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Believe nothing, no matter where you read it, or who said it, no matter if I have said it, unless it agrees with your own reason and your own common sense...
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Friday, December 21, 2012

Income Tax Details can be disclosed under Right to Information if it concerns "Larger Public Interests" - held Supreme Court

Scope of disclosure of certain Income Tax Details under RTI

Supreme Court in the case of 

GIRISH RAMCHANDRA DESHPANDE VS. CIC

has held that,-

"The details disclosed by a person in his income tax returns are “personal information” which stands exempted from disclosure under clause (j) of Section 8(1) of the RTI Act, unless it involves a larger public interest and the Central Public Information Officer or the State Public Information Officer or the Appellate Authority is satisfied that the larger public interest justifies the disclosure of such information."

Issue:

Whether the Central Information Commissioner (for short 'the CIC') acting under the Right to Information Act, 2005 (for short 'the RTI Act') was right in denying information regarding the third respondent's personal matters pertaining to his service career and also denying the details of his assets and liabilities, movable and immovable properties on the ground that the information sought for was qualified to be personal information as defined in clause (j) of Section 8(1) of the RTI Act?

Facts:

The petitioner  sought for copies of all memos, show cause notices and censure/punishment awarded to the third respondent from his employer and also details viz. movable and immovable properties and also the details of his investments, lending and borrowing from Banks and other financial institutions. Further, he has also sought for the details of gifts stated to have accepted by the third respondent, his family members and friends and relatives at the marriage of his son. The information mostly sought for finds a place in the income tax returns of the third respondent. 

The question for consideration is whether the above-mentioned information sought for qualifies to be "personal information" as defined in clause (j) of Section 8(1) of the RTI Act.

As far as the scope of the Sec-8 (1) is concerned it states as follows:-

Exemption from disclosure of information.-

(1) Notwithstanding anything contained in this Act, there shall be no obligation to give any citizen,-

(e) information available to a person in his fiduciary relationship, unless the competent authority is satisfied that the larger public interest warrants the disclosure of such information;

(g) information, the disclosure of which would endanger the life or physical safety of any person or identify the source of information or assistance given in confidence for law enforcement or security purposes;

(j) information which relates to personal information the disclosure of which has no relationship to any public activity or interest, or which would cause unwarranted invasion of the privacy of the individual unless the Central Public Information Officer or the State Public Information Officer or the appellate authority, as the case may be, is satisfied that the larger public interest justifies the disclosure of such information."

Observation by Supreme Court:

Upon deciding the issue Supreme court observed and categorically held that, the details as called for by the petitioner such as ( copies of all memos issued to the third respondent, show cause notices and orders of censure/punishment etc. are qualified to be personal information ) as defined in clause (j) of Section 8(1) of the RTI Act. 

Further held that, the performance of an employee/officer in an organization is primarily a matter between the employee and the employer and normally those aspects are governed by the service rules which fall under the expression "personal information", the disclosure of which has no relationship to any public activity or public interest. On the other hand, the disclosure of which would cause unwarranted invasion of privacy of that individual. 

Held that,-

"The petitioner in the instant case has not made a bonafide public interest in seeking information, the disclosure of such information would cause unwarranted invasion of privacy of the individual under Section 8(1)(j) of the RTI Act."

...xxx...

Tuesday, December 11, 2012

Provident Fund & E.S.I.- allowability of claim of deduction U/s. 43B of the Income Tax Act, 1961

Allowability of Deduction of payment made on account of Contribution of Provident Fund and E.S.I. - as per Sec- 43B of the Income Tax Act, 1961

. . . an enabling provision, its applicability in Income Tax Law & Legal controversies 


Every organization is responsible to make correct and timely mandatory deductions towards contribution made on account of Provident Fund, E.S.I and any other statutory obligations, or else are made responsible to for withholding employees’ contribution due to failure in remitting these amounts to respective statutory authorities. Consequences, as simple as that –“non-allowability of claim of deduction under Income Tax Act, 1961”.

Hence, complying with the timelines as prescribed under the specified Acts is necessary in order to get the entitled benefit under Income Tax Law. Therefore, one needs to be well versed with the latest rules and regulations so as to avoid the unintended non-compliance and consequences thereof under these Acts. These statutory deductions are complex and failure for non-compliance leads to monetary punishments. In a way an organization end up paying hefty amount and efforts for its necessary compliance.  

Sec- 36 (1)(va) to be read with Sec- 43B of the Income Tax Act, 1961

 Sec-36 (1) (va) reads as follows, -

“(va) any sum received by the assessee from any of his employees to which the provisions of sub- clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee' s account in the relevant fund or funds on or before the due date. Explanation.

For the purposes of this clause," due date" means the date by which the assessee is required as an employer to credit an employee' s contribution to the employee' s account in the relevant fund under any Act, rule, order or notification issued there under or under any standing order, award, contract of service or otherwise”

Sec- 43B of the Income-tax Act, provides that,

certain expenditures, which would otherwise have been allowable as deductions in computing the total income under the Income-tax Act, 1961 shall be allowed as deduction only in the year of actual payment of such items by the assessee. These expenditures are listed under clauses (a) to (f) of the said Section.

