We have another 6 days for the wonderful year 2016!! and as Sam Levenson say, "Don't watch the clock; do what it does and Keep going."
Over the years, the judicial forums have pronounced immense tax litigation involving issues pertaining to TDS. I was just trying to recollect which ruling on TDS, I should read again. I have complied Top 25 ruling of 2016, covering various issue on TDS. I hope you all find this useful
1. TDS inapplicable to year-end expense-provisions reversed subsequently, income accrual to payee must
Bangalore ITAT rules in assessee's favour, holds that TDS liability does not arise on year-end provisions for expenses which got reversed on first day of next accounting year, provisions were made in accordance with AS-29 issued by ICAI and assessee had suo moto disallowed the same u/s 40(a)(i) and 40(a)(ia) while computing taxable income; ITAT observes that liability to deduct tax at source (‘TAS’) arises only when there is accrual of income in the hands of the payee, places reliance on SC ruling in GE India Technology Centre P Ltd; Holds that "considering the fact that the provisions were made at the year end is reversed in the beginning of the next accounting year goes to show that there was no income accrued"; Observes that mere entries in the books of accounts does not establish the accrual of income in the hands of the payee, relies on SC ruling in Shoorji Vallabhdas & Co; Thus, ITAT holds that assessee cannot be treated as 'assessee in default' u/s 201(1) for not deducting TAS on year-end provisions which got reversed in the following accounting year
Also Read: [TS-305-ITAT-2015(Bang)] - Quarterly expense-provision through suspense attracts TDS de hors income-charge u/s. 4(1)
2. HC: Restricts taxman's 'unlimited' TDS calls to Airtel on non-resident payments
Delhi HC relies extensively on co-ordinate bench judgment in Vodafone Essar to allow Bharti Airtel's writ petition, rules that show cause notice must be issued within a 'reasonable' time even though no express time limitation is provided for in Sec. 201; Quashes show cause notices issued u/s 201 in March 2011 & 2012 to Airtel for TDS default on payment of interconnect usage charge to non-resident operators relating to FYs 2001-02 to 2006-07, since the same was issued beyond 'reasonable' time, i.e. 4 years; HC takes note of Finance (No. 2) Act, 2009 amendment to Sec 200(3) prescribing time-limit for passing order u/s 201 in relation to ‘resident’ deductees, rejects Revenue stand that if the Act does not specify a time period for non-residents, then a reasonable time period cannot be read into the Act; Further, rejects Revenue argument citing apex court ruling in Bharat Steel Tubes Ltd., that the absence of any period of limitation in respect of non-resident remitters meant that Parliament made a conscious distinction between resident and non-resident beneficiaries, based on good reasons (like difficulty in gathering true nature of transaction); Revenue also sought to challenge petitioner's reliance on rulings in NHK Japan Broadcasting Corporation & Hutchison Essar (wherein 4 years was held as reasonable period for initiating Sec. 201 proceedings), by arguing that the said judgments were delivered when the Legislature had not made a distinction between residents and non-residents; Acknowledging the silence as regards applicability of limitation period to payments to non-residents, HC therefore traces legislative history of the provisions and observes that " At all material times payments made to residents and non-residents were treated alike. The revenue does not state what necessitated the distinction, made through the amendment for the first time." ; Senior Advocate Ajay Vohra termed as 'arbitrary', Revenue's reliance on CBDT circular [explaining the provisions of Finance (No. 2) Bill, 2009] that used the "administrative convenience" rationale to justify an express limitation period for residents but none for non-residents; HC relies on apex court verdict in GE Technologies, rules " Furthermore, the only reason cited by the respondent, i.e. administrative convenience, cannot outweigh the harsh nature of the consequence, which would expose resident payers to the onerous responsibility of maintaining books and documents for an uncertain period of time. "
3. Upholds Sec 40(a)(ia) disallowance for TDS default, rejects ITAT’s reliance on Vector Shipping ruling
