this Court had found that Section 40(a)(ia) is not retrospective. If at all, we take adifferent view, judicial discipline require that werefer the question to a Larger Bench. We do notfind any reason so to do, since even if theamendment is found to be curative, the appellantherein will not be enabled such benefit. 7. The applicable provisions are Section 40(a)(ia) and the second proviso thereof and the firstproviso to Section 201(1) and we extract belowthose provisions as it existed in the relevantassessment year. Section 40(a)(ia) as amended byFinance Act, 2008, with retrospective effect from01.04.2005 is as follows : “Section 40 : Amounts not deductible Notwithstanding anything to thecontrary in sections 30 to 38, thefollowing amounts shall not be deductedin computing the income chargeable underthe head “Profits and gains of businessor profession”,- (a) in the case of any assessee- xxxxxxxxx “(ia) any interest, commission orbrokerage, rent, royalty, fees forprofessional services or fees fortechnical services payable to a resident,or amounts payable to a contractor or sub-contractor, being resident, for carryingout any work (including supply of labourfor carrying out any work), on which taxis deductible at source under ChapterXVII-B and such tax has not been deducted or, after deduction, has not been paid- (A) in a case where the tax wasdeductible and was so deducted during thelast month of the previous year, on orbefore the due date specified in sub-section (1) of section 139; or (B) in any other case, on or beforethe last day of the previous year. Provided that where in respect of anysuch sum, tax has been deducted in anysubsequent year, or has been deducted. (A) during the last month of theprevious year but paid after the said duedate; or (B) during any other month of theprevious year but paid after the end ofthe said previous year. Such sum shall be allowed as a deduction incomputing the income of the previous year inwhich such tax was paid.” Sub-clause (ia) stood amended as follows byFinance Act, 2010. It is the benefit of the secondproviso introduced, extracted herein below; thatis claimed by the assessee. (ia) thirty percent of any sum payable toa resident, on which tax is deductible atsource under Chapter XVIIB and such taxhas not been deducted or, afterdeduction, has not been paid on or beforethe due date specified in sub-section (1)of section 139: xxxxxxxxx Provided further that where anassessee fails to deduct the whole or anypart of the tax in accordance with theprovisions of Chapter XVII-B on any suchsum but is not deemed to be an assesseein default under the first proviso tosub-section (1) of section 201, then, forthe purpose of this sub-clause, it shallbe deemed that the assessee has deductedand paid the tax on such sum on the dateof furnishing of return of income by the resident payee referred to in the saidproviso. Section 201(1) as introduced, again by Finance Act, 2010 reads as under : “201. Consequences of failure todeduct or pay xxxxxxxxx Provided further that where anassessee fails to deduct the whole or anypart of the tax in accordance with theprovisions of Chapter XVII-B on any suchsum but is not deemed to be an assesseein default under the first proviso tosub-section (1) of section 201, then, forthe purpose of this sub-clause, it shallbe deemed that the assessee has deductedand paid the tax on such sum on the dateof furnishing of return of income by the resident payee referred to in the saidproviso. Section 201(1) as introduced, again by Finance Act, 2010 reads as under : “201. Consequences of failure todeduct or pay (1) Where any person, including theprincipal officer of a company,-- xxxxxxxxx Provided that any person, includingthe principal officer of a company, whofails to deduct the whole or any part ofthe tax in accordance with the provisionsof this Chapter on the sum paid to aresident or on the sum credited to theaccount of a resident shall not be deemedto be an assessee in default in respect ofsuch tax if such resident- (i) has furnished his return of incomeunder section 139; (ii)has taken into account such sum forcomputing income in such return of income;and (iii) has paid the tax due on the incomedeclared by him in such return of income and the person furnishes a certificate tothis effect from an accountant in suchform as may be prescribed.” 8. As per the first proviso to Section 201(1), I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 &152 of 2015 when a resident, who receives any sum from anassessee, has furnished his return of income underSection 139 and taken into account such sum forcomputing income, as also paid the tax due on theincome declared by him in such return of income;then assessee would stand absolved from beingtreated as an assessee in default, despite the factthat the assessee had failed to deduct at source,the whole or any part of the tax in accordance withthe provisions of Chapter-XVII-B. When an assesseehas failed to deduct tax by virtue of the provisoto Section 201(1), he is not treated as an assesseein default, only when the person from whom tax wasto be deducted has paid the tax. The cumulativeeffect of the second proviso to Section 40(a)(ia)and the first proviso to Section 201(1) would bethat on payment of taxby the resident receiver, I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 &152 of 2015 the assessee who failed to deduct tax underChapter-XVII-B on any sum paid to the residentreceiver, would not be considered as an assessee indefault and the additions under Section 40(a)(ia)would also not have to be made in the case of thatassessee. 