THE ACADEMY OF MEDICAL SCIENCES V. THE COMMISSIONER OF INCOME TAX

ITA/232/2014

AI Insights

The case involves The Academy of Medical Sciences, a charitable educational institution, which appealed against the orders related to the non-deduction and non-remittance of tax deducted at source (TDS) on lease rent payments. The appeals were against the additions made under Section 40(a)(ia) and the recovery of TDS under Section 201(1) of the Income Tax Act, 1961. The main legal questions revolved around the interpretation of the amendments introduced by the Finance Act, 2012, and whether these amendments were curative in nature, affecting the liability of the assessee for the assessment years 2007-2008 to 2009-2010. The court examined whether the assessee could be absolved from being treated as an 'assessee in default' and whether the additions under Section 40(a)(ia) could be deleted based on the tax payment by the resident-receiver of the lease rent.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 755300 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 07-03-2018
• Assessment Year: misc
• Other Referred Cases: Hindustan Cocacola Beverage (P) Ltd. V. Commissioner of Income Tax, Allied Motors (P) Ltd. V. Commissioner of Income Tax, Commissioner of Income Tax v. Alom Extrusions Ltd., Prudential Logistics and Transports v. Income Tax Officer, Thomas George Muthoot v. The Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH
• Assessee Lawyers: T M SREEDHARAN; DIVYA RAVINDRAN; V P NARAYANAN
• Keywords: Assessment years; Charitable Educational Institution; Curative nature; Finance act; Income Tax; TDS
• Section: 201; 12AA; 139; 43B; 40(a)(ia); 201(1A)

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON WEDNESDAY, THE 7TH DAY OF MARCH 2018 / 16TH PHALGUNA, 1939 ITA.No. 232 of 2014 ------------------ ITA. NO.206/COCH/2013 OF INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH. .... APPELLANT/APPELLANT/ASSESSEE ---------------------------- THE ACADEMY OF MEDICAL SCIENCES, PARIYARAM, KANNUR-670 503, PAN : CHANO 0649F, REPRESENTED BY ITS DIRECTOR DR.B. RADHAKRISHNAN. BY SRI.T.M.SREEDHARAN, SENIOR ADVOCATE. ADVS. SMT.DIVYA RAVINDRAN, SRI.V.P.NARAYANAN. RESPONDENT/RESPONDENT/REVENUE : ------------------------------ THE COMMISSIONER OF INCOME TAX, SAHANA AUDITORIUM, MELE CHOWWA, KANNUR-670 511. BY SRI.JOSE JOSEPH, SC. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07-03-2018, ALONG WITH ITA NO.233 OF 2014 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: rs. 17/03/2018. ITA.No. 232 of 2014 APPENDIX PETITIONER'S ANNEXURES: ANNEXURE A COPY OF THE ASSESSMENT ORDER DATED 17/12/2009 PASSED BY THE INCOME TAX OFFICER (TDS), KANNUR UNDER SEC.201 & 201(1A). ANNEXURE B COPY OF THE ORDER IN ITA. NO.64/TDS/KNR/CIT(A)-III/2010-11 DATED 08/03/2013 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS-III), KOCHI. ANNEXURE C CERTIFIED COPY OF THE COMMON ORDER IN ITA NOS.206/C/2013 DATED 22/11/2013 OF THE INCOME TA APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN. ANNEXURE D COPY OF THE REGISTRATION CERTIFICATE VIDE ORDER NO.TECH-27/12A/103/CIT/CLT/2010-11 DATED 19/07/2011 ISSUED BY THE COMMISSIONER OF INCOME TAX, CALICUT. ANNEXURE E COPY OF THE NOTICE U/S.226(3) DATED 10/11/2014, ISSUED BY THE INCOME TAX OFFICER (TDS), KANNUR. RESPONDENT'S ANNEXURES: NIL. //TRUE COPY// P.S. TO JUDGE rs. 17/03/2018. C.R. K. VINOD CHANDRAN & ASHOK MENON, JJ. ----------------------------------------------- I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 ----------------------------------------------- Dated this the 7th day of March, 2018 JUDGMENT K. Vinod Chandran, J. The assessee is before this Court in six appeals arising from the assessment years 2007- 2008, 2008-2009 and 2009-2010. I.T.A Nos.233 & 236 of 2014 and 152 of 2015 are with respect to the quantum addition made under Section 40(a)(ia). I.T.A. Nos.232, 234 & 235 of 2014 are with respect to recovery of the tax deduction at source (TDS); the assessee ought to have deducted and remitted, with respect to the expenses disallowed in the other appeals and the interest payable treating the I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 2 appellant as an assessee in default under Section 201(1). 2. The brief facts to be noticed are that the appellant/assessee credited lease rent to one Kerala State Co-operative Hospital Complex and Centre for Advanced Medical Services Ltd. The contention also is that no actual payment was made. But the liability in the subject years as also the credit made to the accounts of the lessor, is admitted. The appellant did not deduct tax for the amounts under Chapter XVII-B of the Income Tax Act, 1961. The questions of law in the appeals are re- framed as follows: “(i) Whether the Tribunal erred in not deleting the additions made under Section 40(a)(ia), since the second proviso introduced by Finance Act, 2012 read with the first proviso of sub-Section (1) of Section 201 absolved the assessee from being I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 3 treated as an assessee in default for reason of the payment of tax by the resident, who received the said amounts? (ii) Ought not the Tribunal have considered the provision, which was inserted by Finance Act, 2012 with effect from 01.04.2013 as curative in nature and allowed the appeal of the assessee for the years; even prior to the introduction of the proviso? (iii) Ought not the Tribunal have found that the assessee, who obtained registration as a charitable educational institution for the assessment year 2011-2012, could be granted the benefit of exemption from payment of income tax in the previous years?” 3. One additional question arising in the appeals from the order under Section 201(1), is as follows: “Ought not the Tribunal have confined the recovery to the interest payable on the TDS amounts when the resident–assessee had filed returns showing the income received by it, by way of lease rent and also computing the taxable income including such I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 4 amounts; as has been held in Hindustan Cocacola Beverage (P) Ltd. V. Commissioner of Income Tax [(2007) 293 ITR 226 SC].” 