Income Tax Appellate Tribunal - Amritsar
M/S Gagan Goods Carrier Pvt. Ltd, ... vs The Addl. Commissioner Of Income-Tax, ... on 14 July, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER
AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER
ITA No. 648/(Asr)/2014
Assessment Year: 2006-07
PAN: AAACG5809Q
M/s Gagan Goods Carrier Vs. Addl. Commissioner of Income
Pvt. Ltd. Kt. Jaimal Singh, Tax, Range -1,
Amritsar. Amritsar.
(Appellant) (Respondent)
Appellant by: Sh. K. R. Jain (Adv.)
Respondent by: Sh. Rahul Dhawan (D.R.)
Date of hearing: 04.05.2017
Date of pronouncement:14.07.2017
ORDER
PER T. S. KAPOOR (AM):
This is an appeal filed by assessee against the order of Ld. CIT (A), Amritsar, dated 12.09.2014 for Asst. Year: 2006-07.
2. The grounds of appeal taken by assessee are reproduced below:
1. That the order of the Learned Addl. Commissioner of Income Tax, Range
-1, Amritsar is wrong, illegal and without justification and Likewise Ld. CIT(A) has erred in law & on facts while confirming the same.
2. That the Learned Commissioner of Income Tax (Appeals) has erred in law and on facts while confirming that Sh. K. Muthusamy and Sh. M. K. Palaniappan are sub-contractors. He has not appreciated the submissions made before him.
3. That the Learned CIT(A) has not appreciated the facts of the case, explanation offered, written submissions filed & proceeded to confirm the order of Ld. ACIT arbitrarily.
4. That the Learned Commissioner of Income Tax (Appeals) has not appreciated that the tankers were sold along with contract rights and obligations with M/s Bharat Petroleum Corporation Ltd. to Sh. K. 2 ITA No. 648 (Asr)/2014 Asst. Year: 2006-07 Muthusamy and Sh. M. K. Palaniappan and they were to perform the contracts.
5. That Ld. ACIT has further erred in law and on facts while invoking the provisions of section 40(a) (ia) and while making an addition of Rs.
33,47,351/-.
6. That the Learned CIT(A) has not appreciated the fact that Sh. K. Muthusamy and Sh. M. K. Palaniappan are existing Income Tax assessee's & their particulars as required under the law were submitted before the Income Tax Authorities and as such addition made is not justified.
7. That case has not been fixed in accordance with board circulars.
8. That without prejudice to the above the Ld. CIT(A) has not appreciated in a proper and judicial manner that amendment carried out by Finance Act (No. 2) 2014 has also been made to cover undue hardships to taxpayers and as such reasoning & findings of Hon'ble Delhi High Court are equally applicable to amendment made by Finance Act (No. 2) 2014 and accordingly the disallowances u/s 40 a (ia), if any, has to be 30% of the amount involved. In any case addition made is arbitrary, harsh and unconstitutional.
3. The brief facts of the case as noted in the assessment order are that assessee is in the business of transportation of LPG through tankers. During assessment proceedings, the Assessing Officer observed that the assessee had received freight of Rs.34,51,519/- from M/s Bharat Petroleum Corporation Ltd. On enquiry by Assessing Officer, the assessee explained that out of this amount, an amount of Rs.34,51,519/- has been paid to Sh. K. Muthusamy and Sh. M. K. Palaniappan as the tankers were sold to them alongwith contract rights with BPCL, and therefore, it had included the net income of Rs.1,04,168/- only.
In view of the above facts, the assessee was required to give the details of TDS deducted on these payments. In this regard the assessee 3 ITA No. 648 (Asr)/2014 Asst. Year: 2006-07 explained that the company had not made any payments during the year which attracted TDS provisions however, Assessing Officer was of the opinion that assessee had made freight payments of Rs.3347351/- to sub-contractors and therefore it was required to deduct TDS u/s 194-C of IT Act and therefore assessee was required to explain as to why the freight paid without deduction of TDS be not disallowed u/s 40(a)(ia) of IT Act.
