Case :- WRIT TAX No of 2012 Reserved on Respondent :- The Deputy Commissioner Of Income Tax (Tds)

Transcription

1 1 Allahabad high court Case :- WRIT TAX No of 2012 Reserved on Delivered on Petitioner :- Jagran Prakashan Limited Respondent :- The Deputy Commissioner Of Income Tax (Tds) The case of the department against the petitioner is that allowing 15% trade discount to advertising agencies by the petitioner during the relevant assessment year is nothing but payment of commission within the meaning of Section 194H Explanation-(i) and the petitioner was liable to deduct tax at source. The commission or brokerage has been defined in explanation. As per definition for payment to be treated as commission, following three conditions are required to be fulfilled:- (1) payment received or receivable directly or indirectly; (2) by a person acting on behalf of another person; (3) for services rendered (not being professional services). The Condition Nos. (2) and (3), which are interrelated, are

2 2 being taken first. The Condition Nos.2 and 3 contemplate that person receiving payment should be acting on behalf of another person i.e. he must be agent of the principal and secondly payment should be for the services rendered by the agent. Thus the test is as to whether person receiving commission is agent of the principal and he is receiving commission in lieu of services. The above are jurisdictional facts which have to be found out in the proceeding to be taken under Section 201/201(1A) of the Act. What are the jurisdictional facts and what is the scope of entertaining such challenge in proceeding under Article 226 of the Constitution of India needs to be first examined before proceeding further to examine the facts of the present case The proposition of law deducible from the aforesaid pronouncement is that unless pre-conditions for exercise of jurisdiction exists in an authority assumption of jurisdiction on assuming wrong fact can always be questioned in a writ Court and the mere fact that income tax authorities have assumed jurisdiction and proceeded to pass an order does not preclude the scrutiny that whether jurisdictional facts to assume jurisdiction were present or not As noted above, two conditions, which are required to be fulfilled before holding a person liable for deduction at source, are the payment is received by a person as agent of principal and secondly payment is for services rendered (not being professional services).

3 3 Under the heading Rules and Regulations Governing Accreditation of Advertising Agencies, Rule 10 clearly indicates that there is no control of newspapers agency on the advertising agency whereas in a relationship of principal and agent principal retains full control over the activities of agent. When Rule 10, as quoted above, clearly provides that advertising agency is free from control or interference from any business or person who owns or controls newspaper, the newspaper agency cannot be treated to be principal and advertising agency as agent. In publication of advertisement submitted by advertising agency, the responsibility to make payment of bills of the newspaper is on the advertising agency and there is no responsibility of advertiser to make payment to the newspaper agency and no privity of contract took place between the newspaper agency and the advertiser and had the advertising agency being agent of newspaper agency, the advertiser was to be liable for payment to the newspaper agency The most important material is format of contract between the advertising agency and the INS, which is in Appendix-III to the Rules. The contents of first paragraph of the contract clearly indicates that object is to secure the best advertising service for the advertiser. Thus the accreditation of advertising agency is for the object of providing better service to the advertiser and it

4 4 is not engaged as agent of the newspaper agency and advertising agency, in fact, is running its advertising business and while conducting the said business it acts on behalf of their client i.e. advertiser. From the aforesaid, it is clear that no foundational fact exists on the basis of which any inference can be drawn that advertising agencies are agent of the petitioners and further advertising agencies render any service to the newspaper. The above two foundational facts being non existent, the proceedings under Section 201/201(1A) of the Act were clearly not permissible Now comes another factor (first factor) which is required to be established for applicability of Section 194H of the Act i.e. as to whether any payment was made to the advertising agency as commission Applying Delhi High Court which held that there is no liability of deduction of tax at source under Section 194H with regard to trade discount of 15% given to the advertising agency, it is held in present case that The judgment of the Delhi High Court was fully applicable on the facts of the present case and the department was obliged to take into consideration the said judgment specially when the special leave to appeal filed by the department was dismissed by the Supreme Court.. The main issue to be answered is as to whether in event, the

