Sunday, January 22, 2012

TAX TALK-23.01.2012-THE HITAVADA

TAX TALK-23.01.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“NON SUBMISSIONS OF FORM NO. 15H WOULD NOT ATTRACT DISALLOWANCE U/S 40(a)(ia)”
Query 1]
Sir, in our case disallowance of expenses has been made u/s. 40 (a) (ia) of Income Tax Act for the A.Y. 2009-10 on the only ground that a copy of form No. 15H was not filed in the office of CIT as required U/s. 197A(2). The original form No. 15H received from the creditors were filed during the assessment proceeding which is evident from the Assessment Order itself. Whether disallowance U/s. 40(a) (ia) of Interest Expenses can be made by ITO on the facts stated above? Please enlighten of the problem supported by some judicial citations. [maheshkhushalani59@yahoo.com]
Opinion:
1. Various sub-sections of Section 197A require a declaration to be filed by the payee to the payer and the same is filed, the payer has no choice except to desist from deducting tax from the payment. The sub-section uses the word “shall” which leaves no choice to the payer in the matter.
2. Unless it is proved that these forms were not in fact submitted by the payee, the payer cannot be blamed because at the time of paying the amount, payer has to rely upon the declarations filed by the payee and is not expected to embark upon an enquiry as to whether the payee in reality have no taxable income on which tax is payable.
3. Even if the payer has delayed the filing of the declarations with the Department within the time limit specified in sub­section (2) of section 197A, it needs to be considered as a distinct omission or default for which an independent penalty u/s 272A has been prescribed.
4. The same inferences could be drawn from the following judicial pronouncements:
a. Surat Ahmedabad Transport (P) Ltd. V. ITO (2011) 42(II) ITCL 337(Ahd-Trib)
b. ITO vs. Shri Chandan Gopal Shroff in ITA No. 844/Kol/2008 of Kolkata Bench vide order dated 31.07.2009.
c. ITO vs. M/s. Ashabhai Babarbhai Patel & Co. in ITA No.2195/AHD2010 of Ahmedabad Bench vide order dated 10.12.2010.
d. Shri Vipin P. Mehta vs. ITO in ITA No. 3317/Mum/2010 of Mumbai Bench vide order dated 20.05.2011.
e. ITO vs. Rajesh Kr. Garg in ITA No.532/Kol/2011 of Kolkata Bench vide order dated 05.08.2011.
f. M/s. Capital Transport Corporation -vs.- Income Tax Officer, Kolkata I.T.A No. 1753/Kol/2009.
g. Shri Vipin P. Mehta Vs. ITO, ITA No.3317/Mum/2010, “F” Bench
h. Valibhai Khanbhai Mankad Vs. Dy.CIT (OSD) in ITA No.2228/Ahd/2009, Ahmedabad “A” Bench.
For ease of reference, we have uploaded few of the above judgments at www.nareshjakhotia.blogspot.com.

Query 2]
Sir,
1. I sold a 2 BR flat at Visakhapatnam (A.P.) on 11.11.2011 for Rs. 15.30 Lakhs which I purchased on 02.11.2001 (10 years back) for Rs. 4.25 Lakhs including Registration charges (Rs. 3.75 Lakhs + Rs. 0.50 Lakhs).
2. I booked a 4 BR flat at Jaipur (Rajasthan) in 2008 at an estimated cost of Rs. 28.50 Lakhs and paid in full in 5 installments with a loan of Rs. 18 Lakhs from HDFC and Rs.10.50 from withdrawals from GPF. The flat is expected to be handed over in 2 to 3 months time with another Rs. 8 Lakhs escalation. Total Rs. 36.50 Lakhs.
3. Please advise me what is the amount of long term capital gain & how much capital gain tax I have to pay? [krkprasad59@gmail.com]
Opinion:
Computing LTCG:Cost Inflation Index (CII) for the relevant F.Y. 2001-02 & F.Y. 2011-12 are “426” & “785” respectively. The indexed cost of acquisition of the flat is Rs. 7.83 Lacs (i.e., Rs. 4.25 * 785/426). Long term capital gain shall be Rs. 7.46 Lacs. The capital gain is computed by taking Rs. 15.30 Lacs as sale consideration. If the value adopted by the Registrar for levy of stamp duty is higher than Rs. 15.30 Lacs, capital gain would be required to be computed by taking such higher value.
Exemption from LTCG:In respect of Long Term Capital Gain arising from sale of House property, exemption can be claimed U/s 54 if the capital gain amount is invested for purchase of another residential house property within a prescribed time. The prescribed time period is For Purchase:a] One year before or b] two years after the date of transfer; orFor Construction:Within a period of three years from the date of the transfer.

In your case, apparently, it appears that you are investing the required amount / acquiring the house property within a prescribed time period and hence we are of the opinion that you can claim an exemption u/s 54 & no capital gain tax would be payable by you.

