TMI Blog2010 (9) TMI 552X X X X Extracts X X X X X X X X Extracts X X X X ..... deducted at source on its behalf by the assessee - The provisions of section 40(a)(ia) as stood prior to the amendments made by the Finance Act, 2010 thus were resulting into unintended consequences and causing grave and genuine hardships to the assessees who had substantially complied with the relevant TDS provisions by deducting the tax at source and by paying the same to the credit of the Government before the due date of filing of their returns under section 139(1) - Decided in the favour of assessee - IT APPEAL NO. 2355 (MUM.) OF 2010 - - - Dated:- 22-9-2010 - P.M. JAGTAP, VIJAY PAL RAO, JJ. Haridas Bhatt for the Appellant. S.S. Rana for the Respondent. ORDER P.M. Jagtap, Accountant Member. This appeal by the assessee is directed against the order of ld. CIT(A)-XVI, Mumbai, dated 18-2-2010. 2. The issue raised in ground No. 1 relates to the disallowance of Rs. 3,17,575 made by the Assessing Officer and confirmed by the ld. CIT(A) under section 40A(3). 3. The assessee in the present case is a company which is running on its business as transport contractor and sub-contractor. The return of income for the year under consideration was filed by it on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the said entries are in respect of expenditure incurred by the assessee in respect of which payments have been made in cash. He has contended that the matter may therefore be sent back to the Assessing Officer to verify the claim of the assessee from the relevant record. Since the ld. Counsel for the assessee has also no objection in this regard, we set aside the impugned order of the ld. CIT(A) on this issue and restore the matter to the file of the Assessing Officer with a direction to verify the claim of the assessee that the relevant entries are on account of cash receipts and not cash payments from the actual record and allow proper relief to the assessee on the basis of such verification. Ground No. 1 of assessee s appeal is treated as allowed for statistical purpose. 5. The issue raised in ground No. 2 relates to the disallowance of Rs. 8,06,64,465 made by the Assessing Officer and confirmed by the ld. CIT(A) on account of transport charges under section 40(a)(ia). 6. In the balance sheet filed by the assessee along with its return of income, TDS payable was shown at Rs. 10,60,902 by the assessee. During the course of assessment proceedings, the assessee was calle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable in the open market on a particular day. Thus payment made by us on account of hiring a truck does not amount to either contract or sub-contract which attracts provisions of section 194C of the Income-tax Act, 1961. Further hiring a truck is not equivalent to entering into contract for carrying out any work as contemplated in section 194C; therefore, explanation to III to section 194C is not attracted to the facts of such case. As has been decided in the ITAT order in the case of the Satish Aggarwal Co. [ITA No. 448 (ASR.)]/2008. However, inadvertently we have deducted tax out of payment made for hiring truck which we admit was a mistake on our part on account of wrongfully deductions of tax. However, we have deposited the entire TDS to the Central Government. Thus the learned Income-tax Officer was not correct in disallowing the expenses incurred towards payment of Truck hire under section 40(a)(ia). Under the circumstances your honour is requested to allow the expenses incurred on account of truck hire and delete the additions made by the learned Income-tax Officer and grant us the relief requested. 8. The ld. CIT(A), however, did not find merit in the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is hiring trucks for carriage of goods alongwith man power i.e., conductor and drivers. Therefore, the provisions of section 194C are clearly applicable to the present case and the reliance made by the appellant on the decision of Hon ble Tribunal is not helpful because the fact of the present case distinguishable. Secondly, the appellant has relied on the decision of ITO v. Bhoruka Roadlines Ltd. 300 ITR (AT) 193 (Mum.). The facts of this case are also distinguishable to the fact of the present case because in that case there was no contract made between the assessee and the supplier but the contract was entered into with each truck owner or driver. In the present case, no contract has been made between the truck owner or the driver. But the contract is between the supplier of the trucks which is covered under the provisions of section 194C, therefore, the case law relied upon by the appellant is not helpful to him. In the present case, the appellant has not denied that the provisions of section 194C are not applicable because the TDS was duly deducted but mistake was that it was not deposited in the government account within the stipulated period. Therefore, the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ryying Corpn. v. Asstt. CIT [2009] 126 TTJ (Ctk.) 240 and in the case of Mythri Transport Corpn. v. Asstt. CIT [2010] 1 ITR (Trib) 290 (Visakhapatnam). 