9. However, to avail of the beneficial provisosunder Sections 40(a)(ia) & 201(1), there should be(i) return of income under Section 139(ii), withcomputation of income including such amountsreceived, as also (ii) payment of tax on suchincome. Only if all the three conditions aresatisfied, would the beneficial provision beapplicable to an assessee who failed to deduct taxat source. In the present case, admittedly,resident-receiver to whom the assessee paid orcredited the lease rent has filed a return I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 &152 of 2015 belatedly and not paid any tax due on the incomedeclared. When there is no tax paid on the incomedeclared; even if for reason of a loss return,there cannot be any claim raised by the assessee indefault to absolve him from the consequencesflowing from Sections 201(1) and 40(a)(ia). He willthen be treated as an 'assessee in default' andwould be liable to pay the amount of TDS withinterest as also subject to the expenses beingdisallowed. I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 &152 of 2015 belatedly and not paid any tax due on the incomedeclared. When there is no tax paid on the incomedeclared; even if for reason of a loss return,there cannot be any claim raised by the assessee indefault to absolve him from the consequencesflowing from Sections 201(1) and 40(a)(ia). He willthen be treated as an 'assessee in default' andwould be liable to pay the amount of TDS withinterest as also subject to the expenses beingdisallowed. 10. There is an additional ground urged on thebasis of Section 43(2) of the I.T.Act. The term“paid” has been defined as an amount paid oractually incurred and hence in the case of a lossreturn, even if there is no actual payment, theloss return, which does not raise a liability topay, has to be liberally construed is the argument. The definition clause is with reference to 'incomefrom profits and gains of business'. By thespecific words employed in sub-section(2) ofSection 43, this is with reference to the method ofaccounting; which is either on accrual or receipt.There is no ground raised on the basis of themethod of accounting of the assessee, herein andthe contention is only to be rejected. Thedefinition clause has nothing to do with Section201(1) or the determination of an 'assessee indefault'. 11. We cannot countenance the further argumentof the learned Senior Counsel that the appellant/assessee should be considered as a charitableeducational institution under Section 12AA.Admittedly, the assessee had applied for suchregistration only in the year 2011-12. The I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 &152 of 2015 application for condonation of delay for theprevious years stood rejected. There is no questionof any exemption allowed in a year in which suchregistration was not available; especially by thisCourt exercising jurisdiction under Section 260A ofthe I.T. Act. 12. We, hence, answer question Nos.1 to 3framed and extracted herein above against theassessee and in favour of the Revenue. 13. The only question remaining to be considered is as to the liability of the assesseeunder Section 201(1) being treated as an assesseein default. Hindustan Coca Cola Beverage (P) Ltd.(supra) was in a totally different circumstance,where the resident receiver had paid the tax, andthe Honourable Supreme Court relying on a circularof the CBDT allowed the claim of the assessee with respect to the actual TDS applicable. Therein, theassessee had paid amounts to one Pradeep OilCorporation, on which, tax deduction at source wasnot effected. The resident-receiver had paid thetax due on the income received from the appellant/assessee. Relying on the circular, the SupremeCourt had held so in para 10: “10. Be that as it may, the circular No.275/201/95- IT(B) dated 29[th] Jan., 1997issued by the CBDT, in our consideredopinion, should put an end to thecontroversy. The circular declares "nodemand visualized under s.201(1) of theIT Act should be enforced after the taxdeductor has satisfied the officer-in-charge of TDS, that taxes due have beenpaid by the deductee-assessee. However,this will not alter the liability tocharge interest under s.201(IA) of theAct till the date of payment of taxes bythe deductee-assessee or the liabilityfor penalty under s.271C of the IT Act." 14. It is also pertinent that therein, theTribunal had reopened its order, specifically “10. Be that as it may, the circular No.275/201/95- IT(B) dated 29[th] Jan., 1997issued by the CBDT, in our consideredopinion, should put an end to thecontroversy. The circular declares "nodemand visualized under s.201(1) of theIT Act should be enforced after the taxdeductor has satisfied the officer-in-charge of TDS, that taxes due have beenpaid by the deductee-assessee. However,this will not alter the liability tocharge interest under s.201(IA) of theAct till the date of payment of taxes bythe deductee-assessee or the liabilityfor penalty under s.271C of the IT Act." 14. It is also pertinent that therein, theTribunal had reopened its order, specifically considering the question of liability to tax, on anapplication filed by the assessee, on the ground ofpayment of tax by the receiver-resident. Thereopening had not been challenged and had acquiredfinality. On consideration of the Tribunal’s orderof re-opening, which attained finality, as also theCircular referred to above, it was held that theappellant therein would not be liable to pay theTDS amounts, but only the interest on the taxcomponent, which was to be deducted at source tillthe date of payment of such tax by the resident-receiver. The facts in the present case are clearlydistinguishable and we answer the fourth questionalso in favour of the Revenue and against theassessee. In view of the above, we reject these IncomeTax Appeals answering the questions of law in I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 &152 of 201519 favour of the revenue and against the assessee. NoCosts. Sd/- K. VINOD CHANDRAN, JUDGE. Sd/- ASHOK MENON, JUDGE. //True Copy// P.A. To Judge sp/jg/12/03/18