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TMI Blog2015 (6) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... deduct the whole or any part of the tax on the payment made to a resident and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the such resident, the interest under section 201(1A)(i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident payee.These amendments will take effect from 1st July, 2012. In order to rationalize the provisions of disallowance on account of non-deduction of tax from the payments made to a resident payee, it is proposed to amend section 40(a)(ia) to provide that where an assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, the, for the purpose of allowing deduction of such sum, it shall be deemed that the assessee had deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee. These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividual capacity and applied for business purposes in so far as the accounts of proprietary firm of the appellant was only subjected to audit u/s 43B and there was no need for the appellant to deduct tax at source on borrowings in personal capacity. 3. Without prejudice, the C.I.T.(A) erred in law in confirming the disallowance of interest of ₹ 91929/- in the spirit of instruction no. 275/201l95-IT(B) dated 29/0111997 issued by CBDT and approved by Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd [2007] 293 ITR 226 according to which the appellant cannot be forced to deduct tax at source if there is no tax liability in the hands of payee. This intent of law duly found it's place in the statute book by way of proviso inserted to section 40(ia) by Finance act, 20 12. The reliance placed by C.I.T.(A) on the judgment of Hon'ble High Court of Madras in the case of Tube Investment is out of context and does not deal with the appellants point of contention. 4. Without prejudice, the CIT(A) should have allowed the claim in view of proviso to section 40(ia) inserted by finance act, 2012 which should be treated as clarificatory as it is inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was produced. Appellant s submissions that as tax was paid by persons directly on receipts, where tax was not deducted, placing reliance on decision of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage (P) Ltd. vs. CIT 293 ITR 226 (2007) is misplaced, as Section 40(a)(ia) has distinctive provisions, to ensure implementation of TDS provisions is scrupulously implemented to ensure that at one point at least recovery of tax is ensured. The relevant portion of the judgment of the Hon'ble High Court of Madras in the case of Tube Investment of India Ltd. vs. ACIT [2010] 325 ITR 610 (Mad.) is quoted as under: In view of the above, it is held that AO had correctly disallowed interest expense claimed, due to non-deduction of tax u/s. 194A as per the provisions of section 40(a)(ia) of the IT Act. The appeal made on this ground is dismissed. Aggrieved, assessee preferred second appeal before Tribunal. 5. I have heard rival contentions and gone through the facts and circumstances of the case. I find from first argument made by Ld. counsel for the assessee that the second proviso to section 40(a)(ia) of the Act inserted by the Finance Act, 2012 would app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t source. In the similar circumstances, I find that the first proviso to section 40(a)(ia) inserted by the Finance Act, 2010, which has been held to be curative and therefore, retrospective in its operation by the Hon'ble Calcutta High Court in ITAT No. 302 of 2011, GA 3200/2011, CIT v Virgin Creations decided on November 23, 2011 provides for allowance of the expenditure in any subsequent year in which tax has been deducted and deposited. The intention of the legislature clearly is not to disallow legitimate business expenditure. The allowance of such expenditure is sought to be made subject to deduction and payment of tax at source. However, in a case where the deductee/payee has paid tax and as such the person responsible for paying is no longer required to deduct or pay any tax, legitimate business expenditure would stand disallowed since the situation contemplated by the first proviso viz. deduction and payment of tax in a subsequent year would never come about. Such unintended consequence has been sought to be taken care of by the second proviso inserted in section 40(a)(ia) by the Finance Act, 2012. There can be no doubt that the second proviso was inserted to supply an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ificate to this effect from an accountant in such form as may e prescribed. The date of payment of taxes by the resident payee shall be deemed to be the date on which return has been furnished by the payer. It is also proposed to provide that where the payer fails to deduct the whole or any part of the tax on the payment made to a resident and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the such resident, the interest under section 201(1A)(i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident payee. Amendments on similar lines are also proposed to be made in the provisions of section 206C relating to TCS for clarifying the deemed date of discharge of tax liability by the buyer or lincensee or lessee. These amendments will take effect from 1st July, 2012. II. Disallowance of business expenditure on account of non-deduction of tax on payment to resident payee. A related issue to the above is the disallowance under section 40(a)(ia) of certain business expenditure like interest, commission, brokerage, professional fee, etc. due to non-dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od prescribed for this payment, although the payment so made by them did not fall in the relevant previous year. This was because the sales tax collected pertained to the last quarter of the relevant accounting year. It could be paid only in the next quarter which fell in the next accounting year. Therefore, even when the sales tax had in fact been paid by the assessee within the statutory period prescribed for its payment and prior to the filing of the income tax return, these assessees were unwittingly prevented from claiming a legitimate deduction in respect of the tax paid by them. This was not intended by section 43B. Hence, the first proviso was inserted in section 43B. The amendment which was made by the Finance Act of 1987 in section 43B by inserting, inter alia, the first proviso, was remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation. 7. Recently, Hon'ble Supreme Court in the case of CIT v. Vatika Township P. Ltd., (2014) 367 ITR 466 (SC) has held as under: We would also like to point out, for the sake of completeness, that wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. According to Hon'ble Supreme Court, where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. Similarly, as argued by Ld. counsel for the assessee in the present case before me, that the insertion of 2nd proviso by the Finance Act, 2012 is remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the assessee. 8. Further, Special Bench of this Tribunal in Bharti Auto Products v. CIT, (2013) 145 ITD 1 recently held the first proviso inserted in section 206C (6A) with effect from July 1, 2012 similar to the proviso inserted in section 201(1) was retrospective in its operation. Further, in Rajeev Kumar Agarwal v Addl. CIT (2014) 149 ITD 363, Agra Bench of this Tribunal has taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering that the legislature was not in favour of creating undue hardship for an assessee, Clause (ia) should only be construed to apply to those cases where the payment is outstanding. (emphasis supplied) aforesaid submission was dealt with in paragraph 21 of the judgment as follows: . A few words are now necessary to deal with the submission of Mr. Bagchi and Ms. Roychowdhuri. There can be no denial that the provision in question is harsh. But that is no ground to read the same in a manner which was not intended by the legislature. This is our answer to the submission of Mr. Bagchi. The submission of Ms. Roychowdhuri that the second proviso sought to become effective from 1st April, 2013 should be held to have already become operative prior to the appointed date cannot also be acceded to for the same reason indicated above. The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It is not the case of an inadvertent error. (emphasis supplied) Further, Hon'ble jurisdictional High Court in the case of Commissioner of Income Tax v. M/s Peerless Hospitex Hospital and Research Centre Ltd. in Tax Appeal No.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outstanding at the end of the year and not in respect of payments actually made during the previous year or not? Hon'ble Calcutta High Court was pleased to hold that clause (ia) was applicable not only in respect to outstanding amounts but also amounts paid. In deciding the said controversy, the Hon'ble Calcutta High Court was pleased to reject the submission on behalf of the assessee that the object behind the insertion of the second proviso with effect from April 1, 2013 should also guide the interpretation of the parent clause (ia). It was argued by Ld. counsel for the assessee that the observations of the Hon'ble High Court in paragraph 21 of its judgment dealt with the limited argument made on behalf of the assessee recorded in paragraphs 5 and 6 of the judgment and cannot be read as deciding the question as to whether the second proviso is curative and clarificatory of the law from its inception. The question whether the second proviso is curative and clarificatory did not arise for consideration in Crescent s case, was not debated before the Hon'ble Calcutta High Court. Hon'ble Supreme Court in the case of In State of Haryana v. Ranbir, (2006) 5 SCC 167, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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