Appeal details
Counselvise Citation
[2022] 104 COUNSELVISE.COM (IT) 3396 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 month(s) 3 day(s)
Appellant
Respondent
Appeal Type
Miscellaneous Application
Pronouncement Date
28-07-2022
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
C
Next Hearing Date
21-07-2022
Assessment Year
2013-2014
Appeal Filed On
24-04-2022
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND Ms. PADMAVATHY S, ACCOUNTANT MEMBER MP Nos.44 & 45/Bang/2022 [ in ITA Nos.1195/Bang/2014 & 474/Bang/2016] Assessment year : 2012-13 & 2013-14 M/s Volvo India Pvt. Ltd., Yalachahally Village, Tavarakere Post, Hoskote. Bengaluru-560 122. PAN : AAACV 6747 N Vs. The Income-tax Officer (TDS), LTU, Bengaluru. APPELLANT RESPONDENT Appellant by : Shri S. Parthasarathi, Advocate Respondent by : Smt. Priyadarshini Baseganni, Sr. DR (ITAT), Bengaluru. Date of hearing : 22.07.2022 Date of Pronouncement : 29.07.2022 O R D E R Per Padmavathy S., Accountant Member These miscellaneous petitions are filed u/s. 254(2) of the Income-tax Act, 1961 [the Act] by the assessee seeking rectification of the order of the Tribunal dated 25.3.2022. MP Nos.44 & 45/Bang/2022 Page 2 of 14 2. Pursuant to the order of the Hon’ble High Court of Karnataka dated 15.11.2021 in ITA No.369/2018 remanding the appeals to the Tribunal, these appeals were heard and disposed of vide the common order dated 25.3.2022. The Tribunal vide para 14 of the Tribunal restored all the issues in the appeals to the Assessing Officer for re- examination in the light of principles laid down by the jurisdictional High Court in the case of Toyota Kirloskar Motor Pvt. Ltd. in ITA No.245/2018 and the decision of the coordinate Bench of this Tribunal in the case of Biocon Lt. v. DCIT in ITA No.1248/Bang/2014 dated 21.3.2013. The relevant paragraph is as follows:- “14. The above said decision also follows the view of the Hon'ble jurisdictional High court in M/s. Toyota Kirloskar Motor Pvt. Ltd (referred supra) that the demand u/s 201(1) shall not be raised, when the assessee subsequently deducts tax at source at the time of payment. We also notice that the Tribunal has visualised various other possibilities also and dealt with them in accordance with law. Following the above said decision, we set aside the orders passed by Ld CIT(A) and restore all the issues to the file of the assessing officer for re-examining the issue in the light of principles discussed supra.” 3. Now the contention of the assessee through this petition is that the Tribunal has not considered the findings in the judgment in ITA No.369/2018 dated 15.11.2021 in these cases. Further, in the light of the jurisdictional High Court judgments in the case of Karnataka Power Transmission Corporation Ltd. v. DCIT, 383 ITR 59 (Kar) and Toyota Kirloskar Motors (P) Ltd. (supra), re-examination of the facts by the AO were not required and the Tribunal ought to have held that MP Nos.44 & 45/Bang/2022 Page 3 of 14 assessee is not in default of the provisions of section 201(1) and 201(1A) of the Act, especially when the revenue has not brought any material to suggest that the provisions were made only after identifying the payees. 4. The ld. AR submitted that the issue cannot be remanded to the AO as the assessee is not an assessee in default since the year end provisions are not made party wise as per the ratio laid down in the jurisdictional High Court in the case of Karnataka Power Transmission Corporation Ltd. (supra). The ld AR also submitted that when there is no liability towards 201(1) then the question of levy of interest u/s.201(1A) would not arise. 5. The ld. DR submitted that the Tribunal has restored the issue to the file of the Assessing Officer for fresh examination in light of the principles laid down by the jurisdictional High Court and the decisions of the ITAT on the issue. There was no error in the order of the Tribunal remanding the issue to the AO so as to warrant its rectification. 6. We have considered the rival submissions and perused the material on record. The main contention put forth before us with regard to assessee is not liable to deduct tax at source on the year end provision is that the payees are not identifiable and that no income has accrued to the payees. This issue is discussed elaborately in the decision relied on by Tribunal in the case of Biocon Ltd Vs. DCIT (ITA MP Nos.44 & 45/Bang/2022 Page 4 of 14 No.1248/Bang/2014 dated 21.03.2013) in para 9 which is extracted hereinbelow for the purpose of ready reference:- “9 The Ld A.R submitted that the assessee has deducted tax at source when the payments are actually made in the succeeding year. The co- ordinate bench in the case of IBM India P Ltd (supra) has held that the demand raised u/s 201(1) is liable to be cancelled, if the assessee has deducted tax at source at the time of accounting the invoices/bills or at the time of making payment in the succeeding year. It was further held that the assessee would be liable to pay interest u/s 201(1A) of the Act, in view of the delay in deduction/remittance of TDS amount. Following the above said decision, we also hold so. 9.1 The Ld A.R expressed the view that there are certain practical difficulties