Commissioner Of Income Tax, Udaipur v. Shri Harish Chand Ahuja

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANAT JODHPUR JUDGMENT D.B. INCOME TAX APPEAL NO.203/2013 Commissioner of Income Tax, UdaipurVs.Shri Harish Chand Ahuja DATE OF ORDER :: 26.11.2014 PRESENT HON'BLE MR. JUSTICE GOVIND MATHURHON'BLE MR. JUSTICE PRAKASH GUPTA Mr. K.K. Bissa, for the appellant. BY THE COURT: ... This appeal as per Section 260-A of Income Tax Act, 1961(hereinafter referred to as the ‘Act of 1961’) is preferred to questioncorrectness of the judgment dated 27.6.2013 passed by learnedIncome Tax Appellate Tribunal, Jodhpur Bench, Jodhpur affirmingthe order passed by the Commissioner of Income Tax (Appeals),Udaipur dated 31.3.2011. The factual matrix necessary to the noticed for adjudication ofthis appeal is that the assessee Shri Harish Chandra Ahuja,proprietor of firms M/s. Ashirwad Crusher & Industries, Nimbaheraand M/s. Ankita Construction Company, Nimbahera, filed return ofincome for an amount of Rs.64,25,434/- on 31.10.2007 andassessment of that was completed on 30.12.2009. The AssessingAuthority assessed income of the assessee in a tune ofRs.4,94,14,649/- with disallowance of TDS deducted for a sum of Rs.4,26,65,256/- being not deposited to government account withinthe time limit prescribed. To assail the assessment made by theAssessing Officer under the order dated 30.12.2009 the assesseepreferred an appeal, that came to be allowed vide order dated31.3.2011. The learned Commissioner Income Tax while setting aside theassessment order dated 31.12.2009 held that the provisions ofSection 40[a](ia) as amended by the Finance Act, 2010 areremedial/curative in nature, thus, the same would applyretrospectively. On such application of the provision aforesaid, theaddition of the TDS was ordered to be excluded from income of theassessee. The Revenue challenged the order passed by theCommissioner Income Tax, Jodhpur Bench, Jodhpur by way of filingan appeal, that came to be dismissed by quite a short order dated27.6.2013. As per learned Income Tax Appellate Tribunal, if the TDSis deducted in time and deposited before filing of the return nodisallowance could have been made. In this appeal while questioning correctness of the orderpassed by the Income Tax Appellate Tribunal the only argumentadvanced by learned counsel for the Revenue is that the TDS in atune of Rs.4,26,65,256/-, though, was deposited before filing thereturn but that could have not been excluded from the income ofthe assessment year concerned in view of the fact that the amendment under Section 40[a](ia) of the Act of 1961 was madeeffective from 01.4.2010 by the Finance Act, 2010. Having considered all the relevant provisions, we do not findany merit in the argument advanced. It is not in dispute that theTDS amount was deposited by the assessee prior to the due date offiling return. An amendment to Section 40[a](ia) of the Act of 1961was introduced by the Finance Act, 2010 and that was applied w.e.f.01.4.2010. The Assessing Officer while passing the assessmentorder impugned was of the view that the TDS was not paid beforethe due date specified in Sub-Section (1) of Section 139 of the Actof 1961 and amendment to Section 40[a] (ia) came into force on01.4.2010, therefore, no question was there for disallowance ofexpenditure on account of non-compliance with TDS provisions.The amended provision of Section 40[a](ia) of the Act of 1961reads as under :- Having considered all the relevant provisions, we do not findany merit in the argument advanced. It is not in dispute that theTDS amount was deposited by the assessee prior to the due date offiling return. An amendment to Section 40[a](ia) of the Act of 1961was introduced by the Finance Act, 2010 and that was applied w.e.f.01.4.2010. The Assessing Officer while passing the assessmentorder impugned was of the view that the TDS was not paid beforethe due date specified in Sub-Section (1) of Section 139 of the Actof 1961 and amendment to Section 40[a] (ia) came into force on01.4.2010, therefore, no question was there for disallowance ofexpenditure on account of non-compliance with TDS provisions.The amended provision of Section 40[a](ia) of the Act of 1961reads as under :- “(ia) any interest, commission or brokerage,rent, royalty, fees for professional services orfees for technical services payable to aresident, or amounts payable to a contractor orsubcontractor, being resident, for carrying outany work (including supply of labour