Karnataka HC sets-aside ITAT order, upholds Sec 40(a)(ia) disallowance for TDS default on rent, professional charges and contractual payments to transporters made by assessee (a co-operative sugar factory) during AYs 2005-06 to 2011-12; ITAT had relied on Allahabad HC ruling in Vector Shipping and remitted matter back to examine whether any amounts were remaining payable at the year-end; HC notes that Allahabad HC was concerned with an issue wherein it was contended that TDS provisions were duly complied with and also no amount remained payable at year end; HC states that “In contrast, in the instant case, it is an admitted position …that the assessee has not deducted tax at source as required u/s 194C, 1941 and 194J” and non-compliance of TDS provisions was sought to be justified on the ground that contract interse between assessee and transporters was not valid, accordingly, HC holds that Vector Shipping ruling is not applicable to assessee; Further accepts Revenue’s stand that Tribunal was not correct in interpreting the language of Sec 40(a)(ia) to mean that consequence of disallowance is attracted only in respect of amounts remaining payable at year-end, relies on Calcutta HC ruling in Crescent Export Syndicate, Gujarat HC ruling in Sikandarkhan N. Tunvar and Kerala HC ruling in Thomas George Muthoot
4. Order u/s 195(2) non-appealable, dismisses assessee's appeal for want of jurisdiction
Bangalore ITAT dismisses assessee’s appeal challenging order passed u/s 195(2) in respect of payment towards reimbursement ofdevelopment cost to foreign shareholders for AY 2006-07 for want of jurisdiction; On perusal of Sec. 246/246A [which provides for appealable orders before CIT(A)], ITAT notes that order passed u/s 195(2) was not appealable, thus holds that “remedy against the order passed under Section 195(2) does not lie before the appellate authorities by filing the appeal”; Accordingly without adjudicating on the merits, holds that “When the appeal against the impugned order under Section 195(2) of the Act is not maintainable for want of jurisdiction as well as for want of the provision of the remedy in appeal, then the appeal filed by the assessee before the Tribunal would not survive”, however clarifies that enforceability of order passed u/s 195(2) shall not be affected; Further, ITAT rules on the issue of maintainability of appeal even though such ground not raised by parties to the appeal, observes that ITAT could decide the ground not raised by the parties if it relates to the subject matter of appeal; Relies on rulings in case of Hukumchand Mills Ltd. (SC) and Ahmedabad Electricity Co. Ltd. (Bom. HC) and distinguishes assessee’s reliance on Mumbai ITAT Special Bench ruling in Mahindra & Mahindra
5. “Administrative” CBDT instruction to not preclude DCIT with territorial-jurisdiction from assessing taxpayer
Bangalore ITAT dismisses assessee’s appeal challenging DCIT’s jurisdiction to assess its income for AY 2009-10; Rejects assessee’s reliance on CBDT Instruction no. 1/2011 (which provides monetary limits for assigning cases to tax officers based on taxpayers’ location i.e. urban/non-urban areas) to contend that DCIT was precluded from assessing taxpayers with declared income of less than Rs.15 lakhs; Notes that CBDT instruction was issued “for administrative convenience and to avoid hardship to the tax payers who were located in a different station”, also observes that the CBDT Instruction did not have the effect of over-riding, modifying or amending any provisions of the Act as laid down by SC in the case of UCO Bank ; On noting that assessee never raised any objection before the DCIT with regards to its jurisdiction, holds that “not only DCIT had the necessary jurisdiction to do an assessment on the assessee, but assessee by virtue of not objecting to such jurisdiction before the DCIT during the course of assessment cannot now turn back and say that the said officer was not having the necessary jurisdiction to assess it”; Thus rules that CBDT Instruction will not “oust the territorial jurisdiction which was otherwise with the DCIT”
6. Payment to particular transporter to be aggregated for Sec 194C purposes; Upholds Sec 40(a)(ia) disallowance
Bangalore ITAT upholds Sec 40(a)(ia) disallowance for TDS default for AY 2008-09, rules that payment made to each lorry owner /driver in excess of Rs. 50,000 for transporting iron-ore was subject to Sec 194C TDS; Rejects assessee’s stand that the payment against each bill/GR to each truck has to be considered as a separate contract and therefore no TDS applicable on individual payment for each GR less than Rs. 50,000; Observes that the nature of hiring of transporters/contractors was on a permanent and continuous basis, throughout the year and not on a task-basis; Therefore, ITAT holds that “ though the payment has been splitted by separate invoices however, the basis of payment is per M.T. of iron ore and therefore per trip per truck becomes irrelevant for the purpose of payment..”; As the rate of transportation was agreed between the parties on the basis of the quantity and not on the basis of per trip, ITAT opines that the payment made to the particular transporter for transportation of iron ore from mines to ports during the year under consideration has to be aggregated for the purpose of section 194C(3) of the Act, distinguishes assessee’s reliance on Mumbai ITAT ruling in City Transport Corpn.
