TaxTMI 
TaxTMI 
2015 (2) TMI 150
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....yments and credits were made against the account of labour contractors to the extent of Rs. 23,13,933/-. On such amount, Tax Deducted at Source [TDS] was deductible before 1st March 2005 and the same was though deducted by the assessee, the payment in the Government account was not made until 31st March 2005 and the same was done only on 28th June 2005. 2.1 The Assessing Officer also noted that certain credits were made against the account of Labour Contractors to the extent of Rs. 18,42,192/- on 31st March 2005 and the tax was deducted on the very same day, however, the same was paid to the Government account on 28th June 2005. Accordingly, for the entire amount of Rs. 41,56,125/-, the Assessing Officer made an addition. 3. When this was challenged before the CIT [A], it was argued that the Assessing Officer had erred in making disallowances under section 40 [a](ia) of the Act of Rs. 41,56,125/-, since the TDS was deducted and paid into the account of Central Government by 28th June 2005. CIT [A] examined the details of TDS deducted and paid under section 194 (c) of the Act. It was noted that the assessee did not deduct and deposit the TDS in respect of the payment/credits made ....
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....see and delete the disallowance made under section 40 (a)(ia) of the I.T Act and accordingly, this ground no. 2 is of the assessee's appeal is allowed." 5. Aggrieved by such decision of the Tribunal, Revenue has preferred the present Tax Appeal, proposing following substantial question of law for our consideration :- " Whether the Income Tax Appellate Tribunal was justified in deleting the addition of Rs. 23,13,933/-, relying on the amendment made in Section 40 [a](ia) of the Income Tax Act, 1961 by the Finance Act, 2010 and thereby giving it retrospective effect ?" 6. As noted hereinabove, substantial question of law proposed by the Revenue is identical in all the Tax Appeals, for which we have heard learned senior advocate Shri M.R Bhatt alongwith learned counsels Mr. Pranav Desai; Mr. K.M Parikh; Ms. Paurami Sheth; Mr. Varun Patel and Mr. Manav Mehta extensively. 7. Learned counsels for the Revenue have taken us through the very purpose for which this provision was brought on the statute book. It is also urged that the proviso has been made by way of fixing civil liability so that the assessee would pay the tax to the Government. Pre2008, for eleven months, the payment was r....
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.... He further urged that the provision is not clarificatory at all and it is a settled rule of construction that every rule is primarily prospective unless expressly or by implication is given retrospective operation. The intention of the Legislation is required to be gathered by the Court from the overt language of the provision whether the same is prospective or retrospective in nature and if retrospective, the date from which the same needs to be held retrospective. He urged that the time limit originally provided by Section 40 {A} (ia) w.e.f 1.4.2005 was relaxed to some extent by way of amendment carried out by the Finance Act, 2008. The said amendment made in the year 2008 was specifically given retrospective effect from 1st April 2005 ie., the date of insertion of Section 40 [a] (ia). Proviso to Section 40 [a](ia) was also amended to provide that in respect of any such sum, the tax if has been deducted in any subsequent year, or has been deducted during the last month of the previous year, but, paid after the said due date or during any other month of the previous year but paid after the end of the said previous year, such sum shall be allowed as a deduction in computing the in....
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.... additional time of six months is granted for depositing the TDS on the expenditure incurred or payment made in the month of March. He urged empathetically that the amendment should be read retrospectively w.e.f 1st April 2005 and should apply to A.Y 200506 and subsequent years. Heavy reliance is placed on the notings of Clauses of the Finance Bill 2010, the Memo explaining provision of the Finance Bill 2010, as also on the Finance Minister's Speech rendered while presenting the said bill. Learned counsel further urged that this amendment is provided so that no disallowances will be made, if after deduction of tax during the previous year, the same is paid on or before the due date of filing of the return of income specified in subsection (1) of Section 139 of the Act. When any amendment is made, according to the learned counsel, to a statutory provision to remove unintended consequences of that section, Court have taken a view that such amendments are clarificatory in nature and retrospective in operation. 8.1 Learned counsel Shri Soparkar further emphasized that the loss caused to the assessee by making disallowances in the current year can not be made good by allowing such dedu....
