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TMI Blog2014 (4) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No.352/Bang/13 is an appeal by the revenue against the order dated 15.01.2013 of the CIT(A)-II, Bangalore relating to A.Y. 2009-10. In this appeal, the assessee has challenged the order of the CIT(A) whereby the CIT(A) deleted an addition of Rs.29,18,873 made by the AO invoking the provisions of section 40(a)(ia) of the Income-tax Act, 1961 [hereinafter referred to as "the Act"] for the assessee's failure to deduct tax at source on payments made of RS.28,19,607, Rs.74,266 Rs.25,000/- in respect of payments towards contract, commission and professional fee. 2. The assessee has filed a Cross Objection which is purely supportive of the order of CIT(A) and therefore not maintainable and liable to dismissed as such. 3. The factual details with regard to the appeal are as follows. The assessee is a partnership firm. The Assessee manufactures fire extinguishers In the course of assessment proceedings the AO noticed from the Tax Audit Report filed u/s.44AB of the Act that the Assessee deduct tax at source on payments made of RS.28,19,607, Rs.74,266 Rs.25,000/- in respect of payments towards contract, commission and professional fee. 4. The Assessing Officer made an addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (iii) "professional services" shall have the same meaning as in clause (a) of the Explanation to section 194J; (iv) "work" shall have the same meaning as in Explanation III to section 194C; ' 5. The Memorandum explaining the provisions in the Finance Bill explained the rationale of the insertion of the new provision in following words : "With a view to augment compliance of TDS provisions, it is proposed to extend the provisions of section 40(a)(i) to payments of interest, commission or brokerage, fees for professional services or fees for technical services to residents, and payments to a resident contractor or sub-contractor for carrying out any work (including supply of labour for carrying out any work), on which tax has not been deducted or after deduction, has not been paid before the expiry of the time prescribed under sub-section (1) of section 200 and in accordance with the other provisions of Chapter XVII-B. It is also proposed to provide that where in respect of payment of any sum, tax has been deducted under Chap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing the due date u/s 139(1), the deductibility of the amount was kept intact. The second category included cases other than those given in category first. To put it simply, if tax was deductible and was so deducted during the first eleven months of the previous year, that is, up to February, 2005, the disallowance was to be made if the assessee failed to pay it before 31st March, 2005. 8. Then came the amendment to section 40(a)(ia) by the Finance Act, 2010 with retrospective effect from 1st April, 2010. The provision so amended, now reads as under : "(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or; after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139. Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arati Shipyard Ltd (supra). Before the Special Bench it was argued that the amendment was made with a view to remove the unnecessary hardship caused to the assessee by the earlier provision. The Special Bench by its order dated 9.9.2011 however held that the amendment carried out by the Finance Act, 2010 with retrospective effect from assessment year 2010- 2011 cannot be held to be retrospective from assessment year 2005-2006. The Special Bench held that the amendment brought out by the Finance Act, 2010 to section 40(a)(ia) w.e.f. 01.04.2010, is not remedial and curative in nature. 11. The AO following the decision of the Special Bench in the case of Bharati Shipyard (supra) disallowed a sum of Rs. Rs.29,18,873 invoking the provisions of section 40(a)(ia) of the Act. 12. Aggrieved by the order of AO, the Assessee preferred appeal before CIT(A). The CIT(Appeals) deleted the addition made by the AO following the decision of the ITAT Bangalore Bench in the case ACIT v. M.K. Gurumurthy, ITA No.717/Bang/2011 reported in [2012] 52 SOT 84 (Bang-Tri]. In the case of M.K. Gurumurthy (supra), the ITAT Bangalore Bench on the issue of disallowance u/s.40(a)(ia) of the Act followed the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since its inception and various amendments made to the same including the suggestion made by the Industry in the form of representation in their pre-budget memorandum to the Hon'ble Finance Minister and by applying the decision of the Hon'ble Apex Court in the case of Alom Extrusions Ltd., has observed that "The provisions of Section 40(a)(ia) as stood prior to the amendments made by the Finance Act 2010 thus were resulting into unintended consequences and causing grave and genuine hardships to the assesses who had substantially complied with the relevant TDS provisions by deducting the tax at source and by paying the same to the credit of the Government before the due date of filing of their returns u/s.139(1). In order to remedy this position and to remove the hardships which was being caused to the assessee belonging to such category, amendments have been made in the provisions of Section 40(a)(ia) by the Finance Act, 2010. The said amendments, in our opinion, thus are clearly remedial/curative in nature as held by the Hon'ble Supreme Court in the case of Allied Motors Pvt. Ltd. (supra) and Mom Extrusions Ltd. (supra) and the same therefore would apply retrospectively w.e.f. 1s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy decided that the aforesaid provision has retrospective application. Again, in the case reported in 82 ITR 570, the Supreme Court held that the provision, which has inserted the remedy to make the provision workable, requires to be treated with retrospective operation so that reasonable deduction can be given to the section as well. In view of the authoritative pronouncement of the Supreme Court, this court cannot decide otherwise. Hence we dismiss the appeal without any order as to costs." 15. Following the decision of the Hon'ble Calcutta High Court, the Bangalore Bench of the Tribunal in the case of M.K. Gurumurthy Ltd. (supra)had held that tax deducted at source, if it is paid on or before the due date for filing return of income, will not attract disallowance u/s. 40(a)(ia) of the Act. In other words, it was held that the amendment by the Finance Act, 2010 was retrospective from 01.04.2005. 16. Aggrieved by the order of the CIT(Appeals), the revenue has preferred the appeal before the Tribunal. 17. Before us it was submitted by the Id. DR that the department has already filed an appeal before the Hon'ble High Court on the issue and therefore the revenue has filed the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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