7. Amended Sec. 200A enabling Sec. 234E-levy prospective, but keeps constitutional validity issue open
Karnataka HC quashes intimation u/s 200A levying fees for delayed filing of TDS return u/s 234E, holds that “intimation raising demand prior to 1.6.2015 u/s 200A levying Sec 234E late fees is not valid.”; Observes that during FYs 2012-13 and 2013-14, TDS was timely deducted and deposited by petitioner-companies, however there was delay in filing e-TDS returns and hence demand notices u/s 200A were issued levying late filing fees u/s 234E; Rejects Revenue’s stand that the levy was justified as Sec 234E, being the charging section, had come into force from July 1, 2012 itself and hence amended Sec 200A enabling AO to determine fee u/s 234E vide Finance Act, 2015 should be considered as retrospective in application; Clarifies that Sec 234E cannot be read in isolation and is required to be read with the mechanism and the mode provided for its enforcement; Observes that when Sec 234E was inserted in the Act simultaneously, Sec 271H was also inserted and so also proviso to Sec 272A(2), remarks that “when the Parliament intended to insert the provisions of Section 234E providing for fee simultaneously the utility of such fee was for conferring the privilege to the defaulter-deductor to come out from the rigors of penal provision of Section 271H.”; Holds that “if Section 234E providing for fee was brought on the statute book, keeping in view the aforesaid purpose and the intention then, the other mechanism provided for computation of fee and failure for payment of fee under Section 200A which has been brought about with effect from 1.6.2015 cannot be said as only by way of a regulatory mode or a regulatory mechanism but it can rather be termed as conferring substantive power upon the authority.”; Thus, refuses to accept Revenue's contention that insertion of clause (c) to (f) u/s 200A should be treated as retroactive character and not prospective, but clarifies that deductor who has already made payment of fees u/s 200A will not be permitted to seek reopening of issue unless he has made payment under protest; Noting that assessees in this case had declared that if the notices u/s 200A levying Sec. 234E fees are set aside they would not press for challenge to constitutional validity of Sec. 234E, observes that "question of constitutional validity of Sec. 234E shall remain open to be considered by division bench and shall not get concluded by the order of the learned Single Judge"
8. Fixed remuneration to consultant–doctors constitutes salary, TDS u/s 194J inapplicable
Bangalore ITAT dismisses assessee’s (engaged in health-care business) appeal for AYs 2011-12 to 2013-14, holds that payment of remuneration to consultant doctors (i.e. in-house and visiting consultants) constitutes salary, TDS u/s 192 and not 194J applicable; On perusal of agreement entered between assessee and consultant doctors, notes that remuneration was fixed irrespective of number of patients attended by the consultant doctors, also notes that consultant doctors were working with the assessee for a minimum period of 5 years from the date of joining; Observes that in case consultant doctor left the hospital within a period of 2 years, such doctors were barred from working in Bangalore District for a period of 2 years from the date of leaving, also takes note of restrictions placed on consultant doctor from undertaking any professional work/ assignment in other hospital without assessee’s prior consent; Relies on Karnataka HC ruling in Manipal Health System (P) Ltd. and Bombay HC in Grant Medical Foundation to hold that “there is no independence to the consultant doctors, their working hours and service conditions are under the direct control and superintendence of the assessee” thereby making assessee’s contract with consultant doctors a “contract of service”; Separately dismissing Revenue’s appeal, holds that remuneration paid to visiting doctors is subject to deduction u/s 194J as remuneration was variable with number of patients attended by the doctors
9. Per-diem allowance not subject to Sec 192 TDS, Expense-verification failure cant alter ‘reimbursement’ nature
Karnataka HC confirms ITAT order, holds that assessee-company (‘employer’) not liable to deduct TDS u/s 192 on per diem allowances paid to employees for overseas business-trips during AY 2009-10; Rejects Revenue’s stand that since allowance was paid without verification of expenses incurred by employee concerned, the payment cannot be treated as reimbursement so as to treat it as exempt u/s 10(14), hence amount should be held taxable as perquisite; Upholds ITAT’s reliance on Kolkata ITAT ruling in Saptarshi Ghosh and circulars issued by Ministry of External Affairs instructing that if amount paid as per diem allowance was not highly disproportionate or unreasonable, further verification of actual expenditure not required; HC rules that “When the payment is made to meet the expenses incurred and when not taxable u/s 10(14) of the Act merely because the actual expenses were not verified, the character or nature of the payment would not be changed so as to include u/s 17(2) of the Act.”
