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2015 (2) TMI 150 - HC - Income TaxDisallowances under section 40 a (ia) - non deduction of TDS on labour contractors payment - due date for payment into the account of Central Government - ITAT deleted the addition relying on the amendment made in Section 40 a (ia) thereby giving it retrospective effect - Retrospective v/s prospective - Held that - Substantial question of law raised in these Appeals in favour of the assessee and against the Revenue by holding the amendment made in Section 40 (a)(ia) of the Income Tax Act, 1961 by the Finance Act 2010, as retrospective in operation, having effect from 1st April 2005 ie., from the date of insertion of Section 40 (a) (ia) of the Act. Resultantly, we hold that the Tribunal rightly decided the said issue following the Calcutta High Court s decision in case of Virgin Creations 2011 (11) TMI 348 - CALCUTTA HIGH COURT by holding that the disallowance made under Section 40 (a)(ia) by the CIT A even for the amount for which the TDS had been deducted before 1st March 2005, holding amendment brought on 1st April 2010 as retrospective in nature. - Decided in favour of assessee.
Issues Involved:
1. Whether the Income Tax Appellate Tribunal was justified in deleting the addition of Rs. 23,13,933/-, relying on the amendment made in Section 40 [a](ia) of the Income Tax Act, 1961 by the Finance Act, 2010 and thereby giving it retrospective effect. Issue-wise Detailed Analysis: 1. Background and Facts: The assessee, engaged in the construction business, filed a return of income for the Assessment Year 2005-06. During scrutiny, the Assessing Officer noted that certain payments and credits to labor contractors totaling Rs. 41,56,125/- had TDS deducted but not deposited in the Government account within the stipulated time. The Assessing Officer added this amount under Section 40 [a](ia) of the Income-tax Act, 1961. 2. CIT (A) Decision: The CIT (A) upheld the addition of Rs. 23,13,933/- where TDS was deducted before 1st March 2005 but not deposited timely. However, for Rs. 18,42,192/- where TDS was deducted in March and deposited before the return filing due date, the CIT (A) deleted the addition, citing the amended provisions of Section 40 [a](ia). 3. Tribunal's Decision: The Tribunal, referencing the Calcutta High Court's decision in CIT v. Virgin Creations and other precedents, ruled in favor of the assessee, deleting the disallowance of Rs. 23,13,933/-. The Tribunal noted that TDS was deposited before the due date of filing the return, aligning with the amended Section 40 [a](ia). 4. Revenue's Appeal: The Revenue challenged the Tribunal's decision, questioning whether the amendment to Section 40 [a](ia) by the Finance Act, 2010, which extended the time for TDS payment, should be applied retrospectively. 5. Arguments by Revenue: The Revenue argued that the amendment was not clarificatory or meant to remove unintended anomalies, and thus, should not be applied retrospectively. They emphasized that the amendment aimed to ensure compliance with TDS provisions and prevent revenue leakage. 6. Assessee's Counterarguments: The assessee's counsel argued that the amendment was curative, intended to mitigate hardship caused by the original provision. They cited the Finance Minister's speech and explanatory notes, suggesting that the amendment should apply retrospectively to align with the legislative intent of easing compliance burdens. 7. Court's Analysis: The Court examined the legislative history and intent behind Section 40 [a](ia) and its amendments. It noted that the original provision aimed to ensure TDS compliance but resulted in unintended hardships. The 2010 amendment, which extended the time for TDS payment to the return filing due date, was seen as curative, addressing these hardships. 8. Retrospective Application: The Court held that the amendment by the Finance Act, 2010, though explicitly effective from 1st April 2010, should be applied retrospectively from 1st April 2005. This interpretation aligns with the legislative intent to provide relief from the stringent original provision and ensure uniform application of the law. 9. Supporting Precedents: The Court referenced several precedents, including Allied Motors (P) Limited v. CIT and CIT v. Alom Extrusions Limited, where similar amendments were held retrospective to remove anomalies and unintended consequences. 10. Conclusion: The Court concluded that the amendment to Section 40 [a](ia) by the Finance Act, 2010, is retrospective from 1st April 2005. The Tribunal's decision to delete the disallowance of Rs. 23,13,933/- was upheld, as the TDS was deposited before the due date of filing the return. Judgment: All the Tax Appeals preferred by the Revenue were dismissed, affirming the Tribunal's decision and holding the amendment to Section 40 [a](ia) as retrospective in operation from 1st April 2005.
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