TMI Blog2013 (7) TMI 454X X X X Extracts X X X X X X X X Extracts X X X X ..... at in case where the tax was deductable and so deducted during the last month of the previous year but was paid on or before the due date specified in Section 139(1) of the Act, deduction/expenditure will be allowed in the previous year notwithstanding the main Section - The object of introduction of Section 40(a)(ia) is to ensure that TDS provisions are scrupulously implemented without default in order to augment recoveries. It is not to penalise an assessee when payment has been made within the time stated. Failure to deduct TDS or deposit TDS results in loss of revenue and may deprive the Government of the tax due and payable. The provision should be interpreted in a fair, just and equitable manner. It should not be interpreted in a manner which results in injustice and creates tax liabilities when TDS has been deposited/paid and the respondent who is following cash system of accountancy has made actual payment to the third party for services rendered - Decided against Revenue. - Income Tax Appeal No. 65/2013 - - - Dated:- 1-7-2013 - Sanjiv Khanna And Sanjeev Sachdeva,JJ. For the Appellant : Mr. N. P. Sahni, Sr. Standing Counsel For the Respondent : Mr. M. P. Devan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges account in February, 2007, i.e., prior to March, 2007. 7. The Commissioner of Income Tax (Appeals) upheld the said addition under Section 40(a)(ia) observing that Section 194J required deduction of tax at source either at the time of payment or at the time of credit of such sum to the account of the payee, whichever is earlier. It did not make any difference whether the assessee was following cash system or mercantile system. Reference was made to Explanation (c) to Section 194J which stipulates that credit to suspense account or account by any other name in the books of accounts required deduction of TDS. 8. On further appeal by the respondent-assessee, ITAT by their order dated 1st August, 2012 has deleted the said addition relying upon decision dated 23rd November, 2011 of the Calcutta High Court in ITA No. 302/2011 GA No. 3200/2011, Commissioner of Income Tax versus Virgin Creations. In the said decision, it has been held that the proviso to Section 40(a)(ia) of the Act amended by Finance Act, 2010 has retrospective effect. 9. Learned counsel for the appellant submits that the decision of the Calcutta High Court in the case of Virgin Creations (supra) should not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as to whether section 40A(ia) is having retrospective operation or not. The learned Tribunal on fact found that the assessee had deducted tax at source from the paid charges between the period April 1, 2005 and April 28, 2006 and the same were paid by the assessee in July and August 2006, i.e., well before the due date of filing of the return of income for the year under consideration. This factual position was undisputed. Moreover, the Supreme Court, as has been recorded by the learned Tribunal, in the case of Allied Motors Pvt. Ltd. And also in the case of Alom Extrusions Ltd., has already decided that the aforesaid provision has retrospective application. Again, in the case reported in 82 ITR 570, the Supreme Court held that the provision, which has inserted the remedy to make the provision workable, requires to be treated with retrospective operation so that reasonable deduction can be given to the section as well. In view of the authoritative pronouncement of the Supreme Court, this court cannot decide otherwise. Hence we dismiss the appeal without any order as to costs. 13. Section 40(a)(ia) of the Act was introduced with effect from 1st April, 2005 by Finance (No. 2), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said due date; or (B) during any other month of the previous year but paid after the end of the said previous year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. (emphasis supplied) 15. Section 40(a)(ia) was further amended by Finance Act, 2010 with effect from 1st April, 2010 and the amended provision now reads as under: (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resi-dent, 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 on or before the due date specified in sub-section (1) of Section 139: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deducted in computing the income of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed TDS of Rs.4,40,843/- and the same was deposited within the due date from the date of said deduction in the month of April, 2007. Prior to that, the assessee had deducted TDS of Rs.3,92,221/- on professional charges of Rs.69,92,700/- in February, 2007. TDS on the said amount which was deducted in the month of February was deposited on 7th March, 2007, within the due date. 18. The aforesaid facts show that the assessee had made payment of Rs.78,51,800/- in the month of March, 2007 only and not in the month of February, 2007. The assessee has throughout stated and it is not disputed either in the assessment order or in the order passed by the first appellate authority that they were for convenience maintaining a Memorandum relating to pending bills but this Memorandum did not get reflected and was not shown in the annual accounts as sundry creditors or liabilities, which were payable. It was not