Friday, January 20, 2012

Val ibhai Khanbhai Mankad Vs. Dy. CIT (OSD), Circle-9,

- 1 -
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH “A” AHMEDABAD
Before S/Shri Mukul Kr. Shrawat, JM and D.C.Agrawal, AM
Val ibhai Khanbhai Mankad,
Prop. Abad Roadways, 35-
A, Tasl im Society, Nr. Bibi
Talav, Vatva, Ahmedabad.
Vs. Dy. CIT (OSD), Circle-9,
Ahmedabad.
(Appellant)
..
(Respondent)
Appellant by :- Shri A. C. Shah, AR
Respondent by:- Shri Ani l Kumar, CIT, DR
O R D E R
Per D.C. Agrawal, Accountant Member.
This is an appeal filed by the assessee raising following grounds :-
1. The ld. CIT(A) has erred in confirming the disallowance of
Rs.7,93,34,193/- u/s 40(a)(ia) on the ground that the assessee has
filed Form No.15J with CIT on 26.02.2009 instead of on or before
30th June, 2006 in as much the there is no failure to deduct tax at
soure under section 194C since the assessee has received Form
No.15-I from the sub-contractors before making payment to them.
1.1 There may be a failure to file Form No.15J in time but there is no
failure to deduct tax at source. Therefore, the addition made is not
proper.
1.2 The appellant says and submits that Form No.15J is filed on
26.02.2009 separately with CIT
1.3 The appellant further says and submits that requirement to file
Form No.15J by 30th June 2006 is directory and not mandatory and
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that non-furnishing of Form No.15J in time does not invalidate
Form No.15-I submitted by the sub-contractors who submit Form
No.15-I before the payment is made in the beginning of the
financial year. Whereas Form No.15-J is required to be filed before
the end of three months from the end of financial year.
2. The ld. CIT(A) has erred in confirming disallowance of
Rs.2,32,182/- u/s 40(a)(ia) where from No.15-I were not submitted
by sub-contractors.
3. The ld. CIT(A) has erred in confirming 1/10th vehicle expenses of
Rs.20,985/- on the ground that it is personal inasmuch as the
expenditure is incurred wholly and exclusively for the purposes of
business and there is no element of personal nature.
4. The ld. CIT(A) has erred in confirming 1/10th telephone expenses
of Rs.24,673/- on the ground that it is personal inasmuch as the
expenditure is incurred wholly and exclusively for the purposes of
business and there is no element out of personal nature.
2. Ground No.2 is not pressed by the ld. AR and hence it is rejected.
3. Ground Nos.3 & 4 relate to disallowance of 1/10th vehicle expenses
and 1/10th telephone expenses at Rs.20,985/- and Rs.24,673/-
respectively. We confirm these additions for the reason that assessee was
not able to prove that entire expenditure claimed was incurred wholly and
exclusively for the business purposes and that such disallowance is
reasonable looking to the facts of the case.
4. Ground No.1 relates to addition u/s 40(a)(ia), of a sum of
Rs.7,93,34,193/-. The assessee had filed return of income at
Rs.48,62,265/- by showing income from transport contract and
commission agency. The AO during the course of assessment
proceedings found that assessee has made payment of Rs.7,93,34,193/- to
sub-contractors to whom it awarded sub-contract for hiring. It was
explained to the AO that he has made payment of Rs.7,91,02,011/- to 151
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different transporters from whom he had obtained form No.15-I and
hence no TDS was required to be made by him from the payments made
to those 151 transporters. The AO, however, noted that even though the
forms No.15I were obtained from the transporters the same were not
furnished to the CIT in form No.15J as per rule -29 of the IT Rule, 1962.
Further the contract payments to those transporters exceeded Rs.50,000/-.
He also noted that neither TDS have been made nor any form No.15-J is
submitted. Since the assessee had not furnished requisite form No.15J to
the CIT, the AO issued a show cause notice to the assessee, in response to
which it was submitted that it was the first year of collection of form
No.15-I and there was no intention not to submit these forms to the TDS
department. The AO thereafter quoting from section 194C(3) as
applicable to the relevant Asst. Year held that once assessee failed to
furnish form No.15J enclosing therewith form No.15-I to the CIT before
30th June, 2006, he failed to fulfill the conditions laid down u/s
194C(3)(ii), which were effective from 1.6.2005. The AO then inferred
that assessee was liable to deduct TDS from the payments made to such
transporters and deposit the same into the Government account before the
expiry of time prescribed under section 201 of the IT Act. He
accordingly, added back the sum of Rs.7,91,02,011/- into the total income
of the assessee.
5. The ld. CIT(A) confirmed the addition by holding that
responsibility of non-deducting the tax at source does not stop just by
collecting form No.15-I from the sub-contractors but also extends to
requiring the contractor to furnish form No.15J to the CIT on or before
30th June of the following FY. This form No.15J gives details of
declaration given in form No.15I furnished by sub-contractors for nondeducting
the TDS. It was contended before the ld. CIT(A) that form
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no.15J was submitted to the CIT on 26.2.2009 i.e. after the completion of
assessment and after delay of 2 years 8 months. The ld. CIT(A) rejected
this contention holding that such delay defeats the very purpose of the
section. She accordingly confirmed the addition.
6. Before us, the ld. AR for the assessee submitted that this is the first
year of obtaining of form No.15-I. The sub-contractors have submitted
form No.15-I being declaration under second proviso to clause (1) of subsection
(C) of section 194, to the assessee as required by rule 29D(1).
Once sub contractor have furnished form No.15-I then assessee is not
required to deduct the tax on the payment made to the sub-contractors.
Once there is no requirement of deducting the tax u/s 194C then there
cannot be any default as mentioned in section 40(a)(ia). Even though
there is a default on the part of the assessee in submitting form No.15J in
time to the CIT but this default alone cannot become the basis of making
addition u/s 40(a)(ia). In fact submission of form No.15J is an act
subsequent to the close of the FY whereas payment to sub-contractors
and deduction of tax therefrom has to be done during the course of the
FY. If sub-contractors have furnished form No.15-I during the course of
FY then assessee cannot make deduction of tax therefrom, as rule 29D(1)
prohibits such deductions. Once deduction of TDS is not made and
payment is released to the sub-contractors then by merely not furnishing
form No.15J the assessee cannot be compelled to deduct tax from the
payment which is already released. The CIT can take action against the
assessee for not furnishing the form No.15J in time but this default is not
sufficient to hold that there was non-compliance of section 194C and
therefore, the addition u/s 40(a)(ia) can be made. The ld. AR relied on the
decision of the Tribunal, Ahmedabad Bench-D in ITA No.1717/Ajd/2010
Asst. Year 2007-08 in the case of ACIT vs. M/s Shree Pramukh Transport
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Co. Bhutadi, Baroda pronounced on 31.08.2010 wherein on similar facts
addition u/s 40(a)(ia) was deleted. He referred to para Nos.4 & 5 from
that order as under :-
“4. The learned CIT(A) considering the material on record noted that the
AO has not disputed that the assessee claimed that he had obtained
declaration in Form No.15-I from the payees. The learned CIT(A) noted
that ultimately Form No.15-I was filed with delay in the office of the
Commissioner, but the assessee in fact had obtained the declaration and
therefore, it cannot be said that the assessee had violated the mandate
given by the payees not to deduct tax. The addition was accordingly
deleted.
5. On consideration of the rival submissions, we are of the view that no
interference is called for in the matter. The learned DR submitted that
Rule 29 D of the IT Rules is procedural in nature. The submission of the
learned DR itself shows that since the compliance of the rule was
procedural only, therefore, when the assessee obtained requisite
declaration and filed the same with delay with the office of the
Commissioner and also filed the same before the AO at the assessment
stage, would prove that the addition is clearly unjustified in the matter.
According to section 194(c)(3) of the IT Act, the assessee complied with
the second proviso by obtaining declaration in the prescribed form.
Therefore, there was no liability for deduction of tax at source. The
genuineness of the certificate is not doubted by the authorities below.
Therefore, the assessee has substantially complied with the provisions of
law. In case of procedural irregularities, the assessee cannot be put to
unnecessary hardship in the matter and that too when certain exemption
has been given to the assessee in section proviso to section 194(c)(3) of
the IT Act. Since, there is sufficient compliance of the provisions of law,
therefore, the learned CIT(A) was justified in deleting the addition. We,
therefore, do not find any justification to interfere with the order of the
learned CIT (A). We confirm his findings and dismiss the appeal of the
revenue.”
The ld. AR also submitted that genuineness of the payment has not been
doubted and addition has been made only on technical ground even
though substantial compliance has been made by the assessee.
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7. Against this, the ld. DR submitted that facts as reported in the case
of Shree Pramukh Transport Co. (supra) are different than the facts in the
case of assessee. The Asst. Year involved in the case of Shree Pramukh
Transport Co. (supra) was 2007-08, form No.15J was submitted before
CIT on 17/12/2007 though it was required to be filed on 30.6.2007. Thus
there was a delay of only six months. Further form No.15J was filed
before completion of assessment thus enabling the AO to carry out the
necessary enquiries as to the genuineness of the payments. In the present
case there was inordinate delay of 2 years and 8 months which has not
been explained and form No.15J is filed long after completion of
assessment u/s 143(3) on 26/12/2008. The ld. DR then submitted that
while going through section 194C (3) all the three provisos mentioned
therein are required to be satisfied simultaneously and it is not a case that
only second proviso alone should be satisfied. Thus compliance of the
three provisos should be cumulatively done and if there is any default
even in respect of one proviso, the liability of the assessee to deduct the
tax on payment made by it will continue to exist. Once assessee intends to
seek exemption from the rigours of provisions then strict interpretation
has to be made and assessee has to fulfill all the conditions laid down for
allowing exemption. If condition relating to furnishing form No.15J to the
CIT is done away with and assessee is allowed exemption from deducting
the tax from payments by it to sub-contractors then conditions relating to
furnishing form No.15J to the CIT will become otiose which cannot be
the intention of the Legislature when they introduced this condition. The
ld. DR further submitted that third proviso to section 194C(3) clearly lays
down by using the word “shall” that it is mandatory to furnish particulars
to the prescribed authority in the prescribed form for gaining exemption
from deducting the tax. Merely obtaining form No.15-I from the subcontractors
is not sufficient to get exemption from deducting the tax from
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payments made to them but liability of the assessee extends to furnishing
form No.15J also which is a prescribed form to be submitted to the CIT
who is the prescribed authority.
The ld. DR also submitted that there is no word like failure used in
section 40(a)(ia) and it refers to only non-deduction of tax and
disallowance of such payments. It does not refer to genuineness of the
payment or otherwise. In other words the ld. DR submitted that addition
u/s 40(a)(ia) can be made even though payments are genuine but tax is
not deducted as required u/s 194C.
8. We have heard the rival submissions and perused the material on
record. The undisputed facts are that assessee has obtained form No.15-I
from the sub-contractors to whom a total payment of Rs.7,93,34,193/- has
been made. It submitted form No.15-I to the AO during the course of
assessment proceedings but did not submit form No.15J to the
Commissioner by 30.6.2006 as required u/d 194C. For the sake of
convenience we reproduce section 193C(3) as under :-
“Sec.194C(3) No deduction shall be made under sub-section (1) or subsection
(2) from -
(i) the amount of any sub0credited or paid or likely to be credited or paid
to the account of or to the contractor or sub-contractor, if such sum does
not exceed twenty thousand rupees,
Provided that where the aggregate of the amounts of such sums credited
or paid or likely to be credited or paid during the financial year exceeds
fifty thousand rupees, the person responsible for payment such sums
referred to in sub-section (1) or as the case may be sub-ection (2) shall be
liable to deduct income-tax under this section;
Provided further that no deduction shall be made under sub-section (2)
from the amount of any sum credited or paid or likely to be credited or
paid during the previous year to the account of the sub-contractor during
the course of business of plying hiring or leasing goods carriages, on
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production of a declaration to the person concerned paying or crediting
such sum in the prescribed form and verified in the prescribed manner
and within such time as may be prescribed, if such sub-contractor is an
individual who has not owned more than two goods carriages at any time
during the previous year;
Provided also that the person responsible for paying any sum as
aforesaid to the sub-contractor referred to in the second proviso shall
furnish to the prescribed income-tax authority or the person authorised
by it such particulars as may be prescribed in such form and within such
time as may be prescribed; or”
Rule 29-D in this regard reads as under :-
29D –(1) The declaration under the second proviso to clause (i) of
sub-section (3) of section 194C by a sub-contractor shall be in form
No.15-I and shall be verified in the manner indicated therein by such subcontractor.
(2) The declaration referred to in sub-rule (1) may be furnished to the
contractor responsible for paying or crediting any sum to the account of
the sub-contractor before the event of such sum being credit or paid to
such sub-contractor.
(3) The particulars under the third proviso to clause (i) of sub-section
(3) of section 194C to be furnished by a contractor responsible for paying
any sum to such sub-contractor shall be in form No.15J.
(4) the particulars referred to in sub-rule (3) shall be furnished -
(i) to the Commissioner of Income-tax, so designated by the Chief
Commissioner of Income-tax, within whose area of jurisdiction,
the office of the contractor referred to in sub-rule (3) is
situated;
(ii) on or before the 30th June following the financial year.
A combined reading of the provisions and the rules made therein shows
that assessee is exempted from deduction of tax from payment made to
sub-contractors if following conditions are fulfilled :-
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(1) amount paid to sub-contractor does not exceed Rs.20,000/-
(2) total payment in FY should not exceed Rs.50,000/-
(3) the sub-contractor produces the declaration to the assessee in the
prescribed form and verified in the prescribed manner within such
time as may be prescribed, if such sub-contractor does not hold
more than two goods carriers at any time during the previous year;
(4) The assessee furnishes to the prescribed income-tax authority such
particulars as may be prescribed in such form within such time as
may be prescribed;
(5) declaration as per second proviso to clause (i) of sub-section (3) of
section 194C is form No.15-I;
(6) the particulars referred to in 3rd proviso would be in form No.15J;
(7) form No.15J shall be furnished to the Commissioner of Income-tax
so designated by the Chief Commissioner of Income-tax.
(8) it shall be furnished on or before 30th June following the FY.
The three proviso mentioned in sub-section (3) under clause (i) are in
continuity, as they are separated only by a colon (:) and not by word “or”
meaning thereby the condition laid down in all the three provisos are to
be satisfied simultaneously and cumulatively. In other words not only the
assessee has to obtain form No.15-I from the sub-contractors while
making the payment to them but it has also to file form No.15J to the
Commissioner before 30th June following FY. In the present case other
conditions like payment above Rs.50,000 is not disputed as assessee has
admitted that payment to each sub-contractor exceeded the sum in one
full year. But since according to the assessee it has obtained form No.15I
then second proviso would be applicable, therefore it is not required to
deduct tax. The short question arises is in a case like this where assessee
has obtained form No.15-I is whether the assessee is still liable to deduct
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tax under section 194C. In our considered view once assessee has
obtained form No.15-I from the sub-contractors whose contents are not
disputed or whose genuineness is not doubted then assessee is not liable
to deduct tax from the payments made to sub-contractors. Once assessee
is not liable to deduct tax u/s 194C then addition u/s 40(a)(ia) cannot be
made. For the sake of convenience we reproduce section 40(a)(ia) as
under :-
“Sec.40 –Notwithstanding anything to the contrary in sections 30 to (38)
the following amounts shall not be deducted in computing 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 for technical services payable to a resident,
or amounts payable to a contractor or sub-contractor being resident for
carrying out any work (including supply of labour for carrying out any
work), on which tax is deductible at source under Chapter XVII-B and
such tax has not been deducted or, after deduction, (has not been paid,-
The conditions laid down u/s 40(a)(ia) for making addition is that tax is
deductible at source and such tax has not been deducted. If both the
conditions are satisfied then such payment can be disallowed u/s
40(a)(ia). In other words where tax is not deductible addition u/s 40(a)(ia)
cannot be made. From this it follows that second proviso to section
194C(3) (i) alone would be operative for deciding whether tax is
deductible or not deductible. Non-furnishing of form No.15J to the
Commissioner is an act posterior in time to payments made to subcontractors.
This cannot by itself, undo the eligibility of exemption
created by second proviso by virtue of which sub-contractors have
submitted form No.15-I. The deductibility of tax is, therefore, confined or
limited to applicability of second proviso only because it is at that point
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of time of assessee has to decide whether it has to deduct the tax or not.
Where forms No.15-I are not submitted, it has to deduct the tax.
Conversely where form No.15-I is submitted to the assessee by the subcontractors,
the tax is not deductible and once tax is not deductible no
addition u/s 40(a)(ia) can be made. From this it follows that third proviso
to section 194C(3)(1) which requires the assessee to submit form No.15J
is only procedural formality and cannot undo what has been done by
second proviso. Non-submission of form No.15J to the Commissioner
within the time prescribed in rule 29D cannot have any effect on deciding
as to whether tax was deductible or not deductible from the payments
made by the assessee to the sub-contractors. This can be decided under
second proviso alone. Even though the Legislature in their wisdom have
added third proviso as addenda to the second proviso by mentioning
“provided also” meaning thereby that Legislature intended to put both the
conditions mentioned in second and third proviso together to be satisfied
by the assessee but in effect both the conditions cannot be satisfied
together as both are not the events taking place simultaneously at the
same time. One event is the submission of form No.15-I by the subcontractors
to the contractor and takes place at the time or prior to the
payment made to them by the contractor. The other event is the
submission of form No.15J by the Contractor to the Commissioner of
Income-tax giving the details contained in form No.15-I. This event in
practice takes place after the contractor has released the payment to the
sub-contractor after receiving form No.15-I. The upper time limit for
submitting such form no.15J to the Commissioner as laid down in the
Rules is on or before 30th June following the FY. The two events are
spatially kept apart by the Legislature thus giving a latitude to the
assessee to submit form No.15J to the Commissioner much after he
receives form No.15-I from the sub-contractors. Apparently the
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Legislature intended that the contractor should not only obtain the form
No.15I from the sub-contractors but should also submit form No.15J to
the Commissioner immediately after releasing the payments to the subcontractors
without deducting the tax on the strength of form No.15-I and
if both the conditions are satisfied, then the assessee may not be treated as
in default for not complying the provisions of section 194C. Thus
satisfaction of the conditions in 2nd and third proviso of section
194C(3)(i) may be necessary for an assessee to save himself from being
declared as an assessee in default but conditions laid down for invoking
section 40(a)(ia) are not the same as cumulative conditions mentioned in
second and third proviso of section 194C(3) (i). For invoking section
40(a)(ia) it is to be decided whether tax was deductible or not, if yes,
whether deducted/paid or not. When we look into section 194C(3)(i) for
the purposes of invoking 40(a)(ia) we find that only 2nd proviso to it is
sufficient to decide whether tax was deductible or not. There is another
reason for holding so. Time factor involved for compliance of the
conditions mentioned in two provisions are different. 2nd proviso is to be
complied with at the time of making payment to the sub-contractor,
whereas compliance of third proviso can be deferred till 30th June of next
FY. In other words the contractor can wait to comply with third proviso
till 30th June of next FY after complying with second proviso. However,
the decision on deductibility of tax from the payment made to the subcontractor
cannot be deferred till 30th June of next FY. He has to take this
decision (about deductibility of tax from payments being made by it to
the sub-contractors) just at the time when he is releasing the payments to
the sub-contractors. It is at this point of time second proviso would come
into play and when form No.15I are submitted by the sub contractors to
the contractor then contractor is not required to deduct tax from such
payments. Once deductibility of tax depends upon submission or nonITA
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submission of form No.15-I from the sub-contractor to the assessee then
non-compliance of third proviso becomes merely technical without
affecting in substance the deductibility or non-deductibility of tax on
payments made by the assessee to the sub-contractors. Therefore, in our
considered view non-compliance of third proviso becomes merely a
technical default, which even if, remained non-complied would not affect
the operation of section 40(a)(ia).
The ld. DR has emphasized on the point that word used in rule
29D(4) is “shall” which would mean that it is mandatory to furnish the
form No.15J on or before 30th June of following FY. There is no dispute
with this proposition but unfortunately as we have held above noncompliance
of third proviso cannot have any deciding role in determining
whether tax is to be deducted or not to be deducted from the payments
made to the sub-contractor.
9. Therefore, our view is in conformity with the decision taken by the
Tribunal, Ahmedabad Bench –D in the case of M/s Shree Pramukh
Transport Co. (supra) referred to by the ld. AR which has held that if
assessee has obtained form No.15-I then it is substantial compliance of
the provision of section 194C.
10. As a result, we delete the addition by holding that tax was not
liable to be deducted from the payments made to sub-contractors on
account of they submitting form No.15-I to the contractor and therefore,
no addition u/s 40(a)(ia) could be made.
www.taxguru.in
ITA No.2228/Ahd/2009
Asst. Year 2006-07
14
11. As a result appeal filed by the assessee is partly allowed.
Order was pronounced in open Court on 29/04/11.
Sd/- Sd/-
(Mukul Kr. Shrawat) (D.C. Agrawal)
Judicial Member Accountant Member
Ahmedabad,
Dated : 29/04/11.
Mahata/-
Copy of the Order forwarded to:-
1. The Assessee.
2. The Revenue.
3. The CIT(Appeals)-
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
Deputy/Asstt.Registrar
ITAT, Ahmedabad
1.Date of dictation 19/4/2011
2.Date on which the typed draft is placed before the Dictating 25/4/ 2011
Member…………….Other Member…………….
3.Date on which the approved draft comes to the Sr.P.S./P.S………….
4.Date on which the fair order is placed before the Dictating Member for
pronouncement…………..
5.Date on which the fair order comes back to the Sr.P.S./P.S……………
6.Date on which the file goes to the Bench Clerk………..
7.Date on which the file goes to the Head Clerk………….
8.The date on which the file goes to the Asstt. Registrar for signature on the
order……………………
9.Date of Despatch of the Order……………..

