TMI Blog2014 (12) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... ded from the replacement of the words in the proposed and enacted provision from the word "amount credited or paid" to "payable” – thus, the CIT(A) rightly relied upon Merilyn Shipping Transport v. Addl. CIT [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] and held that the provisions of Section 40(a)(ia) of the Act are applicable only to the amount of expenditure which are payable as on 31st March, of every year and it cannot be invoked to disallow which had been actually paid during the previous year without deduction of TDS. In Bharati Shipyard Ltd. v. Dy. CIT [2011 (9) TMI 258 - ITAT MUMBAI] it has been 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 AY 2005-2006 - 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 - the hardship in such an event would be taxing an Assessee on a higher income in one year and taxing him on lower income in a subsequent year - To the extent the Assessee is made to pay tax on a higher income in one year, there would still be hardship. The use of word "Payable", in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct tax at source on such payments under the provisions of section 194C(2) of the Act. Since the assessee had not deducted tax at source on such payments, the AO invoking the provisions of section 40(a)(ia) of the Act disallowed the claim of the assessee for deduction of the aforesaid sum while computing income from business. Accordingly, income from business stood enhanced by the amount disallowed by the AO. 4. On appeal by the assessee, the CIT(A) confirmed the order of the AO. 5. On further appeal by the assessee, the ITAT in ITA No.420/Bang/2009 by its order dated 26.4.2010 remanded the question regarding applicability of the provisions of section 194C(2) of the Act to the payments in question. In the order passed by the AO pursuant to order of the Tribunal, the AO held that the payments made by the assessee fell within the ambit of section 194C of the Act and that the assessee was under an obligation to deduct tax at source. 6. The assessee has been taking a stand even before the AO that as on the last date of the previous year relevant to A.Y. 2005-06, the amounts due and payable to the alleged sub-contractors had been paid and nothing remained payable. The assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erstood in its natural, ordinary or popular sense and constitute according to the grammatical meaning. The word payable used in Section 40(a)(ia) of the Act is to be assigned strict interpretation in view of the object of legislation which is intended from the replacement of the words in the proposed and enacted provision from the word amount credited or paid to payable . In view of the detailed analyses and the above findings of the Hon'ble ITAT, it was held by majority that the provisions of Section 40(a)(ia) of the Act are applicable only to the amount of expenditure which are payable as on 31st March, of every year and it cannot be invoked to disallow which had been actually paid during the previous year without deduction of TDS. 10.2 I also find strength in the argument of the appellant that in the other provisions like sub clauses in Section 40(a)(ic) and 40(a)(iia) the wording used are paid unlike the word 'payable' used in section 40(a)(ia) makes it clear that both the words are to be read in the natural context. In fact this aspect is also analyzed in details by Hon'ble Special Bench. In view of the decision of the Hon'ble Special Bench being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677 and in the case of CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306 wherein the Hon'ble Supreme Court in the context of amendments to the provisions of section 43B of the Act took the view that the amendment were intended to remove hardship and though they were not stated to be retrospective in operation, will apply retrospectively. 12. The Id. DR submitted that it is not possible to infer retrospectivity of operation unless specifically said so by the legislature. According to him, had the legislature wanted the provisions to apply retrospectively, they would have said so specifically. In the absence of such intention of the legislature having been expressed, it is not possible to construe the amendment as having retrospective operation. 13. We have considered the rival submissions. As far as the cross objection is concerned, the question for our consideration is as to whether section 40(a)(ia) amended by the Finance Act, 2012 with effect from 01.04.2013 is retrospective from 01.04.2005 or prospective from the date specified. 14. In order to find answer to this question, it would be relevant to note down the legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 1st day of April, 2005 and will, accordingly, apply in relation to the assessment year 2005- 2006 and subsequent years. [Clause 11] Thereafter the Finance Act, 2008 made amendment to clause (a) in sub-clause (ia) in section 40 with retrospective effect from 1st April, 2005. The section as amended by the Finance Act, 2008 read 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue 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 deduction in computing the income of the previous year in which such tax has been paid. 17. From the above provision as amended by the Finance Act, 2010 with retrospective effect from 1st April, 2010 it can be seen that the only difference which this amendment has made is dispensing with the earlier two categories of defaults as per the Finance Act, 2008, as discussed in the earlier para, causing disallowance on the basis of the period of the previous year during which tax was deductible. The first category of disallowances included the cases in which tax was deductible and was so deducted during the last month of the previous year but there was failure to pay such tax on or before the due date specified in sub-section (1) of section 139. The Finance Act, 2010 has not tinkered with this position. The second category of the Finance Act, 2008 which required the deposit of tax before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan and freight charges without deducting tax at source. The Embroidery charges were paid between 22nd may, 2004 to 30.11.2004. Tax had been deducted at source but were paid to the Government only on 28.10.2005 and not within the time contemplated by Section 200(1) of the Act. The dyeing charges were paid between 5.4.2004 to 20.8.2004. Tax was deducted at source but was paid to the Government only on 28.10.2005. Frieght outward charges were paid without deduction of tax at source. Interest on loans were credited to the creditors account on 31.3.2005 to the extent they were paid after the due date for filing return of income u/s. 139(1) of the Act, the disallowance was made u/s.40(a)(ia) of