Decision of special bench is to be followed by other benches unless reversed by High Court

From the clarification issued by the Hon’ble High Court, it is clear that until and unless the decision of Marilyn Shipping & Transport (supra) is reversed by the Court, it is binding on all the benches of the Tribunal. We find that Hon’ble Court has held that judicial discipline mandates that the decision of the special bench has to be followed by other benches. As on today, the stay order granted by the Hon’ble Court has been vacated and the order of the special bench is binding on other benches of the Tribunal. Therefore, respectfully following the same, we hold that the FAA was justified in following the order of Marilyn Shipping & Transport (supra). Considering the facts of the case and the clarification issued by the Hon’ble Andhra Pradesh High Court on 24.06.2014 in the case of Janapriya Engineers Syndicate, we decide the effective ground of appeal in favour of the assessee and confirm the order of the FAA.

INCOME TAX APPELLATE TRIBUNAL, MUMBAI

Before Shri D. Manmohan, Vice President and

Shri D. Karunakara Rao, Accountant Member

ITA No. 13/Mum/2013 (Assessment Year: 2009-10)

Income Tax Officer

Vs.

Smt. Zeenat N. Shaik
Date of Hearing: 17.09.2014
Date of Pronouncement: 17.09.2014

ORDER

Per D. Manmohan, V.P.

This is an appeal filed at the instance of the Revenue and it pertains to AY 2009-10.

1. Following grounds were urged before us: –

“1. On the facts and in the circumstances of the case and n law, the Ld. CIT(A) erred in deleting the addition of Rs.36,57,581/- made by the AO u/s. 40(a)(ia), of the Act when the assessee failed to deduct tax on Royalty and Commission.

2. On the facts and in the circumstances of the case and n law, the Ld. CIT(A) erred in deleting the addition u/s. 40(a)(ia) holding that as per the Balance Sheet of 31.03.09 no amount was shown payable on account of royalty and commission expenditure.”

1. Facts necessary for disposal of the appeal are set out in brief. During the year under appeal the assessee declared income from royalty of film clippings and film songs to various television channels and others. Assessee has also paid royalty of 23,33,876/- and commission of13,23,705/-. During the course of assessment proceedings assessee was called upon to Smt. Zeenat N. Shaik furnish details of these expenditure and tax deducted thereon. In response thereto the assessee submitted that there are many parties to whom commission was paid and each payment is less than 20,000/- and hence tax was not deducted at source. With regard to payments made in excess of20,000/- each, it was stated that the parties have already shown the commission as their income in the returns filed by them and deducting tax at this stage may not serve any purpose because upon deduction the same will have to be claimed as refund by the other party which will involve unnecessary paper work.
2. The AO was of the opinion that provisions of section 40(a)(ia) are applicable in the instant case since assessee has not deducted tax at source and accordingly worked out the disallowable figure at `36,57,581/-.
3. Aggrieved, assessee contended before the CIT(A) that in respect of deduction of tax at source the AO relied more on the rules than the circumstances of the transactions and in the peculiar circumstance of the case section 40(a)(ia) cannot be invoked. During the course of hearing assessee submitted that section 40(a)(ia) can be invoked only to the extent of expenditure payable as on the Balance Sheet date and not for payment already made. In the alternative it was also contended that there is no default on the part of the assessee in respect of deduction of tax at source. He is of the opinion that there is sufficient evidence regarding the payment shown as income by the respective parties (payee) in their return filed and so the ITO failed to appreciate that tax cannot be collected once again by the Department if it is already paid by the payee. It was further reiterated that no expenditure was outstanding or payable as on Balance Sheet date, i.e. 31.03.2009 for which TDS has to be collected and hence section 40(a)(ia) cannot be invoked in the light of the order of the ITAT Special Bench in the case of Merilyn Shipping & Transports.
4. In the light of the decision of the ITAT Special Bench supra the learned CIT(A) observed that the provisions of section 40(a)(ia) applies only to amounts shown as payable on the date of Balance Sheet whereas in the Smt. Zeenat N. Shaik instant case the amount was already paid/credited. He therefore set aside the addition mad by the AO.
5. Aggrieved, Revenue is in appeal before us. The learned counsel filed a detailed written submission wherein it was submitted that the view taken by the ITAT Special Bench (Vizag) was approved by the Hon’ble Allahabad High Court in the case of M/s. Vector Shipping Services (P) Ltd. 38 Taxmann.com 77 and hence the order passed by the learned CIT(A) does not call for any interference. It was further submitted that even if another view is possible the view favourable to the assessee has to be taken in which event provisions of section 40(a)(ia) should not be invoked. He has also raised certain alternative contentions which need not be considered at this stage.
6. On the other hand, the learned CIT-DR relied upon the order passed by the AO.

9. Identical issue was considered by the ITAT “A” Bench in the case of Amit Naresh Sinha (ITA No. 4154/Mum/2013 dated 10.09.2014 – wherein one of us is a party) wherein the Bench had taken the view that if an amount is paid, disallowance under section 40(a)(ia) is not permissible. Relevant observations of the Tribunal are extracted for immediate reference:-

“4. Before us, Departmental Representative(DR) stated that order of the Special Bench delivered in the case of Merilyn Shipping & Transports (supra)has been kept in abeyance of the Hon’ble Andhra Pradesh High Court, that the Hon’ble Gujarat High Court had taken a different view. Authorised Representative (AR) supported the order of the FAA. We have heard the rival submissions and perused the material before us. We find that expenses related to professional fees, advertisement and management were debited in P&L Account, that same were paid. Therefore, in our view, no disallowance u/s 40(a)(ia) of the Act should be made. We further find that while deciding the appeal in the case of Janapriya Engineers Syndicate (I.T.T.A. No. 352 of 2014- dt. 24.06.2014) the Hon’ble Andhra Pradesh High Court has clarified the issue of interim stay granted by it in the case of Merilyn Shipping & Transports (supra). We will like to reproduce the relevant part of the said order and same reads as under:

“4. We are of the view that until and unless the decision of the Special Bench is upset by this Court, it binds smaller Bench and coordinate Bench of the Tribunal. Under the circumstances, it is not open to the Tribunal, as rightly contended by Mr. Narasimha Sarma, learned counsel, to remand on the ground of pendency on the same Smt. Zeenat N. Shaik issue before this Court, overlooking and overruling, by necessary implication, the decision of the Special Bench. We simply say that it is not permissible under quasi judicial discipline”.

From the clarification issued by the Hon’ble High Court, it is clear that until and unless the decision of Marilyn Shipping & Transport (supra) is reversed by the Court, it is binding on all the benches of the Tribunal. We find that Hon’ble Court has held that judicial discipline mandates that the decision of the special bench has to be followed by other benches. As on today, the stay order granted by the Hon’ble Court has been vacated and the order of the special bench is binding on other benches of the Tribunal. Therefore, respectfully following the same, we hold that the FAA was justified in following the order of Marilyn Shipping & Transport (supra). Considering the facts of the case and the clarification issued by the Hon’ble Andhra Pradesh High Court on 24.06.2014 in the case of Janapriya Engineers Syndicate, we decide the effective ground of appeal in favour of the assessee and confirm the order of the FAA.”

Consistent with the view taken by the Coordinate Bench, we are of the view that the order passed by the learned CIT(A) does not call for any interference.

10. In the result, appeal filed by the Revenue is dismissed.

Order pronounced in the open court on 17th September, 2014.