TMI Blog2018 (1) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... or deduction of ₹ 41,34,215 which was TDS on rents paid u/s.40(a)(ia) of the Income Tax Act, 1961 (Act). The aforesaid sum was rent for the period from April, 2005 to February, 2006. The Assessee ought to have deposited the tax deducted at source to the credit of the Central Government on or before 31.3.2006 as per the law as it prevailed at the relevant point of time. Since the Assesee deposited the tax deducted to the credit of the Central Government only in April and May, 2006, the AO disallowed the aforesaid sum which was claimed as a deduction while computing income by invoking the provisions of Sec.40(a)(ia) of the Act. 3. On appeal by the Assessee, the CIT(A) following the decision of the Hon ble Calcutta High Court decision in the case of CIT Vs. Virgin Creations ITAT No.302/2011 (GA 3200/2011) dated 23.11.2011 held that the amendment to Sec.40(a)(ia) of the Act by the by the Finance Act, 2010 with effect from 01.04.2010 is retrospective from 01.04.2005. The amendment provided that any payment of tax deducted at source on or before the due date for filing return of income for a particular year should be allowed as a deduction. The admitted facts in the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The Memorandum explaining the provisions in the Finance Bill explained the rationale of the insertion of the new provision in following words :- With a view to augment compliance of TDS provisions, it is proposed to extend the provisions of section 40(a)(i) to payments of interest, commission 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 1st day of April, 2005 and will, accordingly, apply in relation to the assessment year 2005- 2006 and subsequent years. [Clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 9. Then came the amendment to section 40(a)(ia) by the Finance Act, 2010 with retrospective effect from 1st April, 2010. The provision so amended, now reads 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 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 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. 10. 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive from assessment year 2005-2006. The Special Bench held that 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. 12. Prior to the decision of the Special Bench, identical issue had come up for consideration before the ITAT Kolkata Bench in the case of Virgin Creations Vs. ITO, Ward 32(4), Kolkata ITA No. 267/Kol/2009 for AY 05-06 The issue that arose for consideration was disallowance of expenses u/s.40(a)(ia)claimed as deduction while computing income from business being embroidery charges, dyeing charges, interest on loan 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 aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court that a proviso which is inserted to remedy unintended consequences and to make the provision workable, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. In the present case, the amount of tax deducted at source from the freight charges during the period 01/04/2005 to 28/02/2006 was paid by the Assessee in the month of July and August 2006 i.e., well before the due date of filing of its return of income for the year under consideration. This being the undisputed position, we hold that the disallowance 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. I ..... 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