Karnataka High Court
The Commissioner Of Income Tax vs S M Anand on 23 August, 2019
Author: S. Sujatha
Bench: S. Sujatha
1
IN THE HIGH COURT OF KARNATAKA
KALABURAGI BENCH
DATED THIS THE 23RD DAY OF AUGUST 2019
PRESENT
THE HON'BLE MRS. JUSTICE S. SUJATHA
AND
THE HON'BLE MR. JUSTICE N.K.SUDHINDRARAO
ITA No.100056/2014
Between:
1. The Commissioner of Income Tax
Belagaum
2. The Assistant Commissioner of Income Tax
Circle-I, Bijapur
...Appellants
(By Sri Ameet Kumar Deshpande, Advocate)
And:
Shri S M Anand
Sajjan Complex
Near Ashraya Hospital
Lingadagudi Road
Bijapur - 584 101
...Respondents
(By Sri A. Shankar, Senior Counsel
A/w Sri V. Narendra Shankar, Advocate)
This ITA is filed under Section 260A of the ITA, praying
to formulate the substantial question of law and to allow the
appeal and set aside the orders passed by the Income Tax
Appellate Tribunal, Bangalore Bench-B Bangalore in ITA
2
No.1831/Bang/2013 dtd: 21.02.2014 and confirm the order
passed by the Assistant Commissioner of Income Tax Officer,
Circle-1, Bijapur.
This appeal coming on for orders this day, S. SUJATHA
J., delivered the following:
JUDGMENT
This income tax appeal is filed by the Revenue under Section 260A of the Income Tax Act, 1961 ('the Act' for short) assailing the order of the Hon'ble Income Tax Appellate Tribunal, Bengaluru Bench "B", Bengaluru in ITA No.1831/Bang/2013 dated 21.02.2014 relating to the assessment year 2005-06.
2. The substantial question of law that arises for our consideration is ;-
"Whether the second proviso to Section 40(a)(ia) of the Act inserted by Finance Act, 2012 is clarificatory and retrospective in nature and disallowance under Section 40(a)(ia) of the Act by the Tribunal is justifiable where the recipient of the amount has already discharged his tax liability therein?"
3. Learned counsel for the appellant-revenue would submit that in view of the specific date prescribed 3 for giving effect to the second proviso of Section 40(a)(ia) of the Act from 01.04.2013, no other interpretation is permissible to give retrospective effect, contrary to the intention of the legislature. Reliance is placed on the following judgements:
1. LAWS(KER) 2014 1 97 in the case of Prudential Logistics and Transports vs. Income Tax Officer, Kozhikode;
2. LAWS(KER) 2015 7 25 in the case of Thomas George Muthoot vs. The Commissioner of Income Tax;
3. Writ Petition No.3928/2018 (Karnataka High Court), in the case of Smt. Deeva Devi vs. The Principal Commissioner of Income Tax-5 and another.
4. Learned Senior counsel Sri A.Shankar appearing for the respondent - assessee would submit the payments made to the sub-contractors has been offered to tax in their respective returns of Income, uncontroverted by the authorities. There is no actual loss of revenue. The legislature having realised the shortcomings of Section 40(a)(ia) intended to cure the same in order to obviate the unintended hardships to the assessee by 4 inserting the second proviso, a beneficial provision, which should be given retrospective effect from April 1, 2005, the date from which Section 40(a)(ia) was inserted by the Finance Act, 2004.