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....ation of net income. According to him, the provision further seeks to disallow the expenditure of business of the assessee in his own capacity due to the fault of payment of TDS on due date as collecting agent of the Government. This entire linkage with disallowance is irrational, when separate existing provisions for default and modes of recovery of TDS exist in form of Sections 201, 201 [1](1A) and 202 of the Act. 9.1 Learned counsel further urged that there can be no reasonable discrimination between two sets of assesses, since Section 40 [a] (ia) would apply only in cases of scrutiny assessment under Section 143 (3) of the Act, and for those having assessment under Section 143 (1)(a) of the Act, such provision is not attracted. According to the learned counsel discrepancies between disallowances of business expenditure and the amount of TDS results in lopsided hybrid assessment. The operation provision would result in disallowances of entire legitimate business expenditure. Section 40 [a] (ia) also violates the ratio laid down in a decision rendered in case of CIT v. Rishikesh Apartments {Guj} Cooperative Housing Society Limited, reported in 253 ITR 310 which states that if en....
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....which has been given effect from 1st April 2010 in a tabular form. He has also given an example as to how the whole section would become nonworkable and the machinery provision of the Act would be broken down. He relied on the four tests of Heydon's Rules viz., [a] what was the common law before making of the Act; [b] what was the mischief and defect for which the common law did not provide; [c] what remedy the Parliament has appointed to cure the defects; and [d] the true reasons for remedy. Therefor, he urged that if the statute is curative or merely declaratory of the previous law, retrospective operation is generally intended. 12. Learned advocate Shri M.J Shah has urged that the assessee's case is covered by the decision of this Court rendered in case of Commissioner of Income Tax v. Royal Builders [Tax Appeal No. 520 of 2012] where the facts are identical. He urged that following the decision of Delhi High Court rendered in case of H.S Mohindra Traders v. Income tax Officer, Ward 39 (2), New Delhi, reported in [2010] 132 TTJ 701 [Delhi], the Court has held the amendment in Finance Act, 2010 to be retrospective in nature. He further relied on yet another decision of Delhi Hig....
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.... "professional services" shall have the same meaning as in clause (a) of the Explanation to section 194J; (iv) "work" shall have the same meaning as in Explanation III to section 194C; The memorandum explaining the provisions in the Finance Bill explained the rationale of the insertion of the new provision in the following words : " With a view to augment compliance of TDS provisions, it is proposed to extend the provisions 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 subcontractors 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 subsection (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 pr....
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....ning the provision while introducing the Finance Bill, 2010 reads thus Notes on clauses "Clause 12 of the Bill seeks to amend section 40 of the Income-tax Act relating to amounts not deductible. Under the existing provisions contained in sub-clause (ia) of clause (a) of the aforesaid section, non-deduction of tax or non-payment of tax after deduction on payment of any sum by way of interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident or amounts payable to a contractor or subcontractor, being resident, results in the disallowance of the said sum, in the computation of income of the payer, on which tax is required to be deducted under Chapter XVIIB. It is proposed to amend sub-clause (ia) of clause (a) of the aforesaid section to provide that disallowance under the said sub-clause will be attracted, if, after deduction of tax during the previous year, the same has not been paid on or before the due date of filing of return of income specified in subsection (1) of section 139. The proviso to the said sub-clause provides that where in respect of any such sum, tax has been deducted in any subsequent year,....
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....ia) by the Finance Act 2010 is made retrospectively effective from 1st April 2010. The intention of the Legislature is to be gathered from the Notes on clauses and the memorandum explaining the provisions of the Finance Bill and the speech of the Finance Minister, while introducing the Finance Bill, 2010 shall have relevance in explaining and construing the said provision in a better fashion. The relevant portion is reproduced hereinafter. "Relaxing the current provisions on disallowance of expenditure, I propose to allow deduction of such expenditure, if tax has been deducted at any time during the financial year and paid before the due date of filing the return. This will allow most deductors additional time upto September of the next financial year. At the same time, I propose to increase the interest charged on tax deducted but not deposited by the specified date, from 12 per cent to 18 per cent per annum". 13.6 It is a trite law that every statute is prospective unless expressly or by necessary implications retrospectivity is attached to it. The plain language of any provision is to be construed by the Court to hold whether the intention of the legislature was to make provis....
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....nduct of mankind is to be regulated ought, when introduced for the first time, to deal with future acts, and ought not to change the character of past transactions carried on upon the faith of the then existing law.' Retrospectivity is artificial, deeming a thing to be what it was not. Artificiality and make believe are generally repugnant to law as the servant of human welfare. So it follows that the courts apply the general presumption that an enactment is not intended to have retrospective effect. As always, the power of Parliament to produce such an effect where it wishes to do so is nevertheless undoubted. The general presumption, which therefore applies only unless the contrary intention appears, is stated in Maxwell on the Interpretation of Statutes in the following empathic terms : 'It is a fundamental rule of English law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication'. Maxwell's statement has received frequent judicial approval. It is however too dogmatically framed and describes as a rule what (for reasons stated in Code 180) is ....