10. Upholds royalty taxation; Services under management agreement resulted in imparting commercial experience
Bangalore ITAT rules in favour of Revenue, holds that amount received by UK resident from its Indian affiliate under Management and Administration Services (MSA) agreement (for rendering services such as business policy advice, market research, market analysis, evaluation of business opportunities, management information, etc.) constitutes royalty towards supply of commercial information concerning commercial experience under both IT Act as well treaty; ITAT notes that some of services under MSA were charged based on gross turnover indicating that assessee did not incur additional cost for providing such services, thus observes that these services were related to information, knowledge or expertise as well as experience already in existence and in the possession of assessee; Relying on OECD Commentary on Model Tax Convention, holds that "if the payment is received to supply the existing information or reproduce the existing material, then it will constitute imparting of information so as to fall under the purview of royalty"; Takes note of the fact that assessee's agreement was a composite one and some of services were purely business/commercial practice and contract services, but assessee has not furnished bifurcation of payment to each kind of services despite lower authorities requiring such information; Holds that "where a reasonable apportionment is not possible, then the other part of the services could also be given the tax treatment as given to one part of the services provided, which constitute the principal purpose of the contract and falling under the purview of royalty", thus upholds Revenue's stand that entire consideration was taxable as royalty
11. Interest provision reversed subsequently, not income; TDS inapplicable
HC reverses ITAT order, holds assessee (a State Government undertaking engaged in power transmission) not in default u/s 201(1)/(1A) for non-deducting TDS u/s 194A on provision for interest reversed subsequently for AYs 2005-06, 2006-07 and 2007-08; Since provision entries were reversed subsequently, HC holds no income ‘finally’ accrued to suppliers (‘payee’); Referring to Sec 194A, HC opines that “the phrase ‘any income’ and ‘income tax thereon’ if read harmoniously..would indicate that the interest which finally partakes the character of income, alone is liable for deduction…”; Cites Delhi HC ruling in Ericsson Communication Limited wherein it was held that obligation of a person to deduct TDS u/s 195 would be applicable to ‘income chargeable under the Act’, remarks that “Absence of such words ‘chargeable to tax’ under the provisions of Sec 194A … would not empower the authorities to invoke the provisions of Sections 201 and 201(1A) of the Act ignoring the words ‘any income by way of interest’”; Also applies principles enunciated by SC ruling in Kedarnath Jute Manufacturing Co. Ltd. wherein it was held that existence or absence of entries in books of account not decisive of assessee’s right to claim deduction; With respect to TDS officer’s jurisdiction to invoke Sec 201, HC notes that Sec 201 was amended vide Finance Act 2008 with retrospective effect to substitute expression ‘any such person’ referred to in Sec 200 with ‘any person’ who is required to deduct any sum in accordance with the provisions of the Act; Further notes that Sec 200 did not speak about person who has not deducted TDS, and consequently assessee’s case was not hit by un-amended Sec 201; As amended provision was not in force at the time of passing orders u/s 201, accepts assessee’s stand that TDS Officer proceeded to pass orders based on non-est provision
12. Sec 194J TDS inapplicable on payments in “kind”, allows relief to SRK company
Mumbai ITAT deletes expense disallowance u/s 40(a)(ia) in case of Red Chillies Entertainment Pvt. Ltd. for AY 2010-11, holds no Sec 194J TDS for payments made in “kind” to actors; Notes that assessee (a production house) gifted certain items to two actors for working in its film “Billu Barber” instead of making payment in money terms; Rejects Revenue’s stand that Sec 194J TDS would be applicable on such gifts which were in the nature of ‘professional fees’ payment; Relies on SC ruling in Shri H.H. Sri Rama Verma and Karnataka HC rulings in Bruhat Bangalore Mahanagar Palika and Hindustan Lever Ltd to hold that the expression “any sum” used in Sec 194J would only relate to payment made in money terms; Rules that “since the payment made by the assessee is in kind, the provisions of section 194J are not applicable”.