involved in complying with the provisions of TDS. He prayed that the Tribunal may clarify the law on the practical difficulties. We shall address them one by one. The first difficulty pointed out by him is that the payees are not identifiable in respect of certain expenses, even though the same has been included in the yearend provisions. We have noticed earlier that the provision for expenses have been created by the assessee for the liability towards (a) Contract expenses covered by sec. 194C (b) Professional fees covered by sec. 194J (c) Rent expenses covered by sec. 194I (d) Commission expenses covered by sec.194H (e) Payments to non-residents covered by sec. 195 The Ld CIT(A) rejected this submission of the assessee with the following observations:- “4.2 With regard to the appellant’s claim that the identity of the recipients was not known and, hence, it could not have deducted tax on the provisioned amounts, I find that the facts and probability largely belie this claim. It is commonsensical to expect that the appellant’s creation of the provision for the services received by the year end to obtain a correct view of its profit at year end was not based on any MP Nos.44 & 45/Bang/2022 Page 5 of 14 arbitrary or whimsical estimate. It is clear from the provisioned expenses that the estimate has followed from pre-existing contracts with known parties for identified services and, hence, the accounting of amounts liable to be paid to these parties for services availed as per known terms of transaction is a specific exercise which carries with it the statutory responsibility for deducting tax at source also. The appellant cannot wriggle out of this responsibility by holding that the provisions were made without any basis towards unidentified parties for unascertained liabilities.” From the nature of expenses listed above, the view expressed by Ld CIT(A) appears to be quite reasonable. In our view, it is the responsibility of the assessee to satisfy the assessing officer by preparing a list of expenses, for which payees could not be identified at the time of making provision and the reasons for the same. 9.2 We notice that there are certain judicial rulings holding that there will not be TDS liability, if the payee is not identifiable. We shall discuss about the same. In the case of Dishnet Wireless Ltd vs. DCIT (2015)(154 ITD 827)(Chennai Trib), the Chennai bench of Tribunal held that when the tax deductor cannot ascertain the payee who is the beneficiary of credit of tax deduction at source, the mechanism of Chapter XVII-B cannot be put into service. It was further held that if the payee is identifiable and the amount payable to him is ascertainable, then the assessee would be required to deduct tax at source in respect of such provision. We shall discuss some more decisions:- (a) The first decision is that of Honourable Delhi High Court in case of UCO Bank (369 ITR 335). The facts prevailing in this case are that the Court had directed one of the parties to the suit to deposit certain sums in the High Court. The amount was invested in Fixed deposit by the Registrar General of the High Court with UCO Bank. The High Court dealt with the question as to whether the bank is liable to deduct TDS on the interest income credited to the above said Fixed deposit. The bank’s case was that the Registrar General was merely a custodian of the funds on behalf of the High Court and the Registrar General per se MP Nos.44 & 45/Bang/2022 Page 6 of 14 was neither an assessee nor he was beneficiary entitled to receive any interest on the fixed deposits. Under these facts, the Hon’ble Delhi High Court held that if TDS is deducted that would amount to recovery of tax without corresponding income being assessed in the hands of any assessee. In the absence of ascertainable assessee, the machinery of recovering tax by deduction of tax at source breaks down because it does not aid the charge of tax u/s 4 of the Act, but takes a form of a separate levy, independent of other provisions of the Act, which is not permissible. Therefore, it can be seen that the decision of the Hon’ble Delhi High Court has been rendered in the peculiar facts prevailing in that case. (b) The next decision is of Hon’ble Karnataka High Court in the case of Karnataka Power Transmission Corporation Ltd (383 ITR 59). In this case, the assessee before Hon’ble High Court of Karnataka made provision towards interest payable on delayed payments. However, subsequently assessee noticed that interest is not payable in view of understanding reached between the parties. Accordingly it reversed the provision entries in books of account. Under these set of facts, the Hon’ble Karnataka High Court held that the interest which partakes the character of income alone is liable for deduction of tax at source u/s 194A of the Act. (c) The Mumbai bench of Tribunal, in the case of Industrial Development Bank of India vs. ITO (2007)(107 ITD 45) has examined the aspect of liability to deduct tax at source, when the payees could not be identified. The question before Mumbai bench of Tribunal was whether or not Section. 