AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (8) TMI 23
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....actual and background aspects of the case while keeping in view the root point calling for determination in this appeal, that is, as to whether the payments in question have rightly been disallowed from deduction in computation of total income of the appellant? Relevant factual and background aspects; the impugned order of assessment 3. In a brief outline of the relevant factual aspects, it could be noticed that the assessee-appellant, a partnership firm, had entered into contract with M/s Aditya Cement Limited, Shambupura, District Chittorgarh for transporting cement to various places in India. As the appellant was not having the transport vehicles of its own, it had engaged the services of other transporters for the purpose. The cement marketing division of M/s Aditya Cement Limited, namely, M/s Grasim Industries Limited, effected payments towards transportation charges to the appellant after due deduction of TDS, as shown in Form No. 16A issued by the company. 4. On 28.10.2005, the assessee-appellant filed its return for the assessment year 2005-2006, showing total income at Rs. 2,89,633/- in the financial year 2004-2005 arising out of the business of 'transport contract'. 5....
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....xisted a contract between the appellant and the truck operators/owners in respect of each challan/bilty for transportation. The AO also referred to the Circular bearing No. 715 dated 08.08.1995 issued by the Central Board of Direct Taxes (CBDT), to observe that each goods receipt could be considered a separate contract. While further observing that a contract may be written or oral, the AO held that when the truck operators/owners in the case at hand were not to be considered as contractors, they were undoubtedly the subcontractors of the appellant. The AO also pointed out that despite sufficient opportunity being given, a copy of the agreement of the appellant firm with the company for providing transportation services was not furnished. 5.3. Having perused the material placed before him, the AO held on the appellant's responsibility for deducting tax at source while making payment to the truck operators/owners where such payment exceeded Rs. 20,000/- on a single bilty/challan or goods receipt in the following words:- "The dispatch register of the assessee firm as well as the cash book clearly establish beyond doubt that payment to the truck operators was made by the assessee f....
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....ate and the assessee made two separate vouchers for such payment just to give an impression that payment to truck owners/ operators was not exceeding Rs. 20,000/-. In this regard it is pertinent to mention that merely by showing payment of one challan/ bilty in two pieces the assessee cannot absolve itself of the provisions of the Section 40(a)(ia) inasmuch as Section 194C(3)(i) clearly speaks of - "the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the Contractor or sub-contractor, if such sum does not exceed twenty thousand rupees". The learned counsel further submitted that the receipts of the assessee firm are full vouched and verifiable and subject to TDS and the payments to truck owners/ operators are made by the assessee firm from such receipts and as such there as no need for further TDS. He further stated that the assessee firm prepares bills for claiming payments from the company on the basis of freight charges payable to various truck owners/ operators and when the payment is received on the basis of such bills, further payment is made to the truck owners/ operators and nominal commission is retained by the assessee and, the....
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....clared income." Before the Commissioner of Income Tax (Appeals), Jodhpur 6. Aggrieved by the order so passed by the Assessing Officer, the assessee-appellant preferred an appeal before the Commissioner of Income Tax (Appeals) , being Appeal No. 183 of 2007-08, that was considered and dismissed on 15.01.2008. 6.1. The CIT(A) re-examined the record and rejected the contentions of the appellant that it had only received commission income and was not liable to deduct tax at source on payments made to the truck owners while observing as under:- "On careful consideration of the material facts, it is observed that the appellant entered into a contract for transportation of goods (cement) with M/s Aditiya Cement Limited in order to honour the contract, the appellant hired various trucks all through out the year for the purpose of transportation of cement. The appellant received freight charges from M/s Aditiya Cement Limited on which tax was deducted. The appellant paid freight charges to individual truck owners, after transportation of goods. There was no nexus between the truck owners/ operators and M/s Aditiya Cement Limited. How the appellant transported the goods (cement) was the....
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.... consideration of the material facts, it is observed that both the entries are consecutive in the cashbook and, therefore, it is observed that the appellant, for its convenience and to avoid rigors of the provisions of Section 40A(3), splitted the payments into two parts. Had the payments been really made in two parts, both the entries should not have been consecutive. It is also not understood as to why the truck owners after completing the contract, would accept the amount in two parts and why they would come to the office of the appellant twice for seeking payments. The theory of making payments in two parts is merely a story, which is capable neither on facts nor on practicability. It is also surprising to note that in none of the case the appellant made fully payment to any truck owner all through out the year exceeding Rs. 20,000/." (emphasis in bold supplied) 6.3. The CIT(A) also examined in detail the question as to whether transport contracts were subject to deduction of tax at source and, with reference to clause (c) of Explanation (iii) of Section 194C of the Act as also to CBDT Circular Nos. 558 dated 28.03.1990 and 681 dated 08.03.1994, held that the provisions of Se....
