TMI Blog2015 (2) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... ided in favour of assessee. - TAX APPEAL No. 412 of 2013 With TAX APPEAL No. 409 of 2013 With TAX APPEAL No. 647 of 2012 With TAX APPEAL No. 797 of 2012 With TAX APPEAL No. 813 of 2012 With TAX APPEAL No. 848 of 2012 With TAX APPEAL No. 103 of 2013 With TAX APPEAL No. 104 of 201 - - - Dated:- 22-11-2013 - M. R. Shah And Sonia Gokani,JJ. For the Appellant : Mr. Varun K. Patel, Advocate For the Respondent : Mr. Tushar P. Hemani, Advocate JUDGMENT (Per : Honourable Ms. Justice Sonia Gokani) 1. This group of Appeals are taken up for final hearing as a common question of law arises in all of them. For the purpose of appreciating the facts, the facts emerging in Tax Appeal No. 243 of 2013 shall be reproduced. 2. The assessee is engaged in the business of construction. For the Assessment Year 2005-06, the assessee filed return of income, which was taken in scrutiny assessment under section 143 (3) of the Income-tax Act, 1961 [ the Act for short]. During the course of assessment proceedings, the Assessing Officer noted that certain payments and credits were made against the account of labour contractors to the extent of ₹ 23,13,933/-. On such amount, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the controversy in favour of the assessee. Moreover, there are number of other decisions which would not permit such addition under section 40 [a] (ia) of the Act. The Tribunal upheld the version of the assessee by holding, thus 7. We have considered rival submissions carefully. We find the fact that the TDS amount was deposited prior to the due date of filing of the return, is not in dispute. The issue before us is covered in favour of the assessee with the decision of the Hon ble Calcutta High Court in the case of Virgin Creations [Supra] and the decision of the ITAT, Ahmedabad Bench in the case of M/s. Alpha Projects Society P. Limited [Supra]. The ITAT, Ahmedabad Bench has also considered the Special Bench decision of the Mumbai Bench in Bharati Shipyard Limited [Supra] and has followed the decision of the Hon ble Calcutta High Court in the case of Virgin Creations [Supra] and has decided the issue in favour of the assessee. We being in agreement with the decision of the ITAT, Ahmedabad Bench in the case of M/s. Alpha Projects Society P. Limited [Supra], decide the issue in favour of the assessee and delete the disallowance made under section 40 (a)(ia) of the I.T Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bout the same. To hold this amendment as retrospective for the entire period for being curative, will amount to legislating the provision which is impermissible under the law. It is reiterated that for ensuring that there is no leakage of revenue, Section 40 [a](ia) has been brought into the statute book. 7.1 Shri Manish R. Bhatt, learned senior counsel has further urged that the decision rendered in case of Bharati Shipyard Limited, reported in 132 ITD 53 [Mumbai Special Bench] needs to be construed as the submissions of the Revenue. The object of introduction of Section 40 [a](ia) was to ensure a proper compliance to the TDS provisions so that non-deduction may result into adverse consequences in the form of disallowances of the expenditure in the year of incurrence. Since the Legislature in its wisdom has brought this provision with a view to augment compliance of TDS provisions, those tax payers who make default, need to face the consequences. This amendment is not aimed at removing any unintended hardship to the assessee but to relax intended hardship to some extent by increasing the time for depositing TDS. He further urged that the provision is not clarificatory at all an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the due date under section 139 (1) of the Act and such disallowances would be made if the assessee fails to pay the amount of tax after deducting the TDS on or before the due date specified in subsection (1) of Section 139 of the Act. Therefore, according to the learned counsel, non-deduction of TDS continues to give reason for disallowances under Section 40 {a}(ia) as was the case under the Finance Act, 2004 and Finance Act, 2008. 8. Per contra, leading the team of defence counsel, learned senior advocate Shri S.N Soparkar urged this Court that if the amendment brought about in section 40 [a] (ia); as amended by the Finance Act 2010 with retrospective effect from 1st April 2010, if is not held curative having retrospective effect from 1st April 2005, the same would have a disastrous effect. He urged that to mitigate the hardship caused by Section 40, while maintaining the TDS discipline, this provision has been amended which allows additional time for deposit of TDS so that the disallowances under section 40 are not made. The last date for filing of the return in case of a tax payer is 30th September and thus, the additional time of six months is granted for depositing the TD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the provision needs to be held retrospective in nature. General principles of interpretation of statute has been emphasized, relying on various decisions of different High Courts. He urged that this is a machinery provision which is not to be construed rigorously by the Court. Commenting on the decision in case of Bharati Shipyards Limited [Supra], it is urged that the correct principles have been laid therein, but, they have been applied wrongly to the facts. Three High Courts have held in favour of the assessee and this High Court in case of CIT v. Royal Builders in Tax Appeal No. 520 of 2012 has followed the Delhi High Court, and therefore, there is no reason for this Court to take a contrary stand. 