I-T - Whether expression 'payable' in sec 40(a)(ia) refers to entire payment on which TDS was required to be made or only to amount outstanding as on 31st March of every year
TIOL-DDT 1998
07.12.2012
Friday
WHAT are the consequences of not deducting the TDS or after deducting not paying the deducted tax to the Government?
As per section 201 of Income Tax Act 1961,
• Without prejudice to any other consequences, the defaulter will be deemed to be an assessee in default.
• He is liable to pay an interest at 12% P.A. from the date on which the tax was deductible till the date of actual payment.
• The TDS along with the interest will be a charge on all the assets of the defaulter.
• He is liable to rigorous imprisonment for a term which shall not be less than 3 months, but which can extend up to 7 years and fine.
• He is liable to a penalty equal to the tax not deducted.
Knowing the above liabilities, no sane person would invite the wrath of the department by not deducting TDS or after deducting not paying to the government. But there is more! A new sub clause (ia) of Sec 40(a) had been inserted into the Income Tax Act by Finance Act (No. 2) of 2004. Under this clause if on any interest, commission or brokerage, rent, royalty, fees for professionals etc., TDS is deductible and if not so deducted or after deduction not paid, the entire expenditure will not be deducted while computing the income chargeable under Profits and gains of business or profession. Putting in English, this can be explained by the following example.
• Supposing you have paid Rs. 1.00 Crore in the previous year as Interest, fee etc, and you have either not deducted tax or after deducting not paid it to the Government, apart from the five consequences mentioned above, this one Crore will not be permitted as an expenditure in your profits and gains computation. With the result, you may have to pay a higher rate of income tax on the entire amount of Rs. 1.00 Crores in the year of default.
Section 40(a)(ia) reads as:
(ia) Any interest, commission or brokerage, fees for professional services or fees for technical services payable to a resident, or amounts credited or paid to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour carrying out any work), on which tax has not been deducted or, after deduction, has not been paid before the expiry of the time prescribed under sub-section (1) of section 200 and in accordance with the other provisions of Chapter XVII-B :
Provided that where in respect of any such sum, tax has been deducted under Chapter XVII-B or paid in any subsequent year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
The ITAT Special Bench, Visakhapatnam sometime back in Merilyn Shipping & Transports, Visakhapatnam Vs Additional Commissioner of Income Tax- 2012-TIOL-184-ITAT-VIZAG-SB, delivered a landmark decision on Section 40(a)(ia).
In this case, the assesse, a partnership firm, derived income from business of ship containers transport and handling, customs clearing and as forwarding agents. It filed its return of income for assessment year 2005-06 declaring total income of Rs.15,24,710/- on 29.03.2006. In the course of assessment proceedings, the Assessing Officer noticed that the assessee had claimed certain expenditure in Profit & Loss A/c., i.e. brokerage expenses of Rs.38,75,000/- and commission of Rs.2,43,253/-without deducting TDS on payment of these amounts as required under section 40(a)(ia) of the Income Tax Act. The Assessing Officer intimated the defaults. In response, assessee's representative accepted his failure for non-deduction of TDS at the time of making payment and agreed for the disallowance. Accordingly, Assessing Officer disallowed brokerage of Rs.38,75,000/- and commission of Rs.2,43,253/-. Before CIT(Appeals), it was submitted that at the time of assessment, the assessee was under bona fide belief that the provisions of section 40(a)(ia) of the Act were applicable for both the amounts 'paid' as well as 'payable'. However, on careful reading of the said provision and after going through the expert opinion, it was found that the said provisions were applicable for the amounts 'payable' only. It was, thus, submitted that since in the assessee's case, the outstanding brokerage and commission as on 31.03.2005 was only Rs.1,78,025/-, disallowance should have been restricted to only Rs.1,78,025/-.
The matter reached the Special Bench with the question, "Whether Sec. 40(a)(ia) of the Income Tax Act can be invoked only to disallow expenditure of the nature referred to therein which is shown as "payable" as on the date of the balance sheet or it can be invoked also to disallow such expenditure which become payable at any time during the relevant previous year and was actually paid within the previous year? "
The Special Bench by majority held, " The provisions of section 40(a)(ia) of the Act are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow which had been actually paid during the previous year, without deduction of TDS".
If this was confusing, in brief what it meant was:
• The assessee incurred brokerage expenses of Rs.38.75 lakhs and commission of Rs.2.43 lakhs without deducting TDS. Of this only Rs. 1.78 lakhs was payable and the rest was paid. The AO disallowed the entire expenditure under section 40(a)(ia).
• Assessee argued that disallowance under section 40(a)(ia) could be made only of the amount "payable" and not of that which had already been "paid".
• The Tribunal SB by majority held that Section 40(a)(ia) can apply only to expenditure which is "payable" as of 31st March and does not apply to expenditure which has been already paid during the year.
Revenue is obviously not happy with this decision and took the matter in appeal to the High Court.
The Andhra Pradesh High Court has granted Interim Suspension of the ITAT Order.