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.... Grasim Industries Limited, and as the Department had no-objection, the same was admitted as additional evidence by the order dated 17.07.2008 but, another application for admission of evidence in shape of affidavit of partner of the appellant firm, was objected to by the Department and was rejected. 7.2. The ITAT found that the agreement in question was on principal to principal basis whereby, the appellant was awarded the work of transporting cement from Shambupura but, as the appellant did not own any trucks, it had engaged the services of other truck operators/owners for transporting the cement; and such a transaction was a separate contract between the appellant and the truck operator/owner. The ITAT, therefore, endorsed the findings of AO and CIT(A) in the following words:- "13. The perusal of agreement on record reveals that the assessee was awarded a works contract by M/s. Grasim Industries Limited, a cement marketing division of M/s. Aditya Cement Ltd. This agreement was on principal to principal basis whereby the appellant was awarded the cement transportation work and in terms of agreement the scope of work was to include placement of trucks for cement transportation ....
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....ayment of tax at source had expired and that Section 40(a)(ia) would only be applicable from the assessment year 2006-2007 and not from the assessment year 2005-2006. The ITAT also referred to the proviso to Section 40(a)(ia) of the Act and pointed out that thereunder, the assessee was eligible to get deduction of such expenditure in a subsequent year in which TDS was actually paid to the Government. The ITAT observed in regard to these two aspects concerning applicability of the provision in question as also the effect of proviso thereto, in the following passage:- "15. The assessee's counsel also raised a plea that Circular No. 5 was issued only on 15-7-2005 by which date the time for payment of tax at source has also expired and as such it was contended that the provisions as contained in Section 40(a)(ia) of the Act would be applicable not from A.Y. 2005-06 but from 2006-07. We, however, do not subscribe to the view so canvassed by the assessee. The Finance (No.2) Act 2004 has brought an amendment in Section 40 of the Act making it applicable w.e.f. 01/04/2004 (sic)1. Since this amendment came before close of the financial year ended on 31/03/2005 in the statute books, the as....
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....o be affirmed by the High Court. Rival Submissions Appellant 10. Assailing the order so passed by the High Court in summary dismissal of the appeal as also the views expressed in the assessment and appellate orders, learned counsel for the assessee-appellant has urged before us multiple contentions on the scope and applicability of Section 194C of the Act as also Section 40(a)(ia) thereof and has argued that these provisions could not have been applied to the case at hand. 10.1. Learned counsel for the appellant has strenuously argued that the provisions of Section 194C of the Act of 1961, particularly sub-section (2) thereof, were not applicable to the present case for there was no oral or written contract of the appellant with the truck operators/owners, whose vehicles were engaged to execute the work of transportation of the goods. It has been contended that the liability under Section 194C(2) would have arisen only if payments were made to "sub-contractor" and that too "in pursuance of a contract" for the purpose of "carrying whole or any part of work undertaken by the contractor". The learned counsel for the appellant would argue that when there had not been any specific c....
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....d in the subsequent year. 10.2.1. Taking this line of argument further, learned counsel would contend that the scope of Section 40(a)(ia) of the Act cannot be decided on the basis of the scope of Section 194C of the Act. Learned counsel would submit that Section 201 of the Act provides for consequence of non-deduction of TDS either at the time of payment or booking, whichever is earlier; and thus, the said provision would apply to both the situations where the expenses amount has been "paid" or is "payable". However, according to the learned counsel, the additional consequence of default as provided in Section 40(a)(ia) of the Act would come into operation only if the alleged default strictly falls within the language of this provision, which is limited to the amount "payable". Learned counsel would submit that the scope of Section 40(a)(ia) of the Act cannot be expanded beyond its language merely because as per Section 194C, the liability to deduct tax is at the time of "credit of such amount to the account of a contractor" or at the time of "payment" whichever is earlier. With reference to the decision of this Court in the case of Institute of Chartered Accountants of India v. P....
