2018 (5) TMI 356 - SC - Income Tax

Section 40(a)(ia) amendment applies retrospectively from Assessment Year 2005-2006 following Allied Motors precedent on curative amendments

Commissioner of Income Tax, Kolkata Versus M/s Calcutta Export Company

The SC held that the Finance Act, 2010 amendment to Section 40(a)(ia) of the IT Act should apply retrospectively from Assessment Year 2005-2006, when the ... Retrospective effect of amendment made by the Finance Act, 2010 in Section 40(a)(ia) - whether the amendment being curative in nature should be applied retrospectively i.e., from the date of insertion of the provisions of Section 40(a)(ia) or to be applicable from the date of enforcement - deduction for the tax deducted and paid to the government - Held that:- Referring to the binding effect of the judgment given in Allied Moters [1997 (3) TMI 9 - SUPREME COURT] we are of the view that the amended provision of Sec 40(a)(ia) of the IT Act should be interpreted liberally and equitable and applies retrospectively from the date when Section 40(a)(ia) was inserted i.e., with effect from the Assessment Year 2005-2006 so that an assessee should not suffer unintended and deleterious consequences beyond what the object and purpose of the provision mandates. As the developments with regard to the Section recorded above shows that the amendment was curative in nature, it should be given retrospective operation as if the amended provision existed even at the time of its insertion. Since the assessee has filed its returns on 01.08.2005 i.e., in accordance with the due date under the provisions of Section 139 IT Act, hence, is allowed to claim the benefit of the amendment made by Finance Act, 2010 to the provisions of Section 40(a)(ia) of the IT Act. Issues Involved:1. Retrospective application of the amendment made by the Finance Act, 2010 to Section 40(a)(ia) of the Income Tax Act, 1961.2. Interpretation of the legislative intent behind the amendment.Issue-wise Detailed Analysis:1. Retrospective Application of the Amendment:The primary issue was whether the amendment made by the Finance Act, 2010 to Section 40(a)(ia) of the IT Act is retrospective in nature and thus applicable to the Assessment Year 2005-06.The court noted that the amendment aimed to mitigate hardships faced by taxpayers who had deducted and paid TDS, albeit late. The amendment allowed TDS to be deposited by the due date for filing the return of income, thus providing additional time to the deductors. The memorandum explaining the Finance Bill, 2010 specified that the amendment would apply from the Assessment Year 2010-11. However, the court observed that the amendment was curative and intended to remedy unintended consequences, thus requiring retrospective application.The court referenced the decision in Allied Motors (P) Ltd. vs. CIT, Delhi (1997) 224 ITR 677 (SC), which held that amendments of a curative nature should be applied retrospectively to ensure reasonable interpretation and to serve the object behind the enactment.2. Interpretation of Legislative Intent:The court examined the legislative intent behind Section 40(a)(ia) and its subsequent amendments. Initially, the section aimed to ensure compliance with TDS provisions by disallowing deductions for expenses where TDS was not deducted or deposited within the prescribed time. However, this caused hardships, especially for tax deducted in the last month of the previous year, where the due date for payment was only seven days later.To address these issues, the Finance Act, 2008 amended the section to allow deductions if TDS was paid before the due date of filing the return. This amendment was given retrospective effect from 01.04.2005. Despite this, hardships persisted for taxpayers who deducted TDS in the earlier months but deposited it late.The Finance Act, 2010 further relaxed the provisions by allowing all TDS made during the previous year to be deposited by the due date of filing the return. The court noted that the legislative intent was not to punish taxpayers but to ensure tax compliance. Thus, the 2010 amendment aimed to remove the hardships and should be interpreted as having retrospective effect.The court concluded that the amendment by the Finance Act, 2010 should be applied retrospectively from the date of insertion of Section 40(a)(ia), i.e., from the Assessment Year 2005-06. This interpretation ensures that taxpayers who substantially complied with TDS provisions by deducting and paying TDS, even if late, are not unduly penalized.Judgment:The Supreme Court upheld the High Court's decision, stating that the amendment made by the Finance Act, 2010 to Section 40(a)(ia) of the IT Act is retrospective in nature and applies from the Assessment Year 2005-06. Consequently, the assessee was allowed to claim the benefit of the amendment, and the appeals were dismissed. All connected appeals and applications were disposed of accordingly, with parties bearing their own costs.