Rajasthan High Court - Jaipur
Shri Bhanwar Lal Choudhary vs A C I T Circle-Sikar on 15 February, 2018
Author: K.S.Jhaveri
Bench: K.S.Jhaveri
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT
JAIPUR
D.B. Income Tax Appeal No. 360 / 2017
Shri Bhanwar Lal Choudhary, Pro., New Choudhary Enterprises,
Kalyan Circle, Silver Jublee Road, Sikar 332001 Rajasthan
----Appellant
Versus
ACIT Circle-sikar Sikar Raj
----Respondent
_____________________________________________________ For Appellant(s) : Mr. Gunjan Pathak with Ms. Ishita Rawat _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 15/02/2018
1. By way of this appeal, the appellant has assailed the judgment and order of the tribunal whereby tribunal has partly allowed the appeal of the assessee only for the statistical purposes.
2. Counsel for the appellant has framed following substantial questions of law:-
"(A). Whether under the facts and circumstances and in law, the ld. ITAT has erred in confirming the disallowance u/s 40(a)(ia) of the Act of 1961 on account of non deduction of tax at source on interest paid to financial institutions even wen the appellant has paid the entire amount and no amount remains payable at the end of the year?
(B) Whether the ld. ITAT has erred on facts and in law in confirming the disallowance of interest u/s 40(a)(ia) ignoring that in view of the amendment made in this w.e.f.
(2 of 23) [ITA-360/2017] 1.4.2015 which is to remove unintended hardship, only 30% of such amount should be disallowed as this amendment to the provision being curative in nature, its effect needs to be retrospective in operation?
(C) Whether the ld. ITAT is correct in law in confirming the disallowance u/s 40(a)(ia) even when the receipt has included its income in its return and has paid tax thereon?
(D) Whether under the facts and circumstances of the case and in law, the ld. ITAT was correct in confirming the order of CIT(A) confirming the disallowance of 5% of expenses claimed holding probability of personal element in such expenses inspite of all expenses being fully vouched and detailed?
3. The facts of the case are that the assessee an individual derives income from trading in machinery items mainly generator sets and engines. During the year, the assessee has declared gross profit of Rs.3,04,73,702/- on total turnover of Rs.29,11,38,336/- at the g.p. rate of 10.46% as against g.p. rate of 12.91% on total turnover of Rs.21,51,45,871/- in the immediately preceding year. Thus, the assessee has declared low g.p. rate in the year under consideration as compared the preceding year.
4. Counsel for the appellant has taken us to the provisions of Section 40(a)(ia) of the Income Tax Act which has been amended on 1.4.2015 and contended that this proviso should be made applicable retrospectively in view of the following decisions:-
(3 of 23) [ITA-360/2017] 4.1 In Allied Motors (P.) Ltd. vs. Commissioner of Income Tax, Delhi (1997) 224 ITR 677 (SC), wherein it has been held as under:-
8. In the case of Goodyear India Ltd. v. State of Haryana and Anr. : [1991] 188 ITR 402 (SC) 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.
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 imaginative discovery is the surest guide to their meaning. In the case of R.B Jodha Mai Kuthiala v. Commissioner of Income-Tax, Punjab, Jammu & Kashmir and Himachal Pradesh : [1971] 82 ITR 570 (SC) , this Court said that one should apply the rule of reasonable interpretation. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole.
9. This view has been accepted by a number of High Courts. In the case of Commissioner of Income-Tax v. Chandulal Venichand :
[1994]209ITR7(Guj) , the Gujarat High Court has held that the first proviso to Section 43B is retrospective and sales-tax for the last quarter paid before the filing of the return for the assessment year is deductible. This decision deals with assessment year 1984-
85. The Calcutta High Court in the case of Commissioner of Income-Tax v. Sri Jagannath Steel Corporation :
[1991]191ITR676(Cal) , has taken a similar view holding that the statutory liability for sales-tax actually discharged after the expiry of the accounting year in compliance with the relevant statute is entitled to deduction under Section 43B. The High Court has held (4 of 23) [ITA-360/2017] the amendment to be clarificatory and, therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High Court has also held the amendment inserting the First proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v.