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.... made before 10.09.2004, the date of introduction of this provision. 10.3.1. In yet another alternative, learned counsel for the appellant has referred to the amendment made to Section 40(a)(ia) of the Act by the Finance (No.2) Act, 2014, restricting and limiting the extent of disallowance to 30% of the expenditure and has submitted that the said amendment, being curative in nature and having been introduced to ameliorate the hardships faced by the assessees, deserves to be applied retrospectively and from the date of introduction of sub-clause (ia) to Section 40(a) of the Act. The learned counsel has developed this argument by relying on the decision in Commissioner of Income-Tax v. Calcutta Export Company: (2018) 404 ITR 654, wherein this Court has held the remedial amendment of Section 40(a)(ia) of the Act by the Finance Act, 2010 to be retrospective in nature and applicable from the date of insertion of the said provision. 10.4. Learned counsel for the appellant has lastly submitted that the result of applying the provisions in question to the entire payment practically leads to a highly incongruous position that whole of the receipt from company is treated as the income of t....
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.....4. Learned counsel for the revenue has further contended that the amendment to Section 40(a) of the Act with insertion of sub-clause (ia) by the Finance (No. 2) Act, 2004 with effect from 01.04.2005 directly applies to the assessment year 2005-2006; and for the appellant having failed to deduct tax at source from the payment made to the sub-contractors for the work of transportation, deduction of such payment has rightly been disallowed. 11.5. The learned counsel has also argued that the proviso to Section 40(a)(ia) of the Act, as inserted by the Finance Act, 2014, does not apply to the case at hand pertaining to the assessment year 2005-2006 and hence, the argument for curative benefit with reference to the said proviso does not hold the ground. Questions for determination 12. Having regard to the submissions made by the learned counsel for the parties and the observations occurring in the orders impugned, the principal questions arising for determination in this appeal could be stated as follows:- 1. As to whether Section 194C of the Act does not apply to the present case? 2. As to whether disallowance under Section 40(a)(ia) of the Act is confined/limited to the amount "....
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....ies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or (h) any trust; or (i) any University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or (j) any firm, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to(i) one per cent in case of advertising, (ii)in any other case two per cent, of such sum as income-tax on income comprised therein. (2) Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to s....
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....shall be liable to deduct income-tax under this section; or (ii) any sum credited or paid before the 1st day of June, 1972; or (iii) any sum credited or paid before the 1st day of June, 1973, in pursuance of a contract between the contractor and a cooperative society or in pursuance of a contract between such contractor and the sub-contractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the co-operative society." 13.1.2. Sections 200 and 201 of the Act, respectively dealing with the duty of the person deducting tax and consequences on failure to deduct or pay, as applicable at the relevant time, could also be reproduced as under:- "200. Duty of person deducting tax. (1) Any person deducting any sum in accordance with the foregoing provisions of this Chapter2, shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs. (2) Any person being an employer, referred to in sub-section(1A) of section 192 shall pay, within the prescribed time, the tax to the credit of the Central Government or as the Board directs.10 (3) Any person deducting any sum ....
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....rrying the provisions relating to the "Profits and Gains of Business or Profession". Even when Sections 30 to 38 provide for various allowances and deductions in computation of the income from profits and gains of business or profession, Section 40 specifically ordains that certain amounts shall not be deducted, notwithstanding anything to the contrary contained in the said Sections 30 to 38 of the Act. In the present matter, we are concerned with the provisions contained in sub-clause (ia) of clause (a) of Section 40 of the Act, which was inserted by the Finance (No. 2) Act, 2004 with effect from 01.04.2005. Hence, the extraction hereunder is essentially of the provision that could be read as Section 40(a)(ia) of the Act after insertion by the Finance (No. 2) Act, 2004: - "40. Amounts not deductible. - Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",- (a) in the case of any assessee- *** *** *** (ia) any interest, commission or brokerage, fees for professional services or fees for technical services payable to a resident,....
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....(9) "assessment year" means the period of twelve months commencing on the 1st day of April every year; *** *** ***" "3. "Previous year" defined.- For the purposes of this Act, "previous year" means the financial year immediately preceding the assessment year: *** *** ***" 14. We may now take up the questions involved in this matter ad seriatim. Question No.1 15. In order to maintain that the appellant was under no obligation to make any deduction of tax at source, it has been argued that there was no oral or written contract of the appellant with the truck operators/owners, whose vehicles were engaged to execute the work of transportation of the goods only on freelance and need basis. The submission has been that the question of TDS under Section 194C(2) would have arisen only if the payment was made to a "sub-contractor" and that too, in pursuance of a contract for the purpose of "carrying whole or any part of work undertaken by the contractor". In our view, the submissions so made remain entirely baseless. 15.1. The nature of contract entered into by the appellant with the consignor company makes it clear that the appellant was to transport the goods (cement) of the con....