In response to above show cause notice, it was explained by the assessee that it was operating three LPG Tankers and company had entered into a contract with M/s Bharat Petroleum Corporation Ltd. for the transportation of LPG. It was further submitted that assessee vide agreements between the assessee and Sh. K. Muthusamy & M K. Palaniappan has sold these three transportation tankers and it was agreed that the said contract with M/s BPCL will continue and the purchasers will carry out the work of transportation from BPCL. It was further agreed that the payment received from M/s BPCL will be transferred net of tax to the purchasers and assessee will charge 2% commission from the purchasers and in this respect the relevant clauses of such agreement were also brought to the notice of the Assessing Officer. The Assessing Officer however was not convinced with the arguments of assessee and therefore he held that assessee had made payment to these persons as sub-contractors and therefore assessee was required to deduct TDS and in view of the above disallowance was made 4 ITA No. 648 (Asr)/2014 Asst. Year: 2006-07 u/s 40(a)(ia) of the Act. The CIT(A) also upheld his disallowance made by Assessing Officer.
4. Aggrieved the assessee is in appeal before us.
5. The Ld. AR, at the outset invited our attention to the facts of the case and submitted that assessee had sold the tankers to the purchasers mentioned in the assessment order and the tankers were sold along with right of contract with BPCL, it was further submitted that BPCL continued to make payments to the assessee and assessee after retaining 2% in the form of TDS deducted by BPCL credited these persons and in this respect our attention was invited to copy of account of the said persons as placed in paper book page 152 to 153. The Ld. AR also invited our attention to clause-3 of agreement to sell placed at paper book page 22 and submitted that sale of the vehicle also included transfer of contract rights with the BPCL for the remaining contract period and therefore assessee was only acting as a facilitator and was not making any payment as contractor to sub-contractors.
The Ld. AR, in this respect relied on the decision of ITAT Delhi Bench 'D', New Delhi in ITA No. 1815/DEL/2014 in the case of Jaguar Enterprises Vs. DCIT. The Ld. AR submitted that the Hon'ble ITAT had followed the decision of Hon'ble Delhi High Court in the case of CIT Vs. Cargo Linkers (2009) 179 Taxmann 151 (Delhi) and CIT Vs. Hardarshan Singh (2013) 350 ITR 427 (Delhi). Therefore, it was argued that the disallowance was not sustainable.
5 ITA No. 648 (Asr)/2014
Asst. Year: 2006-07 Without prejudice the Ld. AR submitted that provisions 40(a)(ia), has been amended by Finance Act 2014 in as much as disallowance has been restricted to 30% of such payment instead of 100% as per existing provisions. The Ld. AR submitted that this amendment should be treated as retrospective amendment in view of the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Naresh Kumar (ITA No. 24 of 2013) and Talbros P. Ltd. (ITA No. 218 of 2013) reported in 362 ITR 256. The Ld. AR submitted that it was held that amendment made to Sec. 40(a)(ia) of the Act by the Finance Act 2010 be given retrospective effect and therefore similarly the amendment made by Finance Act 2014 should be given retrospective effect.
6. The Ld. DR on the other hand submitted that Assessing Officer had noted that the assessee had claimed payment made to these persons as truck expenses and further argued that the case laws relied upon by Ld. AR are not applicable. As regards the argument of Ld. AR that the deduction should be restricted to 30%, the Ld. DR submitted that the amendment made by Finance Act, 2014 cannot be said to be retrospective.
7. The Ld. AR in his rejoinder invited our attention to paper book page 128 and submitted that in the profit and loss account, the assessee had not claimed any expenses for payments made to these persons and also invited our attention to paper book page 132 where schedule 'I' declaring gross freight income and net freight income was placed. The 6 ITA No. 648 (Asr)/2014 Asst. Year: 2006-07 Ld. AR was asked as to whether assessee can submit the income tax particulars of the persons to whom payments were made and to this Ld. AR replied in negative.
