C I T AJMER vs. M/S ASIAN CONSTRUCTION COMPANY

This court while admitting the appeal on 19.03.2012 has framed following substantial questions of law:- “1. Whether the Tribunal was legally justified in reversing the findings of the CIT(A) and holding that the assessee had deducted tax at source and deposited it in accordance to Chapter XVII and Section 194C and no disallowance was to be made u/s 40(a)(ia)?

Whether the Tribunal was legally justified in reversing the findings of the CIT(A) and holding that the assessee was entitled for the payment of Rs.1,01,50,000/- made to the sub contractors without deducting TDS according to Section 40(a)(ia) r/w 194C?”

Counsel for the appellant has taken us to the order passed by the A.O. and contended that the A.O. while considering the mater in detail observed as under:- S. No . Name Gross Amount TDS Profit Net amount payable Opening balance as on 01.04.06 Net amount paid upto 08.02.20 07 Amount after 28.02.2009 Total amount paid including opening balance Closing Balance

The view taken by the A.O. is confirmed by CIT(A) observing thus:- “3.3 Argument of the appellant have been carefully considered, but the same is not acceptable. Section 40(a)(ia) of the I.T. Act reads as follows:- “Any interest, commission or brokerage, (Rent, royalty,) fees for professional services or fess for technical services payable to a being resident, or amounts payable to a contractor or sub- contractor, being resident, for carrying out any work (including supply of labour for carrying our any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction. “has not been paid,- (A) in a case where the tax was deductible and was so deducted during the last month on the previous year, on or before the due date specified in sub section (1) of section 139; or (B) in any other case, or of before the last day of the previous year:” “Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted- (A) during the last month of the previous year but paid after the said due date; or (B) 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.”

4 From the language of section 40(a)(ia), it is clear that only where the tax was deductible during the last month and was actually deducted during the last month of previous year, allowance has to be made if the amount is deposited before

5 The argument of the appellant that section 40(a)(ia) laid the conditions for allowability of the deduction and the provisions of section 194C are relevant only for the purpose of ascertaining the deductibility of tax on payments is fallacious. If this argument is accepted, then a deductor who dutifully deducts tax during the year in various months, but due to some reason is not able to deposit the same before the end of the year will be at a disadvantage, because in his case the respective payments will not be allowed as deduction. While on the other hand a deductor who does not deduct the tax during the year (even though the same was deductible) and makes the deduction only during the last month will be in an advantageous position, because according to argument of the appellant, in his case the respective payments will be allowed as deduction, even if the payment if made after end of year, but before due date of filing of return. Obviously this can never be the intention of the legislature. This itself proves the fallacy of argument of the appellant.

6 As mentioned earlier, in this case the tax was deductible in various months of the year. Appellant failed to deduct the tax in time. He deducted tax only during the last month. In such a situation the disallowance of Rs.1,01,50,000/- made by AO u/s 40(a)(ia) is justified and the same is confirmed.”

Therefore, he contended that the Tribunal has seriously committed an error in reversing the view taken by the AO and CIT(A).

However, counsel for the respondent relied upon the decision of the Tribunal which reads as under:- “2.8 We have heard both the parties. The issue relevant para as under:- ‘’3.8 The amendment has been made in retrospectively w.e.f. 01-04-1988. (6 of 19) [ITA-26/2012]

CIT Vs. Poddar Cement (P) ltde, 226 ITR 625 By Finance Bill, 1987, the meaning and expression of house property in Section 27 was enlarged. The Hon'ble Apex Court in this case held that the amendment was intended to supply an obvious omission or to clear up the doubts as to the meaning of the word ’owner’.

CIT Vs. Vs. Gold Coin Health Food (P) Ltd., 304 ITR 308 (SC) There was an amendment in explanation 4 to Section 271(1)( c) by the Finance Act , 2002,. This explanation was not held as clarificatory by the Hon'ble is also leviable even in prior to 01- 04- 2003. 3.9 The amendment in Section 40a((ia) has been held as curative in following cases:-

9 Before amendment by Finance Act, the proviso stated that any sum on which tax has been deducted during the last month of previous year but paid before due date then disallowance u/s 40(a) (ia) of the Act cannot be made. The proviso refers to the deduction of tax at source in the last month and it does not state in respect of tax which are deductible earlier but has not been deducted in earlier month. If the tax has been deducted in any month other then last month is the month of the previous year then the expenditure covered u/s 40(a)(ia) of the Act will not be admissible unless such (7 of 19) [ITA-26/2012] tax was paid before the end of the previous year. In the instant case, it is undisputed that the assessee has deducted the tax at source in the last month. Therefore, disallowance was not required to be made u/s 40(a)(ia) of the Act. Before us, the ld. wherein it has been held as under:-

It is, in this context, that we had in Rajinder Kumar's case (supra) observed as under:

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) Limited (supra) and Commissioner of Income Tax versus Alom Extrusions Limited, (2009) 319 ITR 306 (SC). In the case of Allied Motors (P) Limited (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 1st April 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 43Bstates 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

In the case of Goodyear India Ltd. V. State of Haryana 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. Judha Mal Kuthiala v. CIT, this Court said that one should apply the rule of reasonable interpretation. Aproviso 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.

This view has been accepted by a number of High Courts. In the case of CIT v. Chandulal Venichand, the Gujarat High Court has held that the first proviso to Section 43-B 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 1985-85. The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corpn. 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 43-B. 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. 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 43-B will be available only prospectively does not appear to be correct. As observed by G.P. Singh in his Principles of Statutory Interpretation, 4th Edn. At p. 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 43Bstand paid on or before the due date of filing of return of income. Section 40(a)(ia)is (10 of 19) [ITA-26/2012] 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

In Podar Cement Private Limited (supra), the Supreme Court considered whether term „owner‟ would include unregistered owners who had paid sale consideration and were covered by Section 53A of the Transfer of Property Act. The contention of the assessees was that the amendments made to the definition of term „owner‟ by Finance Bill, 1987 should be given retrospective effect. It was held that the amendments were retrospective in nature as they rationalise and clear the existing ambiguities and doubts. Reference was made to Crawford: „Statutory Construction‟ and „the principle of Declaratory Statutes‟, Francis Bennion: „Statutory Interpretation‟, Justice G.P. Singh‟s „Principles of Statutory Interpretation‟, it was observed that sometimes amendments are made to supply an obvious omission or to clear up doubts as to the meaning of the previous provision. The issue was accordingly decided holding that in such cases the amendments were retrospective though it was noticed that as per Transfer of Property Act, Registration Act, etc. a legal owner must have a registered document.

In view of the aforesaid discussion in paras 18,19 and 20, it is apparent that the respondent

In view of the aforesaid discussion, we do not find any merit in the present appeals filed by the Revenue and they are dismissed.”

He further relied on another decision of High Court of Delhi in as under:-

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

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.

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

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

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.

2 As rightly contended by the respondents arithmetical discrepancy can

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."

Counsel for the appellant has also relied on the decision of High Court of Karnataka in the case of Commissioner of Income

We have heard both the sides.

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.

Therefore, the issues is required to be answered in favour of the assessee against the department.

The appeal stands dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Jyoti Item No.29