TaxTMI 
TaxTMI 
2020 (11) TMI 406
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....uld have been deleted by the learned CIT(A) as the genuineness is not in doubt. Non-deduction of TDS is a separate issue. a) Commission payment to DLDS Collection Agents Rs. 33,45,248/- b) Legal Expenses Rs. 2,52,000/- c) Audit Fees Rs. 81,900/- 4) That it is not correct to say that the amendment to second provision to section 40(a)(ia) with effect from 1.4.2013 is not applicable. It is settled law, that the amendment beneficial to the assessee has retrospective effect has been decided by Honourable Supreme Court in the case of CIT Vs. Doraisamy Chetty [1990] 183 ITR 559 (SC). 5) That the authorities below should have allowed sufficient opportunity to the appellant to furnish form 26A from recipients, in the greater interest of justice and fair play. 6) That the disallowance of EPF of Rs. 1,15,570/- u/s.43B is unjustified, illegal, arbitrary and therefore the learned CIT(Appeals) is not justified in confirming the same. 7) That the disallowance of gratuity payment to staff amounting to Rs. 2,70,000/- disallowed by the AO should not have been confirmed by the CIT(Appeals). 8) That statement of facts and grounds of appeal....
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....roduce any evidence of being deposited into approved gratuity fund as per the provisions of section 36(1)(v) of the Act. Therefore, the AO disallowed the same and added back to the total income of the assessee. The assessee has also claimed EPF paid to staff of Rs. 5,00,244/- during the year under consideration. The asked the assessee to produce the details payment of EPF to staff with supporting evidences and the assessee produced only the challan copies amounting to Rs. 3,84,674/- and could not produce the challan copy of Rs. 1,15,570/- which was payment in arrear from 2007-2008. Therefore, the AO disallowed Rs. 1,15,570/- under section 43B of the Act and added the same to the total income of the assessee. Accordingly, the AO made total addition of Rs. 60,93,567/- and assessed the total income of the assessee at Rs. 90,32,740/-. 4. Against the above order of AO, the assessee preferred appeal before the CIT(A) and the CIT(A) considering the submissions of the assessee and findings of AO, deleted the addition made on account of provision for bad and doubtful debts and partly confirmed the addition made u/s.40(a)(ia) of the Act to the extent of Rs. 36,30,998/- and delete....
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....insertion of second provision to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005 being the date from which sub clause (ia) of section 40(a) was inserted by the Finance Act, 2004. In the case of Kanu Bhai Ramji Bhai Vs. ITO, 135 TTJ 364 has also held that provision of section 40(a)(ia) as amended by the Finance Act, 2010 w.e.f. 1st April, 2010 is remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the tax payers and which made the provision unworkable or unjust in a specific situation and is of clarificatory in nature. Amendment has therefore to be treated as retrospective w.e.f. 1st April, 2005. The learned CIT(Appeals) writes that the second provision has been inserted w.e.f. from 1.4.2013 and therefore applicable for AY 2013-14 onwards. The CIT(Appeals) required Certificates from the recipients which is very much available in the Paper Book. Hence, the same may kindly be deleted. It is not correct to say that the amendment to second provision to sec 40 (a)(ia) with effect from 01.04.2013 is not applicable. It is settled law decided by Honourable ....
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....ked members especially to the young members to give their time to collect funds for development of the co-operative bank. The person engaged are to go to the door steps of the members of the society. They are required to mobilize the society for this "daily deposit scheme". The intention of the scheme was to generate employment amongst un-employed younger generation apart from "collection of money" to strengthen financial capacity of the fenk. That is why they are given some responsibility for improvement of the Bank. In the process they are paid honorary remuneration calculated @ 2% of the amount collected. The matter is intimated to the Registering Authority, Certificate from Bank in this regard is submitted herewith. They are paid Honorary remuneration as incentive. This is not commission but an incentive though it is named as agents commission. This is not a new scheme but continuing since long. The list of members engaged in this DLDS scheme for the year under consideration is enclosed herewith with their membership Nos. Another list is given furnishing the details of payment made to them. From the details furnished it would be apparent that none of the members except....