4. The learned Senior Counsel Sri. T.M. Sreedharan, appearing for the appellant, would take us through Allied Motors (P) Ltd. V. Commissioner of Income Tax [(1977) 224 ITR 677 (SC)] and Commissioner of Income Tax v. Alom Extrusions Ltd. [(2009) 319 ITR 306 (SC)] to drive home the contention urged that the proviso inserted by Finance Act, 2012 is curative in nature. It is argued that the introduction of the proviso under Section 40(a)(ia) and Section 201(1) was with the intention of alleviating the hardship, in cases where the resident-receiver of amounts, paid tax on such receipts; even when the payer has failed to deduct tax at source. It is also I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 5 contended that the assessee had a certification in so far as having been declared a charitable educational institution entitled to exemption under Section 12AA from the year 2011-2012. The assessee also filed an application for condonation of delay, to make the certification retrospective for the previous years. Admittedly the said applications, in the course of the pendency of these appeals have been declined. The learned Senior Counsel would urge that despite the rejection having been made, for reason of a satisfactory explanation as to the delay having not been furnished, the issue is at large on merits and this Court could grant such exemption. The further hardship of the assessee is in the double jeopardy in paying up the amount of TDS under Section 201(1); being treated as an assesee in default and the liability to tax on the I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 6 additions with respect to the lease rent credited by the assessee to the accounts of the lessor. The hardship is projected to claim relief, at least in so far as the deletion of additions, on the assessee satisfying the entire TDS with interest. 5. Sri. Ravindranatha Menon, learned Senior Counsel and Sri.Christopher Abraham, appearing for the Revenue argued that the two pronged consequence, statutorily visits an assessee in default. Neither can the additions be deleted, nor the assessee absolved from the consequence of payment of TDS along with interest. It is also pointed out that the question of whether the provision is curative does not at all arise since the resident/receiver in the present case has not paid tax on the income and has filed a loss return, without any liability to pay tax, that too I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 7 belatedly. The learned Senior Counsel for the Revenue has placed reliance on Prudential Logistics and Transports v. Income Tax Officer [(2014) 364 ITR 689 Ker] and Thomas George Muthoot v. The Commissioner of Income Tax (2016) 2 287 CTR (Ker) 101 . Two different Division Benches of this Court have held that the proviso to Section 40(a)(ia) is only prospective in nature. 6. We have carefully gone through the decisions placed before this Court. In Allied Motors Pvt. Ltd. and Alom Extrusions Ltd.(both supra), the amendments to Section 43B was found to be curative. The learned Senior Counsel for the appellant/assessee relying on the said decisions argued that the amendments made by Finance Act, 2012 on a similar interpretation could be considered to be curative and not merely I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 8 prospective. We notice that the two Division Benches of this Court had found that Section 40(a) (ia) is not retrospective. If at all, we take a different view, judicial discipline require that we refer the question to a Larger Bench. We do not find any reason so to do, since even if the amendment is found to be curative, the appellant herein will not be enabled such benefit. 7. The applicable provisions are Section 40(a) (ia) and the second proviso thereof and the first proviso to Section 201(1) and we extract below those provisions as it existed in the relevant assessment year. Section 40(a)(ia) as amended by Finance Act, 2008, with retrospective effect from 01.04.2005 is as follows : “Section 40 : Amounts not deductible I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 9 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- xxx xxx xxx “(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. I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 10 Such sum shall be allowed as a deduction in computing the income of the previous year in which such tax was paid.” Sub-clause (ia) stood amended as follows by Finance Act, 2010. It is the benefit of the second proviso introduced, extracted herein below; that is claimed by the assessee. (ia) thirty percent of any sum payable to a resident, on which tax is deductible at source under Chapter XVIIB and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139: xxx xxx xxx 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 I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 11 resident payee referred to in the said proviso. Section 201(1) as introduced, again by Finance Act, 2010 reads as under : “201. Consequences of failure to deduct or pay (1) Where any person, including the principal officer of a company,-- xxx xxx xxx 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.” 