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* IN THE HIGH COURT OF DELHI AT NEW DELHI
6&7
+ ITA 160/2015
COMMISSIONER OF INCOME TAX-1 ..... Appellant
Through: Mr. Kamal Sawhney,Senior
Standing counsel with Mr. Raghvendra
Singh, Junior Standing counsel and
Mr. Shikhar Garg, Advocate
versus
ANSAL LAND MARK TOWNSHIP (P) LTD...... Respondent
Through: Mr. Arta Trana Panda, Advocate.
And
ITA 161/2015
COMMISSIONER OF INCOME TAX-1 ..... Appellant
Through: Mr. Kamal Sawhney, Senior
Standing Counsel with Mr. Raghvendra
Singh, Junior Standing counsel and
Mr. Shikhar Garg, Advocate
versus
ANSAL LAND MARK TOWNSHIP (P) LTD...... Respondent
Through: Mr. Arta Trana Panda, Advocate.
CORAM:
HON'BLE DR. JUSTICE S.MURALIDHAR
HON'BLE MR. JUSTICE VIBHU BAKHRU
ITA No. 160 & 161/2015 Page 1 of 10
ORDER
% 26.08.2015
CM APPL No. 3774 of 2015 in ITA No. 160 of 2015
CM APPL No. 3775 of 2015 in ITA No. 161 of 2015
1. Allowed, subject to all just exceptions.
2. The applications are disposed of.
ITA No. 160 of 2015 & ITA No. 161 of 2015
3. These two appeals by the Revenue under Section 260A of the
Income Tax Act (,,Act) are directed against the common order dated
21st July 2014 passed by the Income Tax Appellate Tribunal (,,ITAT)
in ITA No. 2972/Del/2012 and ITA No. 877/Del/2013 for the
Assessment Years (,,AYs) 2008-09 and 2009-10 respectively.
4. At the outset, it is pointed out by learned counsel for the Revenue
that the questions (a) to (e) as projected by the Revenue in para 2 of the
memorandum of appeal concerning ITATs order deleting certain
additions stand answered in favour of the Assessee by the order dated
2nd March 2015 in ITA No. 162 of 2015 (CIT v. Ansal Land Mark
Township (P) Ltd.) concerning and earlier AY. Consequently, those
questions for the present AYs also stand answered in favour of the
Assessee and against the Revenue.
ITA No. 160 & 161/2015 Page 2 of 10
5. The other issue urged by the Revenue during the course of
arguments pertains to the retrospectivity of the second proviso to
Section 40(a) (ia) of Act which reads as under:
"Provided further that where an assessee fails to deduct the
whole or any part of the tax in accordance with the
provisions of Chapter XVII-B on any such sum but is not
deemed to be an assessee in default under the first proviso
to sub-section (1) of Section 201, then, for the purpose of
this sub-clause, it shall be deemed that the assessee has
deducted and paid the tax on such sum on the date of
furnishing of return of income by the resident payee
referred to in the said proviso"
6.When it was pointed out to learned counsel for the Appellant that no
question as such has been sought to be urged by the Revenue in the
memorandum of appeal, learned counsel stated that an application has
been filed to amend the memorandum of appeal to include such a
question and that perhaps the said application is lying under objection.
7. Notwithstanding the above, the Court has heard learned counsel for
the Revenue on the above issue as well.
ITA No. 160 & 161/2015 Page 3 of 10
8. It is seen that the issue in these AYs arises in the context of the
disallowance by the Assessing Officer of the payment made by the
Respondent Assessee to Ansal Properties and Infrastructure Ltd.
(,,APIL) which payment, according to the Revenue, ought to have
been made only after deducting tax at source under Section 194J of the
Act. Before the ITAT, it was urged by the Assessee that in view of the
insertion of the second proviso to Section 40(a) (ia) of the Act, the
payment made could not have been disallowed. Reliance was placed
on the decision of the Agra Bench of ITAT in ITA No. 337/Agra/2013
(Rajiv Kumar Agarwal v. ACIT) in which it was held that the second
proviso to Section 40 (a) (ia) of the Act is declaratory and curative in
nature and should be given retrospective effect from 1st April 2005.
9. It is seen that the second proviso to Section 40(a) (ia) was inserted
by the Finance Act 2012 with effect from 1st April 2013. The effect of
the said proviso is to introduce a legal fiction where an Assessee fails
to deduct tax in accordance with the provisions of Chapter XVII B.
Where such Assessee is deemed not to be an assessee in default in
terms of the first proviso to sub-Section (1) of Section 201 of the Act,
ITA No. 160 & 161/2015 Page 4 of 10
then, in such event, "it shall be deemed that the assessee has deducted
and paid the tax on such sum on the date of furnishing of return of
income by the resident payee referred to in the said proviso".
10. It is pointed out by learned counsel for the Revenue that the first
proviso to Section 201 (1) of the Act was inserted with effect from 1st
July 2012. The said proviso reads as under:
"Provided that any person, including the principal officer of
a company, who fails to deduct the whole or any part of the
tax in accordance with the provisions of this Chapter on the
sum paid to a resident or on the sum credited to the account
of a resident shall not be deemed to be an assessee in default
in respect of such tax if such resident-
(i) has furnished his return of income under section 139;
(ii) has taken into account such sum for computing income
in such return of income; and
(iii) has paid the tax due on the income declared by him in
such return of income;
And the person furnishes a certificate to this effect from an
accountant in such form as may be prescribed.