Vipin P Mehta v ITO - ITA No. 3317 (Mum.) of 2010

Disallowance of interest under s 40(a)(ia)
The assessee’s claim that he had the declarations of the payees in the prescribed form before him at the time when the interest was paid, was not liable to deduct tax therefrom under s 194A and no disallowance can be made under s 40(a)(ia) is accepted in absence of any direct evidence produced by revenue — as held by MumTrib in Vipin P Mehta v ITO — In favour of: The Assessee ; ITA No. 3317 (Mum.) of 2010 : Assessment Year: 2006–2007
Decided on: 20 May 2011
Section 197A(1A) merely requires a declaration to be filed by the payee of the interest, and once it is filed the payer of the interest has no choice except to desist from deducting tax from the interest.
Vipin P. Mehta v ITO
ITAT, Mumbai
ITA No. 3317 (Mum.) of 2010
Assessment Year: 2006-07
R.V. Easwar, President and R.K. Panda, AM
Decided on: 20 May 2011
Counsel appeared:
Satish R. Mody for the appellant
Vijay Shankar for the respondent
Order
R.V. Easwar, President
1. This is an appeal by the assessee and it relates to the assessment year 2006-07. The assessee is
an individual carrying on business in the manufacture and printing of packaging materials in the
name and style of M/s. V.P. Mehta and Co. The appeal arises out of the assessment made on him
under section 143(3) of the Income-tax Act by an order dated 24-12-2008.
2. The only ground in the appeal is whether the departmental authorities are justified in
disallowing the interest of Rs.7,87,291 by invoking section 40(a)(ia) of the Act. Under this
section any interest paid by the assessee on which tax is deductible at source under Chapter XVIIB
but such tax has not been deducted or after deduction the same has not been paid on or before
the due date specified in section 139(1) for filing the return, will be disallowed in computing the
income from business. The assessee herein paid Rs.13,51,056 on account of interest and claimed
the same as deduction in computing his business income. The Assessing Officer noted that the
assessee had paid interest exceeding Rs.5,000 to 34 parties and the total thereof came to
Rs.7,87,291. The Assessing Officer also noticed that the assessee ought to have deducted tax on
such payments under section 194A of the Act. The Assessing Officer, on the footing that the
assessee did not deduct the tax as required by section 194A, asked the assessee to explain why the
interest should not be disallowed in terms of section 40(a)(ia). The assessee submitted by letter
dated 17-11-2008 that all the payees to whom the interest aggregating to Rs.7,87,291 was paid
have furnished declarations in form No. 15H/15G, as the case may be, before the date on which
tax ought to have been deducted and therefore the assessee was not liable to deduct the tax. It was
therefore pleaded that section 40(a)(ia) was not applicable to the assessee's case since it would
apply only if the assessee was required to deduct the tax, but had not deducted the same. The
assessee also submitted that by oversight he did not submit the copies of the declarations in form
No. 15G/15H to the office of the CIT(TDS) and that these forms were recently submitted to him.

