INCOME TAX APPELLATE TRIBUNAL
On the observation of the detailed case we can find the following fact from the judgment..... i) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the additions made on account of provision gratuity u/s. 40A(9). 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made on account of charges paid to Clearing Corporation of India Ltd. (CCIL) without deduction TDS u/s. 40(a)(ia)”.
Asstt./Dy. Commr. of Income-tax (LTU),28th floor, Centre-1,World Trade Centre, Cuffee Parade,Mumbai-400 005. Appellant Vs.DICGC Ltd.,RBI Building, Opp.Mumbai Central Station, Nr. Maratha Mandir Cenema, Byculla, Mumbai-400 098.PAN: AAACD 2094 E .......Respondent
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH “D” MUMBAI
BEFORE SHRI D.K. AGARWAL (JM) & SHRI T.R. SOOD (AM)
I.T.A.Nos. 2361 & 2524/Mum/2011
(A.Ys. 2007-08 & 2008-09)
Asstt./Dy. Commr. of Income-tax (LTU),
28th floor, Centre-1,
World Trade Centre, Cuffee Parade,
RBI Building, Opp.Mumbai Central
Station, Nr. Maratha Mandir Cenema,
Byculla, Mumbai-400 098.
PAN: AAACD 2094 E
Appellant by: Shri C.G.K. Nair.
Respondent by: Shri Yogesh A. Thar.
Date of hearing: 24-01-2012
Date of pronouncement: 03-02-2012
O R D E R
PER T.R. SOOD, AM :
In both these appeals, the Revenue has raised the following common grounds :
“1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the additions made on account of provision gratuity u/s. 40A(9).
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made on account of charges paid to Clearing Corporation of India Ltd. (CCIL) without deduction TDS u/s. 40(a)(ia)”.
2. An adjournment application has been moved but the same was not pressed. Therefore, the same is rejected.
3. Ground no.1: After hearing both the parties, we find that during the assessment proceedings the AO noticed that the assessee has made a provision for gratuity and debited the same to Income & Expenditure Fund. The assessee was asked to explain why the provision should not be disallowed in view of sec. 40A(7). In response, the following reply was given :
“The corporation contributes to the approved gratuity fund of Reserve Bank of India by way of contractual obligation in respect of its employees all of whom are on deputation from Reserve Bank of India. The Corporation utilizes the services of staff of RBI in terms of HRD circular No.5/99-00 dated 01.03.2000 and HRD circular No.11/00-01 dated 29.05.2001 issued by the RBI [enclosed]. Accordingly, gratuity liability for the staff deputed to the Corporation has to be reimbursed to the RBI. Since there is a time lag between such liabilities accruing to the Corporation and being passed on to the RBI owing to the time of transfers/retirement of the concerned employees as also the difference between the accounting year of DICGC (viz. April-March) and the RBI (viz. July-June. In terms of the section 31 of the DICGC Act, 1961, after making provision for all its liabilities and for all other matters for which provision is necessary or expedient, including any contribution to the staff and superannuation funds, the corporation shall transfer the balance, if any, or any of its income in its general fund to one or more of its reserve funds to be utilized in such manner and such purposes as the Corporation may deem fit. The Corporation is 100% subsidiary of Reserve Bank of India and in terms of section 33(2) of DICGC Act, the Corporation utilize the services of staff of Reserve Bank of India on terms and conditions as may be agreed upon between the Corporation and the Reserve Bank. As per the contract terms specified in the fore-quoted circular of RBI, the provision for gratuity is made in the accounts of DICGC as it would be done for its employees by RBI. The liability is to make payment to RBI & not to the employees directly. Since the Corporation does not have any staff on its roll & the liability is to pay RBI, therefore the said provision does not fall within the ambit of section 43B which was also well settled by CIT(A) in earlier years 1989-90, 90- 91,……2005-06 etc and passed in favour of appellant. The Departmental appeals before ITAT for A.Y. 2001-02 & 2004- 05 have been also dismissed.”
However, the AO did not agree with the submission and observed that reimbursement to RBI does not in any way change the character of provision for gratuity. Accordingly, the provision was disallowed.