5. It is pointed out by the learned senior counsel that the question involved herein has been considered by five Hon'ble High Courts and has been held that the second proviso of Section 40(a) (ia) of the Act is declaratory and curative in nature and should be given retrospective effect from 1st April 2005. Inviting the attention of this Court to the judgment of the Hon'ble Delhi High Court in the case of Commissioner of Income-
Tax v. Ansal Land Mark Township P. Ltd. [(2015) 377 ITR 635 (Delhi)], the learned senior counsel submitted that the finding of the said judgment indeed was considered by the Hon'ble Apex Court in the case of Commissioner of Income-Tax v. Calcutta Export Company [(2018 404 ITR 654 (SC)] in the context of first 5 proviso to Section 40(a)(ia) of the Act. Reliance is placed on the following judgments:
1) [2018] 402 ITR 238 (All), in the case of Principal Commissioner of Income-Tax v. Manoj Kumar Singh;
2) Income Tax Appeal No.707/2016 (Bombay High Court), in the case of Pr. Commissioner of Income Tax-5 vs. Perfect Circle India Pvt. Ltd.);
3) [2018] 409 ITR 87 (P&H), in the case of Principal Commissioner of Income-Tax v. Shivpal Singh Chaudhary;
4) Writ Petition No.3928/2018 (Karnataka High Court), in the case of Smt. Deeva Devi vs. The Principal Commissioner of Income Tax-5 and another.
6. Adverting to the arguments advanced by the learned counsel for the parties, in the light of the judgments referred to above, it would be beneficial to refer to Section 40(a)(ia) of the Act and the proviso thereof which is as under:
"40(a)(ia)- thirty per cent of any such payable to a resident, on which tax is deductible at source under Chapter XVIIB and such tax has not been deducted or, after deduction, has not 6 been paid on or before the due 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, 1[thirty per cent of] such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid:
Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub- clause, 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 provision."7
7. The Hon'ble High Court of Delhi approving the reason of the Agra Bench of the Income Tax Appellate Tribunal as regards the rationale behind the insertion of the second proviso of Section 40(a)(ia) of the Act has held that, the said proviso is declaratory and curative in nature and has retrospective effect from April, 1, 2015. The reasons of the Agra Bench of the Income Tax Appellate Tribunal in the case of Rajeev Kumar Agarwal v. Addl. CIT ([2014] 34 ITR (Trib) 479) (Agra) reads thus:
"On a conceptual note, the primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into not account in computation of taxable income in the hands of the recipients of the payments. Such a policy motivated deduction restrictions should, therefore, not come into play when an assessee is able to establish that there is no actual loss of revenue. This disallowance does deincentivise not deducting tax at source, when such tax deductions are due but so far as the legal framework is concerned, this provision is not for the purpose of penalising for the tax deduction at source lapses. 8 There are separate penal provisions to that effect. Deincentivising a lapse and punishing a lapse are two different things and have distinctly different, and sometimes mutually exclusive, connotations. When we appreciate the object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a 'fair, just and equitable' interpretation of law- as is the guidance from the hon'ble Delhi High Court on interpretation of this legal provision, in our humble understanding, it could not be an 'intended consequence' to disallow the expenditure, due to non-deduction of tax at source, even in a situation in which corresponding income is brought to tax in the hands of the recipient. The scheme of section 40(a)(ia), as we see it, is aimed at ensuring that an expenditure should not be allowed as deduction in the hands of an assessee in a situation in which income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in section 271C, and, section 40(a)(ia) does not add to the same. The provisions of section 40(a)(ia), as they existed prior 9 to insertion of second proviso thereto, when much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee's tax withholding lapses did not result in any loss to the exchequer. Now, that the Legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well-settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reason set out earlier, we cannot subscribe to the view that it could have been an 'intended consequence' to punish the assessees for non-deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from April 1, 2005, being the date from which sub- 10
clause (ia) of section 40(a) was inserted by the Finance (No.2) Act, 2004."
8. In the case of Perfect Circle India Pvt. Ltd. supra, the Hon'ble High Court of Bombay, placing reliance on the judgment of the Hon'ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township Pvt. Ltd. supra, and in view of several High Courts subscribing to the same has held that the second proviso has to be given retrospective effect. Reliance is also made on the judgment of the Hon'ble Apex Court in the case of Hindustan Coca Cola Beverages P Ltd Vs. CIT reported in [2007] 293 ITR 226 (SC). That, even in the absence of second proviso to Section 40(a)(ia), it has been noticed that the payee had already paid the tax. Under such circumstances, the Court held that the payer/deductor can at best be asked to pay the interest on delay in depositing tax.