forcarrying out any work), on which tax isdeductible at source under Chapter XVII-B andsuch tax has not been paid, deducted or; afterdeduction, has not been paid on or before thedue date specified in sub-section (1) of Section139. Provided that where in respect of anysuch sum, tax has been deducted in any subsequent year, or has been deducted duringthe previous year but paid after the due datespecified in Sub-Section (1) of Section 139,such sum shall be allowed as a deduction incomputing the income of the previous year inwhich such tax has been paid." ; The notes on Clauses and memorandum explaining theamended provision, while introducing the Finance Bill, 2010 readsas under :- “Clause 12 of the Bill seeks to amend section40 of the Income-tax Act relating to amountsnot deductible. Under the existing provisionscontained in sub-clause (ia) of clause (a) of theaforesaid section, non-deduction of tax or non-payment of tax after deduction on payment ofany sum by way of interest, commission orbrokerage, rent, royalty, fees for professionalservices or fees for technical services payableto a resident or amounts payable to acontractor or subcontractor, being resident,results in the disallowance of the said sum, inthe computation of income of the payer, onwhich tax is required to be deducted underChapter XVII-B. It is proposed to amend sub-clause (ia) of clause (a) of the aforesaid sectionto provide that disallowance under the saidsub-clause will be attracted, if, after deductionof tax during the previous year, the same hasnot been paid on or before the due date offiling of return of income specified in sub-section (1) of section 139. The proviso to thesaid sub-clause provides that where in respectof any such sum, tax has been deducted in any subsequent year, or has been deducted duringthe last month of the previous year but paidafter the due date of filing of return ordeducted during any other month of theprevious year but paid after the end of the saidprevious year, such sum shall be allowed as adeduction in computing the income of theprevious year in which such tax has been paid.This amendment will take effect retrospectivelyfrom 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) asexplained in the memorandum with the Finance Bill, 2010 is asfollows :- “Disallowance of expenditure on accountof non-compliance with TDS provisions :- subsequent year, or has been deducted duringthe last month of the previous year but paidafter the due date of filing of return ordeducted during any other month of theprevious year but paid after the end of the saidprevious year, such sum shall be allowed as adeduction in computing the income of theprevious year in which such tax has been paid.This amendment will take effect retrospectivelyfrom 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) asexplained in the memorandum with the Finance Bill, 2010 is asfollows :- “Disallowance of expenditure on accountof non-compliance with TDS provisions :- A. The existing provisions of section 40(a)(ia)of the Income-tax Act provide for thedisallowanceofexpenditurelikeinterest,commission, brokerage, professionalfees, etc. if tax on such expenditure was notdeducted, or after deduction was not paidduring the previous year. However, in case thededuction of tax is made during the last monthof the previous year, no disallowance is made ifthe tax is deposited on or before the due dateof filing of return. It is proposed to amend the said sectionto provide that no disallowance will be made ifafter deduction of tax during the previous year,the same has been paid on or before the duedate of filing of return of income specified in subsection (1) of section 139. This amendmentis proposed to take effect retrospectively from1st April, 2010 and will, accordingly, apply inrelation to the assessment year 2010-11 andsubsequent years. B. Under the existing provisions of section 201(1A) of the Act, a person is liable to pay simpleinterest at one per cent. For every month orpart of month in case of failure to deduct tax orpayment of tax after deduction. With a view to discourage the practice ofdelaying the deposit of tax after deduction, it isproposed to increase the rate of interest fornonpayment of tax after deduction from thepresent one per cent. to one and one half percent. for every month or part of month. Thisamendment is proposed to take effect from 1stJuly, 2010.” The Finance Minister while introducing the Finance Bill, 2010stated at the floor of the parliament