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....wners were engaged by the appellant as sub-contractors. The same findings have been endorsed by the High Court in its short order dismissing the appeal of the appellant. We are unable to find anything of error or infirmity in these findings. 15.3. The decision of Delhi High Court in the case of Hardarshan Singh (supra), in our view, has no application whatsoever to the facts of the present case. The assessee therein, who was in the business of transporting goods, had four trucks of his own and was also acting as a commission agent by arranging for transportation through other transporters. As regards the income of assessee relatable to transportation through other transporters, it was found that the assessee had merely acted as a facilitator or as an intermediary between the two parties (i.e., the consignor company and the transporter) and had no privity of contract with either of such parties inasmuch as he only collected freight charges from the clients who intended to transport their goods through other transporters; and the amount thus collected from the clients was paid to those transporters by the assessee while deducting his commission. Looking to the nature of such dealing....
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.... on its rolls or had been picking them up on freelance basis, the legal effect on the status of parties had been the same that once a particular truck was engaged by the appellant on hire charges for carrying out the part of work undertaken by it (i.e., transportation of the goods of the company), the operator/owner of that truck became the sub-contractor and all the requirements of Section 194C came into operation. 15.5. Thus, we have no hesitation in affirming the concurrent findings in regard to the applicability of Section 194C to the present case. Question No.1 is, therefore, answered in the negative; against the assessee-appellant and in favour of the revenue. Question No.2. 16. While taking up the question of interpretation of Section 40(a)(ia), it may be usefully noticed that Section 194C is placed in Chapter XVII of the Act on the subject "Collection and Recovery of Tax"; and specific provisions are made in the Act to ensure that the requirements of Section 194C are met and complied with, while also providing for the consequences of default. As noticed, Section 200 specifically provides for the duties of the person deducting tax to deposit and submit the statement to th....
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....nt observations of this Court in Calcutta Export Company as regards Section 40(a)(ia) of the Act as follows (at p. 662 of ITR):- "16. The purpose is very much clear from the above referred explanation by the Memorandum that it came with a purpose to ensure tax compliance. The fact that the intention of the Legislature was not to punish the assessee is further reflected from a bare reading of the provisions of section 40(a)(ia) of the Income-tax Act. It only results in shifting of the year in which the expenditure can be claimed as deduction. In a case where the tax deducted at source was duly deposited with the Government within the prescribed time, the said amount can be claimed as a deduction from the income in the previous year in which the TDS was deducted. However, when the amount deducted in the form of TDS was deposited with the Government after the expiry of period allowed for such deposit then the deductions can be claimed for such deposited TDS amount only in the previous year in which such payment was made to the Government." 16.4. Taking up the question as to whether disallowance under Section 40(a)(ia) of the Act is confined to the amount "payable" and not to the am....
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....he intention of the Legislature is evident from the fact that timing of deduction of tax is earliest possible opportunity to recover tax, either at the time of credit in the account of payee or at the time of payment to payee, whichever is earlier.' Ms. Dhugga invited our attention to a judgment of the Division Bench of the Madras High Court in Tube Investments of India Ltd. v. Asst. CIT (TDS) [2010] 325 ITR 610 (Mad). The Division Bench referred to the statistics placed before it by the Department which disclosed that TDS collection had augmented the revenue. The gross collection of advance tax, surcharge, etc. was Rs. 2,75,857.70 crores in the financial year 2008-09 of which the TDS component alone constituted Rs. 1,30,470.80 crores. The Division Bench observed that introduction of section 40(a)(ia) had achieved the objective of augmenting the TDS to a substantial extent. The Division Bench also observed that when the provisions and procedures relating to TDS are scrupulously applied, it also ensured the identification of the payees thereby confirming the network of assessees and that once the assessees are identified it would enable the tax collection machinery to bring within....
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....dice to any other consequences which that defaulter may incur. Other consequences are provided under section 40(a)(ia) of the Act, namely, payments made by such a person to a contractor shall not be treated as deductible expenditure. When read in this context, it is clear that section 40(a)(ia) deals with the nature of default and the consequences thereof. Default is relatable to Chapter XVII-B (in the instant case sections 194C and 200, which provisions are in the aforesaid Chapter). When the entire scheme of obligation to deduct the tax at source and paying it over to the Central Government is read holistically, it cannot be held that the word "payable" occurring in section 40(a)(ia) refers to only those cases where the amount is yet to be paid and does not cover the cases where the amount is actually paid. If the provision is interpreted in the manner suggested by the appellant herein, then even when it is found that a person, like the appellant, has violated the provisions of Chapter XVII-B (or specifically sections 194C and 200 in the instant case), he would still go scot-free, without suffering the consequences of such monetary default in spite of specific provisions laying d....