Union of India and Ors. :
[1991]189ITR70(Patna) . It has held the amendment inserting first proviso to be retrospective. The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore that the first proviso to Section 43B will be available only prospectively does not appear to be correct. As observed by G.P. Singh in his Principles of Statutory Interpretation, "It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended." In fact the amendment would not serve its object in such a situation unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained.
4.2 In Commissioner of Income Tax Kolkata-III vs. Alom Extrusions Limited (2009) 319 ITR 306 wherein it has been held as under :-
15. We find no merit in these civil appeals filed by the Department for the following reasons: firstly, as stated above, Section 43B [main section], which stood inserted by Finance Act, 1983, with effect from 1st April, 1984, expressly commences with a non-
obstante clause, the underlying object being to disallow deductions claimed merely by making a Book entry based on Merchantile System of Accounting. At the same time, Section 43B [main section] made it mandatory for the Department to grant deduction in computing the income under Section 28 in the year in which tax, duty, cess, etc., is actually paid. 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] (5 of 23) [ITA-360/2017] 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 Income Tax 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 contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003, which is made applicable by the Parliament only with effect from 1st April, 2004, would become curative in nature, hence, it would apply retrospectively with effect from 1st April, 1988. Secondly, it may be noted that, in the case of Allied Motors (P) Limited v. Commissioner of Income Tax reported in MANU/SC/0317/1997 : [1997] 224 I.T.R. 677, the Scheme of Section 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 Section 43B of the Act while computing the business income of the previous year? That was a case which related to Assessment Year 1984- 1985. The relevant accounting period ended on June 30, 1983. The Income Tax Officer 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 Section 43B which, as stated above, was inserted with effect from 1st April, 1984. It is also relevant (6 of 23) [ITA-360/2017] to note that the first proviso which came into force with effect from 1st April, 1988 was not on the statute book when the assessments were made in the case of Allied Motors (P) Limited (supra). However, the assessee contended that even though the first proviso came to be inserted with effect from 1st April, 1988, it was entitled to the benefit of that proviso because it operated retrospectively from 1st April, 1984, when Section 43B stood inserted. This is how the question of retrospectivity arose in Allied Motors (P) Limited (supra). This Court, in Allied Motors (P) Limited (supra) held that when a proviso is inserted to remedy unintended consequences and to make the section workable, a proviso which supplies an obvious omission in the section and which proviso is required to be read into the section to give the section a reasonable interpretation, it could be read retrospective in operation, particularly to give effect to the section as a whole. Accordingly, this Court, in Allied Motors (P) Limited (supra), held that the first proviso was curative in nature, hence, retrospective in operation with effect from 1st April, 1988. It is important to note once again that, by Finance Act, 2003, not only the second proviso is deleted 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) Limited (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 with effect from 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 Income Tax Act and the date of payment falls after the due date under the Employees' Provident (7 of 23) [ITA-360/2017] Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under Section 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 Section 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 with effect from 1st April, 2004. However, the matter before us involves the principle of construction to be placed on the provisions of Finance Act, 2003.
4.3 In Commissioner of Income Tax vs. Harish Chand Ahuja 125 DTR 0184 (Raj.) wherein it has been held as under :-
11. A Division Bench of Gujarat High Court while examining a question in the terms that whether the Income Tax Appellate Tribunal was justified in deleting the addition of Rs.
23,13,933/-, relying upon the amendment made in Section 40[a](ia) of the Income Tax Act, 1961 by the Finance Act, 2010 and thereby giving it retrospective effect, after taking into consideration the facts noticed above arrived at conclusion that the amendment made in Section 40[a](ia) of the Income Tax Act, 1961 by the Finance Act, 2010 is retrospective in operation i.e. from the date of insertion of Section 40[a](ia) of the Act. The conclusion aforesaid was arrived by discussing the entire issue as under:-
"16.5 Of course, the Legislature has given the effect from a specified date and applied the same to A.Y. 2010-11 and subsequent years, this provision being curative in nature, its effect needs to be read retrospectively in (8 of 23) [ITA-360/2017] operation. Its very purpose would not be subserved, if the effect is limited to A.Y. 2010-11 and subsequent years only. Strict construction if leads to a result not intended to be fulfilled by the object of legislation and another construction is possible apart from literal construction, then that construction needs to be preferred as held in a decision in case of CIT v. Alom Extrusion Limited [Supra].