193 of the Act requires tax deducted at source in respect of the provision for interest accrued but not due made by an assessee where the ultimate recipient of such interest accrued but not due cannot be ascertained at the point of time when the provision is made. In this case, the assessee issued 'Regular Return Bond-Series II’, which carried interest rate of 16 per cent p.a. payable annually. The interest was payable on 9th of June every year. However, the assessee closed its accounting year on 31st March. Accordingly, it made provision of interest accrued upto 31st March, which however has not MP Nos.44 & 45/Bang/2022 Page 7 of 14 become due. This issue was adjudicated in a detailed manner. The discussions made by the Tribunal in lucid manner are extracted below:- 9. The above terms and conditions, so far as material for the purposes of our adjudication, can be summarized as follows: (a) The assessee is liable to pay interest @ 16 per cent annually in respect of regular return bondholders. (b) The interest is payable on 9th June of each calendar year, except in the year of maturity, when interest is payable on maturity. (c) The interest, except at the time of maturity, is paid to the person whose name is registered in the records of the assessee-company as on 15th May of each calendar year. (d) The bonds are transferable by endorsement and delivery, and the assessee does not, in any way, control such transfer of ownership. Let us now appreciate the impact of the above terms and condition so far the issue in appeal before us is concerned. As on 31st March of the year, the assessee's liability for 'interest accrued but not due' because interest is payable only once annually on a date other than the date of closure of accounts but the assessee will have no means to find out as to who could be the recipients of 'interest due but not payable' in respect of 'regular return bonds' because while assessee's liability to pay interest @ 16 per cent is certain and is to be made as on 31st March, i.e., on the end of the relevant accounting year, the bonds in question being freely transferable, it cannot ascertain as to who will be the registered bondholder as on 15th May of that year. The assessee cannot be expected to have clairvoyance of knowing, as on 31st March, as to who will own the bonds on 15th May of that year. Therefore, in such a situation while the assessee certainly has the liability to pay the interest for the period till the end of the relevant accounting year, the assessee certainly does not know for sure as to who will be entitled to receive this interest...... In our humble understanding, conceptually, liability of TDS is in the nature of a vicarious or substitutionary liability which presupposes MP Nos.44 & 45/Bang/2022 Page 8 of 14 existence of a principal or primary liability. Chapter XVII-B is titled 'Collection and recovery of tax--Deduction of tax at source" and this title also indicates that the nature of TDS obligations are obligations for collection and recovery of tax. Under the IT Act, tax is on the income and it is in the hands of the person who receives such income, except in the case of dividend distribution tax which is levied under Section. 115-0--a Section outside the chapter providing for collection and recovery mechanism and set out under a separate chapter 'Determination of tax in certain special cases--Special provision relating to tax on distributed profits of domestic companies'. A plain reading of Section. 190 and Section. 191, which are first two sections under the Chapter XVII, and of Sections 199, 202 and 203(1) would show this underlying feature of the TDS mechanism....... Section 190 makes it clear that the scheme of TDS is one of the methods of recovering the tax due from a person and it is notwithstanding the fact that the tax liability may only arise in a later assessment year. The tax liability is obviously in the hands of the person who earns the income and TDS mechanism provides for method to recover tax under such liability. Therefore, this TDS liability is, as we begun by taking note of, a sort of substitutionary liability. Section 191 further makes this position clear when it lays down that in a situation TDS mechanism is not provided for a particular type of income or when the taxes have not been deducted at source in accordance with the provisions of Chapter XVII, income-tax shall be payable by the assessee directly. This provision thus shows that TDS liability is a vicarious liability and the principal liability is of the person who is taxable in respect of such income. Section 199 makes it even more clear by laying down that the credit for taxes deducted at source can only be given to the person from whose income the taxes are so deducted. Therefore, when tax deductor cannot ascertain beneficiaries of a credit, the tax deduction mechanism cannot be put into service. Section 202 lays down that TDS provisions are without any prejudice to any other mode of recovery from the assessee, which again points out to the tax deduction liability being vicarious liability in nature. Section 203(1) then lays down that for all tax deductions at source the tax deductor has to "furnish to the person to whose account such credit is MP Nos.44 & 45/Bang/2022 Page 9 of 14 given or to whom such payment is made or