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TMI Blog2013 (7) TMI 454X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007 and noticed that an amount of Rs.8,52,034/- had not been paid by 31st March, 2007. The assessee was asked to explain why disallowance should not be made under Section 40(a)(ia) as amended by Finance Act, 2008 with retrospective effect from 1st April, 2005. The assessee filed written submissions that they had not claimed any expense on accrual basis and were following cash system of accounting. However, for better control and record maintenance, they were maintaining a memorandum in the books. This memorandum was of no consequence as the assessee was claiming expenses on cash system and there were no sundry creditors or liabilities at the end of the year. In the month of February, 2007, Rs.8,33,064/- was shown in the TDS account on account of professional charges amounting to Rs.1,48,49,500/-. Rs.69,92,000/- was paid in the month of February, 2007 and TDS of Rs.3,92,221/- thereon was deposited on 7th March, 2007. The balance amount of Rs.78,51,800/- was paid/released in the month of March,2007 and TDS was deducted and was paid on the said amount before the due date in the month of April, 2007. Deduction, therefore, was due and made in the month of March, 2007 and the TDS was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax, Bombay and Others versus Podar Cement Private Limited and Others, (1997) 5 SCC 482. 11. At the outset, we notice and record that the decision of the Bombay High Court in Shyam Narayan and Brothers (supra) does not lay down or propound any ratio applicable to the question of law raised in the present case. The said decision does not examine or affirm the ratio by the Full Bench decision of the tribunal in Bharati Shipyard Limited (supra). Bombay High Court records that the earlier decision of the tribunal in the case of Bansal Parivahan (India) Private Limited versus ITO, (2011) 9 ITR Tribunal 565 stands overruled by Bharati Shipyard Limited (supra), which is a factual assertion. It did not examine on merits the ratio and reasoning of the tribunal in Bharati Shipyard Limited (supra) and/or affirm or disapprove the same. The order of the tribunal in the case of Shyam Narayan and Brothers (supra) was set aside for re-examination as the tribunal had followed the decision in the case of Bansal Parivahan (India) Private Limited (supra) which stood overruled by the Full Bench. Thus, the said decision does not deal with the legal question raised before us. 12. The decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment shall be allowed in computing the income of the previous year in which such tax has been paid. The proposed amendment will take effect from the 1st day of April, 2005 and will, accordingly, apply in relation to the assessment year 2005-06 and subsequent years. (clause 11)." (emphasis supplied) 14. Thereafter, by Finance Act, 2008 an amendment was made to Section 40(a)(ia) with retrospective effect from 1st April, 2005. Section 40(a)(ia) as amended by Finance Act, 2008 was as under: "40. 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 "profit 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 resi-dent, or amounts payable to a contactor 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 paid,- (A) in a case where the tax was deductible and was so deducted during the last month of the previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I-B. It is proposed to amend sub-clause (ia) of clause (a) of the aforesaid section to provide that disallowance under the said sub-clause will be attracted, if, after deduction of tax during the previous year, the same has not been paid on or before the due date of filing of return of income specified in sub-section (1) of section 139. The proviso to the said sub-clause provides that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the last month of the previous year but paid after the due date of filing of return or deducted 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. This amendment will take effect retrospectively from 1st April, 2010, and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years." 17. We have noticed the facts of the present case. It is an accepted and admitted position that the assessee was following cash system and not mercantile system of accountancy. Neither the Assessing Officer nor the CIT (Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t stands paid before the due date specified under sub-section (1) to Section 139, deduction shall be allowed in the said year. 19. Proviso applies when tax was deducted in a subsequent year; when TDS has been deducted during any month of the previous year but paid after the end of the previous year; or TDS was deducted during the last month of the previous year but paid after the said due date. When proviso applies deduction is to be allowed in the year in which the payment is made. Clause A of the proviso has to be read with clause A of the main Section and not in isolation. Clause A of the main Section and clause A of the proviso will apply in different factual matrix or situations. Clause A of the main Section applies when the tax was deductable and was so deducted during the last month of the assessment year and was paid on or before the due date for filing of the return under Section 139(1). The proviso applies when tax has been deducted in any subsequent year or has been deducted as per clause A thereto during last month of the previous year, but has been paid after the said due date. The expression "said due date" cannot mean the date on which TDS as per the Chapter XVIII B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayee to await deduction of TDS. It would not be appropriate to apply clause (c) of Explanation to section 194J to factual matrix of the current case. The amount was credited to the account of the payee, payment was made and TDS was deducted in March, 2007 and paid/deposited in April, 2007. 22. Now, we refer to the amendments which have been made by the Finance Act, 2010 and the effect thereof. We have already quoted the decision of the Calcutta High Court in Virgin Creations (supra). The said decision refers to the earlier decision of the Supreme Court in the case of Allied Motors (P) Limited (supra) and Commissioner of Income Tax versus Alom Extrusions Limited, (2009) 319 ITR 306 (SC). In the case of Allied Motors (P) Limited (supra), the Supreme Court was examining the first proviso to Section 43B and whether it was retrospective. Section 43B was inserted in the Act with effect from 1st April 1984 for curbing claims of taxpayers who did not discharge or pay statutory liabilities but claimed deductions on the ground that the statutory liability had accrued. Section 43B states that the statutory liability would be allowed as a deduction or as an expense in the year in which the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year is deductible. This decision deals with Assessment Year 1985-85. The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corpn. has taken a similar view holding that the statutory liability for sales tax actually discharged after the expiry of the accounting year in compliance with the relevant statute is entitled to deduction under Section 43-B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High court has also held the amendment inserting the first proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. Union of India. The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore, that the first proviso to Section 43-B will be available only prospectively does not appear to be correct. As observed by G.P. Singh in his Principles of Statutory Interpretation, 4th Edn. At p. 291: "It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at as per Transfer of Property Act, Registration Act, etc. a legal owner must have a registered document. 25. In view of the aforesaid discussion in paras 18,19 and 20, it is apparent that the respondent assesse did not violate the unamended section 40(a)(ia) of the act. We have noted the ambiguity and referred their contention of Revenue and rejected the interpretation placed by them. The amended provisions are clear and free from any ambiguity and doubt. They will help curtail litigation. The amended provision clearly support view taken in paragraphs 17 - 20 that the expression "said due date" used in clause A of proviso to unamended section refers to time specified in Section 139(1) of the Act. The amended section 40(a)(ia) expands and further liberalises the statue when it stipulates that deductions made in the first eleven months of the previous year but paid before the due date of filing of the return, will constitute sufficient compliance. 26. Before we close, we must deal with another contention raised by the counsel for the Revenue to the effect that Finance Bill, 2010 increases the rate of interest from 12% to 18% for failure to deposit TDS in time. This increase in rat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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