Issues relating to the Status of the assessee trumps all other cases

Issues relating to the Status of the assessee trumps all other cases

The status of the assessee is a determining factor while answering any questions raised against the assessee.

Here status is referred as the assessee being individual, AOP, BOI, Joint Venture etc. with respect to law.

The IT Act is a complex structure, which has various conditions on a law being applicable to a particular assessee.

According to reasoning laid down by the Supreme Court if there is a question on the status of the assessee, then that would be a priority for passing a ruling. This becomes a factor for determining the law subjected to the assessee.

Whether where determination of correct status of assessee impacts its ultimate tax liability, such an issue can be admitted for first time before Tribunal even if it was not raised before lower authorities. Following is a very interesting case law relating to the above issue-

Facts of the Case:

■ The assessee was a joint venture between ‘S’ and ‘P’, created for the purpose of erecting vertical lift type mild steel gates for Sulwade Barrage Project.

■ In the course of assessment, the Assessing Officer noted that assessee had deducted tax at source on contract payments as per section 194C but the same was not deposited within the prescribed time limits and therefore the corresponding expenditure was disallowable in terms of section 40(a)(ia).

■ The stand of the assessee before the Commissioner (Appeals) was that the provisions of section 40(a)(ia) were applicable only to an expenditure outstanding at the end of the year and not to the expenditure which had been actually paid during the year itself.

■ According to assessee the expenditure in question represented amounts actually paid to the sub-contractor during the year under consideration itself, and therefore, the default in late deposit of the corresponding tax deducted at source, would not invite the disallowance under section 40(a)(ia).

■ The Commissioner (Appeals) having accepted assessee’s explanation, deleted the disallowance made by the Assessing Officer.

■ In the course of appellate proceedings before the Tribunal, the assessee raised a new plea that it was a joint venture and in terms of amendment in provisions of section 194C by Finance Act, 2008 with retrospective effect from 1-6-2008, said section was not applicable to its case and, consequently, impugned disallowance deserved to be deleted on said ground as well.


■ The plea of the assessee cannot be lightly brushed aside, though in the return of income filed by the assessee the status has been mentioned as firm. This is so for the reason that the Assessing Officer was fully aware of the arrangement in terms of which assessee was carrying on business inasmuch as in the assessment order, it has been specifically noted that assessee is a joint venture between two concerns, which is created for a specific purpose.

■ Therefore, the plea of the assessee deserves to be appropriately addressed, especially for the reason that it involves a point of law. [Para 12]

■ There cannot be an estoppel in law, and the factum of assessee having declared status of a firm in the return filed cannot be fatal, and the resiled position of the assessee is to be adjudicated in the light of the applicable legal position. The exercise to determine the correct status of the assessee becomes all the more important in this case because it has a bearing on the ultimate tax liability of the assessee.

■ If the claim of the assessee that its status is an AOP is accepted, then for the assessment year under consideration, section 194C becomes inapplicable to the assessee, and the consequential disallowance made under section 40(a)(ia) would not survive. If assessee’s claim of being an AOP is not accepted, then the provisions of section 194C would become applicable for the instant assessment year and consequentially the impugned disallowance under section 40(a)(ia) would be justified.

■ Therefore, determination of the correct status impacted ultimate tax liability and in such a situation even as per the reasoning laid down by the Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383, such an issue could be admitted for first time before Tribunal even if it was not raised before lower authorities.


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