COMMISSIONER OF INCOME TAX KOLKATA XIIV. M/S CALCUTTA EXPORT COMPANY versus M/S CALCUTTA EXPORT COMPANY on 24 April 2018

[2018] 5 S.C.R. 731

COMMISSIONER OF INCOME TAX KOLKATA XII

v.

M/S CALCUTTA EXPORT COMPANY

(Civil Appeal Nos. 4339-4340 of 2018)

APRIL 24, 2018

[R. K. AGRAWAL AND ABHAY MANOHAR SAPRE, JJ.]

Income Tax Act, 1961 – s.40(a)(ia) and ss.139(1), 200(1) –Amendment in s.40(a)(ia) by Finance Act, 2010 – If retrospective –Respondent-assessee, a partnership firm and a manufacturer andexporter of casting materials, filed its return of income for theAssessment Year 2005-06 – Assessing Officer disallowedrespondent’s claim for deduction of export commission charges paidby it stating that the tax deducted at source (TDS) on such commissionamount on 07.07.2004, 07.09.2004 and 07.10.2004 ought to havebeen deposited by the respondent before the end of the previousyear i.e. 31.03.2005 to get the commission amount deducted fromthe total income u/s.40(a)(ia), as it stood then – Respondent’s appealbefore CIT (Appeals), allowed – Order of CIT (Appeals) upheld byTribunal as also by High Court – Held: Finance Act, 2010 relaxedthe rigors of s.40(a(ia) to provide that all TDS made during theprevious year can be deposited with the Government by the duedate of filing the return of income by allowing additional time to thedeductors to deposit the TDS so made – Purpose of s.40(a)(ia) is toensure tax compliance and not to punish the tax payer, thus, it shouldnot be allowed to be converted into an iron rod provision whichmetes out stern punishment and results in malevolent results,disproportionate to the offending act and aim of the legislation –Purpose of the amendment made by the 2010 Act is to solve theanomalies that the insertion of s.40(a)(ia) was causing to the bonafide tax payer – Amendment made by the 2010 Act being curative innature is to be given retrospective operation i.e from the date ofinsertion of s.40(a)(ia), AY 2005-2006 – Tax paid by the respondenton 01.08.2005 is in accordance with law and it is allowed to claimdeduction for the tax deducted and paid in the previous year inwhich the tax was deducted – Finance Act, 2010 – Finance Act,2008.

731

A

B

CDEF

G

H

AInterpretation of Statutes – Curative amendments – Nature ofoperation – Held: A proviso inserted to remedy unintendedconsequences and make the provision workable, a proviso whichsupplies an obvious omission in the Section, is required to be readinto the Section to give the Section a reasonable interpretation andrequires to be treated as retrospective in operation so that aBreasonable interpretation can be given to the Section as a whole.

Disposing of the matters, the Court

HELD: 1.1 The provisions of Section 40(a)(ia) of the IncomeTax Act, 1961 came into force in the year 2005. The intention ofCthe legislature was not to punish the assessee is further reflectedfrom a bare reading of the provisions of Section 40(a)(ia). It onlyresults in shifting of the year in which the expenditure can beclaimed as deduction. In a case where the tax deducted at sourcewas duly deposited with the government within the prescribedtime, the said amount can be claimed as a deduction from theDincome in the previous year in which the TDS was deducted.However, when the amount deducted in the form of TDS wasdeposited with the government after the expiry of period allowedfor such deposit then the deductions can be claimed for suchdeposited TDS amount only in the previous year in which suchEpayment was made to the government. However, it caused somegenuine and apparent hardship to the assessees especially inrespect of tax deducted at source in the last month of the previousyear, the due date for payment of which as per the time specifiedin Section 200 (1) of IT Act was only on 7[th] of April in the nextyear. The assessee in such case, thus, had a period of only sevenFdays to pay the tax deducted at source from the expenditureincurred in the month of March so as to avoid disallowance of thesaid expenditure under Section 40(a)(ia) of IT Act. [Paras 14, 16,17] [740-B; 741-B-E]

