Commissioner Of Income Tax Ahmedabad Iv v. Omprakash R Chaudhary....opponent(S

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 412 of 2013 With TAX APPEAL No. 409 of 2013With TAX APPEAL No. 647 of 2012With TAX APPEAL No. 797 of 2012With TAX APPEAL No. 813 of 2012With TAX APPEAL No. 848 of 2012With TAX APPEAL No. 103 of 2013With TAX APPEAL No. 104 of 2013With TAX APPEAL No. 217 of 2013With TAX APPEAL No. 243 of 2013With TAX APPEAL No. 377 of 2013With TAX APPEAL No. 378 of 2013With TAX APPEAL No. 410 of 2013With TAX APPEAL No. 408 of 2013With TAX APPEAL No. 591 of 2013With TAX APPEAL No. 640 of 2013With TAX APPEAL No. 662 of 2013With TAX APPEAL No. 682 of 2013With TAX APPEAL No. 683 of 2013 O/TAXAP/412/2013 JUDGMENT With TAX APPEAL No. 684 of 2013 With TAX APPEAL No. 685 of 2013 FOR APPROVAL AND SIGNATURE: HONOURABLE Mr. JUSTICE M.R. SHAH and HONOURABLE Ms. JUSTICE SONIA GOKANI ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX AHMEDABAD IV....Appellant(s) Versus OMPRAKASH R CHAUDHARY....Opponent(s) ================================================================ Appearance:TAX APPEAL No. 412/2013MR.VARUN K.PATEL, ADVOCATE for the Appellant(s) No. 1MR TUSHAR P HEMANI, ADVOCATE for the Opponent(s) No. 1MS VAIBHAVI K PARIKH, ADVOCATE for the Opponent(s) No. 1TAX APPEAL No. 409/2013MS PAURAMI SHETH, ADVOCATE for the Appellant(s) No. 1MR RK PATEL, ADVOCATE for the Opponent(s) No. 1TAX APPEAL No. 647/2013MR.VARUN K.PATEL, ADVOCATE for the Appellant(s) No. 1MR RK PATEL, ADVOCATE for the Opponent(s) No. 1TAX APPEAL No. 797/2013MR. PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1MR SN SOPARKAR, Sr. ADVOCATE with MR BS SOPARKAR, ADVOCATEfor the Opponent(s) No. 1 O/TAXAP/412/2013 JUDGMENT TAX APPEAL No. 813/2013MS PAURAMI SHETH, ADVOCATE for the Appellant(s) No. 1MR RK PATEL, ADVOCATE for the Opponent(s) No. 1 TAX APPEAL No. 848/2013 MR.PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1RULE SERVED for the Opponent(s) No. 1 TAX APPEAL No. 103/2013 MR. PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1RULE SERVED for the Opponent(s) No. 1 TAX APPEAL No. 104/2013 MR. PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1RULE SERVED for the Opponent(s) No. 1 TAX APPEAL No. 217/2013 MR.MANAV A MEHTA, ADVOCATE for the Appellant(s) No. 1RULE UNSERVED for the Opponent(s) No. 1 TAX APPEAL No. 243/2013 MR.KM PARIKH, ADVOCATE for the Appellant(s) No. 1MR MANISH J SHAH, ADVOCATE for the Opponent(s) No. 1TAX APPEAL No. 377/2013MR. KM PARIKH, ADVOCATE for the Appellant(s) No. 1NOTICE UNSERVED for the Opponent(s) No. 1 TAX APPEAL No. 378/2013 MR. KM PARIKH, ADVOCATE for the Appellant(s) No. 1 MR RK PATEL, ADVOCATE for the Opponent(s) No. 1TAX APPEAL No. 410/2013 MS PAURAMI SHETH, ADVOCATE for the Appellant(s) No. 1MR HARDIK V VORA, ADVOCATE for the Opponent(s) No. 1TAX APPEAL No. 408/2013 MS PAURAMI SHETH, ADVOCATE for the Appellant(s) No. 1 MR RK PATEL, ADVOCATE for the Opponent(s) No. 1TAX APPEAL No. 591/2013 MR.PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1 MR SN DIVATIA, ADVOCATE for the Opponent(s) No. 1 TAX APPEAL No. 640/2013 Mr .MANISH R BHATT, Sr. ADVOCATE with MS MAUNA BHATT, ADVOCATE for the Appellant(s) No. 1 MR SN DIVATIA, ADVOCATE for the Opponent(s) No. 1 TAX APPEAL No. 662/2013MS PAURAMI SHETH, ADVOCATE for the Appellant(s) No. 1 TAX APPEAL No. 378/2013 MR. KM PARIKH, ADVOCATE for the Appellant(s) No. 1 MR RK PATEL, ADVOCATE for the Opponent(s) No. 1TAX APPEAL No. 410/2013 MS PAURAMI SHETH, ADVOCATE for the Appellant(s) No. 1MR HARDIK V VORA, ADVOCATE for the Opponent(s) No. 1TAX APPEAL No. 408/2013 MS PAURAMI SHETH, ADVOCATE for the Appellant(s) No. 1 MR RK PATEL, ADVOCATE for the Opponent(s) No. 1TAX APPEAL No. 591/2013 MR.PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1 MR SN DIVATIA, ADVOCATE for the Opponent(s) No. 1 TAX APPEAL No. 640/2013 Mr .MANISH R BHATT, Sr. ADVOCATE with MS MAUNA BHATT, ADVOCATE for the Appellant(s) No. 1 MR SN DIVATIA, ADVOCATE for the Opponent(s) No. 1 TAX APPEAL No. 662/2013MS PAURAMI SHETH, ADVOCATE for the Appellant(s) No. 1 MR RK PATEL, ADVOCATE for the Opponent(s) No. 1 TAX APPEAL No. 682/2013 MR.KM PARIKH, ADVOCATE for the Appellant(s) No. 1 RULE SERVED for the Opponent(s) No. 1TAX APPEAL No. 683/2013MR.KM PARIKH, ADVOCATE for the Appellant(s) No. 1RULE SERVED for the Opponent(s) No. 1TAX APPEAL No. 684/2013Mr KM PARIKH, ADVOCATE for the Appellant(s) No. 1Mr SN SOPARKAR, Sr. ADVOCATE with MR BS SOPARKAR, ADVOCATEfor the Opponent(s) No. 1TAX APPEAL No. 685/2013Mr. KM PARIKH, ADVOCATE for the Appellant(s) No. 1RULE SERVED for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE Mr. JUSTICE M.R. SHAHand HONOURABLE Ms. JUSTICE SONIA GOKANInd22 November 2013 ORAL JUDGMENT(PER : HONOURABLE Ms. JUSTICE SONIA GOKANI) 1.This group of Appeals are taken up for final hearing as a common question of law arises in all of them. For the purpose of appreciating the facts, the facts emerging in Tax Appeal No. 243 of 2013 shall be reproduced. 