13. PAN-driven TDS relief u/s 194C(6) also available to sub-contractors, reverses CIT(A) order
Kolkata ITAT reverses CIT(A) order for AY 2012-13, deletes Sec. 40(a)(ia) disallowance in respect of non-deduction of TDS u/s 194C on payment towards carriage inward and outward charges by virtue of Sec. 194C(6) (which provides for immunity from TDS obligation on furnishing of PAN by transporter-payee); Rejects Revenue’s contention that Sec 194C(6) is available only to a transporter and not a contractor (like assessee) who makes payment to a sub-contractor; Notes that by virtue of Finance Act 2009 amendment, distinction between a contractor and a sub-contractor was done away with and as per clause (iii) of Explanation u/s 194C(7) the term "contract" includes sub-contract; Accordingly holds that “on furnishing the PAN No. from the recipient Transporter Contractor, the immunity from making TDS under sec. 194C(1) shall be available to all payers by virtue of 194C(6), in relation to all Goods Transport Charges irrespective of the fact, whether it was under a Contract or a Sub-contract”; Also dismisses Revenue’s contention that benefit u/s 194C(6) is available only on fulfilment of conditions laid down in Sec. 194C(7) (which requires payer to furnish requisite particulars in respect of payment made to person referred in Sec.194C(6) to the Revenue)
14. EPFO to deduct TDS on emloyees’ accumulated balance withdrawal, Sec 10(11) exemption unavailable
Delhi ITAT holds that EPFO (Employees Provident Fund Organisation governed by Employees Provident Fund Act, 1952) is liable to deduct tax u/s 192 in respect of settlement/withdrawals of accumulated balances by employees before 5 years of rendering of continuous service during AYs 2008-09 to 2013-14; Rejects assessee’s stand that withdrawals from accumulated balances were covered by Sec 10(11) exemption, observes that only provident funds set up under the PF Act 1925 or those set up by the Central Government are covered u/s 10(11) and assessee, being governed by EPF Act, is a recognized provident fund (‘RPF’) not covered by Sec 10(11); Further, rejects assessee’s stand that for relevant AYs, no mechanism for TDS deduction was prescribed in the Act and it is only after the introduction of Sec 192A w.e.f. June 1, 2015 (dealing with TDS on payment of accumulated balance due to an employee) that tax deduction scheme was prescribed, hence TDS could not be deducted in absence of machinery provisions; Holds that assessee’s plea as not tenable because in terms of Rule 10 of Fourth Schedule to the Income-tax Act, withdrawals from RPF made in contravention of Rule 8 are liable for TDS by treating accumulated balance as income chargeable to tax under the head “salary”; Also takes note of Revenue’s stand that while inserting Sec 192A, the explanatory note to Finance Act, 2015, made use of the heading - “Simplification of tax deduction at source mechanism for Employees Provident Fund Scheme”, accordingly holds that with insertion of Sec 192A, the position only became more clear; Further, ITAT rejects assessee’s stand that as per the provisions of EPF Act, assessee was mandatorily required to repay the accumulated balance to eligible members in full without any diversion of deduction whatsoever and that EPF Act shall have overriding effect over the IT Act in case of repugnancy, holds that there is no repugnancy between the EPF Scheme and Schedule Four of the Income tax Act; However, ITAT observes that as per Rule 8 of Fourth Schedule, TDS would be applicable only where the withdrawal has been made before 5 years of rendering of continuous service; Accordingly, restores matter to the file of AO with a direction 1) to examine details of withdrawals by employees within 5 years of rendering service, 2) to consider effect of SC ruling in Hindustan Coca Cola (to the effect that where payee had paid income-tax, no action for TDS default can be taken against deductor) and 3) to take guidance from newly inserted Sec 192A
15. TDS applicable on year-end provisions, upholds Sec 40(a)(ia) disallowance on ‘commission payable’