the cheque or warrant is issued" which presupposes that at the stage of tax deduction the tax deductor knows the name of person to whom the credit is to be given though whether by way of credit to the account of such person or by way of credit to some other account. This again shows that TDS liability is a vicarious liability to pay tax on behalf of the person who is to be beneficiary of the payment or credit, with a corresponding right to recover such tax payable from the person to whom credit is afforded or payment is made. It would be thus seen that the whole scheme of TDS proceeds on the assumption that the person whose liability is to pay an income knows the identity of the beneficiary or the recipient of the income. It is a sine qua non for a vicarious tax deduction liability that there has to be a principal tax liability in respect of the relevant income first, and a principal tax liability can come into existence when it can be ascertained as to who will receive or earn that income because the tax on the income and in the hands of the person who earns that income. In this view of the matter, TDS mechanism cannot be put into practice until identity of the person in whose hands, it is includible as income can be ascertained. 18. It is indeed correct that Explanation to Section. 193 lays down that even when an income is credited to any account in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this Section shall apply accordingly, but the fact that the credit to any account is to be deemed to be credit to the payee's account also presupposes that payee can be ascertained. Therefore, this deeming fiction can only be activated when the identity of the payee can be ascertained. To illustrate, in the example that we had taken in para 4 above as long as assessee knows the identity of lenders, whether the assessee credits the interest accrued but not due in the account of the assessee or in some other account, tax would continue to be deductible under Section 193 by the virtue of deeming fiction set out in the Explanation to Section. 193. The liability to pay in such a case would crystallise later, i.e., on due date of 31st December, and the corresponding credit to the lender's account will also be given on 31st December, but the assessee will still have tax deduction liability in respect of interest accrued but not due as on 31st MP Nos.44 & 45/Bang/2022 Page 10 of 14 March. However, on the facts of the present case, this Explanation cannot be put into practice because the payee is not known at the stage of provision for 'interest accrued but not due' being made. It is not difficult to visualize that Explanation to Section. 193, which was introduced w.e.f. 1st June, 1989, was apparently to take care of a situation in which instead of crediting the account of the payee, some other proxy account was credited, to avoid the TDS liability being invoked. For example, if at the end of the accounting year, the assessee is to make a provision for interest of Rs. 10,000 payable to Mr. X, but he creates the provision by way of credit to 'interest payable account'. In such a situation 'interest payable account' is de facto a proxy account for Mr. X, either fully or to the extent of the amount payable to Mr. X. However, it could have been argued, in the absence of the Explanation to Section. 193, that since the credit is not to the account of Mr. X, the tax deduction liability cannot be invoked. The Explanation itself makes it clear that even when such a practice is adopted the credit will be deemed to be credit to the payee's account. In our considered view, fiction embodied in the Explanation is only applicable in situations in which tax deduction liability is sought to be escaped by crediting interest to some other account other than that of recipient of interest. In our considered view, Explanation to Section. 193 cannot be invoked in a case where the person who is to receive the interest cannot be identified at the stage at which the provision for interest accrued but not due is made. This position is also accepted by the CBDT, as evident from its letter dt. 5th July, 1996 addressed to the Tata Iron and Steel Co. Ltd. (Letter No. 275/126/96 IT (B)], which, inter alia, states as follows: I am directed to refer to your letter ref. 3A 13-21/1460 dt. 23rd May, 1996, on the above subject, and to say that difference between the issue price of Rs. 5,000 and face value of Rs. 25,500 is in the nature of interest subject to provisions of Sections 193/193A. Although the company would be making provisions for interest on year to year basis in their books of account, there will be no deduction of tax at source in each such year as the payee is not known. MP Nos.44 & 45/Bang/2022 Page 11 of 14 (Emphasis, italicised in print, supplied by us now) We agree with the merits of the stand so taken by the CDBT. The deduction of tax at source can only be effected when payee is known. As far as the situation before us is concerned, the regular return bonds being transferable on simple endorsement and delivery and the relevant registration date being a date subsequent to the closure of books of account, the assessee could not have ascertained the payees at the point of