2.The assessee is engaged in the business of construction. For the Assessment Year 2005-06, the assessee filed return of income, which was taken in scrutiny assessment under section 143 (3) of the Income-tax Act, 1961 [“the Act” for short]. During the course of assessment proceedings, the Assessing Officer noted that certain payments and credits were made against the account of labour contractors to the extent of Rs. 23,13,933/=. On such amount, Tax Deducted at Source was deductible before 1st March 2005 and the same was though deducted by the assessee, the payment in the Government account was not made until 31st March 2005 and the same was done only on 28th June 2005. 2.1The Assessing Officer also noted that certain credits were made against the account of Labour Contractors to the extent of Rs. 18,42,192/= on 31st March 2005 and the tax was deducted on the very same day, however, the same was paid to the Government account on 28th June 2005. Accordingly, for the entire amount of Rs. 41,56,125/=, the Assessing Officer made an addition. 3.When this was challenged before the CIT [A], it was argued that the Assessing Officer had erred in making disallowances under section 40 [a](ia) of the Act of Rs. 41,56,125/=, since the TDS was deducted and paid into the account of Central Government by 28th June 2005. CIT [A] examined the details of TDS deducted and paid under section 194 (c) of the Act. It was noted that the assessee did not deduct and deposit the TDS in respect of the payment/credits made before 31st March 2005 in consonance with Chapter XVII-B read with Rule 30 of the Income-tax Rules. The Assessing Officer had added back the sum of Rs. 41,56,125/= under section 40 [a](ia) of the Act. CIT [A] noted that the Assessing Officer followed the provisions of unamended Section 40 [a](ia) of the Act and the disallowances was justified for the sum of Rs. 23,13,933/= where TDS was deducted before the 1st March 2005. However, for the payment made to the tune of Rs. 18,42,192/- as per the amended provisions of Section 40 [a](ia), CIT [A] held and observed that if the tax has been deducted in the month of March; as per the time prescribed in Rule 30 and deposited with the Government before submission of the return of income, Section 40 [a](ia) of the Act shall not be attracted, and therefore, when the tax was deposited on 28th June 2005, before the due date prescribed under section 139 (1) of the Act, addition to the extent of Rs. 18,42,192/= deserved to be deleted. 4.This was challenged before the Income Tax Appellate Tribunal [“Tribunal” for short] by the assessee. As far as addition of Rs. 23,13,933/= was concerned, it was argued before the Tribunal that the Calcutta High Court in the case of CIT v. Virgin Creations [ITAT No. 302/11 :: 23/11/2011] had settled the controversy in favour of the assessee. Moreover, there are number of other decisions which would not permit such addition under section 40 [a](ia) of the Act. The Tribunal upheld the version of the assessee by holding, thus - “7.We have considered rival submissions carefully. We find the fact that the TDS amount was deposited prior to the due date of filing of the return, is not in dispute. The issue before us is covered in favour of the assessee with the decision of the Hon’ble Calcutta High Court in the case of Virgin Creations [Supra] and the decision of the ITAT, Ahmedabad Bench in the case of M/s. Alpha Projects Society P. Limited [Supra]. The ITAT, Ahmedabad Bench has also considered the Special Bench decision of the Mumbai Bench in Bharati Shipyard Limited [Supra] and has followed the decision of the Hon’ble Calcutta High Court in the case of Virgin Creations [Supra] and has decided the issue in favour of the assessee. We being in agreement with the decision of the ITAT, Ahmedabad Bench in the case of M/s. Alpha Projects Society P. Limited [Supra], decide the issue in favour of the assessee and delete the disallowance made under section 40 (a)(ia) of the I.T Act and accordingly, this ground no. 2 is of the assessee’s appeal is allowed.” 