Judgment:
Sanjay Arora, A. M.:
1. This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-23, Mumbai ('CIT(A)' for short) dated 30.07.2012, dismissing the assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2009-10 vide order dated 21.11.2011.
2. The only issue arising in the instant appeal is the confirmation of the disallowance in the sum of Rs.86.40 lacs u/s. 40(a)(ia) of the Act by the first appellate authority. The facts in brief are that the assessee is a company engaged in providing under-water services, such as diving; towing; salvaging; underwater marine repairs and maintenance. For the purpose of its operations it hired charter vessels from its sister concern, M/s. Samson Maritime Ltd. (SML), claiming the charter expenses for the year at Rs.441.37 lacs. The same is liable for tax deduction u/s.194-I of the Act. The payee, SML, applied to the Revenue in the concerned Department for waiver of tax deduction u/s. 197A of the Act for the relevant year vide its application dated 09.04.2008 (PB pgs.5 to 8). The same was disposed of by the ITO (OSD), TDS range by issuing a certificate u/s. 197(1) of the Act, allowing deduction of tax on the said payment @ 2.02% (exclusive of surcharge and education cess / PB pg.9). The said certificate was to operate from the date of its issue, i.e., 07.05.2008, to 31.03.2009. The assessee deducted tax at source at the applicable gross rate of 2.28% on the payments accruing during the year. The Revenue has disallowed the hire service charges in respect of the period from 01.04.2008 to 06.05.2008 for the two vessels, at Rs.86.40 lacs, as under, on account of non-deduction of tax at source at the prescribed rate of 10% (basic) u/s. 194-I, inasmuch as the certificate u/s. 197(1) allowing deduction of tax at a lower rate is effective only from 07.05.2008 onwards:
Period
Period 01.04.2008 01.04.2008 07.05.2008 30.09.2008 06.05.2008 30.09.2008 (Date of Dissolution) Number of 36 147 183 Days Rupees Rupees Rupees Ship Name Pearl 1,45,000 52,20,000 2,13,15,000 2,65,35,000 Topaz 95,000 34,20,000 1,39,65,000 1,73,85,000 2,40,000 86,40,000 ,352,80,000 4,39,20,000.
3. We have heard the parties, and perused the material on record. The issue, as we discern, is the applicability of the order u/s. 197(1) by the ITO (OSD), TDS range for the relevant year prior to the date of its issue, i.e., 07.05.2008. The assessee has admittedly not deducted the tax at the basic rate of 10%, i.e., in terms of section 194-I, the applicable provision, so that there is apparently a violation of the relevant provision of Chapter XVII, which results in invocation of section 40(a)(ia) of the Act.
3.1 We are, on a careful consideration to the matter, wholly unable to persuade ourselves to agree with the Revenue's case. The application moved by the payee, SML, thereto was for the entire previous year, i.e., f.y. 2008-09, and not for a truncated part thereof. Even the financials as to the revenue generation and tax liability of the payee considered by the Department for the purpose would only be for the entire year. As such, it is not clear as to why the certificate of deduction of tax at a lower rate was made applicable only from 07.05.2008 onwards, except perhaps that the certificate was issued on that date, and which by itself ought not to be material or relevant. The certificate is also silent on as to why it thus prescribes two rates of tax deduction for the relevant year, i.e., at 10% (net) (for the period 01.04.2008 to 06.05.2008) and at the rate of 2.02% (net) from 07.05.2008 onwards. Put differently, it needs to be appreciated that the deposit of the differential tax (10% - 2.02%) (net), i.e., to enable reversible of the disallowance u/s.40(a)(ia) - which is only to ensure an adherence to the tax deduction provisions, is to no consequence in the present case inasmuch as the Revenue itself considers the proper rate of deduction of tax to be at 2.02%. Rather, once an application is disposed of favorably it would ordinarily relate back to its date, which in the present case is 09.04.2008, if not to the period to which it relates (f.y. 2008-09).
3.2 Further on, the assessee has with reference to its accounts clarified that the payment for the month of April, 2008, at an aggregate of Rs.72 lacs (for both the vessels), stood credited in its books only on 14.05.2008 (PB pgs.3B-3E). The liability to deduct tax at source, which is the earlier of the date of credit and the date of payment, thus, arose only on 14.05.2008, on which date the same stood deducted. The certificate u/s. 197(1) being in force on that date, tax stood deducted at the sanctioned, lower rate of 2.28% (gross). In fact, the assessee found favour with the Tribunal for the A.Y. 2007-08 (in ITA No.7297/Mum/2010 dated 06.07.2012/copy on record) only on that basis. We find the same as unexceptional. The argument of the Revenue that the entries were made in the books only to circumvent the provisions of the Act, is without basis. There is no question of an afterthought inasmuch as the tax stood deducted at the stipulated rate, so that it is only in pursuance of the sanction as granted. In fact, section 40(a)(ia) would apply only if the tax has either not been deducted or after deduction not deposited by the end of the relevant year, so that to that extent the tax deduction provision and section 40(a)(ia) are not para materia; the provision of section 40(a)(ia) itself allowing an extended period of time for the non-application thereof.
The second argument advanced by the Revenue for not following the order by the tribunal in the assessee's case for the preceding year is that the assessee had for the current year agreed to a suo motu disallowance - which though the assessee disputes. There is no estoppel against law, so that independent of the agreement, the argument is not valid. In fact, whether section 40(a)(ia) would apply on a lower deduction of tax at source - an argument which though is not open in the present case as admittedly the applicable rate is 10% (basic), so that the deduction at a lower rate would imply an admitted non-observance of the mandate of the relevant TDS provision, is itself a matter of debate.
4. In view of the foregoing, in any view of the matter, no case for disallowance u/s. 40(a)(ia) on the charter hire charges, i.e., the rent paid to SML, on the impugned amount of Rs.86.40 lacs, is made out. We hold accordingly.