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.... necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is to explain an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language 'shall be deemed, always to have meant' is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the preamended provision was clear and unambiguous. As amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect, and therefore, if the principal Act was existing law when the constitution came into force the amending Act also will be part of the existing law." 15.1 It is well settled that if a statute is curative or merely decl....
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.... for all times and they would lose the benefit of deduction even in the year in which they pay contributions to the welfare funds. 15.4 Thus, considering relevant legislative changes made by the Parliament from time to time and some of the decisions relevant to consider the question of retrospectivity raised in these present appeals, the focal question, therefore, would be whether the amendment brought about by way of Finance Act 2010 in Section 40 [a](ia) with effect from 1st April 2010 could be said to be clarificatory in nature for attending to unintended consequences, and therefore, is having retrospective effect from 1st April 2005. 16. A closer examination needs to be done as to whether the amended provision aims to expand the prevailing position and whether the same being in the nature of curative, retrospectivity of the same is permissible as is being contended for and on behalf of the assessee. At this stage, therefore, the true effect of such amendment needs to be discerned. 16.1 It is demonstrated before us that the TDS provision caused unintended inexplicable situation whereby the assessee who deducted the tax at source from the payments made by it for and on behalf ....
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....ar, the same has been paid on or before the due date of filing of return of income as specified in subsection (1) of Section 139. This has been given retrospective effect from 1st April 2010. 16.5 Of course, the Legislature has given the effect from a specified date and applied the same to A.Y 201011 and subsequent years, this provision being curative in nature, its effect needs to be read retrospectively in operation. Its very purpose would not be subserved, if the effect is limited to A.Y 2010-11 and subsequent years only. Strict construction if leads to a result not intended to be fulfilled by the object of legislation and another construction is possible apart from literal construction, then that construction needs to be preferred as held in a decision in case of CIT v. Alom Extrusion Limited [Supra]. 16.6 We also cannot be oblivious of submissions not denied by the other side that various representations were made to the Finance Minister to bring about suitable amendment as the assessee otherwise was losing genuine deduction of expenditure on this count as also reflected in the speech of Finance Minister so also in the memorandum explaining the provision of the Finance Bill.....
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....charged on tax deducted, if any deposit by the specified date i.e., up to the filing of the return is not made, from 12% to 18% per annum in the provision of Section 201 (1A). Prior to the said amendment of Finance Act, 2010 under Section 201 (1A), assessee was liable to pay simple interest at one per cent for every month or part of month, in case of failure to deduct tax on payment of deducted tax, increase is made correspondingly from one per cent to one and half per cent for every month or part of month for discouraging delay in deposit. 17.1 As rightly contended by the respondents arithmetical discrepancy can be well judged from the fact that the rates of TDS may vary between 1% to 10%, whereas, legitimate business expenditure denied is 100% resulting into taxation of gross receipts coupled with levy of interest and penalty, which would mean that the possibility cannot be ruled out of business of the tax payer getting closed down permanently, if there is absence of any scope of claiming any expenses in the next year. 17.2 It can be thus seen that the amendment to Section 40 [a](ia) by the Finance Act, 2010 is only an amendment in continuation of the earlier amendment made in ....
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...., the Supreme Court held that the provision, which has inserted the remedy to make the provisions workable, requires to be treated with retrospective operation so that reasonable deduction can be given to the selection 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." 17.5 Delhi High Court in case of H. S Mohindra Traders v. I.T.O, Ward 39 (2), New Delhi [Supra] has held the amendment brought about by way of the Finance Act 2010 as retrospective in nature. 17.6 This Court in case of CIT v. Royal Builders [Supra], of course, without elaborating the issue, followed Delhi High Court in the following fashion :" Issue pertains to deduction of tax at source, which the assessee did deduct, as required before 31st March 2006. The same was, however, deposited with the Revenue on 30th May 2006. We are concerned with the Assessment Year 2006-07. Revenue contends that such deposit of the tax at source was beyond the time prescribed and therefore, provision of Section 40[a](ia) of the Act would apply. The Tribunal, however, ruled in favour of the assessee relying on the d....