5. Aggrieved by such decision of the Tribunal, Revenue has preferred the present Tax Appeal, proposing following substantial question of law for our consideration :- “Whether the Income Tax Appellate Tribunal was justified in deleting the addition of Rs. 23,13,933/=, relying on 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 ?” 6.As noted hereinabove, substantial question of law proposed by the Revenue is identical in all the Tax Appeals, for which we have heard learned senior advocate Shri M.R Bhatt alongwith learned counsels Mr. Pranav Desai; Mr. K.M Parikh; Ms. Paurami Sheth; Mr. Varun Patel and Mr. Manav Mehta extensively. 7.Learned counsels for the Revenue have taken us through the very purpose for which this provision was brought on the statute book. It is also urged that the proviso has been made by way of fixing civil liability so that the “Whether the Income Tax Appellate Tribunal was justified in deleting the addition of Rs. 23,13,933/=, relying on 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 ?” 6.As noted hereinabove, substantial question of law proposed by the Revenue is identical in all the Tax Appeals, for which we have heard learned senior advocate Shri M.R Bhatt alongwith learned counsels Mr. Pranav Desai; Mr. K.M Parikh; Ms. Paurami Sheth; Mr. Varun Patel and Mr. Manav Mehta extensively. 7.Learned counsels for the Revenue have taken us through the very purpose for which this provision was brought on the statute book. It is also urged that the proviso has been made by way of fixing civil liability so that the assessee would pay the tax to the Government. Pre-2008, for eleven months, the payment was required to be made upto 31st March. However, for the month of March whatever the deductions are made upto filing of the return of income, its remission was permitted. It is further urged that in the present group of matters, what the Court is concerned with is the amendment brought about in the year 2010. Reliance is placed on Sections 198, 199, 200 201 and 201A of the Act, which have been amended w.e.f 1st July 2010 where the provision is made for more stringent payment of interest of 12% and 18%. Counsels urged that essentially the taxing statute requires to be read by giving a plain meaning to the provision and only when there is unexplainable hardship caused to the assessee by giving effect to the provisions of law in question, it is needed to be interpreted to remove unintended anomaly and hardship. It is emphasized that the amendment is neither clarificatory nor meant to remove unintended anomaly. It cannot be read as retrospective though it is curative in nature. It is further pointed out that the amendment of the year 2008 consciously granted the retrospective effect. However, as far as amendment of the year 2010 is concerned, to an extent as contemplated by the Legislature, it was held retrospective and the Legislature is very categorical about the same. To hold this amendment as retrospective for the entire period for being curative, will amount to legislating the provision which is impermissible under the law. It is reiterated that for ensuring that there is no leakage of revenue, Section 40 [a](ia) has been brought into the statute book. 7.1Shri Manish R. Bhatt, learned senior counsel has further urged that the decision rendered in case of Bharati Shipyard Limited, reported in 132 ITD 53 [Mumbai-Special Bench] needs to be construed as the submissions of the Revenue. The object of introduction of Section 40 [a](ia) was to ensure a proper compliance to the TDS provisions so that non-deduction may result into adverse consequences in the form of disallowances of the expenditure in the year of incurrence. Since the Legislature in its wisdom has brought this provision with a view to augment compliance of TDS provisions, those tax payers who make default, need to face the consequences. This amendment is not aimed at removing any unintended hardship to the assessee but to relax intended hardship to some extent by increasing the time for depositing TDS. He further urged that the provision is not clarificatory at all and it is a settled rule of construction that every rule is primarily prospective unless expressly or by implication is given retrospective operation. The intention of the Legislation is required to be gathered by the Court from the overt language of the provision whether the same is prospective or retrospective in nature and if retrospective, the date from which the same needs to be held retrospective. He urged that the time limit originally provided by Section 40 {A} (ia) w.e.f 1.4.2005 was relaxed to some extent by way of amendment carried out by the Finance Act, 2008. The said amendment made in the year 2008 was specifically given retrospective effect from 1st April 2005 ie., the date of insertion of Section 40 [a](ia). Proviso to Section 40 [a](ia) was also amended to provide that in respect of any such sum, the tax if has been deducted in any subsequent year, or has been deducted during the last month of the previous year, but, paid after the said due date or 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 deducted. However, amendment to section 40 [a](ia) by the Finance Act, 2010 thereafter came with retrospective date w.e.f 1st April 2010. 