Ahmedabad ITAT upholds Sec 40(a)(ia) disallowance for AY 2009-10 on year end provisions of commission expense as no TDS deducted by assessee-individual; Rejects assessee’s stand that since it was following mercantile system of accounting, deduction for ‘provision for commission payable’ should be allowed; Firstly, ITAT holds hat the provision claim by assessee was totally un-ascertainable, uncrystallized and fanciful, hence it does not assume the character of ascertained liability; Further, ITAT holds that “Even in case of mercantile liability, Section 40(a)(ia) clearly mandates that the expenditure cannot be allowed in the absence of corresponding TDS payment in Government treasury.”; Further rejects assessee’s stand that since the practice followed by him was accepted by Department in past year, making a provision on estimate basis was an allowable business expenditure, also rejects assessee’s stand that he was not in a position to pay TDS as the exact names, amount of commission and TDS payable to each party was not known
16. Reverses ITAT, quashes reassessment absent issuance of statutory notice u/s 143(2), Sec. 292BB inapplicable
Kerala HC reverses ITAT order, quashes reassessment u/s 147 read with Sec 143(3) for AY 2009-10 as no notice u/s 143(2) was issued to assessee company; ITAT had upheld reassessment on the ground that it was clear case of suppression of income and since assessee participated in the re-assessment proceedings, absence of issuance of notice u/s 143(2) would have no bearing and would stand condoned in view of Sec 292BB (which provides for cases where notice will be deemed to be valid); Rejecting ITAT’s view, HC holds though AO was empowered to assume jurisdiction u/s 147 and reassessment notice u/s 148 was legally valid, but for making assessment u/s 147 r.w. Sec 143(3), issuance of statutory notice u/s 143(2) is a mandatory requirement and not a mere procedural defect, relies on SC ruling in Hotel Blue Moon; Noting that Sec 292BB creates an estoppel against assessee in claiming that no notice was served on him if he has participated in the proceedings, HC clarifies that the AO can claim and avail the benefit u/s 292BB only after a notice u/s 143(2) had been validly issued; HC remarks that “on account of this omission and non compliance of mandatory and imperative provisions, the assessee would now be entitled to reliefs which they otherwise would not have able to obtain.”
17. Deletes concealment penalty on subsequently offered income, details available in Form 26AS
Pune ITAT allows assessee’s (NRI, individual) appeal challenging concealment penalty levied u/s 271(1)(c) for AY 2010-11; AO levied penalty u/s 271(1)(c) as assessee had failed to declare income from capital gains and other sources on which TDS was withheld (as reflected in Form 26AS) in his return of income, such income was offered only by way of a revised computation of income filed during the assessment proceeding when the time for filing of revised return had expired; ITAT notes that the amount declared by the assessee in the revised computation of income was subject to TDS and the details of transactions was available with the Revenue in Form 26AS; Further notes that even after inclusion of the alleged concealed income in assessee’s hands refund was allowed after verifying the details in Form 26AS; Accordingly holds that “where complete details were available in the public domain, merely because the assessee by an error had not included the same in computation of income, it cannot be held that the assessee had furnished inaccurate particulars of income, making the assessee liable for levy of penalty under section 271(1)(c) of the Act”
18. Delay in curing TDS certificate defects results in Sec 244A interest denial
Kerala HC dismisses assessee’s writ, upholds Chief Commissioner’s order denying interest on income-tax refund u/s 244A for the period of delay which occurred in curing defects in TDS certificates for AY 1995-95; Clarifies that while the obligation to provide TDS certificate is on deductor, but “if there is any defect in such certificate, and the petitioner (‘deductee’) fails to get it cured before filing of the return, petitioner can be termed as a person who had caused the delay”; Further observes that there was enough time between date of obtaining TDS certificates and filing of return for the assessee to get the defects cured; Also rejects assessee’s stand that the words 'proceedings resulting in the refund are delayed' arising in Sec 244A(2) can only mean the delay in proceedings for refund and not delay with reference to finalization of returns, clarifies that the refund becomes due only upon finalization of returns and not when the amount is deposited by deductor.
