Tuesday, November 12, 2013

Inevitable TDS obligation even if deduction for impugned exp. is not claimed

Assessee is liable to deduct tax at source on interest payments, even if it has not claimed same as deduction while computing its total income

Facts:

a) The assessee-company credited interest to its sister concern’s account without deducting tax under section 194A. The Assessing Officer treated assessee as an 'assessee-in-default' and levied interest on it under section 201(1A);

b) On appeal before the CIT (A), the assessee contended that it could not be treated as an 'assessee-in-default', when it had not claimed interest amount as expenditure. The CIT (A) dismissed the assessee's appeal. Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of revenue as under:

1) Provisions of section 194A(1) provide that the person responsible to pay the interest is liable to deduct tax at source at the time of credit or payment, whichever is earlier. Since the section uses the term 'any income by way of interest', it should be viewed from the angle of the payee and not from the angle of the person making the payment;

2) The accounting or tax treatment given by the payer in respect of interest paid by him may not be relevant at all for the purposes of section 194A. So long as the interest amount constitutes "income" in the hands of recipient, the payer shall be liable to deduct tax at source on the interest amount so paid;

3) Thus, even if the payer had disallowed the expenditure under section 40(a)(ia) or did not claim the same as expenditure at all, he would still be liable to deduct tax at source under section 194A on the interest amount so paid, if the said payment was liable to TDS;

4) Further, the provisions of section 40(a)(ia) do not override the provisions of section 201. It provides only for deferment of the allowance and does not provide for absolute disallowance. Its objective appears to be to compel the assessee to deduct tax at source in order to claim the relevant expenditure as deduction;

5) Section 201 provides for treating an assessee as an assessee-in-default who has failed to deduct or pay the TDS amount. Its objective is only to compensate the Government for the failure of an assessee to deduct or pay the TDS amount;

6) Thus, the provisions of section 40(a)(ia) and section 201 operate on different objectives. Accordingly, the assessee was liable to deduct tax at source on interest payments, even if it had not claimed the same as deduction while computing its total income. The revenue was entitled to initiate proceedings under section 201 for such failure. Thus, the order of CIT(A) was to be upheld  - Agreenco Fibre Foam (P.) Ltd v. ITO(TDS) [2013] 38 taxmann.com 155 (Cochin - Trib.)

100% EOU carries on its business in India, its source of income is in India; technical service used by it is FTS

The Tribunal held as under:

1) Irrespective of the fact whether an India based business is one hundred per cent export oriented unit or not, it is still a business carried on in India, and it cannot, therefore, be covered by the first limb of exception envisaged in section 9(1)(vii)(b);

2) Even if entire products are sold outside India, the fact of such export by itself does not make business having been carried outside India;

3) Once the manufacturing facilities are outside India and the customers are also outside India, such a situation will indeed be covered by the exception visualized in section 9(1)(vii)(b), however, merely because the user of services was a one hundred per cent export unit, it couldn’t be said that the technical services were used "for the purpose of making or earning any income from any source outside India", and, accordingly, would be outside the ambit of fees for technical services under section 9(1)(vii) - Metro & Metro v. ACIT [2013] 39 taxmann.com 26 (Agra - Trib.)

Sec. 54EC exemptions allowable despite deeming fiction of sec. 50 treating capital gains as short-term ones

Where capital gain arose out of long-term capital asset and was invested in specified assets, exemption under section 54EC could not be denied due to deeming fiction created under section 50

The High Court held in favour of assessee as under:

1) There is nothing in Section 50 to suggest that the fiction created in it is not only restricted to Sections 48 and 49 but also applies to other provisions;

2) Section 50 makes it explicitly clear that the deemed fiction created in sub-sections (1) and (2) of Section 50 is restricted only to the mode of computation of capital gains contained in Sections 48 and 49;

3) It is well-established, in law, that a fiction created by the Legislature has to be confined to the purpose for which it is created. The fiction created under Section 50 is confined to the computation of capital gains only and cannot be extended beyond that;

4) Legal fiction created under section 50 is restricted to computation of capital gains; such deeming fiction cannot restrict application of section 54EC which allows exemption of capital gains, if assessee makes investment in the specified asset;

5) Exemption provided under section 54EC couldn’t be denied to the assessee due to deeming fiction created under section 50. Thus, the assessee couldn’t be charged to capital gains when short-term gains of long-term capital assets were invested in the areas specified under the law – CIT v. Aditya Medisales Ltd [2013] 38 taxmann.com 244 (Gujarat)

HC grants extra time to assessee for repatriation of forex realizing economic crisis in Russia

Due to disintegration of the USSR and economic crisis in Russia, the buyers were unable to remit payment within time and, therefore, assessee's application seeking extension of time to realize convertible foreign exchange in India was allowed

Facts:

a) The assessee, engaged in manufacture and export of certain goods, had exported almost 100 per cent of its produce to erstwhile Russia or USSR. For the purpose of taxation, it wanted to claim benefit of Section 80HHC in respect of profits derived from exports;

b) As per section 80HHC, to avail of the said benefit, the assessee was required to receive the sale proceeds in convertible foreign exchange within a period of six months from the end of the previous year;

c) During relevant period, on assessee’s failure to receive part of sale proceeds in convertible foreign exchange within stipulated period, it filed an application seeking extension of time to realize such proceeds;

d) The Commissioner rejected assessee's application.  Against said order, assessee filed the instant writ.

The High Court held as under:

1) The Commissioner had not rebutted or denied that assessee was factually correct when it had stated that due to economic crises, fall or depreciation in value of Russian currency payments were not being received by the Indian exporters from buyers in the USSR or countries which were earlier part of the USSR;

2) He had also not adverted to fact that RBI had realized said problem and had taken notice of unprecedented situation and hardships faced by exporters from India;

3) It was also undisputed fact that assessee had realized entire export proceeds before expiry of time-limit for completing assessment. Thus, the impugned order was to be set aside and assessee's application seeking extension of time was to be allowed - York Exports (P.) Ltd. v. CIT [2013] 38 taxmann.com 205 (Delhi)

Presumption as to valid service of notice holds good if same is not returned back to department

Where revenue dispatched notice under section 143(2), and the fact that notice was not received back raise a presumption of service under Section 27 of the General Clauses Act, 1897

Facts:

a) Notice under section 143(2) was claimed to have been issued by revenue under section 143(2);

b) The assessee raised an objection that notice was not served within 12 months from end of month in which return was furnished and, thus, it was null and void;

c) Despite this objection, revenue proceeded to finalized assessment. Thus, the dispute, in the present case, revolves around the issuance and service of notices issued under Section 143(2) of the Act.

The High Court held as under:

1) The averments in the reply, duly supported by copy of the notice and the fact that notice was not received back raised a presumption of service under Section 27 of the General Clauses Act, 1897;

2) The onus to rebut the presumption of service of notice sent by post, lies upon the petitioner;

3) The petitioner has failed to discharge this onus. Mere denial by the petitioner that notice was never received, was insufficient, to record a finding in favour of the petitioner;

4)  Thus, the instant petition was dismissed as there was no error in the impugned order or proceeding - Shahbad Cooperative Sugar Mills Ltd. v. Dy.CIT [2013] 38 taxmann.com 204 (Punjab & Haryana)