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III. Direct Taxes Case Laws:
1. Palam Gas Service Vs. CIT, Civil Appeal No. 5512 of 2017, Date of Order: 03.05.2017, Supreme Court of India
Issue:
Whether provisions of Section 40(a)(ia) of the Income Tax Act,
1961 are applicable only to the amount of expenditure, which is payable
as on 31st March of Financial Year and therefore cannot be invoked to
disallow expenditure which has been actually paid during the previous
year without deduction of TDS?
Held: No
Brief facts:
The assessee is engaged in the business of purchase and sale of LPG
cylinders. During the course of assessment proceedings, it was noticed
by the AO that the main contract of the assessee for carriage of LPG was
with the Indian Oil Corporation, Baddi. The assessee had received the
total freight payments from the IOC Baddi to the tune of Rs.32,04,140/.
The assessee had, in turn, got the transportation of LPG done through
three persons, namely, Bimla Devi, Sanjay Kumar and Ajay to whom he made
the freight payment amounting to Rs. 20,97,689/.
The AO
observed that the assessee had made a subcontract with the said three
persons within the meaning of Section 194C of the Act and, therefore, he
was liable to deduct tax at source from the payment of Rs. 20,97,689/.
On account of his failure to do so the said freight expenses were
disallowed by the AO as per the provisions of Section 40(a)(ia) of the
Act. Against the order of the AO, the assessee preferred an appeal
before the CIT(A), Shimla who had upheld the order of AO. The matter
thereafter came up in appeal before the ITAT which too met with the same
fate. In further appeal to the Hon’ble High Court u/s 260A of the Act,
the outcome remained unchanged as the Hon’ble High Court of Himachal
Pradesh also dismissed the appeal affirming the order of the ITAT and
accordingly, the assessee preferred further appeal before the Hon’ble
Supreme Court.
Held:
The Hon’ble Apex Court held that section 40(a)(ia) of the Act covers
not only those cases where the amount is payable but also when it is
paid. The word 'payable' in Section 40(a)(ia) would mean only when the
amount is payable and not when it is actually paid. Grammatically, it
may be accepted that the two words, i.e. 'payable' and 'paid', denote
different meanings. But The Punjab & Haryana High Court, in P.M.S.
Diesels & Ors., referred to above, rightly remarked that the word
'payable' is, in fact, an antonym of the word 'paid'. The adherence to
the provisions ensures not merely the collection of tax but also enables
the authorities to bring within their fold all such persons who are
liable to come within the network of tax payers.
It is
noticeable that Section 40(a) is applicable irrespective of the method
of accounting followed by an assessee. Therefore, by using the term
'payable' legislature included the entire accrued liability. If assessee
was following mercantile system of accounting, then the moment amount
was credited to the account of payee on accrual of liability, TDS was
required to be made but if assessee was following cash system of
accounting, then on making payment TDS was to be made as the liability
was discharged by making payment. The TDS provisions are applicable both
in the situation of actual payment as well of the credit of the amount.
Therefore, the Hon’ble Apex Court held that the view taken by the High
Courts of Punjab & Haryana, Madras and Calcutta is the correct view
and the judgment of the Allahabad High Court in CIT v. Vector Shipping
Services (P) Ltd., [2013] 357 ITR 642 did not decide the question of law
correctly. Thus, Consequences of the aforesaid discussion will be to
answer the question against the appellant/assessee thereby approving the
view taken by the High Court.
Therefore, the appeal of the assessee is dismissed.
(Please click here for judgment)
2. Mr. Lemes E. D’Souza V. ITO, I.T.A. No. 5802/2013, Date of Order: 10.04.2017, ITAT - Mumbai
Issue:
Should the period for investment in Bonds u/s 54EC be calculated
from the last date of receipt of payment, in case of part payments being
received for sale consideration?
Held: Yes
Brief Facts
The assessee is a transport operator and had sold Transfer of
Development Rights (TDR) vide agreement dated 06-08-2008 and LTCG was
computed by the assessee as per provisions of the Act. It was observed
by the AO that the assessee has purchased a flat for which exemption u/s
54F was claimed and the balance amount of capital gain was claimed to
be invested in NHAI/REC Bonds on 26-03-2009 and exemption u/s 54EC of
1961 Act was claimed by the assessee. The AO observed that the last date
of making investment in REC/NHAI Bonds for claiming exemption u/s 54EC
of 1961 Act was within 6 months of date of transfer of TDR i.e. on or
before 06-02-2009 and thus disallowed the exemption u/s 54EC. Further,
assessee had claimed that the receipts on sale of TDR were received on
different dates starting from 07.08.2008 to 15.11.2008.
Thus, it
was submitted by the assessee that last receipt towards sale
consideration on transfer of TDR was received on 15-11-2008 and period
of 6 months should be reckoned from this date. The ld CIT(A) observed
that in the present case the date of transfer of TDR is the date on
which the assessee had entered into an agreement for sale of the TDRs
and held that section 54EC has never used the word ‘consideration’ but,
uses the word ‘transfer’ only, which in the instant case was on
06-08-2008 and thus upheld the addition made by AO. Being aggrieved by
that, the assessee preferred an appeal before the Hon’ble ITAT.
Held
The Hon’ble Tribunal held that Section 54EC is a beneficial section
that encourages making investments in REC/NHAI bonds and thus needs to
be construed reasonably and shall not be interpreted in a manner as to
frustrate the intent of legislature. The tax-payer cannot be asked to do
impossible, as in cases where the consideration is not received on sale
/ transfer of assets but is received subsequently as provided in an
agreement to sale, the tax-payer cannot be expected to invest in Bonds
out of his own other sources or by making borrowings. It thus held that
addition made by the AO and confirmed by ld CIT(A) is not sustainable in
eyes of law and hereby ordered to be deleted.
Therefore, the appeal of the assessee is allowed.
(Please click here for judgment)
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