16.6 We also cannot be oblivious of submissions not denied by the other side that various representations were made to the Finance Minister to bring about suitable amendment as the assessee otherwise was losing genuine deduction of expenditure on this count as also reflected in the speech of Finance Minister so also in the memorandum explaining the provision of the Finance Bill.
16.7 Giving plain or natural meaning to the amendment as contended by the Department, if is likely to create a situation enhancing the hardship and advance discrimination, purposive and reasonable interpretation is required to be given by the Court. When plain interpretation frustrates the very legislative intent, the Court is expected to bear in mind the legislative intent from the language used in the statue with the help of permissible tools of interpretation of statute.
17. The core issue as to whether the amendment made by the Finance Act 2010 to Section 40[a](ia) of the Act is retrospective from the date of insertion of the provision i.e., 1st April 2005 therefore needs to be answered in affirmation. It can be seen that the amendment made by the Finance Act 2010 allows additional time upto the due date of filing of the return in respect of even those instances where TDS has been deducted during the first eleven months of the previous year. The additional time till the due date of filing of the return, in case of TDS made during the last month of the previous year was already available by the amendment made by Finance 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 (9 of 23) [ITA-360/2017] 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 payment of interest is also enhanced by increasing the interest charged on tax deducted, if any deposit by the specified date i.e., up to the filing of the return is not made, from 12% to 18% per annum in the provision of Section 201(1A). Prior to the said amendment of Finance Act, 2010 under Section 201(1A), assessee was liable to pay simple interest at one per cent for every month or part of month, in case of failure to deduct tax on payment of deducted tax, increase is made correspondingly from one per cent to one and half per cent for every month or part of month for discouraging delay in deposit.
17.2 As rightly contended by the respondents arithmetical discrepancy can be well judged from the fact that the rates of TDS may vary between 1% to 10%, whereas, legitimate business expenditure denied is 100% resulting into taxation of gross receipts coupled with levy of interest and penalty, which would mean that the possibility cannot be ruled out of business of the tax payer getting closed down permanently, if there is absence of any scope of claiming any expenses in the next year.
17.3 It can be thus seen that the (10 of 23) [ITA-360/2017] amendment to Section 40[a](ia) by the Finance Act, 2010 is only an amendment in continuation of the earlier amendment made in the Finance Bill, 2008 with retrospective effect from 1st April 2005. The Legislature, while extending the time for payment of TDS deducted in the month of March till due date of filing of the return under section 139(1) of the Act, considered the apparent difference where an unintended benefit was given to the assessee who deducted the entire year's TDS in the month of March of the previous year which were eligible to pay TDS so deducted to the Government by due date of filing of the return under Section 139(1) of the Act. However, the assesses who may have deducted the tax in earlier months beginning from April to the end of February of the previous year, did not get such benefit of extended time and thus the same worked unreasonably for such assesses, and therefore, it can be safely held upholding the contention of the respondents that to cure such defect, amendment in the year 2010 has been brought and the benefit of extended time to avoid hardship was given to the assessee and therefore, amendment of 2010 is in continuation to the amendment of 2008, and therefore, curative in nature and the same has to be held retrospective i.e., with effect from 1st April 2005."
12. We find ourselves in absolute agreement with the reasoning given by the Hon'ble Division Bench of Gujarat High Court in the case of Commissioner of Income Tax, Ahmedabad vs. Om Prakash Choudhary and while adopting that we do not find any substantial question of law involved in this appeal. The same is, therefore, dismissed.
