TaxTMI 
TaxTMI 
2015 (2) TMI 113
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....resaid order of the AO was erroneous and prejudicial to the interests of the revenue, inasmuch as the AO has not made disallowance of a sum of Rs. 29,95,170 which comprised of 170 payments towards professional fees and contract charges on which tax had not been deducted at source. The CIT noticed that the dates of payment or credit to payees are spread throughout the previous year, i.e., from May, 2005 to February, 2006, but TDS was made on a single and much later date, viz., 31.03.2006, in each of the 170 instances. Ultimately the tax deducted at source on 31.3.2006 on the aforesaid payments which were claimed and allowed as deduction in the order of assessment were paid to the credit of the Central Government only on 18.8.2006. It is not in dispute that 18.8.2006 was before the due date for filing return of income by the Assessee for AY 06-07 as the due date for filing the return of income in the case of the Assessee for AY 06-07 was 31.10.2006. 4. According to the CIT, as per the provisions of section 194C/194H/194J of the Act, under the Assessee was obliged to deduct tax at source on payment made, the deduction of tax at source ought to have been made at the time of payment or....
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.... 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-contractor 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- 2006 and subsequent years. [Clause 11]" 6. Thereafter the Finance Act, 2008 made amendment to clause (a) in sub-clause (ia) in section 40 with retrospective effect from 1st April, 2005. The section as amended by the Finance Act, 2008 read as under:- "(ia) any interest, commission or brokerage, ....
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.... made by the Assessee in the present case were in the months earlier to March, 2009, the Assessee ought not to have postponed the time of deduction of tax at source to the month of March, 2009 and paid the tax deducted at source on 18.8.2006 and claimed the benefit of Clause (A) above. According to the CIT, the Assessee ought to have deducted tax at source even prior to the month of March, 2009 and therefore the tax deducted at source ought to have paid to the credit of the Central Government on or before 31.3.2006 as laid down in Clause (B) above. On the above reasoning the CIT held that the AO ought to have disallowed the claim of the Assessee for deduction of a sum of Rs. 29.95,170 invoking the provisions of Sec.40(a)(ia) of the Act. 9. The following were the relevant observations of the CIT: "9. I have carefully considered the facts of the case and the assessee's averments. Section 40(a)(ia) lays down that certain payments named therein shall not be deducted in computing the income chargeable under the head profits and gains of business or profession, if tax deductible at source under Chapter XVII-B has not been deducted, or, after deduction, has not been paid. In the latter ....
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.... at the time of such payments or credits. The firm has admitted as much in its written statement dated 09.12.2010, while stating that it had deducted the tax during the month of March, 2006, although it was required to deduct tax throughout the year from April, 2005 to February, 2006. Therefore, the disallowance under section 40(a)(ia) arises by reason of failure on the part of the firm to make TDS, in addition to that of delay in remitting the TDS to Government account." 10. Despite service of notice, none appeared on behalf of the assessee. We have heard the ld. DR, who relied on the order of the CIT. 11. We have perused the order of the ld. CIT and notice that he has found that assessee was making payments throughout the previous year i.e., May, 2005 to February, 2006, but TDS was made on a single day i.e., on 31.3.2006. TDS has been paid by the assessee to the credit of the Central Govt. on 18.8.2006, which is, admittedly, before the due date of filing of return of income. 12. Section 40(a)(ia) underwent further amendment by the Finance Act, 2010 with retrospective effect from 1st April, 2010. The provision so amended, now reads as under :- "(ia) any interest, commission or....
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....ct of this amendment is that now the assessee deducting tax either in the last month of the previous year or first eleven months of the previous year shall be entitled to deduction of the expenditure in the year of incurring it, if the tax so deducted at source is paid on or before the due date u/s 139(1). This is the only difference which has been made by the Finance Act, 2010. 14. This Tribunal in the case of Sri Santosh Kumar Shetty in ITA No.1194/Bang/2012 by order dated 26.7.2013, has taken a view that amendment to provisions of section 40(a)(ia) of the Act by the Finance Act, 2010 will operate retrospectively w.e.f. 1.4.2005. As per the aforesaid amendment, tax deducted at source, if it is paid on or before the due date for filing of return of income, then no disallowance u/s. 40(a)(ia) of the Act can be made. For the sake of ready reference, we reproduce below the decision rendered on a similar issue in the case of Sri Santosh Kumar Shetty (supra) wherein the Tribunal after referring to the legislative history of Sec.40(a)(ia) of the Act:- held as follows: "15. The question as to whether the Amendment by the Finance Act, 2010 as aforesaid is prospective or retrospective fr....
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....der dated 15.12.2010, held as follows: "8. After hearing the rival submissions and on careful perusal of the materials available on record, keeping in view of the fact that though the Ld.D.R. submitted that the decisions of the Coordinate Benches are not binding and the Kolkata benches may take a different view, since Mumbai Bench after analyzing the provisions of Sec.40(a)9ia) since its inception and various amendments made to the same including the suggestion made by the Industry in the form of representation in their prebudget memorandum to the Hon'ble Finance Minister and by applying the decision of the Hon'ble Apex Court in the case of Alom Extrusions Ltd., has observed that "The provisions of Section 40(a)(ia) as stood prior to the amendments made by the Finance Act 2010 thus were resulting into unintended consequences and causing grave and genuine hardships to the assesses who had substantially complied with the relevant TDS provisions by deducting the taxes at source and by paying the same to the credit of the Government before the due date of filing of their returns u/s.139(1). In order to remedy this position and to remove the hardships which was being caused to the asse....
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....d the same were paid by the assessee in July and August 2006, i.e. well before the due date of filing of the return of income for the year under consideration. This factual position was undisputed. Moreover, the Supreme Court, as has been recorded by the learned Tribunal, in the case of Allied Motors Pvt. Ltd. and also in the case of Alom Extrusions Ltd., has already decided that the aforesaid provision has retrospective application. Again, in the case reported in 82 ITR 570, the Supreme Court held that the provision, which has inserted the remedy to make the provision workable, requires to be treated with retrospective operation so that reasonable deduction can be given to the section as well. In view of the authoritative pronouncement of the Supreme Court, this court cannot decide otherwise. Hence we dismiss the appeal without any order as to costs." 18. It can be seen from the above decision of the Hon'ble Calcutta High Court that Amendment to the provisions of Sec.40(a)(ia) of the Act, by the Finance Act, 2010 as aforesaid was held to be retrospective from 1.4.2005. If the amendment is considered as retrospective from 1.4.2005, the effect will be that payments of TDS to the cr....