7.2 It is urged by the learned counsel that the only difference which amendment has made is curing the two earlier categories of defaults. The first category of disallowances; including the excess tax was deductible and was so deducted during the last month of the previous year but there was failure to pay such tax on or before the due date specified in sub-section (1) of section 139 of the Act. No tinkering is done with this position by the Finance Act 2010. However, the second category which requires the deposit of tax before the close of the previous year in case of deduction made during the first eleven month as a pre-condition for grant of deduction in the year of incurrence of expenditure has been altered. It is, therefore, urged that the assessee which was required to deduct tax at source during the first eleven months of previous year and was paying it before the closing of previous year upto 31st March of the previous year, for grant of deduction in the year of incurring such expenditure, is put to ease and the time is extended for payment of tax upto the due date under section 139 (1) of the Act and such disallowances would be made if the assessee fails to pay the amount of tax after deducting the TDS on or before the due date specified in sub-section (1) of Section 139 of the Act. Therefore, according to the learned counsel, non-deduction of TDS continues to give reason for disallowances under Section 40 {a}(ia) as was the case under the Finance Act, 2004 and Finance Act, 2008. 8.Per contra, leading the team of defence counsel, learned senior advocate Shri S.N Soparkar urged this Court that if the amendment brought about in section 40 [a] (ia); as amended by the Finance Act 2010 with retrospective effect from 1st April 2010, if is not held curative having retrospective effect from 1st April 2005, the same would have a disastrous effect. He urged that to mitigate the hardship caused by Section 40, while maintaining the TDS discipline, this provision has been amended which allows additional time for deposit of TDS so that the disallowances under section 40 are not made. The last date for filing of the return in case of a tax payer is 30th September and thus, the additional time of six months is granted for depositing the TDS on the expenditure incurred or payment made in the month of March. He urged empathetically that the amendment should be read retrospectively w.e.f 1st April 2005 and should apply to A.Y 2005-06 and subsequent years. Heavy reliance is placed on the notings of Clauses of the Finance Bill 2010, the Memo explaining provision of the Finance Bill 2010, as also on the Finance Minister’s Speech rendered while presenting the said bill. Learned counsel further urged that this amendment is provided so that no disallowances will be made, if after deduction of tax during the previous year, the same is paid on or before the due date of filing of the return of income specified in sub-section (1) of Section 139 of the Act. When any amendment is made, according to the learned counsel, to a statutory provision to remove unintended consequences of that section, Court have taken a view that such amendments are clarificatory in nature and retrospective in operation. 8.1Learned counsel Shri Soparkar further emphasized that the loss caused to the assessee by making disallowances in the current year can not be made good by allowing such deduction in the subsequent year on payment of such tax as in many of the cases, it may take several years to absorb the loss caused by the heavy deduction granted in the subsequent year in absence of possibility of there being any corresponding income. Therefore, he pressed his submissions that giving retrospective effect to the amendment made by the Finance Act 2010 from the date of insertion of Section 40 [a](ia) in A.Y 2005-06 was the need of the hour. He also pointed out that subsequent change which has come also substantiate the stand of the assessee that even if the payee has paid the tax, the deduction is permissible of all the expenditure