3. The Assessing Officer did not accept the assessee's explanation. He noted that the declarations
submitted by the payees were submitted with the CIT(TDS) only on 15-10-2008 after the
Assessing Officer asked the assessee to show cause why the interest should not be disallowed. He
also noticed from the returns filed by some of the payees in response to the notices issued under
section 133(6) that some of them were having taxable income, even though the assessee claimed
that they also filed form No. 15G with the assessee which were in turn filed by the assessee with
the office of the CIT(TDS). From these facts, the Assessing Officer came to the conclusion that
the assessee purposely did not deduct the tax as required by section 194A. He accordingly
invoked section 40(a)(ia) and disallowed the interest payment of Rs.7,87,291.
4. On appeal the CIT(A) held that the assessee's arguments cannot be accepted because unless
and until the declarations filed by the payees of the interest in the prescribed form are filed with
the CIT(TDS) within seven days of the month following the month in which they were submitted
to the assessee they are as good as no declarations having been filed and therefore the assessee
had committed a default in not deducting the tax at source from the payment of interest. He
therefore upheld the disallowance made by the Assessing Officer.
5. The assessee is in further appeal before the Tribunal. The main submission of the learned
counsel for the assessee was that for non-filing of the declarations furnished by the payees to the
assessee within the time required by sub-section (2) of section 197A of the Act a separate penalty
is prescribed by section 272A(2)(f) of the Act in a sum of one hundred rupees for every day
during which the default continues and no such penalty proceedings having been initiated by the
income-tax authorities, the delay in filing the declarations with the office of the CIT(TDS) should
be taken to have been condoned and in these circumstances the assessee was under no obligation
to deduct tax under section 194A and therefore the provisions of section 40(a)(ia) were not
applicable. The argument of the revenue however is that it cannot be verified as to whether the
declarations in the prescribed form were actually furnished by the payees to the assessee at the
appropriate time unless the assessee files them with the office of the CIT(TDS) within the time
prescribed by sub-section (2) of section 197A, that the fact that the Assessing Officer did not
initiate any penalty proceedings under section 272A(2)(f) did not mean that the delay was
condoned in the absence of a specific order to that effect and in these circumstances, and in order
to prevent misuse of the provisions of section 197A, it should be held that the assessee did not
have the declarations of the payees before him when the payment of interest was made and
consequently he was under a liability to deduct tax under section 194A. Having failed to do so, it
was submitted, the assessee must suffer the disallowance.
6. We have carefully considered the facts and the rival contentions. Section 194A provides for
deduction of tax from the interest paid by the assessee, at the appropriate rate. Section 197A(1A)
provides that notwithstanding anything contained in section 194A no deduction of tax shall be
made under the section if the payee of the interest furnished to the person responsible for paying
the interest, a declaration in writing in duplicate in the prescribed form and verified in the
prescribed manner to the effect that the tax on his estimated total income of the previous year in
which the interest is to be included will be nil. Sub-section (2) provides that the person
responsible for paying interest shall deliver or cause to be delivered to the CCIT or CIT one copy
of the declaration submitted by the payee of the interest to the assessee on or before the seventh
day of the month next following the month in which the declaration was furnished to him. If the
person responsible for paying the interest (i.e., the assessee) does not comply with sub-section (2)
of section 197A, he is liable to pay penalty of Rs.100 for every day during which the failure
continues. Such penalty can be imposed only by the Commissioner or Chief Commissioner of
Income-tax as stated in clause (b) of sub-section (3) of section 272A and sub-section (4) requires
that an opportunity shall be given to the assessee before any penalty order is passed.
7. In the present case the claim of the assessee is that at the time of paying the interest to the 34
persons mentioned in the assessment order, he had before him the appropriate declarations in the
prescribed form from the payees stating that no tax was payable by them in respect of their total
income and therefore tax need not be deducted from interest under section 194A, and in the light
of these declarations he had no option but to make the payment of interest without any tax
deduction. If the claim is true then the contention must be accepted because under sub-section
(1A) of section 197A, if such a declaration is filed by the payee of interest, no deduction of tax
shall be made by the assessee. The revenue authorities have doubted the assessee's version
because according to them it is only when the Assessing Officer proposed the disallowance of the
interest by invoking the section 40(a)(ia) in the course of the assessment proceedings that the
assessee filed the declarations claimed to have been submitted to him by the payees of the
interest, in the office of the CIT(TDS) as required by sub-section (2) of section 197A. Apart from
this inference, there is no other evidence in their possession to hold that the declarations were not
submitted by the payees of the interest to the assessee at the time when the payments were made.
Without disproving the assessee's claim on the basis of other evidence, except by way of
inference, it would not be fair or proper to discard the claim. The Assessing Officer has not
recorded any statements from the payees of the interest to the effect that they did not file any
declarations with the assessee at the appropriate time or to the effect that they filed the
declarations only at the request of the assessee in September/October, 2008. In the absence of any
such direct evidence, we are unable to reject the assessee's claim. The Assessing Officer has
stated in para 4.4 of the assessment order that he found that some of the loan creditors were
having taxable income but still the assessee had submitted declarations from them in form No.
15G. Unless it is proved that these forms were not in fact submitted by the loan creditors, the
assessee cannot be blamed because at the time of paying the interest to the loan creditors, he has
to perforce rely upon the declarations filed by the loan creditors and he was not expected to
embark upon an enquiry as to whether the loan creditors really and in truth have no taxable
income on which tax is payable. That would be putting an impossible burden on the assessee.
That apart sub-section (1A) of section 197A merely requires a declaration to be filed by the payee
of the interest and once it is filed the payer of the interest has no choice except to desist from
deducting tax from the interest. The sub-section uses the word "shall" which leaves no choice to
the assessee in the matter. In the case of payment of leave travel concession and conveyance
allowance to employees who are liable to deduct tax from the salary paid to the employees under
section 192, the Supreme Court has held in CIT v. Larsen and Toubro Ltd. [2009] 313 ITR 1/181
Taaxman 71, that the assessee was under no statutory obligation under the Act or Rules to collect
evidence to show that the employee had actually utilized the money paid towards leave travel
concession/conveyance allowance. The position is stronger under section 197A which does not
apply to section 192, but which provides in sub-section (1A) that if the payee of the interest has
filed the prescribed form to the effect that he is not liable to pay any tax in computing his total
income, the payer shall not deduct any tax. The sub-section does not impose any obligation on the
payer to find out the truth of the declarations filed by the payee. Even if the assessee has delayed
the filing of the declarations with the office of the CIT/CCIT (TDS) within the time-limit
specified in sub-section (2) of section 197A, that is a distinct omission or default for which a
penalty is prescribed. Section 273B provides that no penalty shall be imposed under any of the
clauses of sub-section (2) of section 272A for the delay, if the assessee proves that there was
reasonable cause for the same. We have already seen that under sub-section (4) of section 272A,
no penalty can be imposed unless the assessee is given an opportunity of being heard. All these
provisions indicate that the failure on the part of the assessee, who is the payer of the interest, to
file the declarations given to him by the payees of the interest, within the time-limit specified in
sub-section (2) to section 197A is distinct and separate and merely because there is a failure on
the part of the assessee to submit the declarations to the income-tax department within the timelimit,
it cannot be said that the assessee did not have declarations with him at the time when he
paid the interest to the payees. That would be a separate matter and separate proof and evidence is
required to show that even when the assessee paid the interest, he did not have the declarations
from the payees with him and therefore he ought to have deducted the tax from the payment. No
such evidence or proof has been brought by the department.
8. For the aforesaid reasons, we accept the assessee's claim that since he had the declarations of
the payees in the prescribed form before him at the time when the interest was paid, he was not
liable to deduct tax therefrom under section 194A. If he was not liable to deduct tax, section
40(a)(ia) is not attracted. There is no other ground taken by the Income-tax authorities to disallow
the interest. We therefore accept the assessee's appeal and delete the disallowance of interest of
Rs.7,87,291.

M/s. Capital Transport Corporation -vs.- Income Tax Officer/Ward-56(3)