19. "Admitted" advance-tax not refundable despite 'invalid' return; Tax-levy u/s 4(1) independent of assessment-order
Delhi HC dismisses assessee-company’s writ for AY 2013-14, upholds recovery proceedings u/s 226(3); Notes that assessee’s return of income for subject AY was declared as invalid owing to its failure to cure “defect” of non-payment of tax despite issuance of notice u/s 139(9) and hence Revenue invoked coercive action for recovery of tax and interest by issuing notice u/s 226(3) and thereby attached assessee’s bank accounts; Assessee had argued that a) since the return was ‘invalid’, tax and interest shown as payable in the said invalid return would become nugatory and would be of no consequence b) since existence of valid return is sine-qua-non to fasten liability for payment of self-assessment tax u/s 140A, no self-assessment tax or assessed tax was due against the petitioner; Rejects assessee's startling contentions to the effect that Revenue was not empowered to recover any amount and advance tax amounts were refundable since the return was in effect a nullity, relies on Supreme Court ruling in Shelly Enterprises to hold that upon filing return u/s 139 and claiming advance tax allowance in the return, assessee had ‘admitted’ its liability to pay tax under the Act and that invalidation of return would not make such ‘admitted liability’ refundable; With respect to assessee’s contention that no notice of demand / assessment order was drawn raising demand on assessee, HC re-iterates SC rationale that the levy of tax is u/s 4(1) is not dependent on an assessment order, but upon the tax-rates applicable for given assessment year,“Likewise filing of return , self assessment tax , advance tax and provisions which flesh out the mechanism under the act for collection cannot be construed literally..”, rejects assessee’s reliance on Karnataka HC ruling in K. Nagesh
20. Genuineness of payee not established, mere TDS-deduction not sufficient; Upholds expense dis-allowance
Hyderabad ITAT disallows commission payment by assessee (a transport company) during AY 2011-12 as it failed to prove ‘genuineness of existence of the party’, even though basis for the expenditure proved; During relevant year, assessee paid commission of Rs. 36 lakhs through banking channel to an individual for procuring business for assessee, however, as the party was not having PAN, assessee deducted TDS at higher rate of 20% as per Sec 206AA; Rejects assessee’s stand that commission payment cannot be disallowed as TDS was deducted and payment was made through banking channels, and that it also discharged burden by establishing the identity of payee and providing the reason and proof of payment.; ITAT remarks that “Considering the high value transaction, and such person does not have PAN, it does raise eye brows.”; Rules that “Unless assessee proves the genuineness of existence of such person, it cannot be held as genuine merely because it paid relevant TDS….”
21. Upholds penalty for non-filing of e-TDS returns; 'No Revenue loss' argument irrelevant
Allahabad HC upholds penalty levy u/s 272A(2)(k) for assessee’s failure to furnish e-TDS quarterly statements within prescribed time for 5 years and also after issue of notice from the IT Department; Rejects assessee-deductor’s stand that since TDS was timely deducted and deposited, no penalty could have been imposed for non-filing of e-TDS statements in time as it has not resulted in any loss to Revenue; Relies on Bombay HC ruling in Rashmikant Kundalia which emphasised on timely filing of e-TDS statements, holds that “The Department cannot accurately process the returns on whose behalf tax has been deducted until information of such deduction is furnished by the deductor within the prescribed time”; Opines that stringent action should be taken for non-compliance as “filing of e-TDS statements not only increases the reach of the department but also leads to creation of an audit trial that can be utilized as an effective tool against detection of tax evasion.”; Further notes that despite various show cause notices issued by AO, it was only before CIT(A) that assessee, for the first time, offered explanation for such default, remarks that “that adequate opportunity had been granted to the appellant but the appellant failed to utilize the opportunities ..”
22. Lump-sum amount for 5-years arrangement received by doctor from hospital taxable upfront
Delhi HC reverses ITAT order for AY 2006-07, lump sum amount received by assessee-individual (a doctor) on account of professional/management consultancy taxable in entirety on receipt basis; Rejects assessee’s stand that since amount was received as advance on account of appointment as hospital/management consultant for five years, it should be spread over the period of service i.e. five years in view of matching principle; Notes that agreement regarding engaging assessee as hospital consultant was drawn up more than four years after the amount was paid, further opines that mere terming money received as ‘advance‘ won't change the nature of the receipt since the amount was paid upfront as a lump sum amount on which TDS was deducted; Concurs with Revenue’s view that in absence of books of account maintained by assessee it has to be presumed that cash system of accounting was followed, hence concept of accrual will not arise, also accepts Revenue’s argument that matching principle / AS-9 (dealing with principle of revenue recognition) were applicable only to companies and not to individuals; Distinguishes assessee’s reliance on SC ruling in E. D. Sasoon Co. Ltd. and on coordinate bench ruling in Dinesh Kumar Goel on facts: HC