made by the assessee. Moreover, the provision of payment of interest is also indicative that there will be no leakage of the revenue at all and this is a clear measure to plug the revenue leakage. If the amendment is brought for removing the difficulty and for attending to unintended consequences arising from its interpretation so that the same becomes workable, the Court needs to hold it retrospective in nature. This amendment, according to the learned counsel, was brought so as to accord relief to the assessee when some unintended hardship was emerging due to existing provision. He, therefore, urged that the provision needs to be held retrospective in nature. General principles of interpretation of statute has been emphasized, relying on various decisions of different High Courts. He urged that this is a machinery provision which is not to be construed rigorously by the Court. Commenting on the decision in case of Bharati Shipyards Limited [Supra], it is urged that the correct principles have been laid therein, but, they have been applied wrongly to the facts. Three High Courts have held in favour of the assessee and this High Court in case of CIT v. Royal Builders in Tax Appeal No. 520 of 2012 has followed the Delhi High Court, and therefore, there is no reason for this Court to take a contrary stand. 9.Shri R.K Patel, learned counsel supporting the version of learned senior advocate has urged that compliance of provision would result in violation of real income theory which is established by the Apex Court consistently as reported from 46 ITR 144 to 225 ITR 746. He further urged that the said provision seeks to distort the entire scheme of carry forward and set-off of losses, when read alongwith the concept of taxation of net income. According to him, the provision further seeks to disallow the expenditure of business of the assessee in his own capacity due to the fault of payment of TDS on due date as collecting agent of the Government. This entire linkage with disallowance is irrational, when separate existing provisions for default and modes of recovery of TDS exist in form of Sections 201, 201 [1](1A) and 202 of the Act. 9.1Learned counsel further urged that there can be no reasonable discrimination between two sets of assesses, since Section 40 [a](ia) would apply only in cases of scrutiny assessment under Section 143 (3) of the Act, and for those having assessment under Section 143 (1)(a) of the Act, such provision is not attracted. According to the learned counsel discrepancies between disallowances of business expenditure and the amount of TDS results in lopsided hybrid assessment. The operation provision would result in disallowances of entire legitimate business expenditure. Section 40 [a](ia) also violates the ratio laid down in a decision rendered in case of CIT v. Rishikesh 9.1Learned counsel further urged that there can be no reasonable discrimination between two sets of assesses, since Section 40 [a](ia) would apply only in cases of scrutiny assessment under Section 143 (3) of the Act, and for those having assessment under Section 143 (1)(a) of the Act, such provision is not attracted. According to the learned counsel discrepancies between disallowances of business expenditure and the amount of TDS results in lopsided hybrid assessment. The operation provision would result in disallowances of entire legitimate business expenditure. Section 40 [a](ia) also violates the ratio laid down in a decision rendered in case of CIT v. Rishikesh Apartments {Guj} Cooperative Housing Society Limited, reported in 253 ITR 310 which states that if entire tax is paid, no interest can be levied under section 201 [1A] and if the interest is paid by the assessee under section 201[1A] and the tax due is paid by the deductee, the tax cannot be recovered once again from the assessee, as that would be violative of the decision of the Apex Court rendered in case of Hindustan Coca Cola Beverages P. Ltd. v. CIT, 293 ITR 226. 10.Learned advocate Shri S.N Devatia supporting the submissions in favour of the assessee has urged that heavy reliance is placed by the Revenue on the decision of the Tribunal rendered in case of Bharati Shipyard [Supra] is misplaced. 