2021 (4) TMI 1029 - HC - Income Tax

Disallowance made u/s 40(a)(ia) for non deduction of tax at source on transport charges - Retrospective effect of amendment made by the Finance Act, 2010 in Section 40(a)(ia) - HELD THAT - The appellant fairly submitted that the issues involved in the present appeal are covered by the decision of the Hon'ble Supreme Court in Commissioner of Income Tax, Kolkata v. Calcutta Export Company 2018 (5) TMI 356 - SUPREME COURT the 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 in favour of the assessee.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of tax at source on transport charges.
2. Applicability of the amendment inserted by Finance Act, 2010 prospectively or retrospectively.
3. Disallowance of expenses due to late remittance of TDS.

Issue-Wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for non-deduction of tax at source on transport charges:
The primary issue concerns whether the Income Tax Appellate Tribunal was correct in allowing the disallowance made under Section 40(a)(ia) for non-deduction of tax at source on transport charges amounting to ?4,57,10,818/-. The Tribunal's decision was challenged by the Revenue, contending that the disallowance was justified due to the belated remittance of transport charges by the assessee.

2. Applicability of the amendment inserted by Finance Act, 2010 prospectively or retrospectively:
The Revenue argued that the amendment introduced by the Finance Act, 2010 to Section 40(a)(ia) should apply prospectively from 01.04.2010 and not to the assessment year 2005-06. However, the Supreme Court in Commissioner of Income Tax, Kolkata v. Calcutta Export Company (2018) 404 ITR 654 (SC) held that the amendment was curative in nature and should be applied retrospectively from the date of insertion of Section 40(a)(ia). The amendment aimed to mitigate hardships caused to assessees who deducted tax at source in the last month of the previous year but remitted it after the due date.

3. Disallowance of expenses due to late remittance of TDS:
The Tribunal's finding was challenged on the ground that the assessee remitted the transport charges belatedly on 04.04.2005 and 07.04.2005, after the due dates, warranting disallowance under Section 40(a)(ia). However, the Supreme Court clarified that the legislative intent behind the amendment was not to punish the assessee but to ensure tax compliance. The amendment allowed additional time for deposit of TDS, thereby preventing disallowance if the tax was deposited before the due date of filing the return under Section 139(1).

Judgment:
The High Court, upon hearing both parties, noted that the issues were covered by the Supreme Court's decision, which favored the assessee. The Supreme Court had already decided that the amended provision of Section 40(a)(ia) should be applied retrospectively from the assessment year 2005-06. Consequently, the High Court followed the Supreme Court's ratio, deciding the questions of law against the Revenue and in favor of the assessee, leading to the dismissal of the Tax Case Appeal with no costs.