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.... bound shall ever pray. Further the ld. AR has relied on the decision of the Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh Vs. ITO [1991] 191 ITR 667, 673(SC) and the decision of the coordinate bench of the Tribunal in the case of Kanubhai Ramjibai Vs. ITO, 135 TTJ (Ahd) 364. 7. On the other hand, ld. DR relied on the orders of authorities below and submitted that the assessee has not deducted TDS on payments made to the recipients which was ought to be deducted as per the TDS provisions as prescribed in the Income Tax Act. He also submitted that the amendment made in Section 40(a)(ia) of the Act is applicable from the A.Y.2013-2014. The case of the assessee falls before the amendment i.e. w.e.f.01.04.2013, hence, the case law relied on by the ld. AR of the assessee is not applicable in the present case. 8. After hearing both the sides and perusing the entire material available on record and the order of the authorities below, we noticed that the assessee has violated the provisions of Section 40(a)(ia) of the Act for not deducting & depositing the TDS. The amendment has been made in the second proviso of Section 40(a)(ia) of the Act w.e.f. 01.04.2013 and,....
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....nce of the requirements of Section 194C of the Act. At the relevant point of time, this provision read as under:- "194C. Payments to contractors and sub-contractors.- (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and- (a) the Central Government or any State Government; or (b) any local authority; or (c) any corporation established by or under a Central, State or Provincial Act; or (d) any company; or (e) any co-operative society; or (f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or (g) any society registered under the Societies 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 establi....
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....ccount of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. Explanation III. - For the purposes of this section, the expression "Work" shall also include- (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods and passengers by any mode of transport other than by railways; (d) catering. (3) No deduction shall be made under sub-section (1) or sub-section (2) from- (i) the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor or subcontractor, if such sum does not exceed twenty thousand rupees: Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds fifty thousand rupees, the person responsible for paying such sums referred to in sub-section (1) or, as the case may be, sub-section (2) shall be liable to deduct income-tax under this section; or ....
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.... Provided that no penalty shall be charged under section 221 from such person, principal officer or company unless the Assessing Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax. (1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at twelve per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. (2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1)." 13.2 Chapter IV of the Act of 1961 deals with the subject "Computation of Total Income" and Section 40....
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....ll 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; ** ** ** 13.3 Section 43 in the very same Part D of Chapter IV of the Act of 1961 defines various terms relevant to the income from profits and gains of business or profession; and clause (2) thereof, carrying the definition of the expression "paid", having been referred in the present matter, could also be usefully reproduced as under:- "43. Definitions of certain terms relevant to income from profits and gains of business or profession. - In sections 28 to 41 and in this section, unless the context otherwise requires- ** ** ** (2) "paid" means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head "Profits and gains of business or profession"; ** ** ** 13.4 For their relevance in relation to another segment of arguments, we may also take note of the meaning assigned to the expression "assessment year" in clause (9) of Section 2; and to the expression "previous year" in Section 3 of the Act of....
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.... reduced into writing or not carries hardly any relevance. In the given scenario and set up, the said truck operators/owners answered to the description of "sub-contractor" for carrying out the whole or part of the work undertaken by the contractor (i.e., the appellant) for the purpose of Section 194C(2) of the Act. 15.2 The suggestions on behalf of the appellant that the said truck operators/owners were not bound to supply the trucks as per the need of the appellant nor the freight payable to them was pre-determined, in our view, carry no meaning at all. Needless to observe that if a particular truck was not engaged, there existed no contract but, when any truck got engaged for the purpose of execution of the work undertaken by the appellant and freight charges were payable to its operator/owner upon execution of the work, i.e., transportation of the goods, all the essentials of making of a contract existed; and, as aforesaid, the said truck operator/owner became a sub-contractor for the purpose of the work in question. The AO, CIT(A) and the ITAT have concurrently decided this issue against the appellant with reference to the facts of the case, particularly after appreci....