4.4 In Commissioner of Income Tax XIII vs. Naresh Kumar (2014) 326 ITR 0256 wherein it has been held as under:-
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 (11 of 23) [ITA-360/2017] 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 Naresh Kumar. Transferring or shifting expenses to a subsequent year, in such cases, will not wipe off the adverse effect and the financial stress. Nevertheless the Section 40(a)(ia) has to be given full play keeping in mind the object and purpose behind the section. At the same time, the provision can be and should be interpreted liberally and equitable so that an assessee should not suffer unintended and deleterious consequences beyond what the object and purpose of the provision mandates. Case of Naresh Kumar is not one of rare cases, but one of several cases as we find that Section 40(a)(ia) is invoked in large number of cases.
4.5 In Commissioner of Income Tax, Ajmer vs. Asian Construction Company (2014) 89 CCH 0199 wherein it has been held as under :-
6. This question came up for consideration before the Gujarat High Court in the case of Commissioner of Income Tax, Ahmedabad IV v. Om Prakash R Chaudhary in Tax Appeal Nos. 412/2013 and connected matter, which came to be decided on 22.11.2013, after referring to the judgments of Allied Motors (P.) Ltd. v. CIT reported in : AIR 1997 SC 1361 and CIT v. Alom Extrusions Limited reported in : (2009) 319 ITR 306, has held as under:
"15.4: Thus, considering relevant legislative changes made by the Parliament from time to time and some of the decisions relevant to consider the question of retrospectivity raised in these present appeals, the focal question, therefore, would be whether the amendment brought about by way of Finance (12 of 23) [ITA-360/2017] Act 2010 in Section 40[a](ia) with effect from 1st April 2010 could be said to be clarificatory in nature for attending to unintended consequences, and therefore, is having retrospective effect from 1st April 2005.
16: A closer examination needs to be done as to whether the amended provision aims to expand the prevailing position and whether the same being in the nature of curative, retrospectivity of the same is permissible as is being contended for and on behalf of the assessee. At this stage, therefore, the true effect of such amendment needs to be discerned.
16.1: It is demonstrated before us that the TDS provision caused unintended inexplicable situation whereby the assessee who deducted the tax at source from the payments made by it for and on behalf of the Government and then if misses out the time limit of depositing the same with the Treasury within the time prescribed, the amount spent for its business purposes on account of the late deposit of such tax would result into disallowance of entire expenditure under Section 40[a](ia). The said proviso thereby caused immense hardship. The amendment under consideration made by the Finance Act 2010 relaxes the rigors of such provision by permitting payment of Tax till the filing of return as provided under sub- section (1) of Section 139 of the Act.
16.2: One can notice that the object of bringing about provision of Section 40(a)(ia) in the year 2005 - 06 was to augment compliance of TDS provision. TDS either not deducted or deducted but not paid in respect of payment of interest, commission or brokerage etc., before the expiry of time prescribed under sub-section (1) of Section 200 and in accordance with the other provisions of Chapter XVII, such amount shall not be deducted in computing the 'income' chargeable under the head 'Profit & Gains' of business or profession. Such provision starts with non obstante clause which states that notwithstanding 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 (13 of 23) [ITA-360/2017] 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 sub-section (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 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 as specified in sub-section (1) of Section 139. This has been given retrospective effect from 1st April 2010.
16.5: Of course, the Legislature has given the effect from a specified date and applied the same to A.Y. 2010-11 and subsequent years, this provision being curative in nature, its effect needs to be read retrospectively in operation. Its very purpose would not be sub-served, if the effect is limited to A.Y. 2010-11 and subsequent years only. Strict construction if leads to a result not intended to be fulfilled by the object of legislation and another construction is possible apart from literal construction, then that construction needs to be preferred as held in a decision in case of CIT V. Alom Extrusion Limited [Supra].
16.6: We also cannot be oblivious of submissions not denied by the other side that various representations were made to the Finance Minister to bring about suitable (14 of 23) [ITA-360/2017] amendment as the assessee otherwise was losing genuine deduction of expenditure on this count as also reflected in the speech of Finance Minister so also in the memorandum explaining the provision of the Finance Bill.
16.7: Giving plain or natural meaning to the amendment as contended by the Department, if is likely to create a situation enhancing the hardship and advance discrimination, purposive and reasonable interpretation is required to be given by the Court. When plain interpretation frustrates the very legislative intent, the Court is expected to bear in mind the legislative intent from the language used in the statue with the help of permissible tools of interpretation of statute.
