2013 (7) TMI 958 - AT - Income Tax

Amendment to Tax Deduction Rule Applied Retrospectively, Assessee's Payment Allowed as Deduction

The Tribunal held that the amendment to Section 40(a)(ia) by the Finance Act, 2010 is retrospective from 1.4.2005. Consequently, the assessee's payment of ... Deductibility under section 40(a)(ia) of the Income-tax Act - time of payment of tax deducted at source and its effect on allowable deduction - retrospective operation of statutory amendment - condonation of delay in filing appealCondonation of delay in filing appeal - Delay of 386 days in filing the appeal before the Tribunal was condoned. - HELD THAT: - The assessee filed an affidavit explaining the delay in prosecuting the appeal, attributing it to reliance on the CIT(A)'s direction to seek rectification for the subsequent assessment year and change of professional advice. The Tribunal examined the explanation and found there was a reasonable cause for the delay, exercising its discretion to condone the delay in filing the appeal. [Paras 7]The delay in filing the appeal is condoned.Deductibility under section 40(a)(ia) of the Income-tax Act - time of payment of tax deducted at source and its effect on allowable deduction - retrospective operation of statutory amendment - Whether amounts for which tax was deducted but paid to Government on 15.04.2008 could be disallowed under section 40(a)(ia) for AY 2008-09, having regard to the amendment by the Finance Act, 2010 and its retrospective operation. - HELD THAT: - The Tribunal reviewed the legislative history of section 40(a)(ia), including the position after the Finance Act, 2008 and the subsequent amendment by the Finance Act, 2010 which relaxed the time for deposit of TDS by aligning it with the due date for filing return under section 139(1). The Tribunal considered conflicting precedents, including the Special Bench view that the 2010 amendment was not retrospective and High Court decisions holding it retrospective to 1.4.2005. Applying the principle that a lower forum should follow the view of a higher forum, and having regard to decisions of coordinate benches and the Calcutta High Court holding the 2010 amendment to be retrospective, the Tribunal held that the amendment applies retrospectively from 1.4.2005. Accordingly, where tax deducted at source for the relevant previous year is deposited on or before the due date for filing the return under section 139(1), no disallowance under section 40(a)(ia) can be made. In the present case the assessee had deposited the TDS on or before the due date for filing the return and therefore the disallowance was not sustainable. [Paras 17, 18, 20, 21, 22]The disallowance under section 40(a)(ia) is deleted because the TDS was deposited on or before the due date for filing the return; the Tribunal held the Finance Act, 2010 amendment operates retrospectively from 1.4.2005 and allowed the appeal.Final Conclusion: Delay in filing the appeal was condoned. On merits the Tribunal held that the Finance Act, 2010 amendment to section 40(a)(ia) applies retrospectively from 1.4.2005, and since the assessee deposited the TDS on or before the due date for filing the return, the disallowance under section 40(a)(ia) for AY 2008-09 is deleted and the appeal is allowed. Issues Involved:1. Deductibility of payments made to sub-contractors under Section 40(a)(ia) of the Income Tax Act.2. Retrospective application of amendments to Section 40(a)(ia) by the Finance Act, 2010.3. Condonation of delay in filing the appeal.Issue-wise Detailed Analysis:1. Deductibility of Payments Made to Sub-contractors under Section 40(a)(ia) of the Income Tax Act:The assessee, an individual deriving income from consultancy services and engineering contracts, made payments totaling Rs. 43,07,493 to sub-contractors during the assessment year 2008-09. The Assessing Officer (AO) noted that the assessee deducted tax at source on these payments but deposited the tax only on 15.04.2008. Under Section 40(a)(ia) of the Act, payments to contractors or sub-contractors are not deductible if tax is not deducted or, if deducted, not paid on or before 31st March of the previous year. An exception exists for payments made in March, where the tax can be paid by the due date for filing the return of income. The AO disallowed Rs. 31,67,175 paid before March 2008, as the tax was not deposited before 31.03.2008. The CIT(A) upheld this disallowance but allowed the assessee to claim the deduction in the subsequent year, provided the AO examined the claim as per law.2. Retrospective Application of Amendments to Section 40(a)(ia) by the Finance Act, 2010:The Finance Act, 2010 amended Section 40(a)(ia) with retrospective effect from 1st April 2010, allowing deductions if the tax deducted at source is paid on or before the due date specified in Section 139(1). The ITAT Bangalore examined whether this amendment should be applied retrospectively from 1st April 2005. The Tribunal referred to the legislative history and judicial precedents, including the Special Bench decision in Bharati Shipyard Ltd. and the Kolkata Bench decision in Virgin Creations. The Kolkata High Court in Virgin Creations held the amendment to be retrospective from 1.4.2005, aligning with Supreme Court rulings in Allied Motors Pvt. Ltd. and Alom Extrusions Ltd. The Tribunal followed the Kolkata High Court's decision, concluding that the amendment is retrospective and thus applicable to the assessee's case.3. Condonation of Delay in Filing the Appeal:The assessee filed an appeal against the CIT(A)'s order with a delay of 386 days. The delay was attributed to the advice of the tax consultant to file an application under Section 154 for the subsequent year, which was later found unfeasible. The Tribunal considered the affidavit explaining the delay and found a reasonable cause, thus condoning the delay.Conclusion:The Tribunal held that the amendment to Section 40(a)(ia) by the Finance Act, 2010 is retrospective from 1.4.2005. Consequently, the assessee's payment of tax deducted at source on or before the due date for filing the return of income should be allowed as a deduction. The disallowance of Rs. 31,67,175 was deleted, and the appeal was allowed. The Tribunal also referenced similar decisions in Rajamahendri Shipping & Oil Field Services Ltd. and Sri Piyush C. Mehta, reinforcing the consistency of this interpretation. The judgment was pronounced on 26th July 2013.