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ITO vs. M/s.Theekathir Press (ITAT Chennai)

COURT:
CORAM:
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: (Date of pronouncement)
DATE: December 27, 2013 (Date of publication)
AY:
FILE:
CITATION:

Click here to download the judgement (theekatir_TDS_disallowance.pdf)


S. 40(a)(ia) TDS Disallowance: View in favour of the assessee should be followed

The assessee paid an amount without deducting TDS. The AO held that as there was no TDS, the deduction for the amount could not be allowed u/s 40(a)(ia). However, the CIT(A) reversed the AO on the ground that the word “payable” in s. 40(a)(ia) did not apply to amounts that had already been “paid” during the year. On appeal by the department to the Tribunal HELD dismissing the appeal:

There is a judicial controversy on whether s. 40(a)(ia) applies to amounts that have already been “paid” or it is confined to amounts that are “payable” as at the end of the year. The Special Bench in Merilyn Shipping and Transports 16 ITR (Trib) 1 (Vizag) and the Allahabad High Court in Vector Shipping Services have taken the view that s. 40(a)(ia) applies only to amounts remaining “payable” at the end of the previous year and does not apply to amounts already “paid” before the close of the relevant previous year. However, the Calcutta High Court in Crescent Export Syndicates & Md. Jakir Hossain Mondal and the Gujarat High Court in Sikandarkhan N.Tunvar have taken a contrary view that even amounts already “paid” have to be disallowed u/s 40(a)(ia). In such circumstances, the rule of Judicial Precedence demands that the view favourable to the assessee must be adopted as held by the Supreme Court in CIT vs. Vegetable Products Ltd 88 ITR 192. Following the said fundamental rule declared by the Supreme Court, the judgment of the Allahabad High Court in Vector Shipping which is in favour of the assessee has to be followed and it has to be held that disallowance u/s 40(a)(ia) applies only to amounts “payable” and not to amounts “paid”.

Note: In Pradip J. Mehta 300 ITR 231 (SC) it was held that the benefit of doubt should invariably go to the taxpayer. This has been followed in Eskay Designs (attached). Contrast with the view taken in Rishti Stock and Shares (ITAT Mumbai) and the Department’s Circular No. 10/DV/2013 dated 15.12.2013
7 comments on “ITO vs. M/s.Theekathir Press (ITAT Chennai)
  1. s.srinivasan says:

    Sir
    What about the recent CBDT clarification after so many years that the intention was not there to disallow only the amount for which tax was payable, but to all expenses where tax has not been deducted . will it act retrospectively ? and will such things can be issued as a clarification ?

    • DEEPAK SONI says:

      It is not clarification of the law by CBDT.It is as always a justifacation of the erroneos stand of the law adopted by CBDT.

  2. R Swaminathan says:

    This section should be withdrawn from the statute. This section was introduced on the same lines as that meant for covering payments to non residents. The amount paid to non resident can totally escape from taxation if the recipient is not assessed to tax in India. This is not the case with residents who are governed by Indian tax laws. Section 40(a)(ia) has been instrumental in generating a lot of avoidable litigation. More so when the person making payments is not sure, in many cases, whether tax is to be deducted or not. As such there is no justification for existence of such a clause when it concerns residents. Besides with so much of information available the recipient cannot avoid paying taxes.

  3. DEEPAK SONI says:

    This is the correct interpretation of the law.The words used are payable and therefore disallowance can be made if and only if the amount is remaining outstanding.The Board should well advised to refrain itself from issuing the circulars when the matters are being decided by the High Courts and the Supreme Court.The Board is very quick in issuing the circulars when a view has to be taken against the assessee and is very slow when a view has to be taken in favor of the assessee.

  4. rajendra sharma says:

    in my view once judicial interpretation is available then by issuance of circular uncalled confusion should not be created

  5. sushil shah says:

    This is the drawback of the system, when the amendment is made , department should come out with the examples and clarify what they want to tax , I beleive that if they want to tax then it is their responsibilty to clarify , but this is bypassed systematically so as to creat confusion amongst the tax payers . Normally amendment is made in one year and after 2-3 year it is clarified that what was expected.
    One interesting amendmen is made s 234E
    Tds menas the assessee has to do work for Government, it has to collect the tax and deposite it , so the assessee is rendering the services to the Government for which he is getting no any remuneration , but slapped with the 234E i.e. fees for late filling , Assessee is serving department he should get fee but he has to pay fee to the servce receipiant …. very funny .

  6. Sanjay Thakkar says:

    The Law is strange as the Expenses are allowed based on Compliance of TDS Provisions and not based on the fact that how genuine the expense is and where S. 133 (6) can be easily applied still the AO is disallowing the expenses.

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