17: The core issue as to whether the amendment made by the Finance Act 2010 to Section 40[a](ia) of the Act is retrospective from the date of insertion of the provision i.e., 1st April 2005 therefore needs to be answered in affirmation. It can be seen that the amendment made by the Finance Act 2010 allows additional time upto the due date of filing of the return in respect of even those instances where TDS has been deducted during the first eleven months of the previous year. The additional time till the due date of filing of the return, in case of TDS made during the last month of the previous year was already available by the amendment made by Finance 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 (15 of 23) [ITA-360/2017] 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 payment of interest is also enhanced by increasing the interest charged on tax deducted, if any deposit by the specified date i.e., up to the filing of the return is not made, from 12% to 18% per annum in the provision of Section 201 (1A). Prior to the said amendment of Finance Act, 2010 under Section 201 (1A), assessee was liable to pay simple interest at one per cent for every month or part of month, in case of failure to deduct tax on payment of deducted tax, increase is made correspondingly from one per cent to one and half per cent for every month or part of month for discouraging delay in deposit.
As rightly contended by the respondents arithmetical discrepancy can be well judged from the fact that the rates of TDS may vary between 1% to 10%, whereas, legitimate business expenditure denied is 100% - resulting into taxation of gross receipts coupled with levy of interest and penalty, which would mean that the possibility cannot be ruled out of business of the tax payer getting closed down permanently, if there is absence of any scope of claiming any expenses in the next year."
7. Similar is the view expressed by the Delhi High Court in the cases of CIT Vs. Oracle Software India Limited reported in 293 ITR page 253, H.S.Mohindra Traders Vs. I.T.O., Ward 39 (2), New Delhi and Calcutta High Court in the case of CIT Vs. Virgin Creations.
8. We are in the respectful agreement with the view expressed by the Gujarat High Court in giving retrospective operation to the said amendment notwithstanding that the parliament has expressly stated that it comes into effect from 01.04.2010. The said amendment is curative in nature. The tribunal committed an error in holding it as prospective. The substantial questions of law (16 of 23) [ITA-360/2017] is answered in favour of the assesse and against the revenue.
4.6 In Commissioner of Income Tax-1 vs. Ansal Land Mark Township (P) Ltd. (2015) 377 ITR 635 wherein it has been held as under :-
9. It is seen that the second proviso to Section 40(a)(ia) was inserted by the Finance Act 2012 with effect from 1st April 2013. The effect of the said proviso is to introduce a legal fiction where an Assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. Where such Assessee is deemed not to be an assessee in default in terms of the first proviso to sub-Section (1) of Section 201 of the Act, then, in such event, "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 referred to in the said proviso".
11. The first proviso to Section 210(1) of the Act has been inserted to benefit the Assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. No doubt, there is a mandatory requirement under Section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfilment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a) (ia) also requires to be viewed in the same manner.
This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies.
(17 of 23) [ITA-360/2017]
14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance.
4.7 In Commissioner of Income Tax vs. Trans Bharat Aviation (P) Ltd. (2010) 320 ITR 671 wherein it has been held as under :-
4. We note that ITAT has followed the decision of this Court in CIT v. Adidas Marketing P. Ltd. in which decision this Court held that the assessee who was obliged to but had not deducted tax at source, would not have asked to pay the same where the deductee had paid tax on the amount received by him as his income. The ITAT further noted that since the deductee is a Government of India undertaking, it cannot be presumed that it has not paid tax. We put it to the counsel for the appellant as to whether any notice was issued by the Assessing Officer to the Airport Authority of India (AAI), so that there is no double taxation, the counsel for the appellant stated that this was not clear from the file.
Similarly, the counsel in reply to the court query also said that there is nothing on record suggests that any proceedings have been initiated against Airport Authority of India for not paying its taxes.