that :- “Relaxing the current provisions ondisallowance of expenditure, I propose to allowdeduction of such expenditure, if tax has beendeducted at any time during the financial yearand paid before the due date of filing thereturn. This will allow most deductorsadditional time upto September of the nextfinancial year. At the same time, I propose toincrease the interest charged on tax deductedbut not deposited by the specified date, from12 per cent to 18 per cent per annum”. The amended provision, its explanation and the contents ofthe Finance Bill, 2010 speech clearly indicates curative nature ofthe amendment brought in. A Division Bench of Gujarat High Court while examining aquestion in the terms that whether the Income Tax AppellateTribunal was justified in deleting the addition of Rs.23,13,933/-,relying upon the amendment made in Section 40[a](ia) of theIncome Tax Act, 1961 by the Finance Act, 2010 and thereby givingit retrospective effect, after taking into consideration the factsnoticed above arrived at conclusion that the amendment made inSection 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 ofSection 40[a](ia) of the Act. The conclusion aforesaid was arrivedby discussing the entire issue as under:- A Division Bench of Gujarat High Court while examining aquestion in the terms that whether the Income Tax AppellateTribunal was justified in deleting the addition of Rs.23,13,933/-,relying upon the amendment made in Section 40[a](ia) of theIncome Tax Act, 1961 by the Finance Act, 2010 and thereby givingit retrospective effect, after taking into consideration the factsnoticed above arrived at conclusion that the amendment made inSection 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 ofSection 40[a](ia) of the Act. The conclusion aforesaid was arrivedby discussing the entire issue as under:- “16.5 Of course, the Legislature has given theeffect from a specified date and applied thesame to A.Y 2010-11 and subsequent years,this provision being curative in nature, itseffect needs to be read retrospectively inoperation. Its very purpose would not besubserved, if the effect is limited to A.Y2010-11 and subsequent years only. Strictconstruction if leads to a result not intended tobe fulfilled by the object of legislation andanother construction is possible apart fromliteral construction, then that constructionneeds to be preferred as held in a decision incase of CIT v. Alom Extrusion Limited [Supra]. 16.6 We also cannot be oblivious ofsubmissions not denied by the other side thatvarious representations were made to theFinance Minister to bring about suitableamendment as the assessee otherwise waslosing genuine deduction of expenditure on thiscount as also reflected in the speech of FinanceMinister so also in the memorandum explainingthe provision of the Finance Bill. 16.7 Giving plain or natural meaning to theamendment as contended by the Department,if is likely to create a situation enhancing thehardship and advance discrimination, purposiveand reasonable interpretation is required to begiven by the Court. When plain interpretationfrustrates the very legislative intent, the Courtis expected to bear in mind the legislativeintent from the language used in the statuewith the help of permissible tools ofinterpretation of statute. 17. The core issue as to whether theamendment made by the Finance Act 2010 toSection 40 [a](ia) of the Act is retrospectivefrom the date of insertion of the provision ie.,1st April 2005 therefore needs to be answeredin affirmation. It can be seen that theamendment made by the Finance Act 2010allows additional time upto the due date offiling of the return in respect of even thoseinstances where TDS has been deducted duringthe first eleven months of the previous year.The additional time till the due date of filing ofthe return, in case of TDS made during the last 17. The core issue as to whether theamendment made by the Finance Act 2010 toSection 40 [a](ia) of the Act is retrospectivefrom the date of insertion of the provision ie.,1st April 2005 therefore needs to be answeredin affirmation. It can be seen that theamendment made by the Finance Act 2010allows additional time upto the due date offiling of the return in respect of even thoseinstances where TDS has been deducted duringthe first eleven months of the previous year.The additional time till the due date of filing ofthe return, in case of TDS made during the last month of the previous year was alreadyavailable by the amendment made