Delhi High Court
Commissioner Of Income Tax vs Smcc Construction India Formerly ... on 15 January, 2010
Author: Badar Durrez Ahmed
THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 15.01.2010
+ ITA 12/2010
COMMISSIONER OF INCOME TAX ... Appellant
- versus -
SMCC CONSTRUCTION INDIA FORMERLY
MITSUI KENSETSU INDIA LTD ... Respondent
Advocates who appeared in this case:
For the Appellant : Mr Subhash Bansal
For the Respondent : Mr Salil Kapoor with Ms Swati Gupta
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SIDDHARTH MRIDUL
1. Whether Reporters of local papers may be allowed to
see the judgment ?
2. To be referred to the Reporter or not ?
3. Whether the judgment should be reported in Digest ?
BADAR DURREZ AHMED, J (ORAL)
CM 197/2010
The delay in re-filing the appeal is condoned.
This application stands disposed of.
ITA 12/2010
1. This appeal by the revenue is directed against the Income Tax
Appellate Tribunal‟s order dated 23.12.2008 passed in ITA 806/Del/2007 in
respect of the assessment year 2003-2004. The grievance before the
Tribunal was that the Commissioner of Income Tax (Appeals) had erred in
deleting the addition of Rs 3,16,64,463/- made by the Assessing Officer by
making a disallowance of expenses on the ground that the said expenses
related to the year prior to the previous year relevant for the assessment year
in question. In other words, the addition was made in respect of prior
period expenses. The said expenses were in the nature of fees paid to a
foreign entity for rendering technical services to the assessee. The said
technical fee was payable from time to time. However, the same had not
been shown as payable in the books of accounts of the assessee in the year
prior to the assessment year 2003-2004 because the parties had mutually
agreed to defer the payments towards the liability. The assessee‟s stand was
that the said fee for all the years had become payable and had been charged
to the Profit & Loss Account and paid during the assessment year 2003-
2004. The assessee had classified the said amount as pertaining to prior
period expenses. It is also to be noted that the tax in respect of the said
payment was paid in the current assessment year.
2. The Assessing Officer did not agree with the contentions of the
assessee. The Assessing Officer took the view that the amounts could have
been debited in the previous years when they had allegedly become payable.
Since they were not shown in the accounts in this manner, the Assessing
Officer disallowed the claim of the assessee.
3. Being aggrieved by the said assessment order, the assessee
preferred an appeal before the Commissioner of Income Tax (Appeals) and
relied upon the provisions of Section 40 (a)(i) of the Income Tax Act, 1961
(hereinafter referred to as the „said Act‟). The Commissioner of Income Tax
(Appeals) allowed the appeal and deleted the disallowance. The
Commissioner of Income Tax (Appeals) had noted in his order that the
Assessing Officer‟s main ground for disallowance of deduction was that it
was a prior period expenditure which was not debited in the year in which
the said expenditure had been incurred. The Commissioner of Income Tax
(Appeals) noted that the Assessing Officer was of the view that when there
was no claim in the year in which the expenditure was incurred, the same
could not be allowed under the provisions of the said Act. The
Commissioner of Income Tax (Appeals), after considering the contentions
of the assessee and the view taken by the Assessing Officer, came to the
conclusion that merely not making an entry in the accounts would not
disentitle the assessee from its claim of deduction provided the same was
allowable under the Act. According to the Commissioner of Income Tax
(Appeals), the deduction could be claimed in view of the provisions of
Section 40(a)(i) only in the year in which the tax was actually paid. Thus,
the Commissioner of Income Tax (Appeals) took the view that even if the
hypothetical situation was to be considered that the assessee had debited the
amount in the earlier years, the same could not have been allowed in terms
of the provisions of Section 40 (a) (i) of the said Act as the tax had not been
deducted at source and paid to the government account. The total income
would have remained the same. Consequently, the Commissioner of Income
Tax (Appeals) held that the provisions of Section 40(a)(i) are clear and that
fee for technical services even though relating to earlier years was allowable
as deduction if tax had been deducted at source and the same had been
deposited in the government account within the due date in the year in
which such deduction had been made.
4. Being aggrieved by the said decision, the revenue preferred an
appeal before the Income Tax Appellate Tribunal. The Tribunal confirmed
the view taken by the Commissioner of Income Tax (Appeals). An
important aspect noted by the Tribunal was that as far as the genuineness of
expenditure is concerned, the admissibility of deduction was not in dispute.
The only objection that had been raised by the revenue was that expenditure
ought to have been claimed in the year they relate to. After considering the
provisions of Section 40(a)(i) of the said Act, the Tribunal observed as
under:-
"5. From the bare reading of this provision, it would reveal that
sum chargeable under this Act if payable either outside India or in
India to a non-resident is not allowable as a deduction unless tax
has been deducted on the source or after deduction of such tax, it
has not been paid before the expiry of the time prescribed under
sub-section (1) of Section 200 and in accordance with that
provisions of Chapter XVI-B of the Act. In the case of ABN
Amro Bank, the ITAT has observed that when a deduction is not
allowable because of the statutory provisions, it would make no
difference whether the same was claimed or not by the assessee.
Because of Section 40(a)(i) of the Act, the deduction has to be
allowed in computing the income of previous year in which such
tax deducted at source has been paid. This section 40(a)(i) starts
with a non-obstante clause which implies that section 40,
overrides the provisions of Section 30 to 38 of the Act. The
amounts which may otherwise be allowable as a business
expenditure as per the provisions of Section 30 to 38 and which is
chargeable to tax in the hands of the recipient would not be
allowed as a deduction unless requisite amount of tax has been
deducted on the said amount. Thus, mere passing a debit entry in
the books of accounts, of these expenses would not be sufficient
for claiming the deduction in the present account in the concerned
year then also deduction would not be admissible unless tax has
been paid on such amount. The proviso to section 40(a)(i) makes
it clear that if tax has been deducted in subsequent year and paid
then deduction would be allowed in that year. Therefore, we are
of the opinion that the learned Ist Appellate Authority has rightly
deleted the disallowance. We do not find any merit in this appeal
of the revenue. It is dismissed."
5. We are of the view that the Tribunal has correctly understood the
provisions of Section 40(a)(i) and that the deduction was clearly allowable.
The position is clear that the deduction is to be allowed in the year in which
the tax is paid. No substantial question of law arises for our consideration.
The appeal is dismissed.
BADAR DURREZ AHMED, J
SIDDHARTH MRIDUL, J
JANUARY 15, 2010
SR