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....y to deduct tax at source." (emphasis in bold supplied) 16.7. We find the above-extracted observations and reasonings, which have already been approved by this Court in Palam Gas Service (supra), to be precisely in accord with the scheme and purpose of Section 40(a)(ia) of the Act; and are in complete answer to the contentions urged by the learned counsel for the appellant. It is ex facie evident that the term "payable" has been used in Section 40(a)(ia) of the Act only to indicate the type or nature of the payments by the assessees to the payees referred therein. In other words, the expression "payable" is descriptive of the payments which attract the liability for deducting tax at source and it has not been used in the provision in question to specify any particular class of default on the basis as to whether payment has been made or not. The semantical suggestion by the learned counsel for the appellant, that this expression "payable" be read in contradistinction to the expression "paid", sans merit and could only be rejected. In a nutshell, while respectfully following Palam Gas Service (supra), we could only iterate our approval to the interpretation by the Punjab and Haryan....
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....ter XVII of the Act (that carries Sections 194C, 200 and 201) leads, inter alia, to the consequence of Section 40(a)(ia) of the Act. Hence, the contours of Section 40(a)(ia) of the Act could be aptly defined only with reference to the requirements of the provisions contained in Part B of Chapter XVII of the Act, including Sections 194C, 200 and 201. Putting it differently, when the obligation of Section 194C of the Act is the foundation of the consequence provided by Section 40(a)(ia) of the Act, reference to the former is inevitable in interpretation of the latter. 16.11. In view of the above, reference to the definition of the term "paid" in Section 43(2) of the Act is of no assistance to the appellant. Similarly, the observations in the case of J.K. Synthetics (supra), as regards the difference in connotation of the expressions "payable" and "paid", in the context of liability to pay interest on the tax payable under the Rajasthan Sales Tax Act, 1954, has no co-relation whatsoever to the present case. Further, when it is found that the process of interpretation of Section 40(a)(ia) of the Act in P.M.S. Diesels (supra), as approved by this Court in Palam Gas Service (supra), had....
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....likely to become not deductible in computation of income under Section 40 and that the legislature, being conscious of the likely predicament, provided that the provision shall become operative from 01.04.2005. The High Court further proceeded to observe that any other interpretation would amount to punishing the assessee for no fault of his. The High Court further observed that Section 11 of the said Finance Act, inserting sub-clause (ia), did not provide that the same was to become effective from the assessment year 2005-2006. We may usefully reproduce the opinion of the Calcutta High Court in the case of PIU Ghosh, as under (at p. 326 of ITR):- "9. Admittedly, the Finance Act, 2004 got presidential assent on September 10, 2004. The assessee could not have foreseen prior to September 10, 2004 that any amount paid to a contractor without deducting tax at source was likely to become not deductible under section 40. It is difficult to assume that the Legislature was not aware or did not foresee the aforesaid predicament. The Legislature therefore provided that the Act shall become operative on April 1, 2005. Any other interpretation shall amount to "punishing the assessee for no f....
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....ay of April every year'. 17.5. In the case of Commissioner of Income-Tax, West Bengal v. Isthmian Steamship Lines: (1951) 20 ITR 572, a 3-Judge Bench of this Court exposited on the fundamental principle that 'in income-tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied.' This decision and various other decisions were considered by the Constitution Bench of this Court in the case of Karimtharuvi Tea Estate Ltd. v. State of Kerala: (1966) 60 ITR 262 and the principles were laid down in the following terms (at pp. 264-266 of ITR):- "Now, it is well-settled that the Income-tax Act, as it stands amended on the first day of April of any financial year must apply to the assessments of that year. Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force. *** *** *** The High Court has, however relied upon a decision of this court in Commissioner of Income-tax v. Isthmian Steamship Lines, where it was held as follows : "It will be observed that we are here co....