the Act. Before the Tribunal, the Assessee contented that the amendment by the Finance Act, 2010 with retrospective effect from 1st April, 2010 whereby amount of tax deducted at the time of making payment in respect of expenditure referred to in Sec.40(a)(ia) of the Act, if paid to the Government on or before the due date for filing the return of income due date u/s 139(1) of the Act should be allowed as a deduction. In other words it was argued that the amendment by the Finance Act, 2010 to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance made by the A.O. and confirmed by the learned CIT(A) on account of freight charges by invoking the provisions of Section 40(a)(ia) is not sustainable as per the amendments made in the said provisions by the Finance Act, 2010 which, being remedial/curative in nature, have retrospective application , we find no reason to deviate from the decisions of the ITAT's Mumbai Bench and Ahmedabad Bench, in the absence of a contrary view, except the other benches decisions or any other High Court. Therefore, respectfully following the decision of the Coordinate Benches (supra), we allow the ground nos. 1 to 3 of the assessee's appeal. 20. As against the aforesaid decision, the Revenue preferred appeal before the Hon'ble Calcutta High Court. The Hon'ble Calcutta High Court in ITA No. 302 of 2011, GA 3200/2011 decided on 23.11.2011, held as follows: We have heard Mr. Nizamuddin and gone through the impugned judgment and order. We have also examined the point formulated for which the present appeal is sought to be admitted. It is argued by Mr. Nizamuddin that this court needs to take decision as to whether section 40(A)(ia) is having retrospective operation or not. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident (i) has furnished his return of income under Section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed. 23. Memorandum explaining the provisions while introducing Finance Bill, 2012 provides the justification of the amendment to section 40(a)(ia) in the following words: In order to rationalise the provisions of disallowance on account of non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(a) was inserted by the Finance (No. 2) Act, 2004. In CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306, the Hon'ble Supreme Court had to deal with the question, whether omission (deletion) of the second proviso to s. 43B of the IT Act, 1961, by the Finance Act, 2003, operated w.e.f. 1st April, 2004, or whether it operated retrospectively w.e.f. 1st April, 1988? Prior to Finance Act, 2003, the second proviso to s. 43B of the IT Act, 1961 (for short, the Act ) restricted the deduction in respect of any sum payable by an employer by way of contribution to provident fund/superannuation fund or any other fund for the welfare of employees, unless it stood paid within the specified due date. According to the second proviso, the payment made by the employer towards contribution to provident fund or any other welfare fund was allowable as deduction, if paid before the date for filing the return of income and necessary evidence of such payment was enclosed with the return of income. In other words, if contribution stood paid after the date for filing of the return, it stood disallowed. This resulted in great hardship to the employers. They represented to the Government about their hardsh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under the Provident Fund Act, Municipal Corporation Act (octroi) and other tax laws. Therefore, by way of first proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the return under the IT Act (due date), the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare funds of employee(s) on the other. This is one more reason why we hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgment in Allied Motors (P) Ltd. etc. (supra) is delivered by a Bench of three learned Judges, which is binding on us. Accordingly, we hold that Finance Act, 2003, will operate retrospectively w.e.f. 1st April, 1988 (when the first proviso stood inserted). Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, to the above extent, operated prospectively. Take an example - in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March (end of accounting year) but before filing of the Returns under the IT Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 2012, w.e.f. 1-4-2013. The provisions are intended to remove hardship. It was argued on behalf of the revenue that the existing provisions allow deduction in the year of payment and to that extent there is no hardship. We are of the view that the hardship in such an event would be taxing an Assessee on a higher income in one year and taxing him on lower income in a subsequent year. To the extent the Assessee is made to pay tax on a higher income in one year, there would still be hardship. 27. As far as the appeal of the revenue is concerned, we find that the use of word Payable , in Section 40(a)(ia) of the Act has created controversy as to whether payable includes amounts paid during the year. There were conflicting decisions rendered by the Tribunal. In the case of DCIT v. Ashika Stock Broking Ltd. reported in 44 SOT 556 the Hon'ble Kolkata ITAT has decided the matter in favour of revenue and after following its decision dated 15.01.2010 in the case of Poddar Son's EXL. P Ltd v. ITO in ITA No. 1418(Kol.)/09 has held that provisions of Section 40(a)(ia) of the Act are applicable to even sums paid during the year. In the case of Teja Construction v. ACIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar in contrast to another assessee who would otherwise be in similar situation but in whose case the amount remained payable till the end of the year. There is no logic why the legislature would have desired to bring about such irreconcilable and diverse consequences. Secondly, the principle of deliberate or conscious omission is applied mainly when an existing provision is amended and a change is brought about. The Special Bench was wrong in comparing the language used in the draft bill to that used in the final enactment to assign a particular meaning to s. 40(a)(ia). Accordingly, Merilyn Shipping does not lay down correct law. The correct law is that s. 40(a)(ia) covers not only to the amounts which are payable as on 31st March of a particular year but also which are payable at any time during the year. The Hon'ble Kolkata High Court in Md.Jakir Hossai Mondal (supra) did not agree with the view of the Special Bench in the case of Merilyn Shipping Transport (supra) following its judgment on CIT v. Crescent Export Syndicates holding that the views expressed in the case of Merilyn Shipping Transports (supra) were not acceptable. 29. However, we find that the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X
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