2013 (7) TMI 231 - HC - Income Tax

Amendment to section 40(a)(ia) - TDS deposited before filing of return u/s 139(1) instead of depositing withing 7 days - retrospective amendment to section 40(a)(ia) at time of filing of appeal - Held that - It is not in dispute that on the date the assessee deducted the tax, he had to pay/remit the money within seven days from that date and if the amount is actually paid when the credit is given, then the tax is payable within two months. Admittedly, in the instant case, the assessee did not comply with the legal requirement. However, the assessing authority was justified in making the disallowance, but on the date the appeal was filed, the section came to be amended, giving retrospective benefit. Therefore, the appellate authority extended the benefit of the amended provision and held that the disallowance is paid and the order has been upheld by the Tribunal. Therefore, by the Finance Act, 2008, which is given retrospective effect from April 1, 2005, the benefit of that provision had been extended to the assessee, though the assessment order passed initially cannot be found fault. With the change of law, when the effect of the amendment is to give benefit to the assessee, the appellate authority and the Tribunal were justified in extending the said benefit. In that view of the matter, the order passed by the Tribunal is in accordance with law and does not call for interference - Decided against revenue.

Summary

Issues:
Appeal against Tribunal's order granting relief to the assessee under section 40(a)(ia) of the Income-tax Act, 1961 for assessment year 2005-06.

Analysis:
The case involved an appeal by the Revenue challenging the Tribunal's order that upheld the appellate authority's decision to grant relief to the assessee, a cotton business firm, for the assessment year 2005-06. The assessing officer had made additions under section 40(a)(ia) of the Act regarding ginning and pressing charges paid to contractors due to non-crediting of tax deducted at source within the stipulated period. The appellate authority, relying on an amendment to section 40(a)(ia) by the Finance Act, 2008, held the disallowance made by the assessing authority was not in accordance with the law. Consequently, the appellate authority directed the assessing authority to delete the disallowance. The Revenue contended before the Tribunal that the appellate authority failed to consider section 194C(1), which required tax deduction at source during payment months. However, the Tribunal, considering the effect of the 2008 amendment, ruled that if the tax deducted in the last month of the previous year was credited within the specified time, disallowance could not be made. Therefore, the Tribunal upheld the relief granted to the assessee.

The substantial questions of law framed by the court included the retrospective applicability of the 2010 amendment to section 40(a)(ia) and whether the assessee, who credited charges to contractors without deducting tax at source, was entitled to deduction under section 40(a)(ia). However, the parties' counsel agreed that these questions did not arise for consideration. The main question for consideration was whether the assessee was entitled to the benefit of the 2008 Finance Act amendment. The court noted that although the assessee did not comply with the legal requirements at the time of deduction, the retrospective amendment provided a benefit to the assessee. The appellate authority and the Tribunal were justified in extending this benefit to the assessee, despite the initial disallowance being justified. The court held that the order passed by the Tribunal was in accordance with the law and dismissed the appeal, directing each party to bear their own costs.