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....that default in making deduction in accordance with the provisions of the Act would make the appellant "an assessee in default". The appellant cannot suggest that even if the obligation of TDS on the payments made by him was existing by virtue of Section 194C(2), he would have honoured such an obligation only if being aware of the drastic consequence of default that such payment shall not be deducted for the purpose of drawing up the assessment. 17.7.1. Apart from the above, significant it is to notice that by the amendment in question, clause (ia) was added to Section 40(a) of the Act with a proviso to the effect that where, in respect of the sum referable to TDS requirement, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid in any subsequent year after expiry of the time prescribed in Section 200(1), such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. The proviso effectively took care of the case of any bonafide assessee who would earnestly comply with the requirement of deducting the tax at source. It is evident that the said proviso has totally escaped the atte....
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....appellant has argued that by way of Finance (No.2) Act, 2014, disallowance under Section 40(a)(ia) has been limited to 30% of the sum payable and the said amendment deserves to be held retrospective in operation. This line of argument has been grafted with reference to the decision in Calcutta Export Company (supra) wherein, another amendment of Section 40(a)(ia) by the Finance Act of 2010 was held by this Court to be retrospective in operation. The submission so made is not only baseless but is bereft of any logic. Neither the amendment made by the Finance (No.2) Act, 2014 could be stretched anterior the date of its substitution so as to reach the assessment year 2005-2006 nor the said decision in Calcutta Export Company has any correlation with the case at hand or with the amendment made by the Finance (No.2) Act of 2014. 19.1. By the amendment brought about in the year 2014, the legislature reduced the extent of disallowance under Section 40(a)(ia) of the Act and limited it to 30% of the sum payable. On the other hand, by the Finance Act of 2010, which was considered in the case of Calcutta Export Company (supra), the proviso to Section 40(a)(ia) of the Act was amended so as to....
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....vices 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 which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid: *** *** ***" (iii) After the amendment by Finance (No.2) Act, 2014 "40. Amounts not deductible. - Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",- (a) in the case of any assessee- *** *** *** (ia) thirty per cent. of any sum payable to a resident, on which tax is deductible at source under Chapter XVII-B and such....
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....ch deduction in the next year only; and, after finding that the amendment of the year 2010 was intended to remedy this position, held that the said amendment, being curative in nature, is required to be given retrospective operation that is, from the date of insertion of Section 40(a)(ia). 19.4. Learned counsel for the appellant has only referred to the concluding part of the decision in Calcutta Export Company but, a look at the entire synthesis by this Court, of the reasons for the amendments of 2008 and 2010, makes it clear as to why this Court held that the amendment of the year 2010 would be retrospective in operation. We may usefully reproduce the relevant discussion and exposition of this Court in Calcutta Export Company as under:- (at pp. 663-666 of ITR):- "19. The above amendments made by the Finance Act, 2008 thus provided that no disallowance under section 40(a)(ia) of the Income-tax Act shall be made in respect of the expenditure incurred in the month of March if the tax deducted at source on such expenditure has been paid before the due date of filing of the return. It is important to mention here that the amendment was given retrospective operation from the date of....
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....previous year can be deposited with the Government by the due date of filing the return of income. The idea was to allow additional time to the deductors to deposit the TDS so made. However, the Memorandum Explaining the Provisions of the Finance Bill, 2010 expressly mentioned as follows: "This amendment is proposed to take effect retrospectively from April 1, 2010 and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years." 25. The controversy surrounding the above amendment was 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. *** *** *** 27. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section, is required to be read into the section to give the section a reasonable interpretation and requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. 28. The purpose of the amendment made by the Finance Act,2010 is to solve....
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....Having defaulted at every stage, the attempt on the part of assessee-appellant to seek some succor in the amendment of Section 40(a)(ia) of the Act by the Finance (No.2) Act, 2014 could only be rejected as entirely baseless, rather preposterous. 19.7. Hence, Question No.3 is also answered in the negative, i.e., against the assessee-appellant and in favour of the revenue. Question No. 4 20. Before finally answering the root question in the matter as to whether the payments in question have rightly been disallowed from deduction, we may usefully summarise the answers to Question Nos. 1 to 3 that the provisions of Section 194C were indeed applicable and the assessee-appellant was under obligation to deduct the tax at source in relation to the payments made by it for hiring the vehicles for the purpose of its business of transportation of goods; that disallowance under Section 40(a)(ia) of the Act is not limited only to the amount outstanding and this provision equally applies in relation to the expenses that had already been incurred and paid by the assessee; that disallowance under Section 40(a)(ia) of the Act of 961 as introduced by the Finance (No.2) Act, 2004 with effect from 0....