Issue – Whether amendment to Section 40(a)(ia) extending the period of payment till due date of filing of return, for claiming deduction is retrospective in nature or not.
High Court placed reliance on same bench ruling in CIT vs. Rajinder Kumar (ITA No. 65/2013) wherein it was held that “the amended Section 40(a)(ia) expands and further liberalises the statute when it stipulates that deductions made in the first eleven months of the previous year but paid before the due date of filing of the return, will constitute sufficient compliance”. Accordingly, relying on the aforesaid decision, the amendment to Section 40(a)(ia) extending the period of TDS payment upto the due date under section 139(1) was held to be retrospective in nature and thus, the dis allowance under Section 40(a)(ia) was deleted.
HIGH COURT OF DELHI AT NEW DELHI
I.T.A. No. 24/2013
Date of Decision: 6th September, 2013
Commissioner of Income Tax XIII
Versus
Naresh Kumar
ITA No. 218/2013
Commissioner of Income Tax Delhi VI
Versus
M/s Talbros (P) Ltd.
ORDER
SANJIV KHANNA, J.
These two appeals by Revenue under Section 260A of the Income Tax Act (Act, for short) in the case of Naresh Kumar and M/s Talbros (P) Ltd. relate to a common assessment year 2008-09, and raise a common question and, therefore, being disposed of by this common judgment at the stage of admission.
2. The contention of the Revenue is that the Income Tax Appellate Tribunal (Tribunal, for short) in their impugned orders dated 21st May, 2012 (in the case of Naresh Kumar) and 8th October, 2012 (in the case of Talbros (P) Ltd.), has erred in holding that the amendments made to Section 40(a)(ia) of the Act by Finance Act, 2010 should be given retrospective effect. The contention of the Revenue is that these amendments are w.e.f. 1st April, 2010 and are not retrospective and, therefore, not applicable to the assessment year in question i.e. 2008-09.
3. Section 40(a)(ia) was inserted with effect from 1st April, 2005 by Finance (No.2), 2004 Bill and after retrospective amendment by Finance Act, 2008, w.e.f. 1st April, 2005, read as under:-
“40. 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 “profit and gains of business or profession”…
(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resi-dent, or amounts payable to a contactor 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 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.”
4. Section 40(a)(ia) as amended by Finance Act, 2010, we.f. 1st April, 2010 and now reads:
“(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resi-dent, 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 deducted in computing the income of the previous year in which such tax has been paid.”
(emphasis supplied)
5. Recently, we had occasion to deal with the said unamended and amended provisions and elucidate upon the section in ITA No. 65/2013 titled Commissioner of Income Tax-XIII vs. Rajinder Kumar decided on 1st July, 2013. Reference was made to the rationale behind the insertion made to Section 40(a)(ia) of the Act w.e.f. 1st April, 2005, which in the memorandum explaining the insertion was as under:
“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 sub-contractor for carrying out any work (including supply of labor 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 sub-section (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 proposed amendment will take effect from the 1st day of April, 2005 and will, accordingly, apply in relation to the assessment year 2005-06 and subsequent years. (clause 11).”
(emphasis supplied)
6. The rationale behind the amendment 40(a)(ia) by Finance Act, 2010 in the Memorandum explaining the amendments was also reproduced and reads :
“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 sub-contractor, being resident, results in the dis allowance of the said sum, in the computation of income of the payer, on which tax is required to be deducted under Chapter XVII-B.
It is proposed to amend sub-clause (ia) of clause (a) of the aforesaid section to provide that dis allowance 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 sub¬section (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, or has been deducted during the last month of the previous year but paid after the due date of filing of return or deducted 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.
This amendment will take effect retrospectively from 1st April, 2010, and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years.”
7. In Rajinder Kumar’s case(supra), the assessee was following cash system of accountancy and had made certain payments and deducted TDS on the said amounts in March, 2007. TDS was thereafter paid in the month of April, 2007, before the due date i.e. date on which return of income under Section 139(1) of the Act was to be filed. The Revenue in the said case had relied upon the memorandum maintained by the assessee and contested. The contention of the Revenue was rejected observing that the memorandum did not make any difference and result in credit to the account of the payee. It was accordingly held as under:
“18. The first appellate order again does not specifically state so. In such circumstances, we feel a pragmatic and a practical approach has to be adopted. The respondent assessee had deducted tax at source when the payment was made in the month of March, 2007 and thereafter deposited the payment in the month of April, 2007. It is an accepted position that in case tax was deductible in the month of March, 2007 the due date of payment was in April, 2007 and before due date payment, Rs. 4,40,843/- deducted as TDS in the month of March, 2007 was duly paid. It has to be accepted and it is logical that there would be some time gap between date of deduction of tax at source and when payment is deposited. Section 40(a)(ia) and the proviso as amended by Finance Act, 2008 with retrospective effect from 1st April, 2005 notices and acknowledges the said position and, therefore, clause (A) states that where tax “was” deductible and was so deducted during the last month of the previous year but stands paid before the due date specified under sub-section (1) to Section 139, deduction shall be allowed in the said year.
19. Proviso applies when tax was deducted in a subsequent year; when TDS has been deducted during any month of the previous year but paid after the end of the previous year; or TDS was deducted during the last month of the previous year but paid after the said due date. When proviso applies deduction is to be allowed in the year in which the payment is made. Clause A of the proviso has to be read with clause A of the main Section and not in isolation. Clause A of the main Section and clause A of the proviso will apply in different factual matrix or situations. Clause A of the main Section applies when the tax was deductable and was so deducted during the last month of the assessment year and was paid on or before the due date for filing of the return under Section 139(1). The proviso applies when tax has been deducted in any subsequent year or has been deducted as per clause A thereto during last month of the previous year, but has been paid after the said due date. The expression “said due date” cannot mean the date on which TDS as per the Chapter XVIII B should have been paid. It refers to the due date for filing of the return under Section 139(1) of the Act. Any other interpretation would lead to difficulties, incongruities and conflict between clause A of the main Section and clause A of the proviso. Both would be applicable to the same factual matrix/situation with contradictory stipulations or consequences. Under clause A of the main Section, the TDS deductable and so deducted during the last month should be paid on or before the due date for filing of the return under Section 139(1) but as per the Revenue under the proviso clause A, TDS should be deducted during the last month of the previous year but paid before the “said due date” i.e. the date by which TDS is payable under the Act. This interpretation if accepted means that clause A of the proviso and clause A of the main Section would become irreconcilable and mutually contradictory. Clause A of the proviso does not postulate the obvious but seeks to relax the rigor when tax deducted stands paid. This is the reason why the proviso in clause A does not use the expression “tax was deductable and was so deducted” but uses the expression “tax has been deducted during the last month of the previous year”. The expression “said due date” in the clause A to the proviso does not mean and refer to the date on which tax should have been deposited without interest or penalty under Chapter XVII-B. This is obvious. Clause A to the proviso applies when the deduction is post the period specified by law but in the last month of a previous year. In such cases under the proviso clause A, TDS should be paid before “the said due date” i.e. the date on which return under Section 139(1) of the Act is to be filed.”
8. Let us now refer to the facts of the present cases. In the case of Talbros (P) Ltd. there was late deposit of TDS on expenditure of Rs.66,29,926/- as per the following details:
