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CIT vs. PVS Memorial Hospital Ltd (Kerala High Court)

DATE: July 20, 2015 (Date of pronouncement)
DATE: August 6, 2015 (Date of publication)
AY: 2005-06, 2006-07
FILE: Click here to download the file in pdf format
S. 40(a)(ia)/ 194C/ 194J: Deduction u/s 194C instead of u/s 194J renders the shortfall liable for disallowance u/s 40(a)(ia)

The assessee, a hospital, entered into an agreement with M/S Lakeshore Hospital and Research Centre Limited by which, the latter had undertaken to perform various professional services in the assessee’s hospital. On the payments made, the assessee deducted tax at the rate of 2% under Section 194C. However, assessment was completed on the basis that tax deductible was at 5% as prescribed under Section 194J and the entire tax in this regard was disallowed under Section 40(a)(ia)of Act. The CIT(A) confirmed the assessment and the Tribunal also rejected the appeal filed by the assessee concerning the assessment year 2005-2006. However, in 2006-2007, the Tribunal followed the Calcutta High Court judgment in Commissioner of Income Tax v. S.K.Tekriwal [2014] 361 ITR 432 (Cal) and held that where tax is deducted by the assessee, even if it is under a wrong provision of law, as in this case, the provisions of Section 40(a)(ia) of the Act cannot be invoked. On appeal to the High Court HELD dissenting from Commissioner of Income Tax v. S.K.Tekriwal [2014] 361 ITR 432 (Cal):

(i) As per these provisions of the agreement, M/S Lakeshore Hospital and Research Centre had undertaken to render professional services to the assessee and this was not a case where they were undertaking a contract work. If that be so, tax was deductible under Section 194J and not under Section 194C as done by the assessee.

(ii) Section 40(a)(ia) (supra) is not a charging Section but is a machinery Section and such a provision should be understood in such a manner that the provision is workable. The expression “tax deductible at source under Chapter XVII-B” occurring in the Section has to be understood as tax deductible at source under the appropriate provision of Chapter XVII-B. Therefore, as in this case, if tax is deductible under Section 194J but is deducted under Section 194C, such a deduction would not satisfy the requirements of Section 40(a)(ia). The latter part of this Section that such tax has not been deducted, again refers to the tax deducted under the appropriate provision of Chapter XVII-B. Thus, a cumulative reading of this provision, therefore, shows that deduction under a wrong provision of law will not save an assessee from Section 40(a)(ia).

(iii) 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, for the aforesaid reasons, we are unable to agree with the views that if tax is deducted even under a wrong provision of law, Section 40(a)(ia) cannot be invoked.

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