ITA No. 160 & 161/2015 Page 5 of 10
11. The first proviso to Section 210 (1) of the Act has been inserted to
benefit the Assessee. It also states that where a person fails to deduct
tax at source on the sum paid to a resident or on the sum credited to the
account of a resident such person shall not be deemed to be an assessee
in default in respect of such tax if such resident has furnished his return
of income under Section 139 of the Act. No doubt, there is a
mandatory requirement under Section 201 to deduct tax at source under
certain contingencies, but the intention of the legislature is not to treat
the Assessee as a person in default subject to the fulfilment of the
conditions as stipulated in the first proviso to Section 201(1). The
insertion of the second proviso to Section 40(a) (ia) also requires to be
viewed in the same manner. This again is a proviso intended to benefit
the Assessee. The effect of the legal fiction created thereby is to treat
the Assessee as a person not in default of deducting tax at source under
certain contingencies.
12. Relevant to the case in hand, what is common to both the provisos
to Section 40 (a) (ia) and Section 210 (1) of the Act is that the as long
as the payee/resident (which in this case is ALIP) has filed its return of
income disclosing the payment received by and in which the income
ITA No. 160 & 161/2015 Page 6 of 10
earned by it is embedded and has also paid tax on such income, the
Assessee would not be treated as a person in default. As far as the
present case is concerned, it is not disputed by the Revenue that the
payee has filed returns and offered the sum received to tax.
13. Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar
Agarwal v. ACIT (supra ) , the Court finds that it has undertaken a
thorough analysis of the second proviso to Section 40 (a)(ia) of the Act
and also sought to explain the rationale behind its insertion. In
particular, the Court would like to refer to para 9 of the said order
which reads as under:
"On a conceptual note, primary justification for such a
disallowance is that such a denial of deduction is to
compensate for the loss of revenue by corresponding income
not being taken into account in computation of taxable
income in the hands of the recipients of the payments. Such a
policy motivated deduction restrictions should, therefore, not
come into play when an assessee is able to establish that there
is no actual loss of revenue. This disallowance does
deincentivize not deducting tax at source, when such tax
deductions are due, but, so far as the legal framework is
concerned, this provision is not for the purpose of penalizing
for the tax deduction at source lapses. There are separate
ITA No. 160 & 161/2015 Page 7 of 10
penal provisions to that effect. Deincentivizing a lapse and
punishing a lapse are two different things and have distinctly
different, and sometimes mutually exclusive, connotations.
When we appreciate the object of scheme of section
40(a)(ia), as on the statute, and to examine whether or not, on
a "fair, just and equitable" interpretation of law- as is the
guidance from Hon'ble Delhi High Court on interpretation of
this legal provision, in our humble understanding, it could not
be an "intended consequence" to disallow the expenditure,
due to non deduction of tax at source, even in a situation in
which corresponding income is brought to tax in the hands of
the recipient. The scheme of Section 40(a)(ia), as we see it, is
aimed at ensuring that an expenditure should not be allowed
as deduction in the hands of an assessee in a situation in
which income embedded in such expenditure has remained
untaxed due to tax withholding lapses by the assessee. It is
not, in our considered view, a penalty for tax withholding
lapse but it is a sort of compensatory deduction restriction for
an income going untaxed due to tax withholding lapse. The
penalty for tax withholding lapse per se is separately
provided for in Section 271 C, and, section 40(a)(ia) does not
add to the same. The provisions of Section 40(a)(ia), as they
existed prior to insertion of second proviso thereto, went
much beyond the obvious intentions of the lawmakers and
created undue hardships even in cases in which the assessee's
tax withholding lapses did not result in any loss to the
ITA No. 160 & 161/2015 Page 8 of 10
exchequer. Now that the legislature has been compassionate
enough to cure these shortcomings of provision, and thus
obviate the unintended hardships, such an amendment in law,
in view of the well settled legal position to the effect that a
curative amendment to avoid unintended consequences is to
be treated as retrospective in nature even though it may not
state so specifically, the insertion of second proviso must be
given retrospective effect from the point of time when the
related legal provision was introduced. In view of these
discussions, as also for the detailed reasons set out earlier, we
cannot subscribe to the view that it could have been an
"intended consequence" to punish the assessees for non
deduction of tax at source by declining the deduction in
respect of related payments, even when the corresponding
income is duly brought to tax. That will be going much
beyond the obvious intention of the section. Accordingly, we
hold that the insertion of second proviso to Section 40(a)(ia)
is declaratory and curative in nature and it has retrospective
effect from 1st April, 2005, being the date from which sub
clause (ia) of section 40(a) was inserted by the Finance (No.
2) Act, 2004."
14. The Court is of the view that the above reasoning of the Agra
Bench of ITAT as regards the rationale behind the insertion of the
second proviso to Section 40(a) (ia) of the Act and its conclusion that
ITA No. 160 & 161/2015 Page 9 of 10
the said proviso is declaratory and curative and has retrospective effect
from 1st April 2005, merits acceptance.
15. In that view of the matter, the Court is unable to find any legal
infirmity in the impugned order of the ITAT in adopting the ratio of the
decision of the Agra Bench, ITAT in (Rajiv Kumar Agarwal v.
ACIT).
16. No substantial question of law arises in the facts and circumstances
of the present case. The appeal is dismissed.
S.MURALIDHAR, J
VIBHU BAKHRU, J
AUGUST 26, 2015
mg
ITA No. 160 & 161/2015 Page 10 of 10
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