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.... facts of that case could be usefully noticed, for being akin to the facts of the present case and being of apposite illustration. Therein, the assessee was engaged in the business of purchase and sale of LPG cylinders whose main contract for carriage of LPG cylinders was with Indian Oil Corporation, Baddi wherefor, the assessee received freight payments from the principal. The assessee got the transportation of LPG done through three persons to whom he made the freight payments. The Assessing Officer held that the assessee had entered into a sub-contract with the said three persons within the meaning of Section 194C of the Act. Such findings of AO were concurrently upheld up to the High Court and, after interpretation of Section 40(a)(ia), this Court also approved the decision of the High Court while dismissing the appeal with costs. Learned counsel for the appellant has made an attempt to distinguish the nature of contract in Palam Gas Service by suggesting that therein, the assessee's sub-contractors were specific and identified persons with whom the assessee had entered into contract whereas the present appellant was free to hire the service of any truck operator/o....
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....usiness or profession". In other words, it shall be computed as income of the assessee because of his default in not deducting the tax at source. 16.2 In the overall scheme of the provisions relating to collection and recovery of tax, it is evident that the object of legislature in introduction of the provisions like sub-clause (ia) of clause (a) of Section 40 had been to ensure strict and punctual compliance of the requirement of deducting tax at source. In other words, the consequences, as provided therein, had the underlying objective of ensuring compliance of the requirements of TDS. It is also noteworthy that in the proviso added to clause (ia) of Section 40(a) of the Act, it was provided 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 the 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. 16.3 The purpose and coverage of this provision as also protection therein have been tersely explained by this Cou....
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.... person responsible for paying any sum is also liable to deposit the amount in the Government account. All the sections in Chapter XVII-B require a person to deduct the tax at source at the rates specified therein. The requirement in each of the sections is preceded by the word 'shall'. The provisions are, therefore, mandatory. There is nothing in any of the sections that would warrant our reading the word 'shall' as 'may'. The point of time at which the deduction is to be made also establishes that the provisions are mandatory. For instance, under section 194C, a person responsible for paying the sum is required to deduct the tax "at the time of credit of such sum to the account of the contractor or at the time of the payment thereof. . '" 12. While holding the aforesaid view, the Punjab and Haryana High Court discussed the judgments of the Calcutta and Madras High Courts, which had taken the same view, and concurred with the same, which is clear from the following discussion contained in the judgment of the Punjab and Haryana High Court: "A Division Bench of the Calcutta High Court in CIT v. Crescent Export Syndicate [2013] 216 Taxman....
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....ed with this issue by the Punjab and Haryana High Court in the case of P.M.S. Diesels (supra) as also by the Calcutta High Court in the case of Commissioner of Income-Tax, Kolkata-XI v. Crescent Export Syndicate: (2013) 216 Taxman 258; and while approving the same, this Court held, as regards implication and connotation of the expression "payable" used in this provision, as follows (at p. 310 of ITR):- "15. We approve the aforesaid view as well. As a fortiori, it follows that section 40(a)(ia) covers not only those cases where the amount is payable but also when it is paid. In this behalf, one has to keep in mind the purpose with which section 40 was enacted and that has already been noted above. We have also to keep in mind the provisions of sections 194C and 200. Once it is found that the aforesaid sections mandate a person to deduct tax at source not only on the amounts payable but also when the sums are actually paid to the contractor, any person who does not adhere to this statutory obligation has to suffer the consequences which are stipulated in the Act itself. Certain consequences of failure to deduct tax at source from the payments made, where tax was to be deduct....
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....assessees following the cash system. If this view is correct and indeed we must proceed on the footing that it is, it goes a long way in indicating the fallacy in the appellant's main contention, namely, if the payments have already been made by the assessee to the payee/contracting party, the provisions of section 40(a)(ia) would not be attracted even if the tax is not deducted and/or paid over to the Government account. 22. Section 40(a)(ia) refers to the nature of the default and the consequence of the default. The default is a failure to deduct the tax at source under Chapter XVII-B or after deduction the failure to pay over the same to the Government account. The term "payable" only indicates the type or nature of the payments by the assessees to the persons/payees referred to in section 40(a)(ia), such as, contractors. It is not in respect of every payment to a payee referred to in Chapter XVII-B that an assessee is bound to deduct tax. There may be payments to persons referred to in Chapter XVII-B, which do not attract the provisions of Chapter XVII-B. The consequences under section 40(a)(ia) would only operate on account of failure to deduct tax where ....