by FinanceAct 2008. Thus, it is apparent that therelaxation made by the amendment madeunder the Finance Act, 2010 brings the law inparity with the aforementioned situation andaccordingly, for the TDS deducted allthroughout the year, time is extended frompayment till the filing of return. It is thusapparent that when the amendment introducedby the Finance Act, 2008 of relaxing the timefor deposit of TDS was made retrospectivefrom the year 2005 [1st April 2005], theamendment by Finance Act 2010 with regardto other limb of time limit for payment of TDShas to be held retrospective not from 1st April2010 only. If we recall at this stage the speechof Finance Minister while introducing thisprovision by way of Finance Act, 2010, thisamendment essentially has been brought forrelaxing the current provision on disallowanceof expenditure. The tax, if is deducted at anytime during the financial year and paid beforethe date of filing of the return, the Legislatureintended to allow deduction on suchexpenditure with an intention to permitadditional time for most deductors uptoSeptember of the next financial year. 17.1 We draw further support from the factthat the rigor of payment of interest is alsoenhanced by increasing the interest charged ontax deducted, if any deposit by the specifieddate i.e., up to the filing of the return is notmade, from 12% to 18% per annum in the provision of Section 201 (1A). Prior to the saidamendment of Finance Act, 2010 under Section201 (1A), assessee was liable to pay simpleinterest at one per cent for every month orpart of month, in case of failure to deduct taxon payment of deducted tax, increase is madecorrespondingly from one per cent to one andhalf per cent for every month or part of monthfor discouraging delay in deposit. 17.1 As rightly contended by the respondentsarithmetical discrepancy can be well judgedfrom the fact that the rates of TDS may varybetween 1% to 10%, whereas, legitimatebusiness expenditure denied is 100% resultinginto taxation of gross receipts coupled withlevy of interest and penalty, which would meanthat the possibility cannot be ruled out ofbusiness of the tax payer getting closed downpermanently, if there is absence of any scopeof claiming any expenses in the next year. 17.2 It can be thus seen that the amendmentto Section 40 [a](ia) by the Finance Act, 2010is only an amendment in continuation of theearlier amendment made in the Finance Bill,2008 with retrospective effect from 1[st] April2005. The Legislature, while extending thetime for payment of TDS deducted in themonth of March till due date of filing of thereturn under section 139 (1) of the Act,considered the apparent difference where anunintended benefit was given to the assesseewho deducted the entire year’s TDS in themonth of March of the previous year which 17.2 It can be thus seen that the amendmentto Section 40 [a](ia) by the Finance Act, 2010is only an amendment in continuation of theearlier amendment made in the Finance Bill,2008 with retrospective effect from 1[st] April2005. The Legislature, while extending thetime for payment of TDS deducted in themonth of March till due date of filing of thereturn under section 139 (1) of the Act,considered the apparent difference where anunintended benefit was given to the assesseewho deducted the entire year’s TDS in themonth of March of the previous year which were eligible to pay TDS so deducted to theGovernment by due date of filing of the returnunder Section 139 (1) of the Act. However, theassesses who may have deducted the tax inearlier months beginning from April to the endof February of the previous year, did not getsuch benefit of extended time and thus thesame worked unreasonably for such assesses,and therefore, it can be safely held upholdingthe contention of the respondents that to curesuch defect, amendment in the year 2010 hasbeen brought and the benefit of extended timeto avoid hardship was given to the assesseeand therefore, amendment of 2010 is incontinuation to the amendment of 2008, andtherefore, curative in nature and the same hasto be held retrospective ie., with effect from1st April 2005.” We find ourselves in absolute agreement with the reasoninggiven by the Hon`ble Division Bench of Gujarat High Court in thecase of Commissioner of Income Tax, Ahmedabad Vs. Om PrakashChoudhary and while adopting that we do not find any substantialquestion of law involved in this appeal. The same is, therefore,dismissed. (PRAKASH GUPTA), J. (GOVIND MATHUR), J. Sanjay