11
9. In Manoj Kumar Singh's case supra, the Hon'ble Allahabad High Court, considering the view taken by the Hon'ble Kerala High Court in the case of Thomas George Muthoot v. CIT supra, distinguished the same in the light of the judgment of the Hon'ble Apex Court in CIT v. Vatika Thownship Private Ltd. ([2014] 367 ITR 466 (SC)). The relevant paragraphs of Vatika Township Private Ltd.'s case reads thus:
"General Principles concerning retrospectivity
30. A legislation, be it a statutory Act or a statutory Rule or a statutory Notification, may physically consists of words printed on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of 'Interpretation of Statutes'. Vis-à-vis ordinary prose, a legislation differs in its provenance, lay-out and features as 12 also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof.
31. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips vs. Eyre ([1870] LR 6 QB 1, a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.13
32. The obvious basis of the principle against retrospectivity is the principle of 'fairness', which must be the basis of every legal rule as was observed in the decision reported in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. ([1994] 1 AC 486 (HL)). Thus, legislations which modified 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; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later.
33. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a 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 14 confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India & Ors. v. Indian Tobacco Association ([2005] 7 SCC 396), the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra & Ors. ([2006] 6 SCC 289) It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are confronted with any such situation here.
34. In such cases, retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to 15 proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors."
10. Thus the Hon'ble Allahabad High Court has observed that the Hon'ble Kerala High Court while deciding Thomas George Muthoot supra, did not have the benefit of authority of Constitution Bench in Vatika Township Private Ltd. (supra) and has respectfully expressed its opinion to disagree with the judgment of Hon'ble Kerala High Court. On the other hand, agreed with the decision of the Hon'ble Division Bench of the Delhi High Court in CIT v. Ansal Land Mark Township P. Ltd. supra.
16
11. The Hon'ble High Court of Kerala in Prudential Logistics and Transports supra, as well as in Thomas George Muthoot supra, observed that the mandate or requirement on the part of the payer to deduct tax at source is not so strict if they are able to show that the payee or the or the recipient of the amounts has paid tax in accordance with the provisions of Section 201(1) and the proviso. In both these judgments, as observed by the Hon'ble High Court of Allahabad, the judgment of the Hon'ble Apex Court in the case of CIT vs. Vatika Township Private Ltd. was not considered.
12. The judgment of this Court referred to by both the learned counsel for the parties in Writ Petition No.3928/2018 was rendered in the context of the assessee approaching this Court under Articles 226 and 227 of the Constitution of India against the order passed under Section 264 of the Act. It has been observed that it is still open to the assessee to prefer regular appeal and relegated 17 the assessee back to the appellate remedy before the Commissioner of Income Tax (appeals). The observation made in the said order that no law is settled on the present issue relating to second proviso to Section 40(a)(ia) of the Act in view of the pendency of the Civil Appeal No.1248/2016 before the Hon'ble Apex Court in the case of CIT Vs. M/s. Tide Water Marine INTL.Inc., would not come to the assistance of the Revenue.
13. With due respect, we are unable to subscribe to the view of the Hon'ble Kerala High Court in the decision referred to supra. Keeping in mind, the judgment of the Hon'ble Apex Court in Vatika Township Private Ltd., supra, applying the principle of fairness, we find no reason to deviate from the decision of the Hon'ble Delhi High Court in the case of Ansal Land Mark Township Pvt. Ltd., supra subscribed by the Hon'ble Bombay High Court and Hon'ble Allahabad High Court. 18
14. Accordingly, we answer the substantial question of law against the Revenue and in favour of the assessee subject to the result of the Civil Appeal No.1248/2016 pending before the Hon'ble Apex Court in the case of Commissioner of Income Tax, Uttar Pradesh vs. M/s Tide Water Marine INTL. Inc., Delhi.
Income Tax Appeal stands disposed of in terms of above.
Sd/-
JUDGE Sd/-
JUDGE LG/sn