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....e like nature. We find none. In fact, a close look at the decision of P.M.S. Diesels (supra), which has been totally approved by this Court in Palam Gas Service, makes it clear that therein, every aspect of the matter, from a wide range of angles, was examined by the Punjab and Haryana High Court while drawing support from the decisions of other High Courts, particularly that of the Calcutta High Court in the case of Crescent Export Syndicate (supra). 16.9 We are in respectful agreement with the observations in Palam Gas Service that the enunciations in P.M.S. Diesels had been of correct interpretation of the provisions contained in Section 40(a)(ia) of the Act. The decision in Palam Gas Service covers the entire matter and the said decision, in our view, does not require any reconsideration. That being the position, the contention urged on behalf of the appellant that disallowance under section 40(a)(ia) does not relate to the amount already paid stands rejected. 16.10 Another contention in regard to Section 40(a)(ia) of the Act, that its scope cannot be decided on the basis of Section 194C, has only been noted to be rejected. The interplay of these provisions is....
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....d submit that the said sub-clause (ia), having been inserted to clause (a) of Section 40 of the Act with effect from 1-4-2005 by Finance (No.2) Act, 2004, would apply only from the financial year 2005-2006 and hence, cannot apply to the present case pertaining to the financial year 2004-2005. The learned counsel, of course, drew support to this contention from the decision of Calcutta High Court in the case of PIU Ghosh (supra). 17.1.1 Before proceeding further, it appears apposite to observe, as indicated in paragraph 7.3 hereinbefore, that in the copy of order passed by ITAT in this case, there is obvious typographical error on the date of coming into force of the amendment to Section 40 of the Act of 1961 by the Finance (No.2) Act, 2004 inasmuch as the said amendment was made applicable with effect from 1-4-2005 and not 1-4-2004, as appearing the copy of the order of ITAT. However, this error is not of material bearing because the amendment in question was applicable from and for the assessment year 2005-2006, for the reasons occurring infra. 17.2 Reverting to the contentions urged in this case, there is no doubt that in PIU Ghosh (supra), the Calcutta High Cou....
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....s there any scope for confusion......" 17.3 Learned counsel for the appellant has submitted that the revenue has accepted the said decision and has not filed any appeal against the same. It appears, however, that the amount of deduction in the said case was only a sum of Rs. 4,30,386/- and obviously, the net tax effect in that case, decided on 12-7-2016, was on the lower side. In any case, the said decision cannot be treated as final declaration of law on the subject merely because the same has not been appealed against. Having examined the law applicable, with respect, we find it difficult to approve the above-quoted opinion of the Calcutta High Court, particularly when it does not appear standing in conformity with the scheme of assessment of income tax under the Act of 1961 and where the High Court seems to have not noticed the proviso to clause (ia) of Section 40(a) of the Act forming the part of the amendment in question. 17.4 It needs hardly any detailed discussion that in income tax matters, the law to be applied is that in force in the assessment year in question, unless stated otherwise by express intendment or by necessary implication. As per Section 4 o....
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....that the old law applied to every assessment year up to and including the assessment year 1939-40." This decision is authority for the proposition that though the subject of the charge is the income of the previous year, the law to be applied is that in force in the assessment year, unless otherwise stated or implied. The facts of the said decision are different and distinguishable and the High Court was clearly in error in applying that decision to the facts of the present case." (emphasis in bold supplied) 17.6 We need not multiply on the case law on the subject as the principles aforesaid remain settled and unquestionable. Applying these principles to the case at hand, we are clearly of the view that the provision in question, having come into effect from 1-4-2005, would apply from and for the assessment year 2005-2006 and would be applicable for the assessment in question. Putting it differently, the legislature consciously made the said sub-clause (ia) of Section 40(a) of the Act effective from 1-4-2005, meaning thereby that the same was to be applicable from and for the assessment year 2005-2006; and neither there had been express intendment nor any implicat....