10.1For which he gave an example that in case TDS is made under section 194C in respect of the payment “A” in the month of March 2009 and TDS made in respect of payment “B” in any other month of the said previous year [2008-09], the assessee would get benefit of additional time in respect of TDS of March 2009 but not in case of any other month. This will give a discriminatory result if the reasonings given by the Tribunal in Bharati Shipyard Limited [Supra] is accepted. It is also further urged that reliance placed by the ITAT on the amendment made to the provisions of Section 201 [1A] by the Finance Act is unwarranted as both the sections operate in different ways and the amendment to Section 201 [1A] would be prospective in view of the compensatory nature of the provision as the liability to interest would arise on day-to-day basis. 10.2He further urged that reliance of the Tribunal on the decisions of Allied Motors [P] Limited and Alom Extrusions Limited is apt. In those cases, the time limit for deposit of Sales Tax/EPF was extended instead of statutory limit prescribed under the relevant law. 11.Learned advocate Shri Tushar Hemani has urged that the memorandum explaining the provisions in the Finance Bill, 2010; CBDT Circular No. 1/2009 dated 27th March 2009; Notes on clauses to Finance Bill 2010 and the history of Section 40 {a}(ia) of the Act coupled with the Finance Minister’s Speech would lead to an inescapable conclusion that a statutory provision amended by way of Finance Bill 2010 is to remove unintended consequences and the amendment has to be held retrospective in operation. He has also summarized the original Section 40 [a](ia) from 1st April 2005 and the amended section from 1st April 2005 by the Finance Act, 2008 and the Finance Bill, 2010 which has been given effect from 1st April 2010 in a tabular form. He has also given an example as to how the whole section would become non-workable and the machinery provision of the Act would be broken down. He relied on the four tests of Heydon’s Rules viz., [a] what was the common law before making of the Act; [b] what was the mischief and defect for which the common law did not provide; [c] what remedy the Parliament has appointed to cure the defects; and [d] the true reasons for remedy. Therefor, he urged that if the statute is curative or merely declaratory of the previous law, retrospective operation is generally intended. before making of the Act; [b] what was the mischief and defect for which the common law did not provide; [c] what remedy the Parliament has appointed to cure the defects; and [d] the true reasons for remedy. Therefor, he urged that if the statute is curative or merely declaratory of the previous law, retrospective operation is generally intended. 12.Learned advocate Shri M.J Shah has urged that the assessee’s case is covered by the decision of this Court rendered in case of Commissioner of Income-Tax v. Royal Builders [Tax Appeal No. 520 of 2012] where the facts are identical. He urged that following the decision of Delhi High Court rendered in case of H.S Mohindra Traders v. Income-tax Officer, Ward 39 (2), New Delhi, reported in [2010] 132 TTJ 701 [Delhi], the Court has held the amendment in Finance Act, 2010 to be retrospective in nature. He further relied on yet another decision of Delhi High Court rendered in case of CIT-XIII v. Rajinder Kumar, reported in [2013] 260 CTR 113, and also on the decision of Calcutta High Court rendered in case of Virgin Creations [Supra]. He urged that the Income Tax Act being an All India Statute, uniform application of the statutory provisions is utmost desirable. He urged that unless there are over-riding reasons for taking a diverse view, the opinion of this Court and those of other High Courts should be respected and followed. He further urged that while interpreting the tax provisions, if two views are possible, the interpretation in favour of the assessee should be accepted. Various decisions have been relied upon for emphasizing such proposition which requires no elaboration. 13.Upon thus hearing both the sides and on extensive examination of the materials on record, at the outset, it would be desirable to profitably reproduce sub-clause {ia} of Clause (a) of Section 40 which was inserted by the Finance [No.2] Act, 2004 w.e.f 1st April 2005, which reads thus - “40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head `Profits and gains of business or profession’. ….. (a)in the case of any assessee (ia) any interest, commission or brokerage, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation. – For the purposes of this sub-clause, -(i) “commission or brokerage” shall have the same meaning as in clause (i) of the Explanation to section 194H; (ii) “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (iii) “professional services” shall have the same meaning as in clause (a) of the Explanation to section 194J; (iv) “work” shall have the same meaning as in