, – “ ”, ,
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : KOLKATA
[ . . , -, ! " , - ]
[Before Hon’ble Shri S.V. Mehrotra, AM & Hon’ble Shri Mahavir Singh, JM
"# / I.T.A No. 1753/Kol/2009
!$% &/'Assessment Year : 2006-07
M/s. Capital Transport Corporation -vs.- Income Tax Officer/Ward-56(3)
Of India, Kolkata [PAN : AABFC 9559 K] Kolkata.
[ )* /Appellant] [,-)*/Respondent]
)*/ For the Appellant : Shri S. M. Surana
,-)*/ For the Respondent : Shri S. K. Roy
- ./ORDER
. . , -
Per S. V. Mehrotra, A. M.
The assessee has preferred this appeal for assessment year 2006-07 against order of Ld.
CIT(A)-XXXVI, Kolkata dated 21.08.2009. The grounds of appeal raised by the assessee read as
under :-
1. For that on the facts and in the circumstances of the case the Commissioner of
Income Tax (Appeals) has erred in disallowing lorry hire payment of
Rs.24,74,376/- U/s.40(a)(ia) of the Income Tax Act,l961 for non deduction of
TDS as the owners of lorries furnished Form No. 151 to the appellant firm before
the date of payment of lorry hire.
2. For that on the facts and in the circumstances of the case the Commissioner of
Income Tax (Appeals) has erred in disallowing lorry hire payment for non
deduction of payment, however the appellant firm has filed copy of Form No.
151 before the Assessing Officer before the completion of assessment and a copy
of the same was filed before the Commissioner of Income Tax (Appeals) on
ground that Form No.1 5J was not filed along with Form No.151 before the
Commissioner of Income Tax (Appeals), because of the lack of knowledge of the
Act.
3. For that on the facts and in the circumstances of the case the Commissioner of
Income Tax (Appeals) has erred in disallowing interest Rs.36,000/- payable to
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ITA No. 1753/Kol/2009
2
Mrs.Koshalya Devi Hada for non deduction of TDS , as Mrs.Koshalya Devi
Hada has submitted Form No.15H as her income was below taxable limit, but the
Form no. 15J was not filed before the Commissioner of Income Tax (Appeals),
because of the lack of knowledge of the Act. However Form no 15H was
submitted by Mrs.Koshalya Devi Hada before the Assessing Officer before the
completion of assessment.
4. That the appellant craves leave to supplement, cancel or otherwise amend any
of the grounds herein above before or at the time of the hearing of the appeal.
2. Brief facts apropos ground Nos.1 & 2 are that the assessee, in the relevant assessment year,
was engaged in the transportation business. The assessee was not owning any goods vehicle. After
obtaining a contract in transport of goods, assessee used to engage a sub-contractor to carry out the
job and paid him hire charges for his vehicle. Assessing Officer noticed that assessee had shown
lorry hire charges amounting to Rs.3,44,11,095/-. Assessing Officer noticed that out of this
payment assessee was under obligation to make deduction under section 194C in respect of
payments aggregating to Rs.1,54,16,846/-. Before the Assessing Officer, assessee had explained as
under :-
“……….At hearing stage the A/R stated that particulars of payments are
maintained as per the truck numbers. But, the annexure to Form 26Q may
contain only the names of persons as defined in the I.T. Act, 1961. The
assessee could not provide any reconciliation to establish whether any
TDS were made and deposited for the above discussed amount. The A/R,
in his submission dated 30.12.2008 mentioned that, ….. ‘assessee firm is
not in possession of the copy of form 26 and it will not be possible for the
assessee firm to procure the same from the efilling intermediary in such a
short notice.”
Before the Assessing Officer, it was, inter alia, submitted that assessee had received declaration in
form 15I from the truck owners. However, due to ignorance of the fact that 15J was required to be
submitted, assessee did not submit form 15J alongwith form 15I received from the truck owners.
Assessing Officer, however, did not accept the assessee’s contention and made addition of
Rs.1,54,16,846/-. Ld. CIT(A) after considering the assessee’s submission observed that it was
clear from Form 26Q that assessee had deducted TDS for lorry hire payments of Rs.1,29,42,417/-
while the TDS was not deducted on payment of lorry hire charges of Rs.24,74,376/-. After
considering the assessee’s submission that form 15I was received from the respective turn over in
respect of Rs.24,74,376/- did not accept the assessee’s plea and confirmed the disallowance to the
extent of Rs.24,74,376/-.
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ITA No. 1753/Kol/2009
3
3. Being aggrieved assessee is in appeal before us.
4. We have considered the submissions of both the parties and have perused the records of
the case. There is no dispute that assessee had received form 15I from the truck owners to whom
the payments were made without making TDS. However, the only default of assessee was nonfurnishing
of form 15J alongwith form 15I. Ld. Counsel appearing on behalf of the assessee has
relied on the following decisions for the proposition that even if form 15I/15J received are not
submitted to Ld. CIT(A), 194C will not apply :-
(i) ITO vs. Shri Chandan Gopal Shroff in ITA No. 844/Kol/2008 of Kolkata
Bench vide order dated 31.07.2009.
(ii) ITO vs. M/s. Ashabhai Babarbhai Patel & Co. in ITA
No.2195/AHD2010 of Ahmedabad Bench vide order dated 10.12.2010.
(iii) Shri Vipin P. Mehta vs. ITO in ITA No. 3317/Mum/2010 of Mumbai
Bench vide order dated 20.05.2011.
(iv) ITO vs. Rajesh Kr. Garg in ITA No.532/Kol/2011 of Kolkata Bench vide
order dated 05.08.2011.
5. We have considered the submissions of both the parties and have perused the records of
the case. ITAT, Mumbai Bench in the case of Shri Vipin P. Mehta vs. ITO in ITA
No.3317/Mum/2010 vide order dated 20.05.2011, has, inter alia, held as under :-
“………….All these provisions indicate that the failure on the part of the
assessee, who is the payer of the interest, to file the declarations given to him by
the payees of the interest, within the time limit specified in sub-section (2) to
section 197A is distinct and separate and merely because there is a failure on the
part of the assessee to submit the declarations to the income-tax department
within the time limit, it cannot be said that the assessee did not have declarations
with him at the time when he paid the interest to the payees. That would be a
separate matter and separate proof and evidence is required to show that even
when the assessee paid the interest, he did not have the declarations from payees
with him and therefore he ought to have deducted the tax from the payment. No
such evidence or proof has been brought by the department.
For the aforesaid reasons, we accept the assessee’s claim that since he
had the declarations of the payees in the prescribed form before him at the time
when the interest was paid, he was not liable to deduct tax therefrom under
section 194A. If he was not liable to deduct tax, section 40(a)(ia) is not attracted.
There is no other ground taken by the income tax authorities to disallow the
interest. We therefore accept the assessee’s appeal and delete the disallowance of
interest of Rs.7,87,291/-.”
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ITA No. 1753/Kol/2009
4
6. In the present case before the Assessing Officer assessee had submitted that form 15-I
received by him could not be deposited with the Ld. CIT. Assessee’s submissions have been
reproduced in Para-7(ii) at page-4 of Assessing Officer’s order. After considering the assessee’s
submission Assessing Officer, inter alia, observed that assessee did not submit form 15J by
30.06.2006 because he had not received form 15-I. He was of the view that 15-I was received
subsequently when the assessee was confronted with the issue of disallowance under section
40(a)(ia). The availability of form15-I, however, at the time of assessment proceedings is not
doubted. Therefore, in view of decision in the case of Shri Vipin P. Mehta (supra), Assessing
Officer is directed to delete the disallowance of Rs.24.74.376/-. In the result, ground Nos. 1 & 2 of
the appeal are allowed.
7. Brief facts apropos ground No.3 are that the Assessing Officer noticed that assessee in its
balance sheet and schedule had shown unsecured loan of Rs.17,81,763/-. He noted that in some of
the cases interest was credited without TDS. He has observed that at hearing stage the assessee’s
representative produced five Form 15G stated to be obtained from Smt. Koshalya Devi Heda for
non-deduction of TDS from interest credits/payments. Assessing Officer has, inter alia, observed
as under :-
“…………Part II of 15G form contains an item number 2 which reads
“Date on which declaration was furnished by the declarant” which is left
blank. Apart from this, the payer has to deliver to the Commissioner one
copy of the 15G declaration on or before 7th day of month next following
the month in which the declaration is furnished to him. The Assessee, in
the show cause letter dated 29.12.2008, was asked to produce/submit
evidence for such delivery. The assessee could not produce any such proof
for submission of 15G to the office of the CIT and also, he did not
mention anything in his reply dated 30.12.2008.”
Assessing Officer had disallowed interest in respect of 14 persons to whom interest had been so
credited. Ld. CIT(A) directed the Assessing Officer to restrict the disallowance to Rs.36,000/- in
respect of interest payment to Smt. Koshalya Devi Heda as against Rs.1,08,002/- made by the
Assessing Officer, inter alia, observing as under :-
“……….However no TDS was deducted in respect of payment of Rs.36,000/- to
Ms. Koshalya Devi Heda nor Form 15-J alongwith form 15-I was furnished before
the Commissioner of Income Tax concerned. Though the A/R claimed that form
15-I was obtained by the Appellant no evidences in this regard was filed before me.
The decision relied on by the A/R were not on the issue at hand. The decision in
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ITA No. 1753/Kol/2009
5
the case of Sudarshan Auto general finance referred to above was concerned with
levy of penalty. The other decisions are also not on the provisions of section
40(a)(ia). Therefore, they do not support the appellant’s case.
Accordingly, the disallowance of interest payment of Rs.36,000/- is confirmed. The
A.O. is directed to restrict the disallowance on interest payment to Rs.36,000/-.”
8. Having heard both the parties, we find that this issue is also covered by the decision in the
case of Shri Vipin P. Mehta (supra) because here also Ld. Authorised Representative of the
assessee had produced form 15H in course of assessment proceedings. This ground of the assessee
is allowed.
9. In the result, appeal of the assessee is allowed.
- . / 0 /$ 1 2 3
Order pronounced in the Court on 11. 08. 2011.
S d / - Sd/-
[ ! " , -] [ . . , -]
[Mahavir Singh] [S.V. Mehrotra]
Judicial Member Accountant Member
( 3 ) Dated : 11th August, 2011.
- . 5 ,! ! 6 7 6& /Copy of the order forwarded to:
1. )* /Appellant : M/s. Capital Transport Corpn. of India, 25, Gangadhar Babu
Lane, Kolkata-700 012.
2 ,-)*/ Respondent : Income Tax Officer/Ward-56(3), 3, Govt. Place (East),
Kolkata.
3. ! .$ / CIT,
4. ! .$ ( )/CIT(A), Kolkata.
5. !1 ,! $ /DR, Kolkata Benches, Kolkata
[ - 6 ,! /True Copy]
- . $/ / By order,
"? /Asstt Registrar
[kkc @ A !$B? !C /Sr.PS]

ITO Vs Rajesh Kr Garg (ITAT Kolkata)

ITO Vs Rajesh Kr Garg (ITAT Kolkata)