booked as an expense or liability. The assessment order nowhere records or specifically holds that the account of the payee was credited with Rs.78,51,800/- or with Rs.1,48,49,500/-. The first appellate order again does not specifically state so. In such circumstances, we feel a pragmatic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with contradictory stipulations or consequences. Under clause A of the main Section, the TDS deductable and so deducted during the last month should be paid on or before the due date for filing of the return under Section 139(1) but as per the Revenue under the proviso clause A, TDS should be deducted during the last month of the previous year but paid before the said due date i.e. the date by which TDS is payable under the Act. This interpretation if accepted means that clause A of the proviso and clause A of the main Section would become irreconcilable and mutually contradictory. Clause A of the proviso does not postulate the obvious but seeks to relax the rigor when tax deducted stands paid. This is the reason why the proviso in clause A does not use the expression tax was deductable and was so deducted but uses the expression tax has been deducted during the last month of the previous year . The expression said due date in the clause A to the proviso does not mean and refer to the date on which tax should have been deposited without interest or penalty under Chapter XVII-B. This is obvious. Clause A to the proviso applies when the deduction is post the period specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year. Accordingly, a proviso was added by Finance Act, 1987 applicable with effect from 1st April, 1988. The proviso stipulated that when statutory dues covered by Section 43B were paid on or before the due date for furnishing of the return under Section 139(1), the deduction/expense, equal to the amount paid would be allowed. The Supreme Court noticed the purpose behind the proviso and the remedial nature of the insertion made. Of course, the Supreme Court also referred to Explanation 2 which was inserted by Finance Act, 1989 which was made retrospective and was to take effect from 1st April, 1984. Highlighting the object behind Section 43B, it was observed that the proviso makes the provision workable, gives it a reasonable interpretation. It was elucidated: 12. In the case of Goodyear India Ltd. V. State of Haryana this Court said that the rule of reasonable construction must be applied while construing a statute. Literal construction should be avoided if it defeats the manifest object and purpose of the Act. 13. Therefore, in the well-known words of Judge Learned Hand, one cannot make a fortress out of the dictionary; and should remember that statutes have some purpose an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed as a deduction even if the assessee is following the mercantile system of accountancy. The proviso, however, stipulates that deduction would be allowed where the statutory dues covered by Section 43B stand paid on or before the due date of filing of return of income. Section 40(a)(ia) is applicable to cases where an assessee is required to deduct tax at source and fails to deduct or does not make payment of the TDS before the due date, in such cases, notwithstanding Sections 30 to 38 of the Act, deduction is to be allowed as an expenditure in the year of payment unless a case is covered under the exceptions carved out. The amended proviso as inserted by Finance Act, 2010 states where an assessee has made payment of the TDS on or before the due date of filing of the return under Section 139(1), the sum shall be allowed as an expense in computing the income of the previous year. The two provisions are akin and the provisos to Sections 40(a)(ia) and 43B are to the same effect and for the same purpose. 24. In Podar Cement Private Limited (supra), the Supreme Court considered whether term owner‟ would include unregistered owners who had paid sale consideration and were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deducted during the last month of the previous year but was paid on or before the due date specified in Section 139(1) of the Act, deduction/expenditure will be allowed in the previous year notwithstanding the main Section. The section as well as the proviso before the amendment in 2010 had ambiguities and doubts. The proviso as amended by Finance Act, 2008 with retrospective effect from 1st April, 2005 was not free from interpretative difficulties and problems. This aspect is highlighted above. The intention behind Section 40(a)(ia) is to ensure that TDS is deducted and paid. The object of introduction of Section 40(a)(ia) is to ensure that TDS provisions are scrupulously implemented without default in order to augment recoveries. It is not to penalise an assessee when payment has been made within the time stated. Failure to deduct TDS or deposit TDS results in loss of revenue and may deprive the Government of the tax due and payable. The provision should be interpreted in a fair, just and equitable manner. It should not be interpreted in a manner which results in injustice and creates tax liabilities when TDS has been deposited/paid and the respondent who is following cash syste ..... X X X X Extracts X X X X X X X X Extracts X X X X
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