Associated Law Advisors v. ACIT [ITA Nos. 411
& 8237/Del/2019, dt. 28-10-2020] : 2020 TaxPub(DT) 4687 (Del-Trib.)
Deductibility of TDS done but not remitted before the end
of the financial year on cash basis of accounting
Facts:
Assessee a legal firm followed cash basis of accounting.
For year end on payments made it had deducted TDS and remitted the TDS as per
the time limits after the year end. They claimed deduction of the TDS deducted
but not yet remitted as an expense in their books of accounts. AO/CIT(A)
disallowed the same. On higher appeal --
Held in favour of the assessee that since they were
following the cash basis of accounting; the amount what was deducted as TDS and
remitted by them in the subsequent year as per the time limit under the act is an
allowable expenditure. It can be added to the amount paid to the vendors which
anyways is claimed as an expense.
Relied on:
Assessee's own case in ITAT dated 11-9-2019 in
ITA No. 1122/Del/2017
CIT v. Calcutta Export Company (2018) 404 ITR 654 (SC) :
2018 TaxPub(DT) 2136 (SC)
7. We have carefully considered the rival contention and
perused the orders of the lower authorities. Admittedly, the assessee is
following the cash method of accounting and therefore generally whatever is the
cash outflow, the assessee is entitled to claim the same as a deductible
expenditure. In the present case the assessee has made cash payment to the
various parties after deducting tax at source. The portion of the amount paid
to them was already allowed to the assessee as a deductible expenditure.
However, the issue is whether the amount of tax deducted at source from the
payment made to the recipient of such income can be said to be the amount of
expenditure incurred by the assessee and paid during the year and therefore it
is allowable to the assessee as business expenditure. We have carefully
considered the rival contention and found that according to the provisions of
section 198 of the Income Tax Act, tax deducted in accordance with the
provisions of the income tax act is deemed to be the income received by the
recipient of the above income. Therefore, according to the income tax act
itself the above amount of tax deducted at source is deemed to have been
received by the recipient of the income. Thus, it cannot be said that the
assessee has not paid the amount of tax deducted at source to the recipient of
the income from whose payments the tax have been deducted. Further tax
deduction at source is a liability cast upon the assessee to deduct the sum
from the recipient of such income. In fact the moment assessee deducts the tax
at source from the sums paid to the other person it becomes the liability of
the assessee who can be held to be an assessee in default for the above sum as
well as liable to pay interest and penalty also. Thus, the amount of tax
deducted at source is always considered as the sum paid by the assessee on
behalf of the recipient of the income. Therefore, it cannot be said that the
above sum has not been paid by the assessee even while following the cash system
of accounting. Further the action of the learned Commissioner (Appeals) in
invoking the provisions of section 40(a)(i) is also devoid of any merit in view
of the decision of the Hon'ble Supreme Court in (2018) 404 ITR 654 (SC) : 2018
TaxPub(DT) 2136 (SC) where the assessee has paid the above tax deduction at
source to the credit of the government within the prescribed time. Accordingly
the appeal of the assessee on the solitary issue of the disallowance of sum of
INR 249381 is allowed.
Editorial Note: It would
take some time to understand this case especially from the perspective of cash
basis of accounting thus worthwhile reading.