11. The ld. Counsel for the assessee further submitted that the entire tax deducted at source from the payment of sub-contractors made during the period 1-4-2005 to 20-2-2006 was paid by the assessee in the month of July and August, 2006 i.e., well before the due date of filing of Income-tax return for the year under consideration i.e., 31-10-06. He submitted that as per the amendment made by the Finance Act, 2010 in the proviso to section 40(a)(ia), the assessee is entitled for deduction on account of transport charges paid to the sub-contractors since the tax deducted from the said payments during the previous year relevant to the year under consideration was fully paid prior to the due date of filing of the return of income for that year. Relying on the decision of Hon ble Supreme Court in the case of CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306, he contended that although the said amendment has been made in the statute with effect from 1-4-2010, the same is applicable retrospectively being curative in nature. He also explain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was rendered by the Hon ble Supreme Court in the context of section 43B which was amended subsequently with a specific purpose which is entirely different from the purpose with which section 40(a)(ia) has been amended by the Finance Act, 2010. He also contended that the provisions of section 43B are concerned with the employees welfare and keeping in view the intention of the Legislature behind enacting the said provisions as well as behind the amendments made subsequently by deleting one proviso and substituting the same with the new proviso, it was held by the Hon ble Supreme Court in the case of Alom Extrusions Ltd. (supra) that the said amendment is applicable with retrospective effect. He contended that there is no such reason to treat the amendment made by the Finance Act, 2010 in the provisions of section 40(a)(ia) as applicable retrospectively especially when the same is made applicable specifically w.e.f. 1-4-2010. 15. We have considered the rival submissions and also perused the relevant material on record. It is observed that tax at source @ 1.12 per cent was deducted by the assessee from the freight charges during the period 1-4-05 to 28-2-06 and the same was paid in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pril, 2005. The provisions of the said section as inserted originally w.e.f. 1st April, 2005 read as under:- Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession , (ia) any interest, commission or brokerage, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tually made. This created a genuine and apparent hardship to the assessees especially in respect of tax deducted at source in the last month of the previous year, the due date for payment of which as per the time specified in section 200(1) was lying only on 7th of April in the next year. The assessee is such case thus had a period of only seven days to pay the tax deducted at source from the expenditure incurred in the month of March so as to avoid disallowance of the said expenditure under section 40(a)(ia). 19. With a view to mitigate this hardship, section 40(a)(ia) was amended by the Finance Act, 2008 and the provisions so amended read as under:- Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession , (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia) with retrospective effect from 1-4-05 still left several assessees with grave hardships and un-intending consequences. Consequently, various representations were made to the Finance Minister with a request to tone down the rigour of law which was causing harsh and unintended consequences. In one of such representations made in the form of a pre-budget memorandum for the year 2010, the Chamber of Tax Consultants stated as under: Total disallowance of the expenses in the previous year in which they are incurred if TDS is not deducted or deducted but not deposited within the due date is very harsh and causes undue hardship. The deductor discharges his vicarious liability by collecting tax and depositing on behalf of the Government. If any genuine business expenditure is disallowed on account of short deduction of TDS, it causes injustice subjects the deductor to unfair arbitrary treatment. The provision of section 40(a)(ia) penalizes the deductor over and above the provisions of penalty prosecution under relevant sections of the Income-tax Act, 1961. Suggestions Scrap section 40(a)(ia). If not, once tax is deducted and accordingly deposited to the credit of the Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest charged under section 234B and 234C in the year of its disallowance. The