time when the provision for interest accrued but not due was made. Accordingly, no tax was required to be deducted at source in respect of the provision for interest payable made by the assessee which reflected provision for 'interest accrued but not due' in a situation where the ultimate recipient of such 'interest accrued but not due' could not have been ascertained at the point of time when the provision is made. In the present case, interest to such bondholders is to be paid as are registered with the assessee-company as on 15th May, 1994 but there could not have been any method of ascertaining, as at the time of making the provision for 'interest accrued but not due', i.e., on 31st March, 1994, as to who will be registered bondholders as on 15th May, 1994. It is also important to bear in mind that taxes were duly deducted at source at the time of payment, i.e., on 9th June, 1994 and that there is no loss of revenue as such. In the light of these discussions, we hold that the assessee did not have any liability to deduct tax at source, in respect of provision for 'interest accrued but not due', in respect of regular return bonds made on 31st March, 1994. When there was no obligation of deduct tax at source, there cannot be any question of levy of penalty or interest. The appellant, therefore, must succeed.” It can be noticed that the decision, in all these cases has been rendered on the peculiar facts of the case. 9.3 We also notice that in all these decisions, the assessee therein has established the fact that the payees are not identifiable. Hence there should not be any dispute to the proposition that the TDS mechanism will fail, if the payees are not identifiable. However, it is the responsibility of the assessee to prove that payees are not identifiable with credible reasons. Accordingly, if the assessee, in the present case, is able to prove that the payees could not be identified in respect of particular expenses, MP Nos.44 & 45/Bang/2022 Page 12 of 14 then the mechanism provided under Chapter XVII-B would fail and hence the AO is not entitled to demand tax u/s 201(1) and interest u/s 201(1A) in respect of those expenses.” 7. In para 9.3 of the order in the case of Biocon Ltd (supra), the Tribunal has given a clear finding that it is the responsibility of the assessee to prove that payees are not identifiable with credible reasons. In the light of this decision, the Tribunal in the present case remitted the issue to the AO for examination of the facts and determine the liability u/s. 201(1), if any. With regard to the computation of interest u/s.201(1A), the various scenarios discussed in para 10 of the order of Biocon Ltd (supra)., which is applicable in assessee’s case, have to be factually verified and the interest has to be computed accordingly. Therefore the issue of calculation of interest u/s.201(1A) also was remitted to the AO. In view of this discussion, we see no error in the order dated 25.03.2022 passed by this Tribunal, warranting rectification of any mistake apparent on the record. 8. Further, the Hon’ble Supreme Court in the case of CIT vs Reliance Telecom Limited [2021] 133 taxmann.com 41 (SC) has considered the issue of Miscellaneous Applications made u/s.254(2) before the Appellate Tribunal held that while considering application under section 254(2), Tribunal was not required to re-visit its original order and go in details on merits and completely recall its order as powers under provision of section 254(2) were only to rectify/correct any mistake apparent from record. The relevant observations are as follows:- MP Nos.44 & 45/Bang/2022 Page 13 of 14 “6. None of the aforesaid grounds are tenable in law. Merely because the Revenue might have in detail gone into the merits of the case before the ITAT and merely because the parties might have filed detailed submissions, it does not confer jurisdiction upon the ITAT to pass the order de hors Section 254(2) of the Act. As observed hereinabove, the powers under Section 254(2) of the Act are only to correct and/or rectify the mistake apparent from the record and not beyond that. Even the observations that the merits might have been decided erroneously and the ITAT had jurisdiction and within its powers it may pass an order recalling its earlier order which is an erroneous order, cannot be accepted. As observed hereinabove, if the order passed by the ITAT was erroneous on merits, in that case, the remedy available to the Assessee was to prefer an appeal before the High Court, which in fact was filed by the Assessee before the High Court, but later on the Assessee withdrew the same in the instant case.” 9. In the light of the above discussion and the judgment of the Hon’ble Supreme Court (supra), we find no merit in the miscellaneous application filed by the assessee and reject the same. 7. In the result, the miscellaneous petition filed by the assessee is dismissed. Pronounced in the open court on this 29 th day of July, 2022.. Sd/- Sd/- ( GEORGE GEORGE K. ) ( PADMAVATHY S. ) JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore, Dated, the 29 th July, 2022. /Desai S Murthy / MP Nos.44 & 45/Bang/2022 Page 14 of 14 Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.
