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TMI Blog2015 (2) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... really alter this position, as laid down by the Hon'ble Bombay High Court in the case of CIT v. Godavaridevi Saraf (1977 (9) TMI 24 - BOMBAY High Court). Amendment to the provisions of Sec.40(a)(ia) of the Act, by the Finance Act, 2010 was held to be retrospective from 1.4.2005. If the amendment is considered as retrospective from 1.4.2005, the effect will be that payments of TDS to the credit of the Government on or before the last date for filing return of income u/s.139(1) of the Act for the relevant AY have to be allowed as deduction. Admittedly in the case of the Assessee payments were so made before the said due date and in terms of the decision of the Hon’ble Calcutta High Court in COMMISSIONER OF INCOME TAX, KOL-XI, KOL Versus VIRGIN CREATIONS [2011 (11) TMI 348 - CALCUTTA HIGH COURT] no disallowance could be made by the AO u/s. 40(a)(ia) of the Act. Admittedly in the present case, the Assessee had deposited the tax deducted at source on or before the due date for filing return of income u/s.139(1) of the Act and therefore the impugned disallowance deserves to be deleted. Decided in favour of assessee. - ITA No.907/Bang/2011 - - - Dated:- 31-10-2014 - SHRI N.V. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction of tax at source till the month of March, 2006 and remitted the amount to the credit of the Government on 18.8.2006. The provisions of Sec.40(a)(ia) of the Act applicable to the relevant AY need to be looked into. Section 40 has certain clauses providing for the amounts which are not deductible. Sub-clause (ia) of clause (a) of section 40 was inserted by the Finance (No.2) Act, 2004 with effect from 1st April, 2005 reading as under:- 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computed the income chargeable under the head `Profits and gains of business or profession - .. (ia) any interest, commission or brokerage, 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 or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 : Provided that where in respect of any such sum, tax has been deducted in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 paid,- (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139 ; or (B) in any other case, on or before the last day of the previous year. Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted- (A) during the last month of the previous year but paid after the said due date ; or (B) during any other month of the previous year but paid after the end of the said previous year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. ; 7. The Finance Act, 2008 brought out amendment to section 40(a)(ia) w.r.e.f. 1.4.2005 by relaxing earlier position to some extent. It made two categories of defaults causing disallowance on the basis of the period of the previous year in which tax was deductible. The first category of disallowances included the cases in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the due date specified in section 139(1); and (2) if TDS is made at any other time, but not paid on or before the last day of the previous year. It is the case of the assessee that the default on the part of the firm is not in failing to make TDS, but in remitting the TDS made to Government account, and that section 40(a)(ia) is not attracted because the first circumstance is not met or, in other words, the TDS was paid before the due date specified in section 139(1), viz., 31.10.2006. 10. I do not find merit in the above contention. Operation of section 40(a)(ia) is contingent upon the conditions for deduction of tax at source prescribed under the relevant sections in Chapter XVII-B, Section 194C, which deals with payments to contractors, clearly specifies that any person responsible for paying any sum to any resident contractor for carrying out any work including supply of labour for carrying out any work shall deduct tax at the rates prescribed at the time of credit of such sum to the account of the contractor or at the time of payment thereof, whichever is earlier. Similarly, section 194J, which deals with fees for professional or technical services, also lays down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable 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 subsection (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 previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. 13. From the above provision as amended by the Finance Act, 2010 with retrospective effect from 1st April, 2010 it can be seen that the only difference which this amendment has made is dispensing with the earlier two categories of defaults as per the Finance Act, 2008, as discussed in the earlier para, causing disallowance on the basis of the period of the previous year during which tax was deductible. The first category of disallowances included the cases in which tax was deductible and was so deducted during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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. 16. Prior to the decision of the Special Bench, identical issue had come up for consideration before the ITAT Kolkata Bench in the case of Virgin Creations Vs. ITO, Ward 32(4), Kolkata ITA No. 267/Kol/2009 for AY 05-06. The issue that arose for consideration was disallowance of expenses u/s.40(a)(ia)claimed as deduction while computing income from business being embroidery charges, dyeing charges, interest on loan and freight charges without deducting tax at source. The Embroidery charges were paid between 22nd may, 2004 to 30.11.2004. Tax had been deducted at source but were paid to the Government only on 28.10.2005 and not within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 1st April, 2005. In the case of R.B.Jodha Mal Kuthiala 82 ITR 570, it was held by the Hon ble Supreme Court that a proviso which is inserted to remedy unintended consequences and to make the provision workable, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. In the present case, the amount of tax deducted at source from the freight charges during the period 01/04/2005 to 28/02/2006 was paid by the Assessee in the month of July and August 2006 i.e., well before the due date of filing of its return of income for the year under consideration. This being the undisputed position, we hold that the disallowance made by the A.O. and confirmed by the learned CIT(A) on account of freight charges by invoking the provisions of Section 40(a)(ia) is not sustainable as per the amendments made in the said provisions by the Finance Act, 2010 which, being re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant AY have to be allowed as deduction. Admittedly in the case of the Assessee payments were so made before the said due date and in terms of the decision of the Hon ble Calcutta High Court no disallowance could be made by the AO u/s. 40(a)(ia) of the Act. 19. The question now is as to whether to follow the decision of the Hon ble Special bench which has taken the view that Amendment by the Finance Act, 2010 to the provisions of Sec.40(a)(ia) of the Act is prospective and not retrospective from 1.4.2005 or the decision of the Hon ble Calcutta High Court taking a contrary view. On the above question, the learned counsel for the Assessee brought to our notice the decision of the ITAT Delhi in the case of Tej International (P) Ltd. v. Dy. CIT (2000) 69 TTJ (Del) 650, wherein it was held that in the hierarchical judicial system that we have in India, the wisdom of the court below has to yield to the higher wisdom of the Court above, and therefore, once an authority higher than this Tribunal has expressed its esteemed views on a an issue, normally, the decision of the higher judicial authority is to be followed. The Bench has further held that the fact that the judgment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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