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05.05.2017 - Voice of CA presents - Updates
Friday, May 5, 2017

I. A Useful Presentation:

1.  An Overview of Income Computation & Disclosure Standards (ICDS) and its Impact

(Please click here)

( Contribution by CA. Sanjay K. Agarwal, Founder - Voice of CA; and contributor is available at Email-id: )


II. Headlines Today    

  1. Direct Tax Notification: Income-tax (9th Amendment) Rules, 2017  (Click for detail)
  2. Service Tax Notification: Seeks to amend notification No. 25/2012 - ST dated 20.06.2012 so as to exempt life insurance services under Pradhan Mantri Vaya Vandana Yojana  (Click for detail)
  3. FEMA Circular: Exim Banks Government of India supported Line of Credit of USD 4 million to the Government of the Co-operative Republic of Guyana  (Click for detail)
  4. Can Aadhaar be made compulsory for filing I-T return? SC reserves verdict  (Click for detail)
  5. President signs ordinance to amend Banking Regulation Act  (Click for detail)
  6. I-T Dept facilitates e-filing for all taxpayers, uploads all ITR forms  (Click for detail)
  7. Modi trains guns on benami properties, wants to broaden tax net  (Click for detail)
  8. ICAI: Request to give feedbacks and improvement ideas in the present service delivery of the Ministry of Corporate Affairs as desired by National Productivity Council (NPC)  (Click for detail)
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

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.

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

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.

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)

 Golden Rules:

  ""Changing the Face" can change nothing.
But "Facing the Change" can change everything.


  Thanks & Regards


Voice of CA 

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