4. The ld. CIT(A), on appeal, deleted the addition following the order of his predecessor in earlier year.
5. Before us, the ld. DR strongly relied on the order of AO.
6. On the other hand, the ld. counsel of the assessee submitted that similar disallowance was deleted by CIT(A) in earlier year and when the matter came before the Tribunal, the deletion was confirmed by the Tribunal and, in this regard, he referred to the order of Tribunal in ITA Nos.7950 & 7951/Mum/2003.
7. We have considered the rival submissions and find that the Tribunal has confirmed the deletion of disallowance on account of provision for gratuity in assessment years 1999-2000 and 2000-01 and 2002-03 in ITA Nos.7950, 7951/Mum/2003 & 1738/Mum/2005. Therefore, following that order, we confirm the order of ld. CIT(A).
8. Ground no.2: After hearing both the parties, we find that during assessment proceedings the AO observed that the assessee has debited certain amounts towards VSAT charges and transaction charges. However, no tax has been deducted on the same. In response to a query, it was mainly stated that such charges do not require deduction of tax and reliance was placed on the decision of Hon’ble Madras High Court in the case of Skycell Communications Ltd. (251 ITR 53). However, the AO, after detailed discussion, did not agree with the submissions and disallowed the payment u/s.40(ia).
9. On appeal, the addition was deleted by the ld. CIT(A) on the basis of the order of his predecessor for earlier assessment year 2006-07.
10. Before us, the ld. DR submitted that now the issue stands squarely covered in favour of the Revenue by the decision of Hon’ble Bombay High Court in the case of CIT v. Kotak Securities Ltd. vide ITA No.3111/M/2009 wherein it has been clearly held that transaction charges paid constitute fee for technical services u/s.194J.
11. On the other hand, the ld. counsel of the assessee made two-fold submissions. Firstly, he argued that the Hon’ble Bombay High Court itself observed in para 31 of the decision in the case of CIT vs. Kotak Securities (supra) that since both the parties for a decade proceeded on the footing that sec. 194J was not applicable, then fault cannot be found for not deducting tax and accordingly it was held that in that case tax was not deductible and accordingly there was no justification for invocation of sec. 40(a)(ia). In the case before us also, for many years, the Revenue never raised objection for deduction of VSAT charges and transaction charges. Therefore, now, all of a sudden, the provisions of sec. 40(a)(ia) cannot be invoked. Secondly, he submitted that since the payee has already paid tax, therefore, non-deduction of tax by the assessee will not alter the situation. In this regard, he referred to page 5 of the paper book, which is copy of the Certificate issued by the Clearing Corporation of India which certifies that transaction charges and VSAT charges have already been offered to tax by the Clearing Corporation of India which means the payee has already paid the taxes. He referred to the decision of Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverage (P.) Ltd. vs. CIT (293 ITR 226) wherein it was held that once tax was deducted by the deductee i.e. receiver of the charges, then the deductor cannot be held to be assessee in default for the purpose of sec. 201. He emphasized that the purpose of introduction of sec. 40(a)(ia) was to make sure of compliance of TDS provisions. It was not a separate tax as such and if the payee pays the tax, then the purpose stands fulfilled and deductor cannot be subjected to any further penal action. He referred to the provisions of sec. 191 which itself makes it clear that if any person does not deduct the tax or after deducting such tax does not pay the same to the credit of the Government as required under the Act, and and if the assessee has also failed to pay such tax, then such person would be treated as assessee in default. The word “and” is very important because it clearly shows that if the other person has made the payment, then such person cannot be called as assessee in default. For understanding this, one has to look at the Heydon’s principle which was held to be applicable to Indian Laws by the Apex Court in the case of Bengal Immunity Company Ltd. vs. State of Bihar reported in AIR (1955) SC 661 and was held to be applicable even to the tax laws in the case of CIT vs. Sodra Devi (32 ITR 615). The ld. counsel of the assessee has invited our attention to the explanatory memorandum explaining the provisions of the Finance Bill (No.2) 2004 (268 ITR 174) (Statutes) wherein at page 190 it is clearly mentioned that section 40(a)(ia) is being introduced to augment the compliance of TDS provisions. Therefore, it is not a levy of separate taxation and the only idea is that TDS provisions should be strictly followed. Therefore, as per the existing law, there was no provision for disallowing the expenditure if TDS was not deducted and the mischief was in many cases tax was not being deducted and some people going scot free. Therefore, through the Amending Act i.e. Finance Bill (No.2) 2004, an amendment was proposed that in the case of residents also, if some category of payment was being made as provided in the provision and if tax was not deducted, then such items of expenditure were not allowed to be deducted. He also referred to the decision of the Special Bench in the case of Mahindra & Mahindra Ltd. vs. DCIT (2009) 30 SOT 374 (Mum) (SB) wherein it was observed that the correct position as per sec. 201 is that if tax is deducted by the person responsible for deducting the tax and if the same is also not paid by the payee, then such person can be held to be assessee in default so as to ensure that ax is adequately recovered. Therefore, even for sec. 40(a)(ia), the purpose remains the same and once the provision is examined in the light of Haydon’s principles, then it will be clear that if the other person pays the tax, then no default can be said to have taken place because the Government would have got the tax. Therefore, these principles need to be applied even for interpreting sec. 40(a)(ia).
