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2020 (7) TMI 570 - HC - Income TaxAmendment made to Section 40(a)(ia) by Finance Act, 2010 - retrospective effect - HELD THAT - Substantial questions of law framed for consideration in this appeal were answered against the Revenue in the decision of the Hon ble Supreme Court in the case of CIT Vs. Calcutta Export Company 2018 (5) TMI 356 - SUPREME COURT as amended provision of Sec 40(a)(ia) of the IT Act should be interpreted liberally and equitable and applies retrospectively from the date when Section 40(a)(ia) was inserted i.e., with effect from the Assessment Year 2005-2006 so that an assessee should not suffer unintended and deleterious consequences beyond what the object and purpose of the provision mandates. As the developments with regard to the Section recorded above shows that the amendment was curative in nature, it should be given retrospective operation as if the amended provision existed even at the time of its insertion. Since the assessee has filed its returns on 01.08.2005 i.e., in accordance with the due date under the provisions of Section 139 IT Act, hence, is allowed to claim the benefit of the amendment made by Finance Act, 2010 to the provisions of Section 40(a)(ia) of the IT Act. - Decided against revenue.
Issues:
Appeal against ITAT order for assessment year 2005-06 - Interpretation of Section 40(a)(ia) amendment - Retrospective application - Allowability of deduction for corresponding expenditure. Analysis: The High Court heard the appeal by the Revenue against the ITAT order for the assessment year 2005-06. The substantial questions of law raised were related to the interpretation of the amendment to Section 40(a)(ia) by the Finance Act, 2010. The first issue was whether the ITAT was correct in holding that the amendment applied retrospectively despite being effective from 01.4.2010. The second issue was whether the ITAT was right in allowing the deduction for corresponding expenditure if taxes withheld were not remitted before the end of the financial year. The High Court noted that the substantial questions of law were answered against the Revenue in a previous decision of the Supreme Court in the case of CIT Vs. Calcutta Export Company. The Supreme Court held that a proviso inserted to remedy unintended consequences and make a provision workable should be read into the Section to give it a reasonable interpretation and treated as retrospective in operation. The purpose of the amendment by the Finance Act, 2010 was to solve anomalies for bona fide taxpayers, especially for marginal and medium taxpayers who could suffer adverse consequences if the amendment was not given retrospective operation. Referring to previous judgments, the High Court emphasized the curative nature of the amendment and the need for retrospective application to prevent unintended and deleterious consequences for taxpayers. Therefore, the High Court interpreted Section 40(a)(ia) liberally and equitably, applying it retrospectively from the date of its insertion, i.e., from the Assessment Year 2005-2006. As the assessee filed returns before this date, they were allowed to claim the benefit of the amendment made by the Finance Act, 2010. Consequently, the High Court dismissed the appeal by the Revenue, upholding the ITAT order and answering the substantial questions of law against the Revenue. The decision was based on the binding effect of previous judgments and the need to prevent unintended consequences for taxpayers. No costs were awarded in this matter.
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