8. We have heard the rival parties and have gone through the material placed on record. We find that in schedule 'I' of profit and loss account placed in paper book page 132, the assessee had declared gross receipts of freight and had reduced an amount of Rs. 3347351/- as freight paid and had directly credited to the profit and loss account net freight income of Rs. 6738002/-. Though assessee had not directly credited the gross amount of freight in its profit and loss account and had not directly debited the expenses paid to purchasers of tankers yet by just taking net fright income in its profit and loss account, the assessee cannot claim that it had not made any payments to the purchasers of tankers. During the hearing, the Ld. AR was asked to file the income-tax particulars of the purchasers of tankers for which he had shown his inability whereas the assessee should have no problem in giving the particulars of income tax details of the purchasers of tankers as the assessee had been maintaining ledger account for making payments to above said persons and at the closing of the year the payment outstanding towards these persons was to the tune of about Rs. 4.26 lacs as is apparent from copy of ledger account placed at paper book page 152 and 153. Therefore, the arguments of Ld. AR that assessee had been working only as a facilitator do not have much force and therefore grounds no. 1, 2, 5 are dismissed. 7 ITA No. 648 (Asr)/2014
Asst. Year: 2006-07 The Ld. AR had not pressed grounds no. 6 & 7 and therefore these are also dismissed. Now coming to ground no. 8, the Ld. AR had argued that the amendment to the Finance Act (No. 2) of 2014 should be held as applicable retrospectively as the amendment in Finance Act 2010 relating to amendment to same section 40(a)(ia) was also held to be applicable retrospectively. The Ld. AR had in this respect relied on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Naresh Kumar (ITA No. 24 of 2013) and Talbros P. Ltd. (ITA No. 218 of 2013) reported in (2014) 362 ITR 256 Delhi wherein the Hon'ble High Court had held that amendment made to Sec.40(a)(ia) of the Act by Finance Act 2010 should be given retrospective effect. The relevant findings of the Hon'ble Court are reproduced below:
"17. There are decisions, which hold that process of litigation 0r enforcement of law is procedural. Similarly, machinery provision for collection of tax rather than tax itself is procedural. Read In this context, it can be strongly argued that section 40(a)(ia) at least to the extent of the amendment is procedural as by enacting section 40(a)(ia) the Legislature did not want to impose a new tax but wanted to ensure collection of TDS and the amendments made streamline and remedy the anomalies anomalies noticed in the said procedure by allowing deduction in the year when the expenditure is incurred provided TDS is paid before the due date for filing, of the return. Remedial statutes are normally not retrospective, on the ground that they may affect vested rights. But these statutes are construed liberally when justified and rule against retrospectivity may be applied with less resistance (see Bharat Singh v. Management of New Delhi Tuberclosis CentreI [1986] 2 (SC) 614 and Workmen of Firestone Tyre and Rubber Co. of India P. Ltd. v. Management [1973] AIR 1973 SC 1227.
18. It is interesting to note that the earlier English decisions have held that an enactment fixing a penalty or maximum penalty for offence is merely procedural for the purpose of determining retrospectivity (see DPP v. Lamb [1941] 2 KB 89 and R v. Oliver [1944] 29 Cr. App. 137). This view, however, has been criticized in Athlumney, Re, ex parte Wilson [1898] 2 QB 547 on the ground that higher or greater punishment impairs existing rights or obligation:8 ITA No. 648 (Asr)/2014
Asst. Year: 2006-07 "No rule of construction is more firmly established than this that a retrospective operation is not to be given to a statute so as to impair an existing right or obligation, otherwise than as regards matters of procedure, unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only."
19. The word "fairly" used in the aforesaid quotation is important and relevant, but for application of another rule of interpretation. G. P. Sing in Principles of Statutory Interpretation, 13th Edition, 2012 at page 538 under sub heading "Recent statements of the rule against retrospectivity"
has greatly emphasized the principle of fairness and observed that classification of statute either substantive or procedural does not necessarily determine whether the enactment or amendment has retrospective operation, e.g., law of limitation is procedural but its application to past cause of action may result in reviving in extinguishing a right, and such operation cannot be said to be procedural. Similarly, when requisites of an action under new statute, draws from a time incident to its passing, rule against retrospectivity may not be applicable.