ITAT Kolkata
I.T.A No. 532/Kol/2011
Assessment Year: 2006-07
ORDER
This appeal by revenue is arising out of order of CIT(A)-XXXVI, Kolkata in Appeal No.546/CIT(A)-XXXVI/Kol/Wd-56(3)/08-09 dated 17.01.2011. Assessment was framed by ITO, Ward-56(3), Kolkata u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2006-07 vide his order dated 31.12.2008.
2. The first issue in this appeal of the revenue is against the order of CIT(A) deleting the addition made by Assessing Officer by invoking provisions of section 40(a)(ia) read with section 194C(3) sub-clause (i) of the Act inspite of non-filing of Form No. 15J under Rule 29D of I. T. Rules, 1962. For this, revenue has raised following ground no.1:“1) That on the facts and circumstances of the case, the Ld. CIT(A) erred in law in deleting addition of Rs.28,01,585/- u/s. 40(a)(ia) of the I. T. Act, 1961 in spite of non filing of Form No. 15J as required under third proviso to clause (i) of sub-section (3) of section 194C of the I. T. Act, 1961, read with Rule 29D of I T Rules, 1962.”
3. Brief facts leading to the above issue are that assessee in the business of transportation of goods through hired vehicles, whom payment was made aggregating to Rs.28,01,588/- in respect of 42 vehicles and actual payment is exceeding Rs.50,000/- per vehicle. The assessee before Assessing Officer claimed that he has received Form 15-I from vehicle owners for non-deduction of tax, hence he has not deducted TDS in view of provisions of section 194C(3)(i) of the Act. Assessing Officer did not accept the claim of the assessee as he has failed to file Form No. 15-I with the concerned Commissioner of Income-tax and, therefore, the authenticity of receiving of Form No. 15-I from the truck owners has not be discharged. Accordingly, he disallowed hire charges expenses of Rs.28,01,585/- by invoking provisions of section 40(a)(ia) of the Act. Aggrieved, assessee preferred appeal before CIT(A) who deleted the addition by giving following finding in para 3.4 of his appellate order:
“3.4. I have duly considered the submission of the appellant in the light of materials placed before me and case laws referred to. The issue in hands is whether Form No. 15-I is to be taken as non-est for non-filing of Form No. 15-J with the jurisdictional CIT. The Act does not say so. Moreover, Form No. 15-I comes into effect before the actual payment or crediting to account takes place, whereas, the due date for furnishing the particulars in 15-J is 30th June following the financial year, in respect of all the declarations in Form No. 15-I received by the contractor during that financial year. In the instant case, the appellant was to stop deduction of tax on payments as and when he received Form No. 15-I from the sub-contractor. Had the A.O. doubted about existence of Form No. 15-I at the time of making payments to the sub-contractor by the appellant, he got ample opportunity of examination of the same during remand proceedings. The A.O. has not pointed out any defect in any Form No. 15-I, copy of which was sent to him for examination during remand proceedings. Under the circumstances, I find that the addition made by the A.O. of Rs.28,01,585/- is unjustified and misconceived and therefore, deleted.”
Aggrieved, now revenue is in appeal before us.
4. At the outset, Ld. Counsel stated that this issue is squarely covered in favour of assessee by the decision of ITAT, Mumbai “F” Bench in the case of Shri Vipin P. Mehta Vs. ITO, ITA No.3317/Mum/2010 for Assessment Year 2006-07 dated 20th May, 2011, He also relied on the similar view taken by Ahmedabad “A” Bench in the case of Valibhai Khanbhai Mankad Vs. Dy.CIT (OSD) in ITA No.2228/Ahd/2009 for Assessment Year 2006-07 dated 29.4.2011. Ld. DR, on the other hand relied on the order of Assessing Officer.
5. We have heard rival contentions and gone through facts and circumstances of the case. We find that admittedly in the present case before us, the assessee has obtained Form 15-I and filed during the course of assessment proceedings but only failed to file before the concerned Assessing Officer. As the issue is covered in favour of assessee by the decision of ITAT, Mumbai “F” Bench in the case of Shri Vipin P. Mehta (supra), wherein the Tribunal vide paras 6, 7 and 8 has observed as under:
“6. We have carefully considered the facts and the rival contentions. Section 194Aprovides for deduction of tax from the interest paid by the assessee, at the appropriate rate. Section 197A(1A) provides that notwithstanding anything contained in section 194A no deduction of tax shall be made under the section if the payee of the interest furnished to the person responsible for paying the interest, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the tax on his estimated total income of the previous year in which the interest is to be included will be nil. Sub-section (2) provides that the person responsible for paying interest shall deliver or cause to be delivered to the CCIT or CIT one copy of the declaration submitted by the payee of the interest to the assessee on or before the seventh day of the month next following the month in which the declaration was furnished to him. If the person responsible for paying the interest (i.e. the assessee) does not comply with sub-section 2 of section 197A, he is liable to pay penalty of Rs. 100/- for every day during which the failure continues. Such penalty can be imposed only by the Commissioner or Chief Commissioner of Income Tax as stated in clause (b) of sub-section 3 of Section 272A and sub-section 4 requires that an opportunity shall be given to the assessee before any penalty order is passed.
7. In the present case the claim of the asse see is that at the time of paying the interest to the 34 persons mentioned in the assessment order, he had before him the appropriate declarations in the prescribed form from the payees stating that no tax was payable by them in respect of their total income and therefore tax need not be deducted from interest under section 194A, and in the light of these declarations he had no option but to make the payment of interest without any tax deduction. If the claim is true then the contention must be accepted because under sub-section (IA) of section 197A, if such a declaration is filed by the payee of interest, no deduction of tax shall be made by the assessee. The revenue authorities have doubted the assessee ’s version because according to them it is only when the Assessing Officer proposed the disallowance of the interest by invoking the section 40(a) (ia) in the course of the assessment proceedings that the assessee filed the declarations claimed to have been submitted to him by the payees of the interest, in the office of the CIT(TDS) as required by sub-section 2 of section 197A. Apart from this inference, there is no other evidence in their possession to hold that the declarations were not submitted by the payees of the interest to the assessee at the time when the payments were made. Without disproving the assessee ’s claim on the basis of other evidence, except by way of inference, it would not be fair or proper to discard the claim. The Assessing Officer has not recorded any statements from the payees of the interest to the effect that they did not file any declarations with the assessee at the appropriate time or to the effect that they filed the declarations only at the request of the assessee in September/October, 2008. In the absence of any such direct evidence, we are unable to reject the assessee ’s claim. The Assessing Officer has stated in para 4.4 of the assessment order that he found that some of the loan creditors were having taxable income but still the assessee had submitted declarations from them in form no. 15G. Unless it is proved that these forms were not in fact submitted by the loan creditors, the assessee cannot be blamed because at the time of paying the interest to the loan creditors, he has to perforce rely upon the declarations filed by the loan creditors and he was not expected to embark upon an enquiry as to whether the loan creditors really and in truth have no taxable income on which tax is payable. That would be putting an impossible burden on the assessee. That apart sub-section 1A of Section 197A merely requires a declaration to be filed by the payee of the interest and once it is filed the payer of the interest has no choice except to desist from deducting tax from the interest. The sub-section uses the word “shall” which leaves no choice to the assessee in the matter. In the case of payment of leave travel concession and conveyance allowance to employees who are liable to deduct tax from the salary paid to the employees under section 192, the Supreme Court has held in CIT Vs. Larsen & Toubro Ltd. (2009) 313 ITR 1, that the assessee was under no statutory obligation under the Act or Rules to collect evidence to show that the employee had actually utilized the money paid towards leave travel concession/conveyance allowance. The position is stronger under section 197A which does not apply to section 192, but which provides in sub-section (1A) that if the payee of the interest has filed the prescribed form to the effect that he is not liable to pay any tax in computing his total income, the payer shall not deduct any tax. The sub­section does not impose any obligation on the payer to find out the truth of the declarations filed by the payee. Even if the assessee has delayed the filing of the declarations with the office of the CIT/CCIT (TDS) within the time limit specified in sub­section (2) of section 197A, that is a distinct omission or default for which a penalty is prescribed. Section 273B provides that no penalty shall be imposed under any of the clauses of sub-section (2) of section 272A for the delay, if the assessee proves that there was reasonable cause for the same. We have already seen that under sub-section (4) of section 272A, no penalty can be imposed unless the assessee is given an opportunity of being heard. All these provisions indicate that the failure on the part of the assessee, who is the payer of the interest, to file the declarations given to him by the payees of the interest, within the time limit specified in sub-section (2) to section 197A is distinct and separate and merely because there is a failure on the part of the assessee to submit the declarations to the income-tax department within the time limit, it cannot be said that the assessee did not have declarations with him at the time when he paid the interest to the payees. That would be a separate matter and separate proof and evidence is required to show that even when the assessee paid the interest, he did not have the declarations from the payees with him and therefore he ought to have deducted the tax from the payment. No such evidence or proof has been brought by the department.
8. For the aforesaid reasons, we accept the assessee ’s claim that since he had the declarations of the payees in the prescribed form before him at the time when the interest was paid, he was not liable to deduct tax therefrom under section 194A. If he was not liable to deduct tax, section 40(a)(ia) is not attracted. There is no other ground taken by the income tax authorities to disallow the interest. We therefore accept the ├íssessee ’s appeal and delete the disallowance of interest of Rs.7,87,291/-.”
Since the issue is squarely covered in favour of the assessee by the decision in the case of Vipin P. Mehta (supra), we confirm the order of CIT(A) and this issue of revenue’s appeal is dismissed.
6. The next issue in this appeal of the revenue is against the order of CIT(A) deleting the addition made by Assessing Officer by invoking provisions of section 40A(3) of the Act. For this, the revenue has raised following ground no.2:
“2. That on the facts and circumstances of the case the Ld. CIT(A) erred in law deleting addition of Rs.16,82,066/- made by A.o. u/s. 40A(3) in violation of extant provisions of law.”
7. We have heard rival contentions and gone through facts and circumstances of the case. We find that Assessing Officer made disallowance u/s. 40A(3) of the Act for payments made to drivers/sub-contractors, who are agents of assessee. The Assessing Officer disallowed a sum of Rs.16,82,066/- as according to him cash payment in a day exceeding Rs.20,000/- is the subject matter of disallowance. The CIT(A) deleted the disallowance by holding that for the relevant assessment year, which is prior to the amendment w.e.f. Assessment Year 2009-10, where aggregate of cash payment in a day exceeding Rs.20,000/- is subject matter of disallowance, position during Assessment Year 2006-07 speaks of single cash payment in a day exceeding Rs.20,000/-. According to CIT(A), all cash payments in a day during one occasion did not exceed the prescribed limit of Rs.20,000/- although such payment in a day in aggregate exceeds Rs.20,000/-, provision of section 40A(3) of the Act is not attracted. We find that even Assessing Officer in his remand report admitted this position and the remand report no. ITO/W-56(3)/Kol/Remand Report/09-10/276 dated 12.8.2009 , wherein he admitted as under:
“As regards the addition of Rs.16,52,066/- u/s. 40A(3) I may submit that the payments were made to the drivers/sub-contractors who are nothing but agents of the assessee. Payment to the agent of the assessee in cash exceeding Rs.20,000/- is permissible in view of Rule 6DD(1) of the Income Tax Rules, 2006. The assessee made payment exceeding Rs.20,000/- otherwise than by A/c. Payee Cheques or A/c Payee Bank Draft to the drivers/sub-contractors who are nothing but agent of the assessee. In view of provisions contained in Rules 6DD(1) such payments are permissible. In view of the foregoing legal position I submit that the payment to drivers/sub-contractors (who are agents of the assessee) are permissible in terms of the above Rule.”
In remand report the Assessing Officer has admitted the position that single payment in a day should not exceed Rs.20,000/- and in this case, there is no instance that single payment is exceeding Rs.20,000/-. Accordingly, we confirm the order of CIT(A) and this issue of revenue’s appeal is also dismissed.
8. In the result, the appeal of the revenue is dismissed.
9. Order pronounced in open court on 05.08.2011

