TaxTMI 
TaxTMI 
TaxTMI 
2013 (7) TMI 958
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....f section 40(a)(ia) of the Act, any payments made to a contractor or a sub-contractor who is a resident for carrying out any work on which tax is not deducted at source as per the provisions of section 194C of the Act, or if tax is deducted but not paid on or before 31st March of the previous year, then the aforesaid payment to the subcontractor cannot be claimed as deduction by the assessee while computing income from business. Section 40(a)(ia) provides an exception insofar as the payment made in the month of March of the previous year. The tax deducted on payments made in the month of March of the previous year can be paid on or before the due date for filing the return of income. 4. Out of the total payment of Rs. 43,07,493, a sum of Rs. 31,67,175 was payment made before the month of March, 2008. Since tax deducted on the aforesaid payment was not deposited to the credit of the Government before 31.03.2008, the Assessing Officer disallowed the claim of the assessee for deduction of Rs. 31,67,175. 5. On appeal by the assessee, the CIT(Appeals) upheld the order of the AO. Before the CIT(A), the assessee had submitted that since tax deducted has been paid on 15.04.2008, deductio....
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....oking the provisions of section 40(a)(ia) of the Act? For deciding this question, a brief history of the provisions of section 40(a)(ia) of the Act is required to be narrated. 9. The legislative history of the provisions of Sec.40(a)(ia) of the Act is as follows: Section 40 has certain clauses providing for the amounts which are not deductible. Sub-clause (ia) of clause (a) of section 40 was inserted by the Finance (No.2) Act, 2004 with effect from 1st April, 2005 reading as under:- "40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computed the income chargeable under the head `Profits and gains of business or profession'-. ..... (ia) any interest, commission or brokerage, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 : Provided that where in respect of....
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.... to a contractor or subcontractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been paid,- (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139 ; or (B) in any other case, on or before the last day of the previous year. Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted- (A) during the last month of the previous year but paid after the said due date ; or (B) 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 income of the previous year in which such tax has been paid." ; 12. The Finance Act, 2008 brought out amendment to section 40(a)(ia) w.r.e.f. 1.4.2005 by relaxing earlier position to some extent. It made two categories of defaults causing disallowance on the basis of the period of the previous year in which tax was deductible. The first category o....
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....before the due date specified in sub-section (1) of section 139. The Finance Act, 2010 has not tinkered with this position. The second category of the Finance Act, 2008 which required the deposit of tax before the close of the previous year in case of deduction during the first eleven months, as a pre-condition for the grant of deduction in the year of incurring expenditure, has been altered. The hitherto requirement of the assessee deducting tax at source during the first eleven months of the previous year and paying it before the close of the previous year up to 3 1st March of the previous year as a requirement for grant of deduction in the year of incurring such expenditure, has been eased to extend such time for payment of tax up to due date u/s 139(1) of the Act. As per the new amendment, the disallowance will be made if after deducting tax at source, the assessee fails to pay the amount of tax on or before the due date specified in sub-section (1) of section 139 of the Act. The effect 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 expenditu....
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.... the due date for filing the return of income due date u/s 139(1) of the Act should be allowed as a deduction. In other words it was argued that the amendment by the Finance Act, 2010 to the provisions of Sec.40(a)(ia) has to be held to be retrospective w.e.f. 1-4-2005. The ITAT Kolkata Bench by its order 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 pre-budget 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 w....
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....ted. It is argued by Mr. Nizamuddin that this court needs to take decision as to whether section 40(A)(ia) is having retrospective operation or not. The learned Tribunal on fact found that the assessee had deducted tax at source from the paid charges between the period April 1, 2005 and April 28, 2006 and 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 t....