[Opinion] Is Payment of Tax by Payee a Pre-condition for Payer to Be Eligible for Deduction in Spite of Non-deduction of TDS?

CA V K Subramani – [2024] 162 taxmann.com 311 (Article)

The provisions of tax laws are always dynamic and it is justified so, if such dynamism is to provide relief on some unintended burden cast on the taxpayers or to plug any loophole contained therein. However, perennial amendments to legal provisions of tax laws, back and forth, does not show stability or consistency in tax policy which is one of the fundamental features of mature tax administration. As students ever of the tax laws, legal amendments continue to fascinate because of the impact the amendments bring in, besides court decisions which interpret those legal provisions. It is a tantalizing experience that one can enjoy by making reference to the changes made to the legal provisions and the subsequent decisions relating thereto. In this refresher, the relief provided to the taxpayers by means of further provisos to sections 40(a)(ia) and 201(1) are analysed in the light of the legal decision in the case of Academy of Medical Sciences v. CIT [2018] 91 taxmann.com 293/254 Taxman 419/403 ITR 74 (Ker) and the subsequent dismissal of SLP by the apex court Academy of Medical Sciences v. CIT [2024] 158 taxmann.com 131/297 Taxman 2/460 ITR 592 (SC).

1. Academy of Medical Sciences case

The assessee in this case credited lease rent and factually the said rent was not actually paid to the lessor. The amount was shown as payable and no tax was deducted at source. The appeal related to assessment years 2007-08, 2008-09 and 2009-10 with respect to quantum of addition made under section 40(a)(ia) and other 3 appeals related to interest payable treating the assessee as assessee-in-default. In aggregate, there were 6 appeals. In the assessment, since the tax was not deducted at source the expenditure was disallowed. The tribunal also did not delete the addition to the income made and the assessee was before the Court.

The questions of law which were before the Court are as under:

1. whether the tribunal erred in not deleting the additions made under section 40(a)(ia), since the second proviso introduced by the Finance Act, 2012 read with first proviso of sub-section (1) of section 201 absolved the assessee from being treated as an assessee-in-default for reason of the payment of tax by the resident, who received the said amounts?;
2. Ought not the tribunal have considered the provision, which was inserted by the Finance Act, 2012 with effect from April 1, 2013 as curative in nature and allowed the appeal of the assessee for the years; even prior to the introduction of the proviso?; and
3. Ought not the tribunal have found that the assessee, who obtained registration as a charitable educational institution for the assessment year 2011-12, could be granted the benefit of exemption from payment of income-tax in the previous years?

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