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....y from the financial year 2005-2006, the result would be that this provision would apply only from the assessment year 2006-2007. Such a result is neither envisaged nor could be countenanced. Hence, the contention that sub-clause (ia), of clause (a) of Section 40 of the Act would apply only from the financial year 2005-2006 and cannot apply to the present case pertaining to the financial year 2004-2005 stands rejected. 18. The supplemental submission that in any case, disallowance cannot be applied to the payments already made prior to 10-9-2004, the date on which the Finance (No.2) Act, 2004 received the assent of the President of India, remains equally baseless. The said date of assent of the President of India to Finance (No.2) Act, 2004 is not the date of applicability of the provision in question, for the specific date having been provided as 1-4-2005. Of course, the said date relates to the assessment year commencing from 1-4-2005 (i.e., assessment year 2005-2006). 18.1 Even if it be assumed, going by the suggestions of the appellant, that the requirements of Section 40(a)(ia) became known on 10-9-2004, the appellant could have taken all the requisite steps ....
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....he 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, rent, royalty14, 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 which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, 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 t....
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.... Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.^16 ** ** ** 19.2 The aforesaid amendment by the Finance (No.2) Act of 2014 was specifically made applicable w.e.f. 1-4-2015 and clearly represents the will of the legislature as to what is to be deducted or what percentage of deduction is not to be allowed for a particular eventuality, from the assessment year 2015-2016. 19.3 On the other hand, in the case of Calcutta Export Company (supra), this Court noticed the aforesaid two amendments to Section 40(a)(ia) of the Act by the Finance Act, 2008 and by the Finance Act, 2010, which were intended to deal with procedural hardship likely to be faced by the bonafide tax payer, who had deducted tax at source but could not make deposit....
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....der section 40(a)(ia) of the Income-tax Act shall be made if the tax deducted by them during the last month of the previous year has been paid on or before the last day of filing of return in accordance with the provisions of section 139(1) of the Income-tax Act for the said previous year. In case, the assessees are falling under the second category, no disallowance under section 40(a)(ia) of Income-tax Act where the tax was deducted before the last month of the previous year and the same was credited to the Government before the expiry of the previous year. The net effect is that the assessee could not claim deduction for the TDS amount in the previous year in which the tax was deducted and the benefit of such deductions can be claimed in the next year only. 21. The amendment though has addressed the concerns of the assesses falling in the first category but with regard to the case falling in the second category, it was still 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 tax at source and by paying the same to the credit of the Government befor....
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.... taxpayers, who work at low gross product rate and when expenditure which becomes the subject matter of an order under section 40(a)(ia) is substantial, can suffer severe adverse consequences if the amendment made in 2010 is not given retrospective operation, i.e., from the date of substitution of the provision. Transferring or shifting expenses to a subsequent year, in such cases, will not wipe out the adverse effect and the financial stress. Such could not be the intention of the Legislature. Hence, the amendment made by the Finance Act, 2010 being curative in nature is required to be given retrospective operation, i.e., from the date of insertion of the said provision." 19.5 A bare look at the extraction aforesaid makes it clear that what this Court has held as regards "retrospective operation" is that the amendment of the year 2010, being curative in nature, would be applicable from the date of insertion of the provision in question i.e., sub-clause (ia) of Section 40(a) of the Act. This being the position, it is difficult to find any substance in the argument that the principles adopted by this Court in the case of Calcutta Export Company (supra) dealing with curative....
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....ing the prejudice likely to be suffered by the appellant. 21. The suggestion on behalf of the appellant about the likely prejudice because of disallowance deserves to be rejected for three major reasons. In the first place, it is clear from the provisions dealing with disallowance of deductions in part D of Chapter IV of the Act, particularly those contained in Sections 40(a)(ia) and 40A(3)17 of the Act, that the said provisions are intended to enforce due compliance of the requirement of other provisions of the Act and to ensure proper collection of tax as also transparency in dealings of the parties. The necessity of disallowance comes into operation only when default of the nature specified in the provisions takes place. Looking to the object of these provisions, the suggestions about prejudice or hardship carry no meaning at all. Secondly, as noticed, by way of the proviso as originally inserted and its amendments in the years 2008 and 2010, requisite relief to a bonafide tax payer who had collected TDS but could not deposit within time before submission of the return was also provided; and as regards the amendment of 2010, this Court ruled it to be retrospect....