Case Law Details
Case Name : M/s P V S Memorial Ltd. Vs CIT (Kerala High Court)
Appeal Number : IT Appeal No.-16/2014
Date of Judgement/Order : 20/07/2015
Related Assessment Year :
Brief of the case:
The Hon’ble Kerala HC in in the case of CIT vs. M/s P V S Memorial Hospital Ltd. held that deduction of TDS under a wrong section amounts to non-compliance with the provisions of Chapter XVII-B which results in applicability of section 40(a)(ia) where the payments get disallowed and action u/s 201(1).
Facts of the case:
- The assessee is hospital entered into agreement with M/S Lakeshore Hospital and Research Centre Limited to hire various professional services in assessee’s hospital. The assessee deducted tax on such payments @2% u/s 194C considering the same as payment made under contract.
- However, the AO assessed the same as deductible under Sec 194J as Professional Services and disallowed the expenditure claimed by assessee under sec 40(a)(ia).
- The disallowance made by AO was upheld by CIT(A) , however , the tribunal relying on the decision of Hon ‘ble Calcutta HC in the case of CIT v. S.K.Tekriwal (2014) 361 ITR 432 (Cal), held that since the assessee has deducted TDS though under wrong section but disallowance cannot be made u/s 40(a)(ia) and Thus the assessee can be treated as assessee in default and appropriate action can be taken u/s 201(1).
- Both assessee and revenue are in appeal before High Court against the decision of Tribunal.
Contention of Assessee:
- The Assessee has contended that though the TDS was deducted under wrong section but there has not been a failure to deduct and pay the same after deduction.
- Therefore, the disallowance u/s 40(a)(ia) cannot be made because there was no failure on the part of assessee to deduct and pay TDS , it was only a confusion due to which tax deducted and paid under wrong section.
- Further, since there was no failure on the part of assessee for the deduction as well as payment of TDS, the proceedings initiated u/s 201(1) are not sustainable.
Contention of Revenue:
- The assessee has failed to deduct tax because deducting tax under a wrong section cannot amount to compliance with the provisions of Chapter XVII-B
- Therefore, the disallowance u/s 40(a)(ia) and proceedings initiated u/s 201(1) are correct in law.
Held by Hon’ble High Court:
- The expression “tax deductible at source under Chapter XVII-B” used in the Section has to be understood as tax deductible at source under the appropriate provision of Chapter XVII-B.
- It is because in sec 40(a)(ia) different types of payments have been mentioned on which tax deductible Chapter XVII-B are to be disallowed on failure to deduct tax. Since each and every payment has been specifically mentioned the intention of legislature is to provide for disallowance if the tax is not deducted as per provisions of Chapter XVII –B.
- In the present case the tax was deducted but under wrong section at a lower rate, Thus it can be said that the tax has not been deducted as per provisions of Chapter XVII-B.
- Hence, such failure resulted in non- compliance to provisions of Chapter XVII-B and for that reasons the disallowance of payments u/s 40(a)(ia) as well as proceedings u/s 201(1) cannot be cured.