ratio of the additional tax burden on the assesses to the alleged loss of tax, or its delay is preposterous. There are remedial provisions contained under chapter XVII of the Income-tax Act for recovering of TDS amount interest and penalty thereon and therefore having provisions under section 40a(ia) is not only extremely harsh but tantamount to double taxation. Firstly he is penalized by amount equivalent to TDS along with a penal interest under section 201(A) and under section 220(2) secondly, he is again penalized by the provisions of section 40a(ia). Recommendation. Section 40a(ia) should drawn/deleted and/or bring suitable amendments in the said act, to help assessee in losing genuine deduction on this account. (emphasis supplied) 23. The Hon ble Finance Minister found merit in the above suggestions made by the Industry in the form of representations in their pre-budget Memorandum. Accordingly, the provisions of section 40(a)(ia) were amended by the Finance Act, 2010 and the said provisions as amended w,.e.f. 1-4-2010 read as under: Notwithstanding anything to the contrary in se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orandum explaining the amendments proposed in section 40(a)(ia), the amendments to section 40(a)(ia) are made to alleviate the genuine hardships and unnecessary financial liabilities imposed on the tax payers by refusing to give deductions of bonafide expenditure only for the reason of technical non-compliance of TDS provisions. Such an attempt was earlier also made by making the amendments to the provisions of section 40(a)(ia) by the Finance Act, 2008 and the said amendments were consciously made with retrospective effect from 1-4-2005 keeping in view that the same were made with a view to mitigating the hardships caused to the assessee. The amendments made again to the provisions of section 40(a)(ia) by the Finance Act, 2010 to tone down the rigour of law with the same intention, however, are made w.e.f. 1-4-2010. In the case of Alom Extrusions Ltd. (supra), a similar issue had come up for consideration before the Hon ble Supreme Court in the context of provisions of Section 43B which were amended by the Finance Act, 2003 w.e.f. 1-4-04 and the assessee sought relief relying on the said amendments by contending that the same operated retrospectively. The Hon ble Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the months of July and August, 2006 resulting in an average delay of less than a year. For the said delay, the assessee was liable to pay interest under section 201(1A) and the Government thus was getting compensated for the delay on the part of the assessee to pay the tax deducted at source on its behalf by the assessee. The assessee, however, was still made to suffer by way of disallowance of corresponding freight charges from the payment of which the tax at source was deducted by it merely because there was a delay in payment of the said tax to the credit of the Government. The quantum of such freight charges was to the extent of Rs. 8,06,64,465 and this otherwise genuine expenditure incurred wholly and exclusively by the assessee for the purpose of its business was disallowed by invoking the provisions of section 40(a)(ia) which gave rise to a demand of Rs. 3,68,96,576 against the assessee comprising of tax and interest thereon. Thus, as a result of delay of about one year on the part of the assessee to pay the tax deducted at source amounting to Rs. 9,03,442, the assessee became liable to pay the outstanding demand of Rs. 3,68,96,576 in addition to the interest which was pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. Still he was made to suffer by way of a disallowance of freight charges for which he was otherwise eligible for deduction giving rise to a huge demand as per the provisions of section 40(a)(ia) which was never the legislative intention behind enacting the said provisions. The provisions of section 40(a)(ia) as stood prior to the amendments made by the Finance Act, 2010 thus were resulting into unintended consequences and causing grave and genuine hardships to the assessees who had substantially complied with the relevant TDS provisions by deducting the tax at source and by paying the same to the credit of the Government before the due date of filing of their returns under section 139(1). In order to remedy this position and to remove the hardships which was being caused to the assessees belonging to such category, amendments have been made in the provisions of section 40(a)(ia) by the Finance Act, 2010. The said amendments, in our opinion, thus are clearly remedial/curative in nature as held by Hon ble Supreme Court in the case of Allied Motors (P.) Ltd. (supra) and Alom Extrusions Ltd. (supra) and the same therefore would apply retrospectively w.e.f. Ist April, 2005. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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