2011 (9) TMI 258 - AT - Income Tax

Finance Act 2010 amendment to section 40(a)(ia) not retrospective to AY 2005-06; consequential section 201(1) amendment non-retrospective

ITAT MUMBAI - AT held that the Finance Act, 2010 amendment to section 40(a)(ia) w.e.f. 1-4-2010 is not retrospective to assessment year 2005-06. The ... Amendment to Section 40(a)(ia) vide Finance Act, 2010 - amendment is remedial and curative in nature and is, therefore, retrospective in nature - disallowance made by the Assessing Officer under section 40(a)(ia) - directory Or mandatory - assessee failed to deposit tax deducted at source within the specified time - Whether the amendment made by the Finance Act, 2010 to section 40(a)(ia) inserted with retrospective effect from 1st April, 2010 can be considered as retrospective from the date of insertion of the provision i.e. 1st April, 2005 ? Held that:- It is noticed that section 201(1) has been amended by the Finance Act, 2010 with effect from 1-7-2010 providing for increase in the interest rate from 12 per cent to 18 per cent. If we hold that section 40(a)(ia) has been amended by the Finance Act, 2010 with retrospective effect from assessment year 2005-06, then the consequential amendment to section 201(1) would also require the same treatment. As the amendment to section 201(1) has not been made retrospective from assessment year 2005-06 and it being substantive provision impairing the vested right acquired under the existing provision, cannot be given retrospective effect, in our considered opinion the amendment to section 40(a)(ia) also cannot be held retrospective from assessment year 2005-06. When we consider the mandate of section 40(a)(ia) in entirety, it becomes apparent that it has two ingredients, viz., first, the disallowance of expenditure due to non-deduction or non-deposit of tax deducted at source in time and second, the allowing of expenditure in the later year in which the amount of tax deducted at source is deposited. It is one composite provision. Both these limbs, that is, the disallowance of expenditure in the year of incurring expenditure and allowing it in the year of payment are integral part of the provision. As per the proviso, the assessee gets deduction of expenditure in the year of payment of tax deduced at source. But if we allow deduction of the expenditure in the year of its incurring on some equitable ground or on the theory of substantial compliance despite the fact the tax was deposited beyond the prescribed time, then it would mean the obliteration the proviso from the provision, which is obviously impossible. We, therefore, hold that the authorities below were fully justified in sustaining disallowance of ₹ 50.12 lakhs under section 40(a)(ia) in the year under consideration. The question posted before the Special Bench is, therefore, answered in negative, in favour of the Revenue and against the assessee by holding that the amendment brought out by the Finance Act, 2010 to section 40(a)(ia) w.e.f . 1-4-2010, is not remedial and curative in nature. Ground No.3 dealing with this issue is, therefore, rejected. Issues Involved:1. Retrospective application of the amendment to section 40(a)(ia) by the Finance Act, 2010.2. Disallowance of Rs. 2,31,820 on account of delayed payment of ESI & PF dues.3. Disallowance of Rs. 1,55,161 under section 14A of the Act.4. Levy of interest under sections 234A, 234B, and 234C.5. Confirmation of disallowance of Rs. 50,12,311 under section 40(a)(ia) of the Act.Detailed Analysis:1. Retrospective Application of the Amendment to Section 40(a)(ia):The core issue was whether the amendment to section 40(a)(ia) by the Finance Act, 2010, effective from 1-4-2010, is retrospective. The Tribunal examined the legislative history and noted that the provision was introduced to ensure compliance with TDS provisions. The amendment by the Finance Act, 2010, extended the time for depositing TDS to the due date under section 139(1). The Tribunal concluded that the amendment is not retrospective from 1-4-2005 but applies from 1-4-2010. The Tribunal emphasized that the amendment aimed to relax the intended hardship by extending the time for TDS deposit and is not remedial or curative in nature. Therefore, it cannot be applied retrospectively.2. Disallowance of Rs. 2,31,820 on Account of Delayed Payment of ESI & PF Dues:The Tribunal allowed the assessee's claim, noting that the contributions were deposited before the due date of filing the return under section 139(1). It relied on precedents from the Hon'ble Madras High Court and Delhi High Court, which held that no disallowance should be made if the contributions are paid before the due date of filing the return. This ground was allowed in favor of the assessee.3. Disallowance of Rs. 1,55,161 under Section 14A of the Act:The assessee did not press this ground. Consequently, the Tribunal dismissed this ground.4. Levy of Interest under Sections 234A, 234B, and 234C:The Tribunal noted that the levy of interest under these sections is consequential. Therefore, it disposed of this ground accordingly.5. Confirmation of Disallowance of Rs. 50,12,311 under Section 40(a)(ia):The Tribunal upheld the disallowance made by the Assessing Officer. The assessee argued that the tax deducted at source was paid before filing the return under section 139(1), and hence, no disallowance should be made. However, the Tribunal held that the amendment by the Finance Act, 2010, is not retrospective and applies from 1-4-2010. Therefore, the disallowance for the year under consideration was justified as the tax was not deposited within the time prescribed under the unamended provision. This ground was rejected.Conclusion:The appeal was partly allowed. The Tribunal allowed the ground related to the delayed payment of ESI & PF dues but upheld the disallowance under section 40(a)(ia) and dismissed the other grounds. The amendment to section 40(a)(ia) by the Finance Act, 2010, was held to be prospective and not retrospective.