TaxTMI 
TaxTMI 
2021 (9) TMI 528
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..... 14,74,943/- to M/s. Future Capital another NBFC. The assessee firm raised loan from said NBFCs and paid loan with interest monthly. The interest was paid along with EMI which paid in full and therefore no tax was deducted. The Ld. AO on this failure to deduct tax invoked provisions of section 40(a)(ia) and disallowed whole of interest paid to both parties amounting to Rs. 17,73,769/-. 2. Interest paid to NBFC has been computed in there ITR:-That on the facts and in the circumstances of the case Ld. CIT(A) has grossly erred in law and facts in not considering the plea that the interest paid by the assessee have already been included in the total income while computing taxable income by M/s. Barclays Investment & Loan (India) Ltd. and Rs. 14,74,943/- to M/s. Future Capital another NBFC. 3. Disallowance is restricted 30% by F.A. 2014- That on the facts and in the circumstances of the case Ld. CIT(A) has grossly erred in law and facts in not restricting disallowance of 30% of the total payment on which tax is deductible at source under chapter XVII-B as per amendment made by F.A. 2014 W.e.f. 01/04/2015 in section 40(a)(ai) which is retrospective. 4....
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.... Section 40(a) (ia) and disallowed whole of interest paid to both parties amounting to Rs. 17,73,769/-. In this connection the assessee states that interest of. Rs. 17,73,769/- stand paid in full by assessee during the financial year. The payee is holding PAN and must have filed its return of income including income from receipts of said interest and paid due tax thereon as it is an NBFC and cannot be expected not to have filed return in time. It is submitted that second proviso to section 40 (a)(ia) inserted by FA, 2012 w.e.f. 01.04.2013 has provided that where an assessee fails to deduct tax on the sum paid to the resident but such resident payee has furnished the return, taken into account such sum for computing income and has paid the tax due on the income declared by him then it will be deemed that assessee has deducted and paid the tax on such sum on the date of furnishing of return by the resident payee and then provisions of Section 40 (a) (ia) becomes inapplicable. It is now settled law that second proviso to section 40 (a) (ia) inserted w.e.f. 0 has retrospective effect as held by Bangalore Bench in case of Sh. G. Shankar Vs. ACIT in ITA No. 1832/Bang/20....
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....88 ITR 192 where it is held that when two views are possible on an issue, the view in favour of the assessee has to be preferred. The Jaipur Bench which is binding and, therefore, the addition so made by Ld. A.O. by invoking section 40 (a) (ia) cannot be sustained on this plea also. The AO could have verified the fact that interest income received by NBFC have been included in their returns Without prejudice to above it may be stated that the interest paid to 2 NBFC Rs. 2,98,826/- to M/s. Barclays Investment & Loan (India) Ltd. and Rs. 14,74,943/- to M/s. Future Capital another NBFC were included in the return of Income filed by these Non Bank Financial Companies therefore, in view of the second proviso to section 40 (a) (ia) of the Act no disallowance is called for in respect of this amount on which the recipient have paid the taxes. The assessee urged that the second proviso to section 40 (a) (ia) is remedial in nature and therefore, the said amendment will have retrospective effect. We find that Hon'ble Delhi High Court in case of CIT Vs. Naresh Kumar (Supra) while dealing with an identical issued has held in Para 15 to 29 as under.:- "15.....
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....ested rights. But these statues are construed liberally when justified and rule against retrospectively may be applied with less resistance [See Bharat Singh v. Management of New Delhi Tuberculosis Centre [1986] 2 SCC 614 and Workmen Firestone Tyre & Rubber Co. of India (P.) Ltd. v. Management AIR 1973 SC 1227 18. It is interesting to note that earlier English decisions have held that an enactment fixing a penalty or maximum penalty for offence is merely procedural for the purpose of determining retrospectively [See DPP v. Lamb [1941] 2 KB 89) and R.V. Oliver [1944] 29 Cr. App. 137. This view, however, has been criticized in Reherd Athlumney, in re [1898] 2 QB 547 on the ground that higher or greater punishment impair existing rights or obligation. "No rule construction is more firmly established than this; that a retrospective operation is not to be given to a statute so as to impair an existing right or obligation otherwise than as regards matters of procedure, unless that effect cannot be avoided without doing violence to the language of their enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be c....
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....d". 22. House of Lords in L' Office Cherifien des Phosphates v. Yamashita Shinnihon Steamship Co. Ltd. [1994] 1 All ER 20 has said the question of fairness has to be answered by taking into account various factors, viz., value of the rights which the statute affects; extent to which that value is diminished or extinguished by the suggested retrospective effect of the statute; unfairness of adversely affecting the rights; clarity of the language used by Parliament and the circumstances in which the legislation was created. These factors have to be weighed together to provide an answer whether the consequences of reading the statute with suggested degree of retrospectively is unfair; that the words used by the Parliament could not have been intended to mean what they might appear to say. This principle was applied while interpreting a new provision in Arbitration Act in this case observing that the delay attributable to the claimant in pursuing a claim before enactment of the new provision, could be taken into consideration for dismissal. 23. Principle of "fairness" has not left us untouched and was applied by the Supreme Court in Vijay v. State of Maha....
