V) Did Not The Appellate Tribunal Err In Law In Not Following The Judgment Of The Allahabad High Court In Cit v. M/S Vector Shipping Services (2013) 357 Itr 642 (All) Which Is In Favour Of The Appellant By Following The Principle Of Law Laid Down In The Case Of Cit Vs. M/S

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC &THE HONOURABLE MR. JUSTICE SHAJI P.CHALY FRIDAY, THE 3RD DAY OF JULY 2015/12TH ASHADHA, 1937 ITA.No. 278 of 2014 () -----------------------AGAINST THE ORDER IN ITA 63/COCH/2014 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 28.8.2014 APPELLANT(S)/APPELLANT/ASSESSEE:: ---------------------------------------------------------------- SHRI.THOMAS GEORGE MUTHOOT MUTHOOT HOUSE, KOZHENCHERRY, PATHANAMTHITTA DISTRICT PIN: 689 641. BY ADVS.SRI.T.M.SREEDHARAN (SR.) SRI.V.P.NARAYANAN SMT.DIVYA RAVINDRAN RESPONDENT(S)/RESPONDENT/REVENUE: ------------------------------------------------------------------ THE COMMISSIONER OF INCOME TAX PUBLIC LIBRARY BUILDING, LALBAHADUR SASTHRI ROAD KOTTAYAM - 686 001. R BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 29-06-2015,ALONG WITH ITA. 279/2014 AND CONNECTED CASES, THE COURT ON 03-07-2015DELIVERED THE FOLLOWING: APPENDIX IN ITA.278/14 APPELLANT'S EXHIBITS: ANNEXURE A: TRUE COPY OF THE ASSESSMENT ORDER AND DEMAND NOTICEDATED 27.12.2011 FOR AY 2006-07.DATED 27.12.2011 FOR AY 2006-07. ANNEXURE B: TRUE COPY OF THE COMMON APPELLATE TRIBUNAL'S ORDER DATED28.8.2014 IN ITA.63/COCH/2014 OF THE ITAT, COCHIN BENCH FOR AY 2006-07.28.8.2014 IN ITA.63/COCH/2014 OF THE ITAT, COCHIN BENCH FOR AY 2006-07. ANNEXURE C: TRUE COPY OF THE MISCELLANEOUS PETITION DATED 13.09.2014FILED BY THE APPELLANT BEFORE ITAT, COCHIN BENCH FOR AY 2006-07.FILED BY THE APPELLANT BEFORE ITAT, COCHIN BENCH FOR AY 2006-07. ANNEXURE D: TRUE COPY OF THE CERTIFICATE DATED 26.2.2014 ISSUED BY TECHARTERED ACCOUNTANT.CHARTERED ACCOUNTANT. ANNEXURE E: TRUE COPY OF THE ORDER NO.TVDTO 1734F/AE/13-14 DATED31.3.2014 ISSUED BY THE DY. COMMISSIONER OF INCOME TAX (TDS), KOTTAYAM,FOR AY 2006-07.31.3.2014 ISSUED BY THE DY. COMMISSIONER OF INCOME TAX (TDS), KOTTAYAM,FOR AY 2006-07. /TRUE COPY/ ANTONY DOMINIC & SHAJI P. CHALY, JJ. ----------------------------------- ----------------------------------- C.R. JUDGMENT Antony Dominic, J. 1.ITA No.278/14 and 279/14 are filed by Sri.ThomasGeorge Muthoot in relation to the assessment orderspassed for the assessment years 2006-07 and 2007-08.ITA Nos.282/14, 289/14 and 290/14 filed by Sri.ThomasMuthoot arise out of the orders for the assessmentyears 2005-06, 2007-08 and 2006-07, respectively.Sri.John Muthoot has filed ITA Nos.283/14, 288/14 and292/14 against the orders for the assessment years2005-06, 2006-07 and 2007-08 respectively. 2.During the aforesaid assessment years, the appellantspaid interests on amounts drawn by them frompartnership firms of which they are Partners, asprovided under Chapter XVIIB of the Income Tax Act,1961 (hereinafter referred to as ‘the Act’ forshort). For that reason, the interest paid wasdisallowed in terms of Section 40(a)(ia) of the Act.This order passed by the Assessing Officer was confirmed by the Commissioner (Appeals) and furtherappeals filed before the Tribunal were dismissed by acommon order dated 28.08.2014. It is aggrieved bythe orders passed by the Tribunal, the assessees havefiled these appeals, formulating the followingquestions of law: (i) Whether on the facts and in the circumstances ofthe case, did not the Appellate Tribunal err in lawin sustaining the addition of Rs.6,28,28,000/- byinvoking Sec.40(a)(ia) for the Assessment Year2006-07?the case, did not the Appellate Tribunal err in lawin sustaining the addition of Rs.6,28,28,000/- byinvoking Sec.40(a)(ia) for the Assessment Year2006-07? confirmed by the Commissioner (Appeals) and furtherappeals filed before the Tribunal were dismissed by acommon order dated 28.08.2014. It is aggrieved bythe orders passed by the Tribunal, the assessees havefiled these appeals, formulating the followingquestions of law: (i) Whether on the facts and in the circumstances ofthe case, did not the Appellate Tribunal err in lawin sustaining the addition of Rs.6,28,28,000/- byinvoking Sec.40(a)(ia) for the Assessment Year2006-07?the case, did not the Appellate Tribunal err in lawin sustaining the addition of Rs.6,28,28,000/- byinvoking Sec.40(a)(ia) for the Assessment Year2006-07? (ii) Did not the statutory Authorities and theAppellate Tribunal err in law in making additionu/s 40(a)(ia) when the payee has included theentire interest paid by the appellant in its totalincome and filed return of income accordingly?Appellate Tribunal err in law in making additionu/s 40(a)(ia) when the payee has included theentire interest paid by the appellant in its totalincome