Explanation III to section 194C; The memorandum explaining the provisions in the Finance Bill explained the rationale of the insertion of the new provision in the following words :- Explanation. – For the purposes of this sub-clause, -(i) “commission or brokerage” shall have the same meaning as in clause (i) of the Explanation to section 194H; (ii) “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (iii) “professional services” shall have the same meaning as in clause (a) of the Explanation to section 194J; (iv) “work” shall have the same meaning as in Explanation III to section 194C; The memorandum explaining the provisions in the Finance Bill explained the rationale of the insertion of the new provision in the following words :- “With a view to augment compliance of TDS provisions, it is proposed to extend the provisions of Section 40 (a)(i) to payments of interest, commission or brokerage, fees for professional services or fees for technical services to residents and payments to a resident contractor or sub-contractors for carrying out any work (including supply of labour for carrying out any work), on which tax has not been deducted or after deduction, has not been paid before the expiry of the time prescribed under sub-section (1) of section 200 and in accordance with the other provisions of Chapter XVII B. It is also proposed to provide that where in respect of payment of any sum, tax has been deducted under Chapter XVII B or paid in any subsequent year, the sum of payment shall be allowed in computing the income of the previous year in which such tax has been paid. The proposed amendment will take effect from 1st day of April, 2005 and will, accordingly, apply in relation to the assessment year 2005-06 and subsequent years [Clause 11]”. 13.1 Consequently, the Finance Act 2008 made amendment to clause (a) in sub-clause (ia) in Section 40 with retrospective effect from 1st April 2005, which reads thus - “(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 sub-contractor, 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, - (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139 ; or(B) in any other case, on or 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." ; 13.2Thereafter, came amendment to Section 40 [a](ia) by the Finance Act, 2010 w.e.f. Such amended provision reads thus - “(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 sub-contractor, 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 deducted or; after deduction, has not been paid on or before thedue 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.” 13.3The notes on clauses and memorandum explaining the provision while 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.” 13.3The notes on clauses and memorandum explaining the provision while O/TAXAP/412/2013 JUDGMENT introducing the Finance Bill, 2010 reads thus - Notes on clauses “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 non-payment 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 sub-contractor, 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 sub-section (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.” 13.4 Memorandum explaining the provisions in the Finance Bill, 2010 provides the justification of the amendment to section 40(a)(ia) in the following words :- “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.” 13.5 It will be proper at this stage to also refer to the speech of the Finance 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.” 13.5 It will be proper at this stage to also refer to the speech of the Finance Minister, while introducing the Finance Bill 2010. As noted, the amendment of the said provision to Section 40 [a](ia) by the Finance Act 2010 is made retrospectively effective from 1st April 2010. The intention of the Legislature is to be gathered from the Notes on clauses and the memorandum explaining the provisions of the Finance Bill and the speech of the Finance Minister, while introducing the Finance Bill, 2010 shall have relevance in explaining and construing the said provision in a better fashion. The relevant portion is reproduced hereinafter. “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”.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”. 13.6It is a trite law that every statute is prospective unless expressly or by necessary implications retrospectivity is attached to it. The plain language of any provision is to be construed by the Court to hold whether the intention of the legislature was to make provision retrospective or prospective. The Apex Court in various case laws has held that it is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication, made to have retrospective effect. 