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.... provision mandates. Case of Naresh Kumar is not one of rare cases, but one of several cases as we find that Section 40 (a) (ia) is invoked in large number of cases. 27. One important consideration in construing a machinery section is that is must be so construed so as to effectuate the liability imposed by the charging section and to make the machinery workable. However, when the machinery section results in unintended or harsh consequences which were not intended, the remedial or correction action taken is not to be disregarded but given due regard. 28. It is, in this context that we had in Rajender Kurnar's case (supra) observed as under: '22. Now, we refer to the amendments which have been made by the Finance Act, 2010 and the effect thereof. We have already quoted the decision of the Calcutta High Court in Virgin Creations (supra). The said decision refers to the earlier decision of the Supreme Court in the case of Allied Motors (P.) Ltd. (Supra) and commissioner of Income Tax v. Alom Extrusions Ltd., [2009] 319 ITR 306 (SC). In the case of Allied Motors (P.) Ltd. (supra), the Supreme Court was examining the first proviso to Section ....
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....section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. 14. This view has been accepted by a number of High Courts. In the case of CIT v. Chandulal Venichand, the Gujarat High Court has held that the first proviso to Section 43-B is retrospective and sales tax for the last quarter paid before the filing of the return for the assessment year is deductible. This decision deals with Assessment Year 1985-85. The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corpn. Has taken a similar view holding that the statutory liability for sales tax actually discharged after the expiry of the accounting year in compliance with the relevant statute is entitled to deduction under Section 43-B. The High Court has held the amendment to be certificatory and therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High Court has also held the amendment inserting the first proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. Union of India. T....
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...."the principle of Declaratory Statutes", Francis Bennion: "Statutory Interpretation "Justice G.P. Singh's "Principles of Statutory Interpretation", it was observed that sometimes amendments are made to supply and obvious omission or to clear up doubts as to the meaning of the previous provision. The issue was accordingly decided holding that in such cases the amendments were retrospective though it was notices that as per Transfer of Property Act Registration Act, etc. a legal owner must have a registered document. 25. In view of the aforesaid discussion in paras 18, 19 and 20, it is apparent that the respondent assessee did not violate the unlamented section 49 (a) (ia) of the act. We have noted the ambiguity and referred their contention of Revenue and rejected the interpretation placed by them. The amended provisions are clear and free from any ambiguity and doubt. They will help curtail litigation. The amended provisions clearly support view taken in paragraphs 17 - 20 that the expression "said due date" used in clause A of proviso to unamended section refers to time specified in Section 139(1) of the Act. The amended Section 40 (a) (ia) expands and further liberal....
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....rdingly, the appeal of the assessee is partly allowed in the above said manner." Further this Tribunal has taken a similar view on this issue by following the above decision in the matter of M/s. ACCME (Urvashi Pumps Eng. Pvt. Ltd. ITA No. 561/JP/2014 and therefore even if there is divergent view taken by the Hon'ble Kerala High Court the view taken in favour of the assessee by this Tribunal by following the various decisions are to be followed to maintain the rule of consistency. Accordingly, we are of the view the second proviso to section 40 (a) (ia) of the Act would be effective retrospective as it was undisputedly inserted to removable the hardship faced by the assessee. Hence, we set aside this issue to the record of the Assessing Officer for limited purpose to verify the fact that the interest income received by these NBFCs have been included in the return of income and offered to tax and then decide this issue in light of above observation. Without prejudice to above it may also be pointed out that an amendment has been made by FA, 2014 w.e.f. 01.04.2015 in section 40 (a) (ia) whereby it is provided that 30% of any sum payable to a resident shall be di....
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....fter considering them the Ld. CIT(A) - IV vide appeal order dated 12.07.2016 in appeal No. 43/2014-15 has been deleted. This issue raised in this appeal are covered from said appeal order." 7. On the other hand, the ld. DR has vehemently supported the orders of the authorities below. 8. We have considered the rival contentions and carefully perused the material placed on record. As per facts of the present case, the assessment was completed U/s 143(3) of the Act at Rs. 41,44,010/- by making disallowance of Rs. 17,73,769/- U/s 40(a)(ia) of the Act on the ground that the assessee had not deducted TDS on the payment of interest amount of Rs. 17,73,769/- paid to Barclays Investment & Loan (India) Ltd. and Future Capital. The total interest paid by the assessee to the said NBFC is Rs. 2,98,826/- to Barclays Investment & Loan (India) Ltd. and Rs. 14,74,943/- to Future Capital. As per the assessee, the said interest was paid alongwith EMI which paid in full and no tax was deducted. It was also submitted by the assessee that the payee is holding PAN and must have filed its return of income including income from receipts of said interest and paid due tax thereon as it was an NBFC and ....
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....ble bench through aforementioned appeal. 3. That one of the partners Shri Mahipal Choudhary borrowed the loans from IV1/s Future Capital (later on converted in Capital First Limited) and from M/s. Barclays Investment and Loan (India) Ltd. and introduced it into the said Firm M/s. Ratan Conductors. 4. That during the year under consideration above said firm repaid the same loan to above NBFC's in EMI with Interest without deducting tax as follows; (A) Barclays Investment & loan (India) Ltd. : 2,98,826.12 (b) Future Capital (later known as Capital First Ltd. : 14,74,943.63 5. The Ld. AO disallowed the aforementioned payment of Interest under section 40(a) (ia) of Income Tax Act, 1961 through their Assessment order dated 27.02.2015 by rejecting the submission of the assessee regarding NBFC must have been declared such interest income in their Income Tax Return along with the deposit of Tax. 6. That after the passing of the Assessment order the appellant obtained a Certificate from the Chartered Accountant dated 08/09/2015 in respect of Capital First Limited (one of Payees) to the effect that such interest as paid by the assesse....