8. As per the first proviso to Section 201(1), I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 12 when a resident, who receives any sum from an assessee, has furnished his return of income under Section 139 and taken into account such sum for computing income, as also paid the tax due on the income declared by him in such return of income; then assessee would stand absolved from being treated as an assessee in default, despite the fact that the assessee had failed to deduct at source, the whole or any part of the tax in accordance with the provisions of Chapter-XVII-B. When an assessee has failed to deduct tax by virtue of the proviso to Section 201(1), he is not treated as an assessee in default, only when the person from whom tax was to be deducted has paid the tax. The cumulative effect of the second proviso to Section 40(a)(ia) and the first proviso to Section 201(1) would be that on payment of tax by the resident receiver, I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 13 the assessee who failed to deduct tax under Chapter-XVII-B on any sum paid to the resident receiver, would not be considered as an assessee in default and the additions under Section 40(a)(ia) would also not have to be made in the case of that assessee. 9. However, to avail of the beneficial provisos under Sections 40(a)(ia) & 201(1), there should be (i) return of income under Section 139(ii), with computation of income including such amounts received, as also (ii) payment of tax on such income. Only if all the three conditions are satisfied, would the beneficial provision be applicable to an assessee who failed to deduct tax at source. In the present case, admittedly, resident-receiver to whom the assessee paid or credited the lease rent has filed a return I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 14 belatedly and not paid any tax due on the income declared. When there is no tax paid on the income declared; even if for reason of a loss return, there cannot be any claim raised by the assessee in default to absolve him from the consequences flowing from Sections 201(1) and 40(a)(ia). He will then be treated as an 'assessee in default' and would be liable to pay the amount of TDS with interest as also subject to the expenses being disallowed. 10. There is an additional ground urged on the basis of Section 43(2) of the I.T.Act. The term “paid” has been defined as an amount paid or actually incurred and hence in the case of a loss return, even if there is no actual payment, the loss return, which does not raise a liability to pay, has to be liberally construed is the argument. I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 15 The definition clause is with reference to 'income from profits and gains of business'. By the specific words employed in sub-section(2) of Section 43, this is with reference to the method of accounting; which is either on accrual or receipt. There is no ground raised on the basis of the method of accounting of the assessee, herein and the contention is only to be rejected. The definition clause has nothing to do with Section 201(1) or the determination of an 'assessee in default'. 11. We cannot countenance the further argument of the learned Senior Counsel that the appellant/ assessee should be considered as a charitable educational institution under Section 12AA. Admittedly, the assessee had applied for such registration only in the year 2011-12. The I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 16 application for condonation of delay for the previous years stood rejected. There is no question of any exemption allowed in a year in which such registration was not available; especially by this Court exercising jurisdiction under Section 260A of the I.T. Act. 12. We, hence, answer question Nos.1 to 3 framed and extracted herein above against the assessee and in favour of the Revenue. 13. The only question remaining to be considered is as to the liability of the assessee under Section 201(1) being treated as an assessee in default. Hindustan Coca Cola Beverage (P) Ltd. (supra) was in a totally different circumstance, where the resident receiver had paid the tax, and the Honourable Supreme Court relying on a circular of the CBDT allowed the claim of the assessee with I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 17 respect to the actual TDS applicable. Therein, the assessee had paid amounts to one Pradeep Oil Corporation, on which, tax deduction at source was not effected. The resident-receiver had paid the tax due on the income received from the appellant/ assessee. Relying on the circular, the Supreme Court had held so in para 10: “10. Be that as it may, the circular No. 275/201/95- IT(B) dated 29th Jan., 1997 issued by the CBDT, in our considered opinion, should put an end to the controversy. The circular declares \"no demand visualized under s.201(1) of the IT Act should be enforced after the tax deductor has satisfied the officer-in- charge of TDS, that taxes due have been paid by the deductee-assessee. However, this will not alter the liability to charge interest under s.201(IA) of the Act till the date of payment of taxes by the deductee-assessee or the liability for penalty under s.271C of the IT Act.\" 14. It is also pertinent that therein, the Tribunal had reopened its order, specifically I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 18 considering the question of liability to tax, on an application filed by the assessee, on the ground of payment of tax by the receiver-resident. The reopening had not been challenged and had acquired finality. On consideration of the Tribunal’s order of re-opening, which attained finality, as also the Circular referred to above, it was held that the appellant therein would not be liable to pay the TDS amounts, but only the interest on the tax component, which was to be deducted at source till the date of payment of such tax by the resident- receiver. The facts in the present case are clearly distinguishable and we answer the fourth question also in favour of the Revenue and against the assessee. In view of the above, we reject these Income Tax Appeals answering the questions of law in I.T.A. Nos.232, 233, 234, 235 & 236 of 2014 & 152 of 2015 19 favour of the revenue and against the assessee. No Costs. Sd/- K. VINOD CHANDRAN, JUDGE. Sd/- ASHOK MENON, JUDGE. //True Copy// P.A. To Judge sp/jg/12/03/18 "