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Commissioner Of Income Tax-1 Vs. Ansal Land Mark Township (P) Ltd
September, 07th 2015
$~
*      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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