Service Tax - Accounting Code - Total Confusion
A harried assessee wrote to us,
"I draw your kind attention to the circular clarifying the new code and its applicability for depositing the tax under the respective head.
We find that the nsdl site has not updated the relevant code 441480 for ‘Other taxable services' [services other than the 119 listed above] and the old code 1089 continues to be reflected.
Under such circumstances, it is difficult to deposit the tax leaving no option but to deposit under the old code.
If you could possibly highlight this so that necessary corrections and a circular granting extension to pay under the existing code is made."
By Circular No. 161/2012-S.T dated 06.07.2012, CBEC clarified that there would be only one accounting code for All Taxable Services - 00441089 .
By Notification No. 48/2012-S.T dated 30.11.2012 and Circular No. 165/2012-S.T dated 20.11.2012, they brought back all the old code numbers with a new code for Sl. No. 120 - All other Taxable Service - 00441480.
Assessees who tried to pay the tax yesterday found that NSDL had not updated this data and there was no code 00441480. So, under what code could they pay the tax?
Why does the Board harass the hapless assessees like this? Why can't they do these things in a more organised way? Why can't they get the NSDL site updated with the new code before requiring the assessees to follow the new code? Does the FM understand how complicated his officers have made the simple act of paying tax?
Is the assessee an enemy of the Department and is the Department pursuing a one-point programme of making life miserable for the assessee - for no good reason!
You collect all the taxes you want - but don't make the act of collecting such a painful requirement.
To understand these practical difficulties, each Commissioner should be asked topay a nominal amount of Re 1/- as service tax by 5 th of every month on all taxable services and file an ST 3 return online by due date and for any delay in filing the return, the Commissioner should also be asked to pay late fee of Rs 20,000/- from his salary. Then only, the system will improve.
Exchange Rates Notified
CBEC has notified the Exchange Rates for imported goods and export goods with effect from 07.12.2012.
CBEC Notification No. 108/2012-Cus.,(N.T.), Dated: December 06, 2012
FTP - SION for Lead Free Powder Notified
DGFT has notified a new SION bearing number C- 2056 in respect of the export product "Lead Free Powder CuSn8Ni1". The new entry would be as under:-
Export Item | Quantity | Import Items | Quantity allowed |
Lead Free Powder CuSn8Ni1 | 100 Kg. | 1. Copper Ingot Or Copper Scrap | 92.82Kg 94.64Kg |
2. Tin Ingot Or Tin Scrap | 8.13 Kg 8.29 Kg |
3. Nickel Ingot Or Nickel Scrap | 1.05 Kg 1.07 Kg |
There was no SION earlier for the export product"Lead Free Powder CuSn8Ni1" in the Engineering Product Group. This has been notified now.
DGFT Public Notice No. 35 (RE: 2012)/2009-2014, Dated: December 06, 2012
DDT Cartoon
Jurisprudentiol - Monday's cases
Central Excise
CENVAT Credit - Commercial complex is constructed within the factory premises as per layout submitted to the department while taking registration - Prima facie appellant entitled for service tax paid on construction of commercial complex - Pre-deposit waived and stay granted: CESTAT
INPUT Service credit has been denied on the premise that the service of Construction of Commercial complex is outside the factory premises. On perusal of the record, it is the contention of the applicant that this commercial complex is constructed within the factory premises as per layout submitted with the department for granting excise registration. If that be the situation, the applicants are entitled for input service credit. Therefore, prima facie applicant has made out a case for 100% waiver of pre-deposit.
Income Tax
Whether when a part of residential property owned by company is occupied by Director of company and rest by shareholders, such rental income is to be treated as business income in first case and rental income in second - YES: ITAT
THE issues before the Bench are - Whether when a part of the residential property owned by the company is occupied by the Directors of the company and the rest by the shareholders, such rental income is to be treated as business income in the first case and rental income in the second; Whether when the rent is given at a lower rate to the shareholder of the company, the AO is justified to consider the market value as the rental income and Whether when the main business of the assessee is not lending in an organized manner and assessee has not filed any appeal in the preceding year treating the income as income from other source, it cannot be treated as business income. And the verdict partly goes in favour of the assessee.
Service Tax
Promotion of brand or promotion of branded goods - Matter referred to Third Member due to difference of opinion - ROM by applicant on the ground that M(J) had not given his findings on the issue of export of service and limitation, therefore, there is a mistake apparent on the records - since M(J) has given his findings on merit, therefore, he is not required to give findings on other issues - ROM dismissed: CESTAT
THERE was an order passed on 20.06.2012 wherein the Member (J) has given his findings on merit that the applicant is not liable to pay service tax under the Business Auxiliary Service as alleged, therefore, he has not gone into other issues raised by the learned Counsel for the applicant. On the other hand, the Member (Technical) while having a difference of opinion with the Member (Judicial) had considered other aspects also. As Member (Judicial) had given his findings on merit, it is not required to give finding on other issues by the Member (J).
See our columns Monday for the judgements
Until Mondaywith more DDT
Have a Nice Weekend
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