and filed return of income accordingly? (iii) Did not the statutory Authorities and theAppellate Tribunal failed to follow the principleof law laid down by the Hon'ble Apex Court inM/s.Hindustan Coca Cola Beverages Pvt. Ltd. (293ITR 226 (SC) where it was held that the payer isnot liable to pay the amounts of short/non-deduction of tax u/s 201(1) in cases whether thepayee has already included the relevant amount inits total income?Appellate Tribunal failed to follow the principleof law laid down by the Hon'ble Apex Court inM/s.Hindustan Coca Cola Beverages Pvt. Ltd. (293ITR 226 (SC) where it was held that the payer isnot liable to pay the amounts of short/non-deduction of tax u/s 201(1) in cases whether thepayee has already included the relevant amount inits total income? (iv) Should not the statutory Authorities and theAppellate Tribunal accepted the contention thatthe second proviso inserted with effect fromAppellate Tribunal accepted the contention thatthe second proviso inserted with effect from 1.4.2013 was intended to remove the unintendedconsequences and was a beneficial provision forremoval of hardship and therefore, retrospectivein operation and applicable to the appellant'scase? (v) Did not the Appellate Tribunal err in law in notfollowing the judgment of the Allahabad HighCourt in CIT Vs. M/s Vector Shipping Services(2013) 357 ITR 642 (All) which is in favour ofthe appellant by following the principle of law laiddown in the case of CIT Vs. M/s VegetablesProducts Ltd. (1973) 88 ITR 192 (SC)?following the judgment of the Allahabad HighCourt in CIT Vs. M/s Vector Shipping Services(2013) 357 ITR 642 (All) which is in favour ofthe appellant by following the principle of law laiddown in the case of CIT Vs. M/s VegetablesProducts Ltd. (1973) 88 ITR 192 (SC)? (vi) Is not the order and the findings of theAppellate Tribunal in the impugned common orderin I.T.A. Nos.71/C/2014 dated 28.08.2014 forAY-2006-07 erroneous in law and henceunsustainable?Appellate Tribunal in the impugned common orderin I.T.A. Nos.71/C/2014 dated 28.08.2014 forAY-2006-07 erroneous in law and henceunsustainable? (vii) Is the order of the Appellate TribunalAnnexure-B legal, valid and sustainable in law?Annexure-B legal, valid and sustainable in law? 3.We heard the senior Counsel for the appellants andthe learned Senior Standing Counsel appearing for theRevenue.the learned Senior Standing Counsel appearing for theRevenue. 4. Section 194A (1) of the Act provides that anyperson, not being an individual or a Hindu undividedfamily, who is responsible for paying to a residentany income by way of interest, other than income byperson, not being an individual or a Hindu undividedfamily, who is responsible for paying to a residentany income by way of interest, other than income by ITA.278/14 & con cases (vii) Is the order of the Appellate TribunalAnnexure-B legal, valid and sustainable in law?Annexure-B legal, valid and sustainable in law? 3.We heard the senior Counsel for the appellants andthe learned Senior Standing Counsel appearing for theRevenue.the learned Senior Standing Counsel appearing for theRevenue. 4. Section 194A (1) of the Act provides that anyperson, not being an individual or a Hindu undividedfamily, who is responsible for paying to a residentany income by way of interest, other than income byperson, not being an individual or a Hindu undividedfamily, who is responsible for paying to a residentany income by way of interest, other than income by ITA.278/14 & con cases way of interest on securities, shall at the time ofcredit of such income to the account of the payee orat the time of payment thereof in cash or by issue ofa cheque or draft or by any other mode, whichever isearlier, deduct income-tax thereon at the rate inforce. As per the proviso to the said section, anindividual or Hindu undivided family whose totalsales, gross receipts or turnover from business orprofession carried on by him exceeds the monetarylimits specified under Section 44AB(a) or (b) duringthe financial year immediately preceding thefinancial year in which such interest is credited orpaid, shall be liable to deduct income tax underSection 194A. 5.One of the consequences of the non-compliance ofSection 194A is contained in Section 40 of the Act.As per this Section, notwithstanding anything to thecontrary contained in Sections 30 to 38, the amountsspecified in the Section shall not be deducted incomputing the income chargeable under the headprofits and gains of business or profession. Amongthe various amounts that are specified for deduction of tax, clause (a) (ia) of Section 40, in so far asit is relevant, provides that in the case of anyassessee any interest is payable to a resident onwhich tax is deductible at source under Chapter XVIIBand such tax has not been deducted. This is evidentfrom the Section itself, which, at the relevant time,read as follows: “40. Amounts not deductible.