5 5 person who is responsible to deduct tax at source fails to deduct the tax at source, what are the consequences? Whether the tax which was required to be deducted at source by such deductor, can also be recovered from the deductor or recovery can confine only to interest and penalty. The Income Tax Act is an integrated Act delineating a scheme for payment of income tax. For interpreting provisions of Section 201 of the Act, other related provisions have to be looked into to find out the scheme of section 201. Sections 190 and 191 of Chapter XVII under which chapter Section 201 also falls need a closure scrutiny. Section 190(1) provides that tax on income shall be payable by deduction or collection at source or by advance payment. Sub-section (2) of section 190 starts with a negative injunction i.e. nothing in this section shall prejudice the charge of tax on such income under the provisions of sub-section (1) of Section 4. Sub-section (1) of section 4 as noted above, provides that charge of the income tax shall be on the income of a person. Sub-section (2) of Section 190 clearly mandates that despite of mode and manner of collection and recovery of tax i.e. by deduction or collection at source as envisaged under section 190 (1), the charge of payment of income tax is on a person, whose income is to be taxed. Thus, deductor who fails to deduct income tax at source shall be deemed to be an assessee in default only when the assessee has also failed to pay such tax directly. Thus, it flows that there is no occasion to treat the deductor as an assessee in default unless the assessee has not paid the tax directly From the above, it is clear that deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly. In the present case, the Income tax authorities had not adverted to the Explanation to Section 191 nor had applied their mind as to whether the assessee has also failed to pay such tax directly.

6 6 Thus, to declare a deductor, who failed to deduct the tax at source as an assessee in default, condition precedent is that assessee has also failed to pay tax directly. The fact that assessee has failed to pay tax directly is thus, foundational and jurisdictional fact and only after finding that assessee has failed to pay tax directly, deductor can be deemed to be an assessee in default in respect of such tax. It is relevant to notice here that Explanation to Section 191 is confined only to the amount of tax which was required to be deducted. In view of the foregoing discussions, we are of the considered opinion that in a case where tax has not been deducted at source, the short deducted tax cannot be realised from the deductor and the liability to pay such tax shall continue to be with the assessee direct, whose income is to be charged and a person who fails to deduct the tax at source, at best is liable for interest and penalty only. The above issues thus, are decided in favour of the petitioner. Allahabad High court in Case :- INCOME TAX APPEAL No of 2009 Petitioner :- The Commissioner Of Income Tax-I, Kanpur Respondent :- Shri Nitin Soni "1. Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal was justified in law in confirming the order of the Ld. CIT(A)-I, Kanpur in deleting the addition of Rs.29,21,738/- made by the AO on a/c excess generation of income by invoking the provisions of section u/s 56(1) of the Act without appreciating that assessee failed to explain source and nature of generation of his capital."

7 7 It is not in dispute that the assessee has got eight trucks. It was also not disputed by the learned standing counsel for the department that the provisions of Section 44AE of the Act are applicable. Emphasis was laid by him that the additions made in the hands of the assessee was justified as the assessee has income more than that which is calculated as per Section 44AE of the Act. It is difficult to accept the aforesaid submission of the learned standing counsel. The very purpose and idea of enactment of such provision like Section 44AE of the Act is to provide hassle free proceedings. Such provisions are made just to complete the assessment without further probing provided the conditions laid down in such enactments are fulfilled. The presumptive income, which may be less or more, is taxable. Such an assessee is not required to maintain any account books. This being so, even if, its actual income in a given case, is more than income calculated as per sub-section (2) of Section 44AE, cannot be taxed. Thus, it follows the query of the Assessing Officer as to how the assessee met his daily expenses, there being no withdrawal and conclusion of additional income was uncalled fo Only ground for making the addition is that the assessee was not able to explain the discrepancies in the account-books, which cannot be ground for making addition as income from other sources. Resultantly, the addition made by the Assessing Officer due to increase in the capital cannot be taxed under Section 56 of the Act as income from other sources as the accretion, if any, in the capital is relatable to profit from transport business of the assessee. A reading of the assessment order would show that the addition was made on account of excess generation of income of the assessee from the goods carriages business, under Section 56 of the Act Allahabad High court in INCOME TAX APPEAL NO. 24 OF 2003 M/s Standard Hind Company, Asalatpura, Moradabad------Appellant Dated :- 27th April, 2012 (see other orders of Karnataka High court to similar effect: admitted guilt no further proof required ) All the aforesaid four questions are interwoven and relate to legality and

