Section 40(a)(ia) – Section 40(a)(ia) inserted w.e.f. 1.4.2013 is curative in nature and has retrospective effect. Section 40(b)(v) – Profit on sale of godown credited to profit & loss account by the assessee is not to be excluded for computing remuneration allowable to partners.
Facts – I
The Assessing Officer (AO) in the course of assessment proceedings, noticed that the assessee had not deducted tax at source on interest amounting to Rs. 2,52,043 paid to various depositors and also on Rs. 1,44,000 paid towards car hire charges. He disallowed both these expenses u/s. 40(a)(ia) of the Act.
Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal where it contended that the second proviso is curative in nature, intended to supply an obvious omission, take care of unintended consequence and make the section workable and is therefore retrospective.
Held – I
The Tribunal noted that the contention made on behalf of the assessee is supported by the decision of the ITAT , Kolkata Bench in the case of Santosh Kumar Kedia vs. ITO in ITA No. 1905/Kol/2014 for AY 2007-08; order dated 4.3.2015. It observed that the Delhi High Court in the case of CIT vs. Ansal Landmark Township Pvt. Ltd. (377 ITR 635) has also taken the similar view. The Tribunal restored this issue to the file of the AO, with the direction that the assessee shall provide all details to the AO with regard to the recipients of the income and taxes paid by them. The AO shall carry out necessary verification in respect of the payments and taxes of such income and also filing the return by the recipient. In case, the AO finds that the recipient has duly paid the taxes on the income, the addition made by the AO shall stand deleted.
This ground of appeal filed by the assessee was allowed.
Facts – II
The assessee had credited Rs. 10,20,430 to its Profit & Loss Account being profit on sale of godown on which it had been claiming depreciation from year to year. The AO was of the view that salary paid to partners is not to be paid on these profits. He excluded profit on sale of godown for the purposes of computation of remuneration to partners. Accordingly, he recomputed the partners remuneration and disallowed Rs. 3,60,540 out of Rs. 5,40,000 claimed by the assessee as salary paid to the partners.
Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held – II
The Tribunal considered the provisions of section 40(b)(v) which lay down the maximum quantum of remuneration payable to partners and also Explanation 3 thereto which defines “book profit”. It held that from the Explanation 3, it is apparent that the book profit has to be the profit as has been shown in the profit & loss account for the relevant previous year. It observed that the profit received by the assessee on sale of godown amounting to Rs. 10,20,430 was credited to Profit & Loss Account as prepared by the assesse and was part of net profit as shown in profit & loss account. Both the authorities below did not appreciate the provisions of section 40(b)(v), Explanation 3 and misinterpreted definition of “book profit” as given under Explanation 3 to section 40(b) of the Act. It observed that this view is supported by the decision of the Calcutta High Court in the case of Md. Serajuddin & Brothers vs. CIT (2012 – TIOL- 593- HC – CAL) as well as the following decisions –
i) Suresh A. Shroff & Co. (Mum) (2013) 140 ITD 1;
ii) CIT v. J. J. Industries – (2013)(Guj.) 216 Taxman 162;
iii) S. P. Equipment & Services vs. ACIT – (Jaipur)(2010) 36 SOT 325;
iv) ITO vs. Jamnadas Muljibhai – 99 TTJ 197 (Rajkot);
v) Deepa Agro Agencies vs. ITO – 154 Taxman 80 (Bang. Trib.);
vi) Allen Career Institution vs. Addl CIT – (2010) 37 DTR 379 (Jp)(Trib.);
vii) ACIT vs. Bilawala & Co. – 133 TTJ 168 (Mum.)(Trib.)
The Tribunal allowed this ground of appeal filed by the assessee.