- Notwithstandinganything to the contrary in sections 30 to 38, thefollowing amounts shall not be deducted incomputing the income chargeable under the head“Profits and gains of business or profession”.— (a) in the case of any assessee – (ia)any interest, commission or brokerage, rent,royalty, fees or professional services or fees fortechnical services payable to a resident, oramounts payable to a contractor or sub-contractor, being resident, for carrying out anywork (including supply of labour for carrying outany work), on which tax is deductible at sourceunder Chapter XVIIB and such tax has not beendeducted or, after deduction, has not been paid,--(A) in a case where the tax was deductible andwas so deducted during the last month of theprevious year, or or before the due date specifiedin sub-section (1) of section 139; or(B)in any other case, on or before the last dayof the previous year.” ITA.278/14 & con cases 6.In so far as these cases are concerned, admittedlyassessees are partners of the firms and during theassessment years in question they have paid interestto the firms without deducting tax as required underSection 194A. It was in such circumstances that theinterest paid by them to the firms was disallowed asprovided under Section 40(a)(ia), which order hasbeen concurrently upheld.assessees are partners of the firms and during theassessment years in question they have paid interestto the firms without deducting tax as required underSection 194A. It was in such circumstances that theinterest paid by them to the firms was disallowed asprovided under Section 40(a)(ia), which order hasbeen concurrently upheld. ITA.278/14 & con cases 6.In so far as these cases are concerned, admittedlyassessees are partners of the firms and during theassessment years in question they have paid interestto the firms without deducting tax as required underSection 194A. It was in such circumstances that theinterest paid by them to the firms was disallowed asprovided under Section 40(a)(ia), which order hasbeen concurrently upheld.assessees are partners of the firms and during theassessment years in question they have paid interestto the firms without deducting tax as required underSection 194A. It was in such circumstances that theinterest paid by them to the firms was disallowed asprovided under Section 40(a)(ia), which order hasbeen concurrently upheld. 7.The first contention raised before us was that underSection 194A, an individual is excluded from theliability to deduct tax and that therefore,disallowance is without jurisdiction. In order toanswer this contention, reference to Section 194A(1)and its proviso is necessary and therefore, theseprovisions are extracted for reference:Section 194A, an individual is excluded from theliability to deduct tax and that therefore,disallowance is without jurisdiction. In order toanswer this contention, reference to Section 194A(1)and its proviso is necessary and therefore, theseprovisions are extracted for reference: “(1) Any person, not being an individual or a Hinduundivided family, who is responsible for paying toa resident any income by way of interest otherthan income by way of interest on securities, shallat the time of credit of such income to theaccount of the payee or at the time of paymentthereof in cash or by issue of a cheque or draftundivided family, who is responsible for paying toa resident any income by way of interest otherthan income by way of interest on securities, shallat the time of credit of such income to theaccount of the payee or at the time of paymentthereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier,deduct income-tax thereon at the rates in force: Provided that an individual or a Hindu undividedfamily, whose total sales, gross receipts orturnover from the business or profession carriedon by him exceed the monetary limits specifiedunder clause (a) or clause 9b) of section 44ABduring the financial year immediately precedingthe financial year in which such interest iscredited or paid, shall be liable to deduct income-tax under this section.” 