14.In case of Union of India v. Madan Gopal Kabra, reported in AIR 1954 SC 158, Apex Court, while accepting that the Constitution has no retrospective operation, observed that it was not correct to say that in bringing into existence new Legislation and conferring on them certain powers, the Constitution operated retrospectively. A challenge to tax statutes on the ground that same was retrospective was not entertained by the Court. 14.1In case of Entertainment Tax Officer & Anr. v. M/s. Ambae Picture Palace, reported in 1994 (1) SCC 209, the Court in terms held that when the Parliament and the State Legislature have competence to legislate, they can so do it retrospectively as well as prospectively and taxation laws are no exception to such powers. The Court referred to the decision of Union of India v. Madan Gopal Kabra [Supra]. 14.2The Supreme Court in case of Deputy Collector & Anr. v. S. Venkata Ramanaiah & Anr., reported in {1995} 6 SCC 545, while quoting the Francis Benion’s Statutory Interpretation has noted thus- “In this connection, we may usefully refer to Francis Bennion’s Statutory Interpretation, 2nd Edn. at page 214 wherein the learned author, in Section 97, deals with retrospective operation of Acts. The learned author has commented on this aspect as under : Gopal Kabra [Supra]. 14.2The Supreme Court in case of Deputy Collector & Anr. v. S. Venkata Ramanaiah & Anr., reported in {1995} 6 SCC 545, while quoting the Francis Benion’s Statutory Interpretation has noted thus- “In this connection, we may usefully refer to Francis Bennion’s Statutory Interpretation, 2nd Edn. at page 214 wherein the learned author, in Section 97, deals with retrospective operation of Acts. The learned author has commented on this aspect as under : “The essential idea of a legal system is that current law should govern current activities. Elsewhere in this work a particular Act is likened to a floodlight switched on or off, and the general body of law to the circumambient air. Culmsy though these images are, they show the inappropriateness of retrospective laws. If we do something today, we feel that the law applying to it should be the law in force today, not tomorrow’s backward adjustment of it. Such, we believe, is the nature of law. Dislike of ex post facto law is enshrined in the United States Constitution and in the Constitutions of many American States, which forbid it. The true principle is that lex prospicit non respicit (law looks forward not back). As Willes, J. said retrospective legislation is ‘contrary to the general principle that legislation by which the conduct of mankind is to be regulated ought, when introduced for the first time, to deal with future O/TAXAP/412/2013 JUDGMENT acts, and ought not to change the character of past transactions carried on upon the faith of the then existing law.’ Retrospectivity is artificial, deeming a thing to be what it was not. Artificiality and make believe are generally repugnant to law as the servant of human welfare. So it follows that the courts apply the general presumption that an enactment is not intended to have retrospective effect. As always, the power of Parliament to produce such an effect where it wishes to do so is nevertheless undoubted. The general presumption, which therefore applies only unless the contrary intention appears, is stated in Maxwell on the Interpretation of Statutes in the following empathic terms : ‘It is a fundamental rule of English 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’. Maxwell’s statement has received frequent judicial approval. It is however too dogmatically framed and describes as a rule what (for reasons stated in Code 180) is really no more than a presumption which, in the instant case, may be outweighed by other factors. Where on a weighing of the factors, it seems that some retrospective effect was intended, the general presumption against retrospectivity indicates that this should be kept to a narrow a compass as will accord with the legislative intention.” 14.3While deciding the question of applicability of a particular statute to past events, the use of language undoubtedly is the most important factor to be taken into account; as held by the Apex Court in case of P. Ganeshwar Rao v. State of Andhra Pradesh, reported in 1988 SC 2068, but, as further held therein, it cannot be stated as an inflexible rule that use of present tense or present perfect tense is decisive of the matter that the statute does not draw upon p