To sum up the above, -
•  Employees' contribution is an “income in the hands of the employer/assessee” as per section 2(24)(x);

•  The same is an allowable expenditure, provided the payment thereof is made on or before the due date prescribed under the relevant PF scheme, as per provisions of section 36 (1) (va);

•  The employer's contribution is allowable as expenditure if the payment is made on or before due date of filing his return of income u/s 139(1) and the proof thereof is attached along with the return of income.

Clause (b) of the said Section refers to the sums payable by an employer by way of contribution to any provident fund, super-annuation fund, gratuity fund, or any other fund for the welfare of employees.

The second proviso to Sec- 43B provides that no deduction of such sums covered by the said clause (b) shall be allowed unless such sum has actually been paid on or before the due date as defined in the Explanation below Sec. 36(1)(va).

Incidentally, the aforesaid Sec. 36(1)(va) also provides that any sum received by the assessee from his employees’ as contributions to a Provident Fund, Superannuation Fund, ESI Fund or any other fund for welfare of employees, regarded as income by virtue of S. 2(24)(x), shall be allowed as a deduction in computing business income, only if such sum is credited by the assessee to the employees’ account in the relevant fund or funds on or before the due date.

Section- 43B controls the allowability of deduction of payment specified in clauses (a) to (d) thereof and provides certain conditions subject to which alone the deductions may be permissible, -

Section 43B which commences with a non obstante clause, mandates that the sum referred to in any one of the clauses, will be allowed as deduction in computing the income under section 28 of that previous year only, in which such sum is actually paid by the assessee, irrespective of the fact that the said deduction is otherwise allowable under the Act, and irrespective of the previous year in which the liability to pay such sum was incurred by the assessee, according to the method of accounting regularly employed by him.

The first proviso to section 43B relaxes the rigour of the section if the sum referred to in clause (a) or clause (c) or clause (d) is actually paid by the assessee before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to any such sum was incurred and evidence of such payment is furnished by the assessee along with such return.

The second proviso imposes a further restriction on the allowability of deduction of any sum referred to in clause (b). It provides that unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date, it shall not be allowed as deduction.

Under section 43B, the sum referred to in “clause (b)” of section 43B has been treated differently, as it relates to the sum payable by the assessee as an employer, which includes employer's contribution as well as employees' contribution. If such contributions which are payable to any provident fund or superannuation fund or any fund are paid within the due date, the employer will be able to avail of the benefit of deduction under section 43B, although the general rule embodied in section- 43B is one of allowability of deduction based on actual payment.

The rule contained in the second proviso is an exception to the rule. And here, the actual payment is not enough; the payment should also be made within the due date as defined therein.

Controversy – Whether the amendment brought in Sec- 43B vide Finance Act, 2003 amendatory in nature or curative (retrospective effect w.e.f. 1st April 1988) in nature?   

That vide Finance Act, 2003 an amendment was brought in, thereby deleting the second proviso of Sec-43B made w.e.f. Assessment year 2004-05 therefore became a permissible deduction in the year of payment treating it on par with other items covered by section 43B. By the Finance Act, 2003, the amendment made in the first proviso equated in terms of the benefit of deduction of tax, duty, cess and fee on the one hand and with the contributions to Employees' Provident Fund, superannuation fund and other welfare funds on the other.

This amendment brought about the uniformity came into force w.e.f. 1st April 2004.

The Supreme Court in the case of C.I.T. VS. Alom Extrusions Limited ( 2009) solved the said issue.

The issue of the litigation in the above case was, -

“whether omission [deletion] of the second proviso to Section 43-B of the Income Tax Act, 1961, by the Finance Act, 2003, operated with effect from 1st April, 2004, or whether it operated retrospectively with effect from 1st April, 1988?”

While deciding the matter, Apex Court took into consideration the “Principle of Construction”, thereby relied upon the relevant observations passed in the case of Commissioner of Income Tax, Bangalore vs. J.H. Gotla, which states, -

“the intention from the language used by the Legislature and if strict literal construction leads to an absurd result, i.e., a result not intended to be sub served by the object of the legislation found in the manner indicated before, then if another construction is possible apart from strict literal construction, then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction.”

Therefore, in the light of the above observation, amendment to sec- 43B brought in by Finance Act, 2003 was held to be ‘curative’ in nature with retrospective effect from 1st April 1988 i.e. since the very inception of the provision.

Controversy - Whether the assessee was entitled to claim the benefit vide Sec.43-B for that period particularly in view of the fact that he has contributed to provident fund before filing of the return?

In the case of C.I.T. vs. Vinay Cement Ltd. Hon’ble Apex Court has observed and held that, benefit u/s. 43B be given if the payment has been made before the filing of the Income Tax return.