8 8 propriety of levy of penalty under the aforesaid section after not accepting the explanation given by the assessee with regard to the discrepancy in purchase figure detected by the Assessing Officer An inference drawn by the Tribunal that the assessee s case was taken up for scrutiny and it filed revised return twice and was caught and pinpointed by the Assessing Officer that purchases figures relating to month of January, 1993 has been inflated by Rs.1,00,000/-. The assessee surrendered the same and the surrender is not bonafide. The inference drawn by the Tribunal on the above fact is plausible one and it cannot be said arbitrary or imaginary. Noticeably, in original income tax return, total income of Rs.18,860/- was disclosed which was revised to Rs.68,860/- and was again revised by declaring the income of Rs.1,18,860/-, is indicative of conduct of assessee. For the sake of brevity, we are not producing the relevant discussion made by the Tribunal in para-6.2 of the order. Suffice it to say that the Tribunal has found that the concealment has been detected by the Assessing Officer and the same forced the assessee to file the revised return. Assessing Officer and the Tribunal both have rejected the contention of the assessee that Rs.1,00,000/- was surrendered just to buy peace with the department. It is clear case of concealment of income and furnishing of wrong particulars of income. Here is a case where the addition was not made in the income on estimate and surmises. A specific concealment for a particular month was detected by the Assessing Officer Allahabad high court in Petitioner :- The Commissioner Of Income Tax & Another Respondent :- Smt. Vindhyavasini Devi Case :- INCOME TAX APPEAL No of 2008: The mere fact that the DVO has reported value of the property as 17 lacs does not ipso facto leads to the conclusion that unexplained consideration of above Rs. 5 lacs was actually paid by the assessee. The Appellate Authority has rightly recorded that in the present case, the seller of the property even was not called by the Assessing Officer nor there was any material to come to a conclusion that the amount which has been added in the income was actually paid by the assessee. The appellate authority has observed that the burden is on the Department to show that the two conditions are to be fulfilled: i) The fair market value of the assets as on the date of the purchase was more than the value declared by the assessee. The amount paid has

9 9 been understated and ii) Secondly, the assessee has actually paid more than what is declared by him.; Allahabad High Court M/S Kan Construction And Colonizers (P) Ltd. Allahabad High Court The Commissioner of Income-tax (Appeals) and the Tribunal on analysis of the facts of the case have reached to the conclusion that section 50C has no application as it was a case of transfer of plots which was stock in trade. An income earned from such transaction is liable to be taxed as income from business activity. Alternatively, the finding recorded by the Tribunal which is last fact finding court, in this regard is essentially a finding of fact or at the most is a mixed question of fact, but it is not a substantial question of law to warrant the interference under section 260A of the Income Tax Act.The view taken by the Tribunal is on terra-firma There is no merit in the appeal. The appeal is dismissed by holding that on the facts of the present case, the Tribunal has rightly held that the provisions of section 50C are not applicable with respect of sale of land as sale of land was not capital asset. a) Case :- INCOME TAX APPEAL No of 2008 Petitioner :- Commissioner Of Income Tax Respondent :- Smt.Anjana Sabharwal Thus if an assessee discovers any omission or wrong statement in the original return after filing the same, Section 139(5) enables him to file revised return. When the Act permits the filing of a revised return, it is expected to be considered by the assessing authority, if the same is filed before the assessment order is made by it, otherwise, the very purpose of giving such a right would be frustrated. Coming to the facts of the present case, it is apt to note that the revised return was filed on and was processed under Section 143(1) on At the cost of repetition Rs.1,00,000/- the gift amount was surrendered to be taxed and was taxed. Tax amount was also deposited. By applying the ratio of Dhampur Sugar Mills (supra), the revised return filed on was the only return which substituted the original return. This being the position, clearly, it was not a case of escapement of income of Rs.1,00,000/- and as such the very initiation of reassessment taking recourse of Section 148 of the Act was not warranted The Assessing Officer and the First Appellate Authority have committed illegality in holding that revised return can be filed only when there is bonafide mistake. Section 139(5) of the Act enables an assessee to file revised return on the discovery of any omission or wrong statement which was done in the present case by the assessee.

