TMI Blog2012 (4) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee read as follows: On the facts and in the circumstances of the case and in law: 1(a) The learned Commissioner of Income-tax erred in confirming disallowance u/s.40(a)(ia) on payments made to the following subcontractors: (i) Vaibhav Enterprises ₹ 1,12,38,889/ - (ii) Rapid Inexci Services P.Ltd. ₹ 7,42,155/- CIT(A) took figure at 7,50,000/-) (iii) VijayYadav ₹ 5,07,625/- (iv) Parshuram ₹ 7, 16,232/- (v) Tejuali Shaikh ₹ 4,85,401/- (vi) Ganesh Ramsingh ₹ 2,39,762/- (b) The learned CIT(A) failed to consider that payments made by the appellant were advances and treated as bills for payment on the last day of the accounting year, when tax deduction has taken place and thus there was no violation of provisions of sec. 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 7,42,155/- which were shown as credited on 31/3/05, the AO noticed that the assessee has been making payments to the said company from Sept. 04 onwards upto Feb. 05 towards the labour charges and on 31//3/05 in fact there was a debit balance of ₹ 25,247/-. Hence though the labour charges have been paid during the year, the account has been credited only on 31/3/05. In terms of provisions of sec. 200(1) the assessee was required to deduct TDS from the advances / payments made on account on the dates the payments were made. The amounts were deposited to the credit of the Government only on 31.5.2005. However, this has not been done son. Hence in terms of provisions of sec. 40(a)(ia) the advance payments of ₹ 7,42,155/- paid to Rapid Inexi P. Ltd. which though in the nature of sub-contractual payments / advances towards contract shown as loans and advances given by the assessee were disallowed and added back to the assessee s total income. 5. Similarly in respect of subcontractual payments to Vijay Yadav, Parshuram, Tejuali Shaik, the AO noticed that the assesee has made payments through out the year, but has credited the concerned persons only on 31/3/2005 and has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation. For the purposes of this sub-clause, - (i) commission or brokerage shall have the same meaning as in clause (i) of the Explanation to section 194H; (ii) fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (iii) professional services shall have the same meaning as in clause (a) of the Explanation to section 194J; (iv) work shall have the same meaning as in Explanation III to section 194C; 9. The Memorandum explaining the provisions in the Finance Bill explained the rationale of the insertion of the new provision in following words :- With a view to augment compliance of TDS provisions, it is proposed to extend the provisions of section 40(a)(i) to payments of interest, commission or brokerage, fees for professional services or fees for technical services to residents, and payments to a resident contractor or sub-contractor for carrying out any work (including supply of labour for carrying out any work), on which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax on or before the due date specified in sub-section (1) of section 139 of the Act. In other words, if any amount on which tax was deductible during last month of the previous year, that is March 2005, but was paid before 31st October, 2005, being the due date u/s 139(1), the deductibility of the amount was kept intact. The second category included cases other than those given in category first. To put it simply, if tax was deductible and was so deducted during the first eleven months of the previous year, that is, up to February, 2005, the disallowance was to be made if the assessee failed to pay it before 31st March, 2005. 12. Then came the amendment to section 40(a)(ia) by the Finance Act, 2010 with retrospective effect from 1st April, 2010. The provision so amended, now reads as under :- (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 source under Chapter XVII-B and such tax has not been deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een made by the Finance Act, 2010. 14. The question as to whether the Amendment by the Finance Act, 2010 as aforesaid is prospective or retrospective from 1.4.2005 came up for consideration before the Mumbai Special Bench ITAT in the case of Bharati Shipyard Ltd. Before the Special Bench it was argued that the amendment was made with a view to remove the unnecessary hardship caused to the assessee by the earlier provision. The Special Bench by its order dated 9.9.2011 however held that the amendment carried out by the Finance Act, 2010 with retrospective effect from assessment year 2010- 2011 cannot be held to be retrospective from assessment year 2005-2006. The Special Bench held that the amendment brought out by the Finance Act, 2010 to section 40(a)(ia) w.e.f. 01.04.2010, is not remedial and curative in nature. 15. Prior to the decision of the Special Bench, identical issue had come up for consideration before the ITAT Kolkata Bench in the case of Virgin Creations Vs. ITO, Ward 32(4), Kolkata ITA No. 267/Kol/2009 for AY 05-06 The issue that arose for consideration was disallowance of expenses u/s.40(a)(ia)claimed as deduction while computing income from business being embr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment before the due date of filing of their returns u/s.139(1). In order to remedy this position and to remove the hardships which was being caused to the assessee 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 the Hon ble Supreme Court in the case of Allied Motors Pvt.Ltd. (supra) and Mom Extrusions Ltd. (supra) and the same therefore would apply retrospectively w.e.f. 1st April, 2005. In the case of R.B.Jodha Mal Kuthiala 82 ITR 570, it was held by the Hon ble Supreme Court that a proviso which is inserted to remedy unintended consequences and to make the provision workable, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. In the present case, the amount of tax deducted at source from the freight charges during the period 01/04/2005 to 28/02/2006 was paid by the Assessee in the month of July and August 2006 i.e., well before the due date of filing of its return of income for the year under consideration. This being the undisputed position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid was held to be retrospective from 1.4.2005. If the amendment is considered as retrospective from 1.4.2005, the effect will be that payments of TDS to the credit of the Government on or before the last date for filing return of income u/s.139(1) of the Act for the relevant AY have to be allowed as deduction. Admittedly in the case of the Assessee payments were so made before the said due date and in terms of the decision of the Hon ble Calcutta High Court no disallowance could be made by the AO u/s. 40(a)(ia) of the Act. 18. The question now is as to whether to follow the decision of the Hon ble Special bench which has taken the view that Amendment by the Finance Act, 2010 to the provisions of Sec.40(a)(ia) of the Act is prospective and not retrospective from 1.4.2005 or the decision of the Hon ble Calcutta High Court taking a contrary view. On the above question, the learned counsel for the Assessee brought to our notice the decision of the ITAT Delhi in the case of Tej International (P) Ltd. v. Dy. CIT (2000) 69 TTJ (Del) 650, wherein it was held that in the hierarchical judicial system that we have in India, the wisdom of the court below has to yield to the higher wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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