8.Reading of the provision shows that individuals andHindu undivided family are excluded in Section 194A(1) and therefore, are not liable to deduct tax atsource. However, by virtue of the proviso which wasinserted by the Finance Act 2002, the benefit ofexclusion is restricted only to those individuals andHindu undivided families, whose total sales, grossreceipts or turnover from business or profession donot exceed the monetary limit specified under Section44AB(a) or (b) of the Act during the financial yearimmediately preceding the financial year in whichsuch interest is credited or paid. ITA.278/14 & con cases 9.In the light of the proviso to Section 194A(1), ifthe appellants are claiming the exemption provided inthe Section, the burden is on them to establish thatthey, being individuals, satisfied the conditionsspecified in the proviso to the Section. From theorders impugned, we find that no such contention wasurged before the statutory authorities. In fact theTribunal has entered into a specified finding that;the appellants are claiming the exemption provided inthe Section, the burden is on them to establish thatthey, being individuals, satisfied the conditionsspecified in the proviso to the Section. From theorders impugned, we find that no such contention wasurged before the statutory authorities. In fact theTribunal has entered into a specified finding that; ITA.278/14 & con cases 9.In the light of the proviso to Section 194A(1), ifthe appellants are claiming the exemption provided inthe Section, the burden is on them to establish thatthey, being individuals, satisfied the conditionsspecified in the proviso to the Section. From theorders impugned, we find that no such contention wasurged before the statutory authorities. In fact theTribunal has entered into a specified finding that;the appellants are claiming the exemption provided inthe Section, the burden is on them to establish thatthey, being individuals, satisfied the conditionsspecified in the proviso to the Section. From theorders impugned, we find that no such contention wasurged before the statutory authorities. In fact theTribunal has entered into a specified finding that; “in this case, business income of the assesseeexceeded the limit prescribed u/s 44AB of theAct, therefore the assessee, even though anindividual is liable to deduct tax while payinginterest to the firm u/s 194A(1) of the IT Act”.exceeded the limit prescribed u/s 44AB of theAct, therefore the assessee, even though anindividual is liable to deduct tax while payinginterest to the firm u/s 194A(1) of the IT Act”. 10.No material whatsoever has been supplied by theappellants to contradict this specific factualfinding recorded by the Appellate Tribunal.Therefore, this contention cannot be accepted.appellants to contradict this specific factualfinding recorded by the Appellate Tribunal.Therefore, this contention cannot be accepted. 11. The second contention raised was that secondproviso to Section 40(a)(ia) of the Act, introducedby the Finance Act 2012, being retrospective inoperation, disallowance could not have been orderedproviso to Section 40(a)(ia) of the Act, introducedby the Finance Act 2012, being retrospective inoperation, disallowance could not have been ordered ITA.278/14 & con cases invoking Section 40 (a)(ia) of the Act. Thiscontention was sought to be substantiated relying onthe judgments in Allied Motor (P) Ltd.v.Commissioner of Income Tax [(1997) 224 ITR 677 (SC)]and Commissioner of Income Taxv. Alom ExtrusionsLtd. [(2009) 319 ITR 306]. 12.The second proviso to Section 40(a)(ia) of the Actreads thus:reads thus: “Provided further that where an assessee fails todeduct the whole or any part of the tax inaccordance with the provisions of Chapter XVIIBon any such sum but is not deemed to be anassessee in default under the first proviso tosub-section (1) of section 201, then, for thepurpose of this sub-clause, it shall be deemedthat the assessee has deducted and paid the taxon such sum on the date of furnishing of returnof income by the resident payee referred to inthe said proviso.” 13.Admittedly this proviso was inserted by Finance Act2012 and came into force with effect from 01.04.2013.The fact the second proviso was introduced witheffect from 01.04.2013 is expressly made clear by2012 and came into force with effect from 01.04.2013.The fact the second proviso was introduced witheffect from 01.04.2013 is expressly made clear by the provisions of the Finance Act 2012 itself. Thislegal position was clarified by this Court inPrudential Logistics And Transportsv. Income TaxOfficer[(2014) 364 ITR 689 (Ker)]. 13.Admittedly this proviso was inserted by Finance Act2012 and came into force with effect from 01.04.2013.The fact the second proviso was introduced witheffect from 01.04.2013 is expressly made clear by2012 and came into force with effect from 01.04.2013.The fact the second proviso was introduced witheffect from 01.04.2013 is expressly made clear by the provisions of the Finance Act 2012 itself. Thislegal position was clarified by this Court inPrudential Logistics And Transportsv. Income TaxOfficer[(2014) 364 ITR 689 (Ker)]. 14.However, counsel for the appellants placed relianceon the judgment in Allied Motor (P) Ltd.