Commissioner of Income Tax vs Harish Chand Ahuja

This appeal as per Section 260-A of Income Tax Act, 1961 (hereinafter referred to as the ''Act of 1961'') is preferred to question correctness of the judgment dated 27.6.2013 passed by learned Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur affirming the order passed by the Commissioner of Income Tax (Appeals), Udaipur dated 31.3.2011.

The factual matrix necessary to the noticed for adjudication of this appeal is that the assessee Shri Harish Chandra Ahuja, proprietor of firms M/s. Ashirwad Crusher & Industries, Nimbahera and M/s. Ankita Construction Company, Nimbahera, filed return of income for an amount of Rs. 64,25,434/- on 31.10.2007 and assessment of that was completed on 30.12.2009. The Assessing Authority assessed income of the assessee in a tune of Rs. 4,94,14,649/- with disallowance of TDS deducted for a sum of Rs. 4,26,65,256/- being not deposited to government account within the time limit prescribed. To assail the assessment made by the Assessing Officer under the order dated 30.12.2009 the assessee preferred an appeal, that came to be allowed vide order dated 31.3.2011.

The learned Commissioner Income Tax while setting aside the assessment order dated 31.12.2009 held that the provisions of Section 40[a](ia) as amended by the Finance Act, 2010 are remedial/curative in nature, thus, the same would apply retrospectively. On such application of the provision aforesaid, the addition of the TDS was ordered to be excluded from income of the assessee.

The Revenue challenged the order passed by the Commissioner Income Tax, Jodhpur Bench, Jodhpur by way of filing an appeal, that came to be dismissed by quite a short order dated 27.6.2013. As per learned Income Tax Appellate Tribunal, if the TDS is deducted in time and deposited before filing of the return no disallowance could have been made.

In this appeal while questioning correctness of the order passed by the Income Tax Appellate Tribunal the only argument advanced by learned counsel for the Revenue is that the TDS in a tune of Rs. 4,26,65,256/-, though, was deposited before filing the return but that could have not been excluded from the income of the assessment year concerned in view of the fact that the amendment under Section 40[a](ia) of the Act of 1961 was made effective from 01.4.2010 by the Finance Act, 2010.

Having considered all the relevant provisions, we do not find any merit in the argument advanced. It is not in dispute that the TDS amount was deposited by the assessee prior to the due date of filing return. An amendment to Section 40[a](ia) of the Act of 1961 was introduced by the Finance Act, 2010 and that was applied w.e.f. 01.4.2010. The Assessing Officer while passing the assessment order impugned was of the view that the TDS was not paid before the due date specified in Sub-Section (1) of Section 139 of the Act of 1961 and amendment to Section 40[a](ia) came into force on 01.4.2010, therefore, no question was there for disallowance of expenditure on account of non-compliance with TDS provisions. The amended provision of Section 40[a](ia) of the Act of 1961 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 subcontractor, 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 paid, deducted or; after deduction, has not 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, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid."

The notes on Clauses and memorandum explaining the amended provision, while introducing the Finance Bill, 2010 reads as under:-

"Clause 12 of the Bill seeks to amend section 40 of the Income-tax Act relating to amounts not deductible. Under the existing provisions contained in sub-clause (ia) of clause (a) of the aforesaid section, non-deduction of tax or nonpayment of tax after deduction on payment of any sum by way of 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 subcontractor, being resident, results in the disallowance of the said sum, in the computation of income of the payer, on which tax is required to be deducted under Chapter XVII-B. It is proposed to amend sub-clause (ia) of clause (a) of the aforesaid section to provide that disallowance under the said sub-clause will be attracted, if, after deduction of tax during the previous year, the same has not been paid on or before the due date of filing of return of income specified in subsection (1) of section 139. The proviso to the said sub-clause provides that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the last month of the previous year but paid after the due date of filing of return or deducted during any other month of the previous year but paid after the end of the said previous year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. This amendment will take effect retrospectively from 1st April, 2010, and will, accordingly, apply in relation to the assessment year 2010-2011 and subsequent years."

The justification for amendment to Section 40[a](ia) as explained in the memorandum with the Finance Bill, 2010 is as follows:-

"Disallowance of expenditure on account of non-compliance with TDS provisions:-

A. The existing provisions of section 40(a)(ia) of the Income-tax Act provide for the disallowance of expenditure like interest, commission, brokerage, professional fees, etc. if tax on such expenditure was not deducted, or after deduction was not paid during the previous year. However, in case the deduction of tax is made during the last month of the previous year, no disallowance is made if the tax is deposited on or before the due date of filing of return.

It is proposed to amend the said section to provide that no disallowance will 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 specified in sub-section (1) of section 139. This amendment is proposed to take effect retrospectively from 1st April, 2010 and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years.

B. Under the existing provisions of section 201(1A) of the Act, a person is liable to pay simple interest at one per cent. For every month or part of month in case of failure to deduct tax or payment of tax after deduction.

With a view to discourage the practice of delaying the deposit of tax after deduction, it is proposed to increase the rate of interest for nonpayment of tax after deduction from the present one per cent to one and one half per cent for every month or part of month. This amendment is proposed to take effect from 1st July, 2010."

The Finance Minister while introducing the Finance Bill, 2010 stated at the floor of the parliament that:-

"Relaxing the current provisions on disallowance of expenditure, I propose to allow deduction of such expenditure, if tax has been deducted at any time during the financial year and paid before the due date of filing the return. This will allow most deductors additional time upto September of the next financial year. At the same time, I propose to increase the interest charged on tax deducted but not deposited by the specified date, from 12 per cent to 18 per cent per annum".

The amended provision, its explanation and the contents of the Finance Bill, 2010 speech clearly indicates curative nature of the amendment brought in.

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 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.

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 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 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."

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.