In the said text, reference has been made to formulation by Dixon C. J. 20 in Maxwell v. Murphy [1957] 96 CLR 261 holding:
"The general rule of the common law is that a statute changing the law ought not, unless the intention appears with reasonable certainty to be understood as applying to facts or events that have already occurred in such a way as to confer or impose or otherwise affect the rights or liabilities which the law had defined be reference to the past events. But given the rights and liabilities fixed by reference to the past facts, matters or events, the law appointing or regulating the manner in which they are to be enforced or their enjoyment is to be secured by judicial remedy is not within the application of such a presumption."
Identically, in Secretary of State for Social Security v. Tunnicliffe [1991] 21 2 All ER 712, Staughton L. J. has expressed the said principle in the following- words:
"The true principle is that Parliament is presumed not to have intended to alter the law applicable to past events and transactions in a manner which is unfair to those concerned in them unless a contrary intention appears. It is not simply a question of classifying an enactment as retrospective or not retrospective. Rather it may well be a matter of degree--the greater the unfairness, the more it is to be expected that Parliament will make it clear if that is intended."
"The House of Lords in L'Office Cherifien des phosphates v. Yamashita 22 Shinnihon Steamship Co. Ltd. [1994] 1 All ER 20 has said the question of fairness has to be answered by taking into account various 9 ITA No. 648 (Asr)/2014 Asst. Year: 2006-07 factors, viz., value of the rights which the statute affects ; extent to which that value is diminished or extinguished by the suggested retrospective effect of the statute; unfairness of adversely affecting the rights; clarity of the language used by Parliament and the circumstances in which the legislation was cre-aired. These factors have to be weighed together to provide an answer whether the consequences of reading the statute with suggested degree of retrospectivity is unfair; that the words used by Parliament could not have been intended to mean what they might appear to say. This principle was applied while interpreting a new provision in the Arbitration Act in this case observing that the delay attributable to the claimant in pursuing a claim before enactment of the new provision could be taken into consideration for dismissal.
,
23. Principle of "fairness" has not left us untouched and was applied by the Supreme Court in Vijay v. State of Maharashtra [2006] 6 SCC 289 in the following words:
"The negotiation is not a rigid rule and varies with the intention and purport of the legislation but to apply it in such a case is a doctrine of fairness. When a new law is enacted for the benefit of the community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature."
24. In Allied Motors P. Ltd. v. C/T [1997] 224 ITR 677 (SC), it was held that the new proviso to section 43B should be given retrospective effect from the inception on the ground that the proviso was added to remedy unintended consequences and supply an obvious omission. The proviso ensured reasonable interpretation and retrospective effect would serve the object behind the enactment.
25. In State through CBI v. Gian Singh [1999] AIR 1999 SC 3450 the extreme penalty of death was diluted to alternative option of imprisonment for life recording that the legislative benevolence could be extended to an accused, who awaits judicial verdicts against his sentence. Earlier in Ratan Lal v. State of Punjab [1965] AIR 1965 SC 444 reference was made to section 6 of the Probation of Offenders Act, 1958, and it was observed that the Act was not given retrospective operation, it would lead to anomalies and thus could not be the intention of the Legislature.
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 have necessary cushion to absorb the effect. However, marginal and medium taxpayers, who work at low G. P. rate and when expenditure which becomes a 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 a shifting expense to a subsequent year, in such cases, will not wipe off the adverse effect and the financial stress. 10 ITA No. 648 (Asr)/2014
Asst. Year: 2006-07 Nevertheless 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. The 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.
One important consideration in construing a machinery section is that it must be so construed so as to effectuate the liability imposed by the charging section and to make the machinery workable. However, when the machinery section results in unintended or harsh consequences which were not intended, the remedial or correction action taken is not to be disregarded but given due regard.
It is, in this context, that we had in Rajinder Kumar's case (supra) observed as under (page 252 of 362 ITR) :
Now, we refer to the amendments which have been made by the Finance Act, 2010, and the effect thereof. We have already quoted the decision of the Calcutta High Court in Virgin Creations (supra). The said decision refers to the earlier decision of the Supreme Court in the case of Allied Motors (P.) Ltd. (supra) and CIT v. Alom Extrusions L Ltd. [2009] 319 ITR 306 (SQ. In the case of Allied Motors (P.) Ltd. (supra), the Supreme Court was examining the first proviso to section 43B and whether it was retrospective.