(supra).That was a case where the Apex Court was consideringthe scope and applicability of the first proviso toSection 43B inserted by the Finance Act 1987, witheffect from 01.04.1988. On examination of thelegislative history the court found that the languageof Section 43B was causing undue hardship to the taxpayers and the first proviso was designed toeliminate unintended consequences which cause unduehardship to the assessees and which made theprovision unworkable or unjust in a specificsituation. Accordingly, the court held that theproviso was remedial and curative in nature and onthat basis held the proviso to be retrospective inoperation. In Commissioner of Income Tax(supra)also following the judgment in Allied Motors(supra),the Apex Court held that provisions of the Finance Act 2003 by which the second proviso to Section 43Bwas deleted and the first proviso was amended, werecurative in nature and therefore retrospective. 15.A statutory provision, unless otherwise expresslystated to be retrospective or by intendment shown tobe retrospective, is always prospective in operation.Finance Act 2012 shows that the second proviso toSection 40 (a)(ia) has been introduced with effectfrom 01.04.2013. Reading of the second proviso doesnot show that it was meant or intended to be curativeor remedial in nature, and even the appellants didnot have such a case. Instead, by this proviso, anadditional benefit was conferred on the assessees.Such a provision can only be prospective as held bythis Court in Prudential Logistics and Transports(supra). Therefore, this contention raised alsocannot be accepted. 16.Relying on the Apex Court judgment in Commissionerof Income Taxv. Hindustan Coca Cola Beverages Pvt.Ltd.[(2007) 293 ITR 226], learned Senior Counsel forthe appellants contended that the recipients of theof Income Taxv. Hindustan Coca Cola Beverages Pvt.Ltd.[(2007) 293 ITR 226], learned Senior Counsel forthe appellants contended that the recipients of the ITA.278/14 & con cases amounts paid by the appellants, the firms of whichthey are partners, have already paid tax and thattherefore, it is illegal to disallow the interestpaid. First of all, Section 40(a)(ia) is in verycategoric terms and the provision is automaticallyattracted, on the failure of an assessee to deducttax on the interest paid by him. Therefore, going bythe language of Section 40(a)(ia), once it is foundthat there is failure to deduct tax at source, thefact that the recipient has subsequently paid tax,will not absolve the payee from the consequence ofdisallowance. In so far as the judgment in HindustanCoca Colacase (Supra) is concerned, that wasrendered in the context of section 201(1), the objectof which being compensatory in nature, cannot be ofany assistance to the appellants to resist aproceeding under Section 40(i)(ia) of the Act. Thiscontention, therefore, is only to be rejected. 17.Another contention that was pressed into service wasthat the appellants had already paid the amount andtherefore, the provisions of Section 40(a)(ia),applicable only in respect of the amount which 17.Another contention that was pressed into service wasthat the appellants had already paid the amount andtherefore, the provisions of Section 40(a)(ia),applicable only in respect of the amount which remains to be payable on the last day of thefinancial year, is not attracted. Therefore,according to the appellants, disallowance cannot besustained. This contention was sought to besubstantiated by relying on the judgment of theAllahabad High Court in Commissioner of Income Taxv.Vector Shipping Services (P) [(2013) 357 ITR 642(All)]. Primarily, this contention should beanswered with reference to the language used in thestatutory provision. Section 40(a)(ia) makes itclear that the consequence of disallowance isattracted when an individual, who is liable to deducttax on any interest payable to a resident on whichtax is deductible at source, commits default. Thelanguage of the Section does not warrant aninterpretation that it is attracted only if theinterest remains payable on the last day of thefinancial year. If this contention is to beaccepted, this Court will have to alter the languageof Section 40(a) (ia) and such an interpretation isnot permissible. This view that we have taken issupported by judgments of the Calcutta High Court inCrescent Exports Syndicate and another[ITAT 20 of ITA.278/14 & con cases 2013] and the Gujarat High Court in the case ofCommissioner of Income Taxv. Sikandadarkhan NTunvar[ITA Nos.905 of 2012 & connected cases], whichhave been relied on by the Tribunal. Resultantly, we do not find any merit in thecontentions and questions of law are answered againstthe assessees. Appeals are only to be dismissed andwe do so. Sd/- ANTONY DOMINIC, Judge. Sd/- SHAJI P. CHALY, Judge. kkb.