5. Another issue which was urged by counsel for the appellant was that the interest which has been ordered by the ITAT is only till the due date of filing of the return of the Airport Authority of India (AAI) wherein it should have been till the date of actual payment of tax by the Airport Authority of India. The ITAT in our opinion has rightly held that since Airport Authority of India is a Government undertaking, the taxes may be presumed to have been paid lastly by the due date of filing of the return of income and, therefore, the liability of the assessee to pay interest on (18 of 23) [ITA-360/2017] the amount which was to be deducted as TDS ends with the due date of filing of the return by the Airport Authority of India.
4.8 In Commissioner of Income Tax-XIII vs. Rajinder Kumar (2014) 362 ITR 241 wherein it has been held as under :-
23. 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.
26. Before we close, we must deal with another contention raised by the counsel for the Revenue to the effect that Finance Bill, 2010 increases the rate of interest from 12% to 18% for failure to deposit TDS in time. This increase in rate of interest, it is submitted, is directly connected and associated with the concession or benefit which was extended to the assessee by amending the proviso. We do not find any merit in the said contention. Even prior to the amendment made by Finance Bill, 2010, Section 40(a)(ia) had stipulated that in case where the tax was deductible and so (19 of 23) [ITA-360/2017] deducted during the last month of the previous year but was paid on or before the due date specified in Section 139(1) of the Act, deduction/expenditure will be allowed in the previous year notwithstanding the main Section. The section as well as the proviso before the amendment in 2010 had ambiguities and doubts. The proviso as amended by Finance Act, 2008 with retrospective effect from 1st April, 2005 was not free from interpretative difficulties and problems. This aspect is highlighted above. The intention behind Section 40(a)(ia) is to ensure that TDS is deducted and paid. The object of introduction of Section 40(a)(ia) is to ensure that TDS provisions are scrupulously implemented without default in order to augment recoveries. It is not to penalise an assessee when payment has been made within the time stated. Failure to deduct TDS or deposit TDS results in loss of revenue and may deprive the Government of the tax due and payable. The provision should be interpreted in a fair, just and equitable manner. It should not be interpreted in a manner which results in injustice and creates tax liabilities when TDS has been deposited/paid and the respondent who is following cash system of accountancy has made actual payment to the third party for services rendered. If the said object and purpose is kept in view, we do not think the Assessing Officer was justified in disallowing and in invoking Section 40(a)(ia) in the present case. The question of law is accordingly answered in negative, i.e., in favour of the respondent-assessee and against the Revenue. The appeal is accordingly disposed of. No costs.
4.9 In Commissioner of Income Tax, Ajmer vs. Asian Construction Company DBITA 26/2012 decided on 30.08.2017 wherein it has been held as under :-
11. Taking into consideration the observations made by the Tribunal as reproduced hereinabove and in view of the decision of this court as referred (supra), the view taken by the Tribunal is required to be confirmed.
(20 of 23) [ITA-360/2017]
5. Counsel for the appellant has taken us to the order of the tribunal wherein it has been observed as under:-
"4.4 Without prejudice to above, it is submitted that the amendment to Section 40(a)(ia) made by FA, 2014 w.e.f. 01.04.2015 provides that 30% of any payable to a resident shall be disallowed if tax is not deducted at source under Ch. XVIIB as against the 100% presently made. The purpose of this amendment was explained in the memorandum as under:- "the disallowance of whole of the amount of expenditure results into undue hardship and therefore In order to reduce the hardship, it is proposed that in case of non-deduction or non- payment of TDS on payments made to residents as specified in section 40(a)(ia) of the Act, the disallowance shall be restricted to 30% of the amount of expenditure claimed."
The Finance Minister while introducing the amendment in para 207 of the Budget Speech has stated as under:- "207. Currently, where as assessee fails to deduct and pay tax on specified payments to residents, 100 percent of such payments are not allowed as deduction while computing his income. This has caused undue hardship to taxpayers, particularly where the rate of tax is only 1 to 10% Hence, I propose to provide that instead of 100 percent, only 30% of such payments will be disallowed." From the above it can be noted that the amendment made by FA (No. 2) Act, 2014 w.e.f. 01.04.2015 is to remove unintended and undue hardship and therefore this amendment should be give retrospective effect as per the various decisions stated above. It is also submitted that the Supreme Court in case of CIT vs. Vatika Township Pvt. Ltd. 109 DTR 33 has held that legislations which modify accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect. However, if legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally and where to confer such benefit appears to have been the legislators object, then the presumption would be that such legislation, giving it a purposive construction, would (21 of 23) [ITA-360/2017] warrant it to be given a retrospective effect. Therefore even in a case it is held that the disallowance u/s 40(a)(ia) is warranted, same should be restricted to only 30% of the amount of interest paid.