9. Shri R.K Patel, learned counsel supporting the version of learned senior advocate has urged that compliance of provision would result in violation of real income theory which is established by the Apex Court consistently as reported from 46 ITR 144 to 225 ITR 746. He further urged that the said provision seeks to distort the entire scheme of carry forward and setoff of losses, when read along with the concept of taxation of net income. According to him, the provision furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions operate in different ways and the amendment to Section 201 [1A] would be prospective in view of the compensatory nature of the provision as the liability to interest would arise on daytoday basis. 10.2 He further urged that reliance of the Tribunal on the decisions of Allied Motors [P] Limited and Alom Extrusions Limited is apt. In those cases, the time limit for deposit of Sales Tax/EPF was extended instead of statutory limit prescribed under the relevant law. 11. Learned advocate Shri Tushar Hemani has urged that the memorandum explaining the provisions in the Finance Bill, 2010; CBDT Circular No. 1/2009 dated 27th March 2009; Notes on clauses to Finance Bill 2010 and the history of Section 40 {a}(ia) of the Act coupled with the Finance Minister s Speech would lead to an inescapable conclusion that a statutory provision amended by way of Finance Bill 2010 is to remove unintended consequences and the amendment has to be held retrospective in operation. He has also summarized the original Section 40 [a](ia) from 1st April 2005 and the amended section from 1st April 2005 by the Finance Act, 2008 and the Finance Bill, 2010 which has been given effect from 1st April 2010 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. (a) in the case of any assessee (ia) any interest, commission or brokerage, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or subcontractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under subsection (1) of section 200 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under subsection (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 subsection (1) of section 9; (iii) professional services shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. ; 13.2 Thereafter, came amendment to Section 40 [a](ia) by the Finance Act, 2010 w.e.f. Such amended provision reads thus ( 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 subcontractor, 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 XVIIB and such tax has not been deducted or; after deduction, has not been paid on or before the due date specified in subsection (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 subsection (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. 13.3 The notes on clauses and memorandum explainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling of return. It is proposed to amend the said section to provide that no disallowance will be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income specified in subsection (1) of section 139. This amendment is proposed to take effect retrospectively from 1st April, 2010 and will, accordingly, apply in relation to the assessment year 201011 and subsequent years. B. Under the existing provisions of section 201(1A) of the Act, a person is liable to pay simple interest at one per cent. For every month or part of month in case of failure to deduct tax or payment of tax after deduction. With a view to discourage the practice of delaying the deposit of tax after deduction, it is proposed to increase the rate of interest for non-payment of tax after deduction from the present one per cent. to one and onehalf per cent. for every month or part of month. This amendment is proposed to take effect from 1st July, 2010. 13.5 It will be proper at this stage to also refer to the speech of the Finance Minister, while introducing the Finance Bill 2010. As noted, the amendment of the said provision to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ata Ramanaiah Anr., reported in {1995} 6 SCC 545, while quoting the Francis Benion s Statutory Interpretation has noted thus In this connection, we may usefully refer to Francis Bennion s Statutory Interpretation, 2nd Edn. at page 214 wherein the learned author, in Section 97, deals with retrospective operation of Acts. The learned author has commented on this aspect as under : The essential idea of a legal system is that current law should govern current activities. Elsewhere in this work a particular Act is likened to a floodlight switched on or off, and the general body of law to the circumambient air. Culmsy though these images are, they show the inappropriateness of retrospective laws. If we do something today, we feel that the law applying to it should be the law in force today, not tomorrow s backward adjustment of it. Such, we believe, is the nature of law. Dislike of ex post facto law is enshrined in the United States Constitution and in the Constitutions of many American States, which forbid it. The true principle is that lex prospicit non respicit (law looks forward not back). As Willes, J. said retrospective legislation is contrary to the general principle that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Dead) by Lrs., reported in 1995 (1) SCALE 139 has in detail interpreted curative or declarative statute. In the words of the Court In this connection, we may refer to the following observations in Principles of Statutory Interpretation , 5th Edition 1992, by Shri G.P Singh, at page 315 under the caption Declaratory statutes : The presumption against retrospective operation is not applicable to declaratory statutes. As stated in CRAIES and approved by the Supreme Court : For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect to any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble and also the word, declared as well as the word enacted . But, the use of the words it is declared is not conclusive that the Act is declaratory for these words may, at times be used to introduce new rules of law and the Act in the latter case will on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on the ground that the provision was added to remedy unintended consequences and supply an obvious omission so that the section may be given a reasonable interpretation and it was also held and observed that unless construed retrospective, the object of insertion of provision by way an amendment would not subserve the purpose. 