Saturday, January 14, 2012

TAX TALK-16.01.2012-THE HITAVADA

TAX TALK-16.01.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“AMENDMENT IN SECTION 40(a)(ia) BEING REMEDIAL/CURATIVE IN NATURE, HAVE RETROSPECTIVE APPLICATION”
Query 1]
Sir, in my case, disallowance of expenses has been made u/s 40 (a)(ia) of the I.T. Act for the A.Y. 2009-10 due to late payment of TDS on rent & transportation expenses paid to various parties during the months of January and February 2009 on 15.06.2009. Please elaborate the consequences of this disallowance? How will the expenses be allowed in the Assessment Year 2010-11? Whether it can be corrected by making an application u/s 154 or I have to revise my return filed for the A.Y. 2010-11? What will be the interest payable/consequences? What will be the implications of penal proceedings u/s 271(1)(c)? Whether disallowance u/s 40(a)(ia) will be treated as filing of inaccurate particulars of income & made liable to penalty u/s 271(1)( c)? Please give case laws if any on the matter. It will be very helpful if the required details are given urgently. [Ajay Agrawal - akagrawal87@gmail.com]
Opinion:
For the general benefit of readers at large, we are elaborating the background & provision of section 40(a)(ia) since its inception. The brief history of the provision is as under:
(i) Introduction by the Finance (No.2) Act, 2004:
Section 40(a)(ia) was inserted in the Income Tax Act by the Finance (No. 2) Act, 2004 with effect from 1st April, 2005. The provisions of the said section as inserted originally with effect from 1st April, 2005 reads as under:
"Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",-
(ia) any interest, commission or brokerage, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200:Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid."
The legislative intention behind introduction of the above provisions as given in the Memorandum explaining provisions in the Finance (No. 2) Bill 2004 was to augment the compliance of TDS provisions and a provision therefore was made therein to disallow expenses against which tax was not deducted at source and/or the tax having been deducted at source was not paid to the credit of the Central Government within the time prescribed in section 200(1). It was also provided that if a deduction is subsequently made towards tax and paid after the time limit, the assessee would be entitled to claim deduction in the year in which payment is actually made.
(ii) Amendment by the Finance Act, 2008
With a view to mitigate this hardship, section 40(a)(ia) was amended by the Finance Act, 2008 and the provisions so amended reads as under:
"Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",--
(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid,--
(A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139; or
(B) in any other case, on or before the last day of the previous year
Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted-
(A) during the last month of the previous year but paid after the said due date; or
(B) during any other month of the previous year but paid after the end of the said previous year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid."
(iii) Amendment by Finance Act, 2010
The amendment made by Finance Act 2008 to the provisions of section 40(a)(ia) with retrospective effect from 1-4-2005 still left out several assessees with grave hardships and un-intended consequences. Consequently, various representations were made to the Finance Minister with a request to tone down the rigour of law which was causing harsh and unintended consequences.
Accordingly, the provisions of section 40(a)(ia) were amended by the Finance Act, 2010 and the said provisions as amended with effect from 1-4-2010 reads as under:
“Notwithstanding anything to the contrary in section 30 to (38), the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession".
“(ia) any interest, commission or brokerage, (rent, royalty) fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or subcontractor, being resident, for carrying out any work (including supply of labour for carrying out any work) on which tax is deductible at source under Chapter XVII and such as has not been deducted or after deductions, has not been paid on or before the due date specified in sub-section (1) of section 139.Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid."
While proposing the aforesaid amendments to section 40(a)(ia), Finance Minister stated in para 137 of his Budget Speech delivered in the Parliament on 26-2-2010 as under:
"Relaxing the current provisions on disallowance of expenditure, I propose to allow deduction of such expenditure, if tax has been deducted at any time during the financial year and paid before the due date of filing the return. This will allow most Deductor additional time up to September of the next financial year. At the same time, I propose to increase the interest charged on tax deducted but not deposited by the specified date from 12 per cent to 18 per cent per annum"
The Memorandum explaining the provisions in the Finance Bill 2010 also gave the following justification for the amendments proposed in section 40(a)(ia).
"It is proposed to amend the said section to provide that no disallowance will be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income specified in sub-section (1) of section 139."
As is clearly evident from the speech of the Finance Minister while presenting the budget for the year 2010-11 as well as the Memorandum explaining the amendments proposed in section 40(a)(ia), the amendments to section 40(a)(ia) were made to alleviate the genuine hardships and unnecessary financial liabilities imposed on the tax payers by refusing to give deductions of bona fide expenditure only for the reason of technical non-compliance of TDS provisions. Such an attempt was earlier also made by making the amendments to the provisions of section 40(a)(ia) by the Finance Act, 2008 and the said amendments were consciously made with retrospective effect from 1-4-2005 keeping in view that the same were made with a view to mitigating the hardships caused to the assessee. The amendments made again to the provisions of section 40(a)(ia) by the Finance Act 2010 to tone down the rigour of law with the same intention, however, are made with effect from 1-4-2010.
Recently in the case of Bansal Parivahan (India) (P) Ltd. v. ITO (2010) 36 (II) ITCL 427 (Mum B Trib ,wherein the facts were resembling with your case, it was held that invoking the provisions of section 40(a)(ia) is not sustainable as the amendments made in the said provisions by the Finance Act, 2010 which, being remedial/curative in nature, have retrospective application. While delivering the judgment, the Tribunal had relied on the decision of Supreme Court in CIT v. Alom Extrusion Ltd. (2010) 32 (I) ITCL 2 (SC) in the context of section 43B.

It may be very interesting to note that the Honble supreme court in the case of Allied Motors (P) Ltd. (1997) 224 ITR 677 wherein it has observed that when a proviso in a section is inserted to remedy unintended consequences and to make the section workable, the proviso which supplies an obvious omission therein is required to be read retrospectively in operation, particularly to give effect to the section as a whole.
With above basic framework, the point wise replies to your queries are as under:
1. As a result of disallowance, a demand (of tax & interest) appears to have been raised on you. Correction by making an application u/s 154 is not possible; you can file an appeal to get the required relief.
2. If you admit the disallowance in the A.Y. 2009-10, you can file a revised return claiming the amount as deduction in the A.Y. 2010-11. As a result, probably, you may be required to pay the demand in the A.Y. 2009-10 & may be entitled for refund in the A.Y. 2010-11.
In view of above detailed discussion at length & in totality of the facts of the case, we doubt the applicability of penal provision u/s 271(1)(c).

Saturday, January 7, 2012

TAX TALK-09.01.2012-THE HITAVADA

TAX TALK-09.01.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“CORRECTION IN INCOME TAX CHALLAN”
Query 1]
I had deposited Advance Tax on 10/06/2009 of Rs. 3,000/- in a Nationalized Bank at Pune. I had written my name and PAN correctly. I received the counterfoil & submitted the same with my IT Return for A.Y. 2010-11 along with other tax payments counterfoils. Recently I received Tax Refund and observed that it is lesser by Rs. 3,000/- than actually claimed refund.
On taking up the matter with the concerned Ward office, I was told that the credit is not appearing in my A/c for the said Rs. 3,000/- deposited by me on 10.06.2009. I took up the matter with Bank who issued me a computer Generated Receipt (In Annexure A-IV-II). I observed that Bank has entered wrong PAN No. while remitting funds to Govt. though counterfoil of IT challan shows correct PAN. The name mentioned is correct. I request you to please guide me as to take steps for refund of Rs. 3,000/- [Arvind Deshpande-arvisneha2000@gmail.com]
Opinion:
There are numerous instances where there is an error while making payment of Tax either electronically or manually. To rectify these errors, Income-Tax Department has issued new guidelines effective 01-09-2011. This new mechanism allows Banks to correct physical challans only. For correction in electronic challan, request will have to be made to the concerned Assessing Officer. For general benefit, the procedure for correction is physical challan is given hereunder:
Fields that can be corrected by bank:
· Assessment Year
· Major Head Code
· Minor Head Code
· TAN/PAN
· Total Amount
· Nature of payment (TDS Codes)
Time frame for correction request:
- Request for correction has to be made within 7 days of deposit of challan for correction in PAN, TAN and Assessment Year
- For Major head, minor head and nature of payment, request can be made within 3 months of deposit of challan.
Remedy available after time frame is over:
- After lapse of time frame, request can be made to the Assessing Officer.
Time frame given to bank to carry out correction:
- After receipt of request, bank must carry out the correction within 7 days.
Other conditions for correction:
- Correction in name is not allowed
- Any combination of correction of Minor Head and Assessment Year together is not allowed
- PAN/TAN correction will be allowed only when the name in the challanmatches with the name as per the new PAN/TAN.
- The change of amount will be permitted only on the condition that the amount so corrected is not different from the amount actually received by the bank and credited to Govt. Account.
- For a single challan, correction is allowed only once. However, where 1st correction request is made only for amount, a 2nd correction request will be allowed for correction in other fields.
- There will be no partial acceptance of change correction request, i.e. either all the requested changes will be allowed, if they pass the validation, or no change will be allowed, if any one of the requested changes fails the validation test.
Procedure for requesting correction:
- The tax-payer has to submit the request form for correction (in duplicate) to the concerned bank branch.
- The tax-payer has to attach copy of original challan counterfoil.
- In case of correction desired for challan in Form 280, 282, 283, the copy of PAN card is required to be attached.
- In case of correction desired for payments made by a tax-payer (other than an individual), the original authorization with seal of the non-individual taxpayer is required to be attached with the request form.
- A separate request form is to be submitted for each challan.
Correction in Electronic Challans
- For correction in electronic challans and for correction after the time period for application to bank lapses, a written request in prescribed format has to be made to the Assessing Officer
- Assessing Officer has power to rectify the error , in bona fide cases, to enable credit of tax to assessee
Form of application to bank:
Income-tax department has given a format in which application can be made to the bank.
The form is given is available at nareshjakhotia.blogspot.com or
http://www.incometaxindia.gov.in/archive/LeftMenu_ChallanCorrectionMechanism_26
82011.pdf
In your specific case, you have to make an application to your Assessing Officer elaborating the facts of the case along with all the relevant documents to prove the payment. You may further obtain the letter from the bank admitting the mistake caused at their end, which may also be submitted to the A.O. to carry out the necessary changes.

