TMI Blog2013 (9) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... pective amendments, subject to Constitutional restrictions. Section 43B deals with statutory dues and stipulates that the year in which the payment is made the same would be 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, being disposed of by this common judgment at the stage of admission. 2. The contention of the Revenue is that the Income Tax Appellate Tribunal (Tribunal, for short) in their impugned orders dated 21st May, 2012 (in the case of Naresh Kumar) and 8th October, 2012 (in the case of Talbros (P) Ltd.), has erred in holding that the amendments made to Section 40(a)(ia) of the Act by Finance Act, 2010 should be given retrospective effect. The contention of the Revenue is that these amendments are w.e.f. 1st April, 2010 and are not retrospective and, therefore, not applicable to the assessment year in question i.e. 2008-09. 3. Section 40(a)(ia) was inserted with effect from 1st April, 2005 by Finance (No.2), 2004 Bill and after retrospective amendment by Finance Act, 2008, w.e.f. 1st April, 2005, read 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 resident, or amounts payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission 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 tax has not been deducted or after deduction, has not been paid before the expiry of the time prescribed under sub-section (1) of section 200 and in accordance with the other provisions of Chapter XVII-B. It is also proposed to provide that where in respect of payment of any sum, tax has been deducted under Chapter XVII-B or paid in any subsequent year, the sum of 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) 6. The rationale behind the amendment 40(a)(ia) by Finance Act, 2010 in the Memorandum explaining the amendments was also reproduced and reads : Notes on Clauses: Clause 12 of the Bill seeks to amend section 40 of the Income-tax Act relating to amounts not deductible. Und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07 and thereafter deposited the payment in the month of April, 2007. It is an accepted position that in case tax was deductible in the month of March, 2007 the due date of payment was in April, 2007 and before due date payment, Rs.4,40,843/- deducted as TDS in the month of March, 2007 was duly paid. It has to be accepted and it is logical that there would be some time gap between date of deduction of tax at source and when payment is deposited. Section 40(a)(ia) and the proviso as amended by Finance Act, 2008 with retrospective effect from 1st April, 2005 notices and acknowledges the said position and, therefore, clause (A) states that where tax was deductible and was so deducted during the last month of the previous year but 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date on which return under Section 139(1) of the Act is to be filed. 8. Let us now refer to the facts of the present cases. In the case of Talbros (P) Ltd. there was late deposit of TDS on expenditure of Rs.66,29,926/- as per the following details:- Nature Amount Interest 314465 Contractor 5650780 Fees 366586 Rent 612560 INTEREST (GTF) 420829 Total 7365220 9. The amount of TDS to be deducted has not been stated but it varied from 1.03% to 10.33% on the said amounts. No TDS was deducted on interest amount of Rs.7,35,294/-, and there is no quarrel that addition of this amount is justified and should be made under Section 40(a)(ia). The dispute pertains to other amount i.e. Rs.66,29,926/-. The assessment order and the appellate order do not mention the date on which deduction of tax was made or should have been made, but in the assessment order, it is indicated that tax deducted at source prior to February, 2008 was required to be deposited by March, 2008 and TDS deducted in the month of March, 2008 had to be deposited before filing of the return. If we accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitiated. Of course, the assessee would be liable to pay interest on late deposit of TDS or penalty for the same. 12. Naresh Kumar, the respondent assessee succeeded in the first appeal and has succeeded before the Tribunal. 13. Failure to deduct or pay TDS results in several consequences. First being levy of interest under Section 201/201A which is mandatory. The second is levy of penalty under Section 221 and Section 271C of the Act. It can also result in prosecution under Section 276B which postulates punishment of upto seven years imprisonment and fine. Earlier even failure to deduct tax at source was punishable under Section 276B of the Act. 14. Provisions relating to deduction of tax at source are important as this ensures that tax so deducted gets deposited with the Government and non-taxpayers/filers can be identified. The deductee do not suffer and are not deprived of credit of deduction made from their income. Section 40(a)(ia) is a provision incorporated with the said objective and purpose in mind. It is not basically a penal provision as when the TDS is deposited, the amount on which deduction was made is allowed as an expenditure incurred in previous year in whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, affecting or taking away vested rights or attaching new disability is presumed to be prospective. However, it is accepted that Legislatures have plenary power to make retrospective amendments, subject to Constitutional restrictions. 16. Based upon the aforesaid broad dictum, Judges and jurists have drawn distinction between procedural and substantive provisions. Substantive provisions deal with rights and the same are fundamental, while procedural law is concerned with the legal process involving actions and remedies. Amendments to substantive law are treated as prospective, while amendments to procedural law are treated as retrospective. This distinction itself is not free from difficulties as right to appeal has been held to be a substantive law, but law of limitation is regarded as procedural. There is an interplay and interconnect between what can be regarded as substantive and procedural law [see Commissioner of Income Tax versus Shrawan Kumar Swarup Sons, (1998) 232 ITR 123(SC)]. 17. There are decisions, which hold that process of litigation or enforcement of law is procedural. Similarly, machinery provision for collection of tax, rather than tax itself is procedur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... past cause of action may result of reviving or extinguishing a right, and such operation cannot be said to be procedural. Similarly, when requisites of an action under the new statute, draws from a time incident to its passing, rule against retrospectivity may not be applicable. 20. In the said text, reference has been made to formulation by Dixon, C.J. in Maxwell versus Murphy, (1957) 96 CLR 261 holding:- The general rule of the common law is that a statute changing the law ought not, unless the intention appears with reasonable certainty, to be understood as applying to facts or events that have already occurred in such a way as to confer or impose or otherwise affect the rights or liabilities which the law had defined be reference to the past events. But given the rights and liabilities fixed by reference to the past facts, matters or events, the law appointing or regulating the manner in which they are to be enforced or their enjoyment is to be secured by judicial remedy is not within the application of such a presumption . 21. Identically, in Secretary of State for Social Security versus Tunnicliffe, (1991) 2 All ER 712, Staughton, L.J. has expressed the said principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retrospective effect would serve the object behind the enactment. 25. In State through CBI, Delhi versus Gian Singh and Another, AIR 1999 SC 3450 extreme penalty of death was diluted to alternative option of imprisonment for life recording that the legislative benevolence could be extended to an accused, who awaits judicial verdicts against his sentence. Earlier in Ratan Lal versus State of Punjab, AIR 1965 SC 444 reference was made to Section 6 of the Probation of Offenders Act, 1958 and it was observed that if the Act was not given retrospective operation, it would lead to anomalies and thus could not be the intention of the Legislature. 26. Principle of matching which is disturbed by Section 40(a)(ia) of the Act, may not materially be of consequence to the Revenue when the tax rates are stable and uniform or in cases of big assessees having substantial turnover and equally huge expenses as they have necessary cushion to absorb the effect. However, marginal and medium taxpayers, who work at low G.P. rate and when expenditure which becomes subject matter of an order under Section 40(a)(ia) is substantial, can suffer severe adverse consequences as is apparent from the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance 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 and object to accomplish whose sympathetic and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 covered by Section 53A of the Transfer of Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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