Section 43B was inserted in the Act with effect from April 1, 1984, for curbing claims of taxpayers who did not discharge or pay statutory liabilities but claimed deductions on the ground that the statutory liability had accrued. Section 43B states that the statutory liability would be allowed as a deduction or as an expense in the year in which the payment was made and would not be allowed, even in cases of mercantile system of accountancy, in the year of accrual. It was noticed that in some cases hardship would be caused to assessees, who paid the statutory dues within the prescribed period though the payments so made would not fall within the relevant previous year. Accordingly, a proviso was added by the Finance Act, 1987, applicable with effect from April 1, 1988. The proviso stipulated that when statutory dues covered by section 43B were paid on or before the due date for furnishing of the return under section 139(1), the deduction/expense, equal to the amount paid would be allowed. The Supreme Court noticed the purpose behind the proviso and the remedial nature of the insertion made. Of course, the Supreme Court also referred to Explanation 2 which was inserted by the Finance Act, 1989, which was made retrospective and was to take effect from April 1, 1984. Highlighting the object behind section 43B it was observed that the proviso makes the provision workable, gives it a reasonable interpretation. It was elucidated (page 686 of 224 ITR):
11 ITA No. 648 (Asr)/2014
Asst. Year: 2006-07 In the case of Goodyear India Ltd. v. State of Haryana [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. Jodhamal Kuthiala v. CIT [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 reason able interpretation can be given to the section as a whole.
This view has been accepted by a number of High Courts. In the case of CIT v. Chandulal Venichand [1994] 209 ITR 7 (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 the assessment year 1984-85. The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corpn. [1991] 191 ITR 676 (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 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 [1991] 189 ITR 70 (Patna). 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 Principle of Statutory interpretation, 4th Edn. At page 291 : '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.' 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 12 ITA No. 648 (Asr)/2014 Asst. Year: 2006-07 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 the Finance Act, 2010, stages 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".
The Hon'ble Court in the above said cases has elaborately dealt with the issue as to whether amendment to section 40(a)(ia) by the Finance Act, 2010 can be said to be applicable retrospectively and has held to be applicable retrospectively. The Hon'ble. Court in this respect has relied on judgment of the Hon'ble Supreme Court in the case of Allied Motors (P) Ltd.
Section 40(a)(ia) was amended in 2008 and again by Finance Act 2010 and these amendment have been held to be retrospective as those amendments were curative amendments as the existing provisions were causing and creating unintended and excessive hardships to citizens and subjects and have resulted in great inconvenience.
Amendment carried out by Finance Act 2014 has also been made to cover undue hardships to taxpayers and as such reasoning & findings of Hon'ble Delhi High Court are equally applicable to amendment made by Finance Act 2014. By the amendment to section 40(a)(ia) by the Finance Act 2014, the disallowance has been restricted to 30% of such payment instead of 100% as per existing provisions. In this context, para 207 of budget speech of 10th July, 2014 is the quite relevant.13 ITA No. 648 (Asr)/2014
Asst. Year: 2006-07 "Currently, where an 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 with be disallowed."
Therefore, in view of the above judicial precedents, we hold that the amendment carried by Finance Act, 2014 has been carried out to remove unintended and excessive hardships and therefore, we hold that this amendment to be retrospective in nature.
In view of the above, we direct the Assessing Officer to restrict the disallowance to 30% of the amount involved. In view of the above, ground no. 8 is allowed.
10. In nutshell, the appeal filed by the assessee is partly allowed.
Order pronounced in the open Court on 14.07.2017.
Sd/- Sd/-
(N.K. CHOUDHRY) (T.S. KAPOOR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 14/07/2017
GP/Sr.PS/
Copy of the order forwarded to:
1. The Assessee:
2. The
3. The CIT(A)
4. The CIT
5. The SR DR, ITAT, Amritsar.
True copy
By order