Bombay High Court: Assessee Cannot Be Allowed TDS Deduction From Payment Taxable Due To Retrospective Amendment

Bombay High Court: Assessee Cannot Be Allowed TDS Deduction From Payment Taxable Due To Retrospective Amendment

The bench stated that the ITAT did not err in holding that the payoff was an allowable business expenditure

The Bombay High Court at Goa has upheld the Income Tax Appellate Tribunal (ITAT) order, stating that the assessee cannot be allowed Tax Deducted at Source (TDS) from payments that were taxable owing to a retrospective amendment.

The bench comprising Justice M.S. Karnik and Justice Valmiki Menezes observed that the department could not take a divergent view on the expenditure for the renovation and construction of schools or temples. That’s because it allowed the expenditure on the purchase of ambulances, granted by the Commissioner of Income Tax (Appeals), as it entailed huge expenses.

The bench noted that the tribunal had not erred in holding that the payoff was an allowable business expenditure and the assessee had not acquired any capital asset.

The respondent-assessee, a company, e-filed an Income Tax Return (ITR), processed by the IT department. It was later scrutinized under CASS, and a notice was issued to the assessee under Section 143(2).

The assessing officer (AO) passed the assessment order by making the disallowance on Short-Term Capital Gains Tax (STCG), treated as business income on expenditure incurred on the purchase of two ambulances and donations, and the expenditure on renovation of two temples.

The assessee appealed before the CIT (A), who upheld the AO’s order.

Thereafter, the assessee and the revenue department approached the tribunal.

The ITAT treated STCG as business income and upheld the decision of the AO. The disallowance of Rs.105,21,316 under Section 14A read with Section 8D was also upheld. It directed the AO to re-compute the disallowance as per the directions of the CIT (A).

The tribunal held that the assessee was not liable for a tax deduction and that the disallowance under Section 40(a)(ia) was not possible by allowing the assessee's appeal. The ground of contribution towards the construction of the school building was allowed, but the appeal on the issue of exchange loss was dismissed.

The IT department contended that the tribunal erred in considering Explanation 2 to Section 9(1)(vii) of the Income Tax Act, 1961. The legislative intent existed even before the Explanation was introduced in the Finance Act, 2010.

The intent was always that the income of the non-resident arising in India under clause (v), clause (vi), or clause (vii) of sub-section (1) of Section 9 would be included in the total income, whether or not (a) the non-resident had a residence or place of business or business connection in India or (b) the non-resident rendered services in the country.

The assessee submitted not being obligated to apply a provision, when it was not in the statute book.

However, the judges relied on the maxim impotentia excusat legem, meaning that when a disability makes it impossible to go by the law, there’s an excuse for alleged disobedience.

Thus, the bench upheld the order of the tribunal that no capital asset was acquired by the respondent-assessee by incurring the expenditure and it was allowable as revenue expenditure.