23. Sec. 40(a)(ia) not applicable to AY 2005-06; Presidential assent date vital, legislative intent 'unambiguous'
Calcutta HC reverses ITAT order, allows deduction for contractor payments made by assessee without deducting TDS during AY 2005-06, holds Sec 40(a)(ia) disallowance not applicable to subject AY; Observes that clause (ia) was inserted by Finance (No.) Act, 2004 and the presidential assent was received on September 10th, , hence holds that “The assessee could not have foreseen prior to 10th September, 2004 that any amount paid to a contractor without deducting tax at source was likely to become not deductible u/s 40.”; Rejects Revenue’s stand that amended Sec 40(a)(ia) was applicable from AY 2005-06, HC observes that though Sec 1(2) of the amendment Act provided that law shall be deemed to have come into force on April 1, 2004 except as otherwise provided, Sec 11 of Finance Act, 2004 inserting clause (ia) to Sec 40 of the Income Tax Act stated that that it shall become effective from April 1st , 2005; Rules that April 1st, 2005 should mean to refer to financial year and not assessment year, remarks that “Any other interpretation shall amount to punishing the assessee for no fault of his”, relies on SC ruling in Hindustan Elector Graphites Ltd.; Further rejects Revenue’s reliance on Sec 4 of Income-tax Act which provides for an enactment as regards rate of tax to be charged in any particular assessment year, holds that that Sec 4 has no application in present case; Cites SC ruling in CIT vs. Vatika Township Pvt. Ltd. wherein it was held that tax laws are subject to strict construction and any ambiguity must be resolved against imposition of the tax, however HC concludes that in instant case there is no scope for either confusion or ambiguity
24. Salary credit in non-resident marine engineer's NRE-account taxable applying "receipt" test u/s 5
Kolkata ITAT rules that salary received by assessee (an non-resident individual, working as marine engineer in foreign waters) in US$ from foreign employer by way of funds transfer directly in his NRE account in India, taxable in India during AY 2010-11; By virtue of assessee’s stay for more than 182 days on foreign waters during relevant AY, assessee acquired the ‘non-resident’ status, , further no DTAA was applicable in assessee’s case as he was not a resident of any other country; Rejects assessee’s stand that since salary was received in foreign currency for services rendered outside India, the same was not taxable in India, observes that Sec 5(2)(a) (which provides for taxability of any income received or deemed to be received in India India irrespective of the ‘residential status’) does not mention anything about Indian currency or foreign currency; Remarks that “The scheme of the Act is such that charge of tax is made independent of territoriality and residency and currency.”, rules that "The receipt in the NRE account in India is the first point of receipt by the assessee and prior to that it cannot be said that the assessee had control over the funds that had deposited in the NRE account from the employer.”; Distinguishes assessee’s reliance on Karnataka HC ruling in Prahlad Vijendra Rao, Bombay HC ruling in Avtar Singh Wadhwan, Madras HC ruling in A. P. Kalyankrishnan and Agra ITAT ruling in Arvind Singh Chauhan, relies on Mumbai ITAT Third Member ruling in Captain A. L. Fernandez and SC ruling in CIT vs. L. W. Russel.
25. Overrules Orient ruling, TDS u/s 195 inapplicable for shipping-company assessed u/s 172
Bombay HC's Full Bench overrules division bench decision in case of Orient (Goa) Private Limited; Full Bench rules on the question "Whether, while dealing with the allowability of expenditure under section 40(a)(i) of the Income Tax Act, 1961, the status of a person making the expenditure has to be a non-resident before the provision of section 172 of the Act can be invoked?”; HC's Full Bench examines, in detail, the taxation scheme for non-resident shipping companies, levy of tax on gross basis u/s 44B, specific provisions for levy and recovery of tax u/s 172; HC Full Bench observes that "The sub-sections of section 172 read together and harmoniously would reveal as to how the tax should be levied, computed, assessed and recovered. Therefore, there is no warrant in applying the provisions in chapter XVII for collection and recovery of the tax and its deduction at source vide section 195"; HC Full Bench notes that a ship cannot leave the port without paying or making arrangement for payment of taxes in India and hence holds that "...we do not see how there is an obligation to deduct tax at source on the resident assessee/Indian company before us"; HC Full Bench observes that "the apprehension of avoidance or evasion both are taken care of by the legislature"; HC Full Bench relies on SC rulings in Union of India vs. Gosalia Shipping (PVT.) Ltd and A. S. Clittres D/5 I/S Garonne & others on the interpretation of Sec 172 and SC ruling in case of GE India Technology Center on the scope of Sec 195.