2017 (8) TMI 1354 - HC - Income Tax

TDS u/s 194C - Addition u/s 40(a)(ia) - non deduction of payment to the sub contractors - scope of amendment made by the Finance Act 2010 - Held that - The respondent assessee did not violate the unamended section 40(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 provision 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 liberalises the statue 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.

Summary

Issues Involved:
1. Whether the Tribunal was legally justified in reversing the findings of the CIT(A) and holding that the assessee had deducted tax at source and deposited it in accordance with Chapter XVII and Section 194C and no disallowance was to be made u/s 40(a)(ia)?
2. Whether the Tribunal was legally justified in reversing the findings of the CIT(A) and holding that the assessee was entitled to the payment of ?1,01,50,000/- made to the sub-contractors without deducting TDS according to Section 40(a)(ia) r/w 194C?

Issue-wise Detailed Analysis:

1. Justification of Tribunal's Reversal on Tax Deduction and Deposit:

The department challenged the Tribunal's decision, which favored the assessee. The Tribunal reversed the CIT(A)'s findings, stating that the assessee had deducted tax at source and deposited it as per Chapter XVII and Section 194C, thus no disallowance should be made under Section 40(a)(ia). The AO initially observed that the assessee failed to deposit the TDS for payments made up to 28.02.2007 within the stipulated time, thereby invoking Section 40(a)(ia). The CIT(A) upheld this view, emphasizing that the tax was deductible in various months but was only deducted in the last month, thus disallowing the deduction for the year. However, the Tribunal referred to precedents, including the case of Inder Prasad Mathura Lal vs ITO, which established that amendments to Section 40(a)(ia) were curative and retrospective. The Tribunal concluded that since the assessee deducted tax in the last month and paid it before the due date for filing the return, disallowance was not warranted.

2. Justification of Tribunal's Reversal on Payment to Sub-contractors:

The Tribunal's decision also addressed whether the assessee was entitled to the payment of ?1,01,50,000/- made to sub-contractors without deducting TDS as per Section 40(a)(ia) r/w 194C. The AO and CIT(A) had disallowed this payment, citing non-compliance with TDS provisions. The CIT(A) argued that the assessee's deduction of TDS in the last month did not align with the legislative intent, which aimed to avoid undue advantage to late deductors over those who deducted TDS timely but failed to deposit it within the fiscal year. The Tribunal, however, supported the assessee by referencing judicial interpretations that amendments to Section 40(a)(ia) were meant to be retrospective and curative, thus applying to the case at hand. The Tribunal ruled that the assessee's compliance with TDS payment before the due date for filing returns sufficed, reversing the CIT(A)'s disallowance.

Supporting Judgments and Precedents:

The Tribunal's decision was bolstered by several high court rulings, such as the Delhi High Court's decisions in Commissioner of Income Tax vs. Naresh Kumar and Commissioner of Income Tax vs. Harish Chand Ahuja, which held that amendments to Section 40(a)(ia) were retrospective. These rulings emphasized that the legislative intent was to alleviate undue hardship and ensure equitable treatment of taxpayers regarding TDS compliance. The Gujarat High Court and Karnataka High Court also supported this view, highlighting that the amendments aimed to rectify anomalies and should be applied retrospectively to achieve legislative intent.

Conclusion:

The Tribunal's decision, favoring the assessee, was based on the interpretation that amendments to Section 40(a)(ia) were curative and retrospective, thus applicable to the case. The Tribunal's reversal of the CIT(A)'s findings was justified by judicial precedents that aligned with the legislative intent to provide relief to taxpayers who complied with TDS provisions within the extended timeframe. Consequently, the appeal by the department was dismissed, affirming the Tribunal's decision in favor of the assessee.