12. In the rejoinder, the ld. DR submitted that the decisions in the case of Hindustan Coca Cola (supra) and Mahindra & Mahindra (supra) were rendered u/s. 201 and the same cannot be made applicable for interpreting sec. 40(a)(ia) because in that case the whole purpose of introduction of sec. 40(a)(ia) will get defeated.
13. We have considered the rival submissions and relevant material on record carefully. First of all, we will consider the second part of the submission i.e. since the person to whom the payment was made has already offered the same for taxation, hence provisions of sec.40(a)(ia) cannot be invoked. This is not correct. Because the decision in the case of Hindustan Coca Cola Beverage (P.) Ltd. vs. CIT [supra] was rendered under the provisions of sec.201. Secondly, the Hon'ble Supreme Court vide para-10 has clearly mentioned that in view of Circular No.275/201/95-IT(Clause (b) of Explanation 1 to sec.115JB) dated 29-1-1997 no demand u/s.201 could be enforced after the deductor has satisfied the officer that taxes due have been paid by the deductee assessee. There is no such circular in case of disallowances to be made u/s.40[a][ia]. Similarly, the decision in the case of Mahindra & Mahindra Ltd. vs. DCIT [supra] was also rendered u/s.201. Therefore the principles laid down in these two decisions cannot be adopted for the purpose of interpreting sec.40[a][ia]. Further, we find that sec.201 deals with the mode of recovery of taxes and once tax due has already been paid then the same demand cannot be enforced again. However, sec.40[a][ia] deals with the disallowance of expenditure itself. Therefore, merely by invoking the Heydon’s principle the statutory provisions cannot be rendered redundant. Therefore, we are of the opinion that once tax has not been deducted and even if such tax has been paid by the deductee, disallowance u/s.40[a][ia] can still be made.
14. The second part of the argument is that the Hon'ble Bombay High Court in the case of CIT vs. Kotak Securities Ltd. [supra] has observed in para-31 that both the parties has proceeded on the footing that tax was not deductible u/s.194J for the last 10 years, therefore, provisions of sec.40[a][ia] could not be invoked. It was contended that in the last many years in the case before us also no tax was held to be deductible, therefore, assessee and department proceeded on the footing that no tax was deductible. However, on query by the Bench Ld. Counsel of the assessee
admitted that in A.Y 2006-07 disallowance u/s.40[a][ia] was made for the first time but that year was not available by the time assessment for A.Y 2007-08 was completed. However, this defense is not available in A.Y 2008-09 because by that time revenue has already invoked the provisions of sec.40[a][ia] and this fact was known to the assessee. Therefore, in our opinion, in view of para-31 of the decision of the Hon'ble Bombay High Court in the case of Kotak Securities Ltd., provisions of sec.40[a]ia] are not applicable for A.Y 2007-08 whereas the same are applicable in A.Y 2008-09.
15. In the result, I.T.A.No.2361/M/11 is dismissed and I.T.A.No.2524/M/11 is partly allowed.
Order pronounced in the open Court on this day of 3/2/2012.
Judicial Member Accountant Member