15.3 In yet another decision in case of CIT v. Alom Extrusions Limited, [2009] 319 ITR 306, the Apex Court observed that, the second proviso resulted into implementation problems, and therefore, Finance Act 2003 was enacted deleting the second proviso to bring about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. The Court was of the opinion that once this uniformity is brought about in the first proviso, the Finance Act 2003, which is made applicable by the Parliament only with effect from 1st April 2004 would become curative in nature, and hence, it would apply retrospectively with effect from 1st April 1988. It was also noted that if the Department s contention about giving prospective effect to the amendment was given effect to, it would result into hardship and invidious discrimination as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithstanding anything contained in Section 30 to 38 of the Income-tax Act, if the tax deducted at source is not paid within prescribed time [under Section 200 (1)], no amount could be deducted while computing the income, under Chapter IV of the computation of business income . 16.3 Thereafter, by way of amendment of Finance Act, 2008, further amendment was made whereby TDS deductible and deducted in the last month of previous year if was not paid till the due date of filing of return under subsection (1) of Section 139 and in any other case, on or before the last day of the previous year, Section 40(a)(ia) provided for the disallowance of expenses like interest, commission, brokerage, etc. 16.4 Since, this had created anomaly, whereby tax deducted in the last month was permitted payment till filing of return as per subsection (1) of Section 139 whereas for the TDS deducted during the rest of the months, period was provided only till 31st March of the previous year, Finance Act, 2010 was brought. To bring parity, to remedy unintended consequences and to make the provision workable, it proposed to amend the said provision and provided inter alia that no disallowance would be ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Act 2008. Thus, it is apparent that the relaxation made by the amendment made under the Finance Act, 2010 brings the law in parity with the aforementioned situation and accordingly, for the TDS deducted all throughout the year, time is extended from payment till the filing of return. It is thus apparent that when the amendment introduced by the Finance Act, 2008 of relaxing the time for deposit of TDS was made retrospective from the year 2005 [1st April 2005], the amendment by Finance Act 2010 with regard to other limb of time limit for payment of TDS has to be held retrospective not from 1st April 2010 only. If we recall at this stage the speech of Finance Minister while introducing this provision by way of Finance Act, 2010, this amendment essentially has been brought for relaxing the current provision on disallowance of expenditure. The tax, if is deducted at any time during the financial year and paid before the date of filing of the return, the Legislature intended to allow deduction on such expenditure with an intention to permit additional time for most deductors upto September of the next financial year. 17.1 We draw further support from the fact that the rigor of pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retrospective ie., with effect from 1st April 2005. 17.3 We notice that without challenging the constitutional validity of this provision of Section 40 [a](ia) of the Act, Delhi High Court has read down a similar provision, as reported in case of Commissioner of Income-tax v. Oracle Software India Limited, reported in 293 ITR 353. 17.4 We also notice that the Calcutta High Court in case of CIT v. Virgin Creations [Supra], relying on the decision in cases of Allied Motors Private Limited and Alom Extrusions Limited [Supra], held that the said provision would have retrospective application. In words of the Bench 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, ie., 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 Private Limited and also in the case of Alom Extrusions Limited has already decided that the aforesaid provision has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire case sought to be made in this appeal is that the Tribunal wrongly relied upon the amendment which came into effect from 1.04.2010. This is clearly erroneous in as much as Section 40 (a)(ia) was amended by the Finance Act, 2008 with effect from 01.05.2005 whereby the words on or before the due date specified in subsection (1) of Section 139 was substituted by the words, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under subsection (1) of Section 200 of the Act. We, thus, find no merit in this appeal. This Appeal is accordingly dismissed. We are broadly in agreement with the view expressed by the Delhi High Court. The issue being identical, the present Tax Appeal is also dismissed. 18. From the discussion held hereinabove, we answer the substantial question of law raised in these Appeals in favour of the assessee and against the Revenue by holding the amendment made in Section 40 (a)(ia) of the Income Tax Act, 1961 by the Finance Act 2010, as retrospective in operation, having effect from 1st April 2005 ie., from the date of insertion of Section 40 (a) (ia) of the Act. 19. Resultantly, we hold th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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