The issue was again adjudicated in the case of C.I.T. vs. A.I.M.I.L. (2009). Therein, Hon’ble Delhi High Court has held that,

“if the employees contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income Tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principle laid down by the Supreme Court in Vinay Cement (supra).”

In the recent past, Calcutta High court in the case of C.I.T. vs. Vijayshree Limited has settled an issue that whether the deletion of an addition made by the Assessing Officer on account of Employees' Contribution to ESI and PF by invoking the provision of Section 36(1)(va) read with Section 2(24)(x) of the Act was correct or not.

Hon’ble Calcutta High Court relied upon the judgment passed by Hon’ble Supreme court in the case of Commissioner of Income Tax vs. Alom Extrusion Ltd. Accordingly, had held that,

“the Supreme Court in the aforesaid case has held that the amendment to the second proviso to the Sec-43(B) of the Income Tax Act, as introduced by Finance Act, 2003, was curative in nature and is required to be applied retrospectively with effect from 1st April, 1988. Such being the position, the deletion of the amount paid by the Employees' Contribution beyond due date was deductible by invoking the aforesaid amended provisions of Section 43(B) of the Act.”

After observing the plea, I find that it was not the case of adjudicating the question of applicability of provision of sec-43B with retrospective operation or not. And that, the plea taken by Calcutta High court doesn’t make any difference for the reason being that the case pertained to A.Y. 2006-07 and amendment to the second proviso to the Sec- 43 (B) of the Income Tax Act, as introduced by Finance Act, 2003 was already made applicable w.e.f 1st April 2004.

The question is whether the assessee would get the benefit of deduction u/s. 43B of the I.T. Act, for payment made towards Employer’s and Employees’ contribution to PF and ESI made after due date of the respective Acts but paid before the due date of filing of the income tax return.

Recently, Hon’ble Supreme court has one again confirmed in the case of Commissioner of Income Tax vs. Solar Exports that, the Finance Act, 2003 to be curative in nature which would have retrospective application operating from 1st April, 1988, when the proviso stood inserted.

To Conclude:

 It is worth mentioning to discuss in brief the main object of sec- 43B. It is an exception to the general rule of law that a deduction should be allowed in respect of business expenditure in the year in which the same was incurred in case of a person following the mercantile system of accounting. The Section provides that the deduction will be allowed in respect of the listed expenditure in computing the income of the previous year in which the sum is actually paid. Once the payment is shown to have been made, the intention is to confer deduction, which is gathered clearly from the main Section as was introduced.

Hence, all provisions and Explanation added thereafter shall ensure the fulfillment of the main object and are required to be interpreted in a manner to achieve the aforesaid objective.

...xxx...

Monday, December 10, 2012

Difference of opinion on account of taxability of any item/nature of payment falling under various TDS provisions- no disallowance can be made u/s. 40 (a) (ia)

"assessee may be an assessee-in default" but penal provision u/s. 40 (a) (ia) cannot be invoked...


I.T.A.T. Mumbai in the case of UE Trade Corp. (India) Ltd. vs. D.C.I.T. has observed and held that, the difference in shortfall was due to the "applicability of provisions. 

The assessee deducted tax at source u/s. 194C, whereas the A.O. were of the opinion that provision of sec-194I would be applicable. Hence, held that assessee is in default as per provisions of sec. 201 but the disallowance of the expenditure was not permissible u/s. 40 (a)(ia) of the I.T. ACT, 1961.

Saturday, December 8, 2012

Interim Suspension by Andhra Pradesh High Court of the ITAT Special Bench decision in the case - "Merilyn Shipping & Transports, Vishakhapatnam vs. A.C.I.T"

Landmark Judgment faces interim suspension

MERILYN SHIPPING & TRANSPORTS, VISHAKHAPATNAM 
VS. 
ADDITIONAL COMMISSIONER OF INCOME TAX 

It has not been very long since, Hon'ble ITAT, Vishakhapatnam, Special Bench in the case of Merilyn Shipping & Transports, Vishakhapatnam vs. Additional Commissioner of Income Tax has passed a landmark Judgment pertaining to provision of sec- 40 (a) (ia) of the I.T. Act, 1961. 

The question & the issue which was decided was,

" Whether Sec- 40 (a) (ia) of the Income Tax Act, 1961 can be invoked only to disallow expenditure of the nature referred to therein which is shown as 'payable' as on the date of the balance sheet or it can be invoked also to disallow such expenditure which become payable at any time during the relevant previous year and was actually paid within the previous year? "

It was held by the majority decision by the Hon'ble ITAT, Special Bench that,

"The provision of sec-40 (a) (ia) of the Act are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow which had been actually paid during the previous year, without deduction of TDS."

Revenue Department was not happy with the decision and hence, filed a petition u/s. 151 of the CPC before Andhra Pradesh High court. Hon'ble High court suspended the operation of the order passed by Hon'ble ITAT, Special Bench. 

Granted the interim suspension.
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