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TMI Blog2016 (2) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... Security Service AIKPB9487G Rs. 7,27,895.72 Rana Security Services Rs. 89,980.47 M/s Dharvinder Security Services Rs. 57,784.00 Hire Charges - Rs. 3,95,816.00 H. K. Earth Movers Rs. 2,35,816.00 Manajit Singh Rs. 1,60,000.00 Rs.19,78,986.19 3. The order of the AO was confirmed by CIT(A). Before me the limited submissions of the ld. Counsel for the assessee was that the recipients of the payment from the assessee are all income tax assesses and have duly declared the receipts from the assessee in their return of income and have paid taxes on the same. He relied on the decision of ITAT, Kolkata Bench in the case of Santosh Kumar Kedia vs ITO in ITA No.1905/Kol/2014 for A.Y.2007-08 order dated 04.03.2015 wherein the Hon'ble Bench took a view that the insertion of proviso to section 40(a)(ia) of the Act by the Finance Act 2012 was retrospective in operation. The learned counsel therefore prayed that the issue of disallowance u/s.40(a)(ia) of the Act may be set aside and remanded to the AO for fresh consideration with liberty to the Assessee to establish the factum of payment of taxes by the recipient of commission from the Assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments made to a resident payee, it is proposed to amend section 40(a)(ia) to provide that where an assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, then, for the purpose of allowing deduction of such sum, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee." 7. The provisions of Sec.40(a)(ia) of the Act are meant to ensure that the Assessee's perform their obligation to deduct tax at source in accordance with the provisions of the Act. Such compliance will ensure revenue collection without much hassle. When the object sought to be achieved by those provisions are found to be achieved, it would be unjust to disallowance legitimate business expenses of an Assessee. Despite due collection of taxes due, if disallowance of genuine business expenses are made than that would be unjust enrichment on the part of the Government as the payee would have also paid the taxes on such income. In order to remove this anomaly, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kelkar Committee, the Government introduced Finance Act, 2003, by which the second proviso stood deleted w.e.f. 1st April, 2004, and certain changes were also made in the first proviso by which uniformity was brought about between payment of fees, taxes, cess, etc., on one hand and contribution made to Employees' Provident Fund, etc., on the other. According to the Department, the omission of the second proviso giving relief to the assessee(s) [employer(s)] operated only w.e.f. 1st April, 2004, whereas, according to the assessee(s)-employer(s), the said Finance Act, 2003, to the extent indicated above, operated w.e.f. 1st April, 1988 (retrospectively). The Hon'ble Supreme Court held that the deletion of the second proviso was retrospective w.e.f.1.4.2004. The Court considered the scheme of the Act and the historical background and the object of introduction of the provisions of S. 43B. The Court also referred to the earlier amendments made in 1988 with introduction of the first and second provisos. The Court also noted further amendment made in 1989 in the second proviso dealing with the items covered in S. 43B(b) (i.e., contribution to employees welfare funds). After consideri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by the Parliament only w.e.f. 1st April, 2004, would become curative in nature, hence, it would apply retrospectively w.e.f. 1st April, 1988. Secondly, it may be noted that, in the case of Allied Motors (P) Ltd. Etc. vs. CIT (1997) 139 CTR (SC) 364 : (1997) 224 ITR 677 (SC), the scheme of s. 43B of the Act came to be examined. In that case, the question which arose for determination was, whether sales-tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant sales-tax law should be disallowed under s. 43B of the Act while computing the business income of the previous year ? That was a case which related to asst. yr. 1984-85. The relevant accounting period ended on 30th June, 1983. The ITO disallowed the deduction claimed by the assessee which was on account of sales-tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under s. 43B which, as stated above, was inserted w.e.f. 1st April, 1984. It is also relevant to note that the first proviso which came into force w.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee(s) would not be entitled to deduction under s. 43B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under s. 43B of the Act. In our view, therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate w.e.f. 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003. 16. Before concluding, we extract hereinbelow the relevant observations of this Court in the case of CIT vs. J.H. Gotla (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC), which reads as under : "We should find out the intention from the language used by the legislature and if strict literal construction leads to an absurd result, i.e., a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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