10 10 2) Case :- MISC. BENCH No of 2009 Petitioner :- M/S Tulsi Food Products, 12 Rani Laxmibai Marg, Lucknow Respondent :- Dy. Commissioner Income Tax, Range-V,Lucknow & Anr According to the learned counsel, the petitioner has filed the return on , a notice could not have been served on/or before or maximum by the end of month i.e i.e. one year. For this purpose, he has submitted that the provision applicable for the assessment year , categorically lays down that the notice under Section 143(2)/115WE(2) has to necessarily be served within 12 months from the end of the month in which the return was furnished. However, in the instant case, the impugned notice has actually served on which is beyond the limitation period twelve months ending , laid alone the service of the said notice, which was made on The return is furnished in the month of July, 2007, therefore, the impugned notice under Section 143(2) has necessarily to be served not later on expiry of twelve months from the end of the month in which the return was filed, meaning thereby, a notice was to be served on or before , but in the instant case, the notice was issued beyond twelve months i.e. on Learned counsel for the Department has drawn the attention to the explanatory notes to the provisions of the Finance Act, 2008 (Circular No. 1/2009) where it was mentioned that the amendment has been made applicable with effect from 1st April, This means that the amended provision shall apply in all proceedings which are pending on 1st April, 2008 as applicable in the case of Section 292BB. On the similar analogy, he further submits that the proceedings of the assessee were pending and the amended proviso is applicable in the assessee's case. Lastly, he made a request to dismiss the petition. Needless to mention that if there are two interpretations then the interpretation favourable to assessee will have to be adopted as per the ratio laid down in the case of CIT vs. Shaan Finance (P) Ltd., (1998) 231 ITR 308 (SC). Thus, the beneficial provision to assessee will have to be adopted In the instant case, twelve moths' period from the end of the month in which the return was filed, expires in 31st July, 2008, so a notice was supposed to be served maximum on/or before 1st August, 2008, but it was given on It is belated less than about two months. When the notice was issued after the expiry of the period of limitation, the effect of proceeding is void as per ratio laid down by the Gujarat High Court in Deputy Commissioner of Income-tax vs. Mahi Valley Hotels and Resorts, (2006) 287 ITR 360 (Guj.). It is well settled that if any notice issued by the department is invalid for any reason, entire proceedings taken by the department would become void for want of jurisdiction as per ratio laid down in the case of CIT vs. Kurban Hussain, (1971) 271 ITR 821 (SC)

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12 12 1. Allahabad High Court in Petitioner :- Commisisoner Of Income Tax Varanasi And Another Respondent :- M/S Deco Glass Case :- INCOME TAX APPEAL No of 2004 Sri Upadhyaya, learned counsel submitted that the order passed by the Commissioner of Income Tax (Appeals) as affirmed by the Tribunal is erroneous inasmuch as it had failed to consider the effect of Section 292 BB of the Act which has been inserted by Finance Act, 2008, with effect from 1st April, The provisions of this section being procedural in nature will apply retrospectively and shall apply to all the pending proceedings. The effect of Section 292 BB of the Act would be to cure the defect, if any, in the proceedings where no notice has been served upon the assessee and the assessee participates in the proceedings without taking any such objections if no notice has been issued for the purpose The notice contemplated under section 142(1) of the Act is only in respect of furnishing information on points or matters as the Assessing Officer may require. The two notices contemplated under section 142(1) and under section 143(2) of the Act are for entirely difference purposes In the case of Assistant Commissioner of Income Tax vs. Hotel Blue Moon ( ITR 362 (SC) the Hon'ble Supreme Court has held that if the Assessing Officer, for any reason, repudiates the return filed by an assessee in response to notice under Section 158BC (a) of the Act relating to a block assessment, the Assessing Officer must necessarily issue notice under Section 143 (2) of the Act within the time prescribed in the proviso to Section 143 (2).and it was held that the issue of notice was mandatory. The effect of the provisions of section 292 BB of the Act came up before this Court in the Commissioner of Income Tax

13 13 Allahabd and another vs. Sh. Mukesh Kumar Agarwal in Income Tax Appeal No. 286 of 2011 decided on and this Court has held that a deeming provisions to validate the notice in certain circumstances, would not have any effect where the very foundation of the jurisdiction of the Assessing officer is on the issuance of the notice under Section 143(2) of the Act