Reliance is placed on the following cases where it is held that any amendment made in the Act, which is intended to remove unintended and undue hardship should be given retrospective effect:-
Shri Rajendra Yadav vs. ITO (Jaipur Trib) ITA No. 895/JP/2012 pronounced on 29.01.2016 Allied Motors Pvt. Ltd. vs. CIT 224 ITR 677 (SC) CIT vs. Alom Extrusions Ltd. 319 ITR 306 (SC) In view of the above, even if it is held that Section 40(a)(ia) is attracted, the disallowance of interest payments to Religare Finvest Limited and Fullertron India Limited be restricted to 30% of the interest paid.
4.5 In respect of the payments made to Shri Gaurav Agrawal, it is submitted that the payment is made towards processing charges of bank loan as per the standing instructions of the Bank. This payment is not a payment of legal expense and therefore, Section 194J is not applicable. This is also evident from the ledger account. Thus, the disallowance confirmed by the Ld. CIT(A) be directed to be deleted."
6. We have heard Mr. Gunjan Pathak, counsel for the appellant and gone through the order of the tribunal.
7. While considering the matter, the tribunal has held as under:-
5. We have heard the rival contentions and pursued the material available on record. In view of Hon'ble Delhi High Court decision in case of CIT vs. Ansal Land Mark Township Pvt.
Ltd (supra) wherein the second proviso to section 40(a)(ia) has been held to have a retrospective effect, the same will be applicable in the instant case. Accordingly, in case of Reliance Capital Limited, where the assessee (22 of 23) [ITA-360/2017] contends that it has filed a certificate from Chartered Accountant certifying that the interest paid by the assessee has been included by the recipient of income in their return of income and tax is paid thereon, we set-aside the matter to the file of the AO to verify the said certificate and where the same is found to be in order, allow the necessary relief to the assessee.
"5.1 Further, in respect of payment to other two financial institutions namely Fullerton India Limited and Religare Finvest Limited, we are unable to accede to the various contentions raised by the ld AR. Firstly, there cannot be any presumption regarding inclusion of income and payment of taxes just because the payees are large companies. The assessee has to demonstrate through verifiable evidence that the payees have reported the amount paid in their return and paid taxes thereon. Secondly, the issue regarding no amount outstanding at the end of the year and the same been fully paid during the year and provisions of section 40(a)(ia), the issue is no more res integra in light of Hon'ble Supreme Court decision in case of Palam Gas service. Thirdly, the contention regarding the amendment to Section 40(a)(ia) made by FA, 2014 w.e.f. 01.04.2015 which provides that 30% of any payable to a resident shall be disallowed if tax is not deducted at source under Ch. XVIIB as against the 100% presently made, should be read retrospective and apply in the instant case. We have gone through the said provisions and there is nothing in the legislature which suggest the said amendment has to be read retrospectively. The decision of the Coordinate Bench in case of Rajendra Yadav is not a speaking order and we are not inclined to follow the same in absence of appropriate reasoning of the Coordinate Bench which is not discernable from the said order. Accordingly, disallowance of payments to these two institutions is confirmed."
8. Taking into consideration, the decision rendered by the Delhi High Court in CIT vs. Ansal Land Mark Township Pvt. Ltd. reported in (2015) 377 ITR 635 which has been discussed by the tribunal in (23 of 23) [ITA-360/2017] detailed, we are of the opinion that tribunal has not committed any error in allowing the appeal only for statistical purposes.
9. The view taken by the tribunal is just and proper. Therefore, no substantial question of law arises.
10. The appeal stands dismissed.
(VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Brijesh 10.