Query 2]
An ancestral House-property, Situated in M.P., was transferred to me, being the eldest, as per the family-partition in the year 2007-08. This property was originally purchased by my two paternal- uncles jointly, in the year 1968-69 for Rs. 18,000/- only (Rs. Eighteen Thousand only), as a family-property, which was transferred to my father in the year 2004-05 according to their family-partitions. I now wish to sell-off this property for Rs. 9.25/-Lacs (Rs Nine Lacs twenty five Thousands only) in this current year 2011-12. I shall be distributing/gifting this amount equally to my three younger brothers & sisters, being the family property.
My queries are:
1. Under the above circumstances, what shall be my quantum of LTCG or any other tax, if any?
2. How much amount I shall be required to invest in the infra-structural Bonds (NHAI etc) or in another house property to minimize or nullify LTCG?
I also wish to point-out here one interesting but may or may not so relevant fact that the original seller who had sold property to my uncles in 1968-69 had also obtained the same in his family-partitions at that time. Please enlighten in the matter. [dilipgpawar@rediffmail.com]
Opinion:
1. From the amount of sale consideration, the expenses incurred in connection with transfer (like brokerage etc) could be reduced to arrive at the figure of Net Sale Consideration. [The sale consideration in your case is Rs. 9.25 Lacs. However, if the value adopted by the Stamp duty authorities is higher than Rs. 9.25 Lacs, then such higher value would be deemed as sale consideration for computing capital gain]
2. The difference between thea) Net sale consideration & b) the fair market value of the property as on 01.04.1981 & indexed cost of improvementwould be treated as “Long term capital gain”
3. The Long term capital gain is taxable @ 20% u/s 112 of the Income Tax Act-1961.
4. In the absence of all the relevant information like fair market value as on 01.04.1981, cost/year of improvement etc the amount of long term capital gain could not be worked out.
5. The first incidence of tax would arise in your hands only. Subsequent gifting of the amount amongst brothers & sister would not enable you to reduce your tax bill.
6. One can save the Long Term Capital Gain tax arising from sale of plot by following mode: a) U/s 54EC:To save LTCG tax u/s 54EC, you are required to invest the amount of Long Term Capital Gain (LTCG) within a period of 6 months from the date of sale/transfer of assets in the specified bonds issued by REC/NHAI.b) U/s 54F: For exemption u/s 54F, subject to various other terms / stipulations, you have to invest the amount of net sale consideration for purchase of a residential house property within a prescribed period.
7. The property to be sold is an ancestral property. You may examine the possibility of treating the property / income as belonging to the HUF.
8. All our readers may please note that the new Direct Tax Code has proposed to replace the base date in respect of old properties from existing 01.04.1981 to 01.04.2000 for computation of capital gain. If it happens so, it would be beneficial to transfer the ancestral/old property after the new DTC regime come in force. However, dust on the DTC has not yet been cleared & the final provisions & the date of its enactment, etc are still not very clear. We will try to cover the tax planning aspects in the new Direct Tax Code vis a vis Income Tax Act after the Government releases the final code & announces its date of enactment.

Sunday, January 1, 2012

TAX TALK-02.01.2012-THE HITAVADA

TAX TALK-02.01.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“OWNERSHIP IS A CONDITION PRECEDENT FOR CLAIMING DEDUCTION U/S 24(b) & U/S 80C”
Query 1]
1. Please refer to the Tax Talk dated 30.05.2011 wherein it is mentioned in reply to the first part of Query No. 1 that ”Ownership is a condition precedent for claiming deduction towards Interest on housing loan u/s 24(b) & towards Principal repayment u/s 80C of the Income Tax Act -1961. Without ownership, deduction claim shall not be admissible.”
2. I am a DDO of PSU. The sale deed of the land is in the name of the wife of our employee. However, the employee (along with wife) has taken housing loan from the bank and repaying the same, and wants to claim deduction u/s 24 and 80C for self occupied property.
3. On the basis of your opinion in Tax Talk dated 30.05.2011 & Opinion of Shri A.N. Shanbhag in Hitavada Dated 23.05.2011, we have refused claim for deduction u/s 24(b) & U/s 80C in respect of one of the employee as the land was in the name of wife and the Husband (employee) name was there only in the loan documents/certificate. It is submitted by the employee that he is the owner of the structure (house) on the land and as such the building (house) and so also loan belong to the husband only. He want us to allow the deduction u/s 80C & U/s 24(b) relying on the 2 ITR 209, 120 ITR 476.
4. You are requested to give your opinion in view of above for making TDS from salary income.
5. Further, we want to know whether the deduction u/s 80E is admissible on the interest on the education loan taken by an employee from employees co-operative society for higher education of his wards. In other words, whether employee co-op society is a financial institution with reference to section 80E?
[dubaldhaniya@gmail.com]
Opinion:
At the cost of repetition, it may be reiterated that “Ownership is a condition precedent for claiming deduction towards Interest on housing loan u/s 24(b) & towards Principal repayment u/s 80C of the Income Tax Act -1961”
Income Tax Law recognizes the concept of dual ownership in respect of immovable property i.e., the ownership of plot/ Land by one person and building by another. However, proper documentations / records are to be kept to prove the separate ownership of the assets.
It may be very relevant to mention here the relevant part of the Circular No. 05/2011 [F.NO. 275/192/2011-IT(B)], Dated 16-8-2011 issued for deduction of Tax at Source u/s 192 from Salary Income which reads as under: “DDOs to satisfy themselves of the genuineness of claim:The Drawing and Disbursing Officers should satisfy themselves about the actual deposits/ subscriptions / payments made by the employees, by calling for such particulars/ information as they deem necessary before allowing the aforesaid deductions. In case the DDO is not satisfied about the genuineness of the employee's claim regarding any deposit/subscription/payment made by the employee, he should not allow the same, and the employee would be free to claim the deduction/ rebate on such amount by filing his return of income and furnishing the necessary proof etc., therewith, to the satisfaction of the Assessing Officer.”
Deduction admissible u/s 80E towards interest payment of education loan is available only if the loan is taken from any financial institutions. Financial institution, for the purpose, means a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf. HDFC Ltd & Credila Financial services private limited are notified financial institution for the purpose of section 80E. In short, no deduction u/s 80E shall be available in respect of loan taken by an employee from employees co-operative society.

Query 2]
Please provide more clarification on TDS applicability on services provided by Customs House Agent (whether section 194C or 194H) and the amount on which TDS is applicable. Usually CHA gives
1. Service charge invoice (with service tax) as applicable &
2. Reimbursement of various expenses like container charges, transport charges, ICD charges and various other charges. [******goyenka@gmail.com]
Opinion:
Normally, Custom House Agents (CHA) or Clearing & Forwarding (C&F) Agents operate on a contractual basis and so the tax is deductible u/s 194C of the Income Tax Act-1961.
Section 194C (1) provides that any person responsible for paying any sum to any resident contractor, for carrying out any work in pursuance of a contract, shall deduct tax at source at a specified percentage.
Custom House Agents (CHA) or Clearing & Forwarding (C&F) Agents make payments on behalf of the importers and exporters towards statutory levies, for example, port dues, customs duties, etc., and other reimbursable expenses like Container charges, ICD Charges, stamp charges, and processing other statutory charges. The important question arises about the amount on which tax is to be deducted? There is a great confusion which leads to a dispute between the tax authorities and the tax payers as to whether tax is to be deducted on reimbursement of actual expenses incurred by the CHA and C&F.
Arguments for deduction of tax at source on the entire amount: a] Clarification by Circular No. 715, dt. 8-8-1995:Circular No. 715, dt. 8-8-1995 has clarified that sections 194C and 194-J refer to any sum paid. So, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source.b] Supreme Court decision in the case of Associated Cement Co. Ltd. v. CIT (1993) 201 ITR 435:The Department often relies on the Supreme Court decision in the case of Associated Cement Co. Ltd. v. CIT (1993) 201 ITR 435 (SC) wherein in was held that section 194C does not permit exclusion of amount of reimbursement of actual expenditure incurred by the payee for getting the work completed.
Arguments for non-deduction of tax at source on the Reimbursement of Expenses: a] Sub-section (2) of section (4) reads as under:"(2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of the Act."One can interpret that if the income is not chargeable to tax in the recipient's hands under section 4(1), then, the provision for deduction of tax at source under sub-section (2) of section 4 will not be applicable.b] Supreme Court decision in the case of Transmission Corporation of AP Ltd. v. CIT (1999) 239 ITR 587:It was held that since the deduction of tax at source must be in relation to an income or trading receipt only, the actual cost reimbursements and other statutory charges do not come within the purview of section 194C.c] The Central Excise Department, in their Trade Notice No. 5 of 1997, Dt. 12-6-1997 also clarified that the payment towards statutory levies and various other reimbursable expenses incurred by Custom House Agent on behalf of the client, are not to be included for computing the service tax.d] In case of Rajiv Cumber v. Bharat Sanchar Nigam Ltd. (2002) 128 STC 494 (SC):It was held that the contractee had to examine the facts for making deductions from the total bills submitted by the contractor. Therefore, the contractor cannot make deduction mechanically.
We are of a considered opinion that if a consolidated bill is raised for charges as well as of expenses, then the entire amount should be subject to TDS. However, if a separate bill is given for charges and expense then the reimbursement of expenditure should not be subject to deduction of tax at source.