1.2 With a view to mitigate this hardship, Section 40(a)(ia)Gwas amended by the Finance Act, 2008. The amendments madeby the Finance Act, 2008 provided that no disallowance underSection 40(a)(ia) of the IT Act shall be made in respect of theexpenditure incurred in the month of March if the tax deductedat source on such expenditure has been paid before the due dateH

of filing of the return. The amendment was given retrospectiveoperation from the date of 01.04.2005 i.e., from the very date ofsubstitution of the provision. Therefore, the assessees were, afterthe said amendment in 2008, classified in two categories namely;one; those who have deducted that tax during the last month ofthe previous year and two; those who have deducted the tax inthe remaining eleven months of the previous year. It was providedthat in case of assessees falling under the first category, nodisallowance under Section 40(a) (ia) of the IT Act shall be madeif the tax deducted by them during the last month of the previousyear has been paid on or before the last day of filing of return inaccordance with the provisions of Section 139(1) of the IT Actfor the said previous year. In case, the assessees are fallingunder the second category, no disallowance under Section40(a)(ia) of IT Act where the tax was deducted before the lastmonth of the previous year and the same was credited to thegovernment before the expiry of the previous year. The net effectwas that the assessee could not claim deduction for the TDSamount in the previous year in which the tax was deducted andthe benefit of such deductions can be claimed in the next yearonly. [Paras 18-20] [741-F; 742-E-H; 743-A]

1.3 The amendment though had addressed the concerns ofthe assessees falling in the first category but with regard to thecase falling in the second category, it was still resulting intounintended consequences and causing grave and genuinehardships to the assessees who had substantially complied withthe relevant TDS provisions by deducting the tax at source andby paying the same to the credit of the Government before thedue date of filing of their returns under Section 139(1) of the ITAct. The disability to claim deductions on account of such latelycredited sum of TDS in assessment of the previous year in whichit was deducted, was detrimental to the small traders who maynot be in a position to bear the burden of such disallowance inthe present Assessment Year. In order to remedy this positionand to remove hardships which were being caused to theassessees belonging to such second category, amendments weremade in the provisions of Section 40(a) (ia) by the Finance Act,2010. [Paras 21, 22] [743-B-D]

AB

C

D

E

F

G

H

734SUPREME COURT REPORTS

A1.4 Section 40(a)(ia), was amended by Finance Act, 2010,with effect from 01.04.2010. The Finance Act, 2010 furtherrelaxed the rigors of Section 40(a)(ia) to provide that all TDSmade during the previous year can be deposited with theGovernment by the due date of filing the return of income. Theidea was to allow additional time to the deductors to deposit theBTDS so made. However, the Memorandum explaining theprovisions of the Finance Bill, 2010 expressly mentioned asfollows: “This amendment is proposed to take effectretrospectively from 1st April, 2010 and will, accordingly, applyin relation to the Assessment Year 2010-2011 and subsequentCyears.” [Paras 23-25] [743-E; 744-A-B]

1.5 TDS results in collection of tax and the deductordischarges dual responsibility of collection of tax and itsdeposition to the government. Strict compliance of Section40(a)(ia) may be justified keeping in view the legislative objectDand purpose behind the provision but a provision of such nature,the purpose of which is to ensure tax compliance and not to punishthe tax payer, should not be allowed to be converted into an ironrod provision which metes out stern punishment and results inmalevolent results, disproportionate to the offending act and aimof the legislation. Legislature can and do experiment andEintervene from time to time when they feel and notice that theexisting provision is causing and creating unintended andexcessive hardships to citizens and subject or have resulted ingreat inconvenience and uncomfortable results. Obedience tolaw is mandatory and has to be enforced but the magnitude of Fpunishment must not be disproportionate by what is requiredand necessary. The consequences and the injury caused, ifdisproportionate do and can result in amendments which havethe effect of streamlining and correcting anomalies. Theamendments made in 2008 and 2010 were steps in the said direction only. Legislative purpose and the object of the saidGamendments were to ensure payment and deposit of TDS withthe Government. A proviso which is inserted to remedyunintended consequences and to make the provision workable,a proviso which supplies an obvious omission in the Section, isrequired to be read into the Section to give the Section aH

reasonable interpretation and requires to be treated asretrospective in operation so that a reasonable interpretation canbe given to the Section as a whole. [Paras 26, 27] [744-D-H]

1.6 The purpose of the amendment made by the FinanceAct, 2010 is to solve the anomalies that the insertion of Section40(a)(ia) was causing to the bona fide tax payer. The amendment,even if not given operation retrospectively, may not materiallybe of consequence to the Revenue when the tax rates are stableand uniform or in cases of big assessees having substantialturnover and equally huge expenses and necessary cushion toabsorb the effect. However, marginal and medium taxpayers, whowork at low gross product rate and when expenditure whichbecomes subject matter of an order under Section 40(a)(ia) issubstantial, can suffer severe adverse consequences if theamendment made in 2010 is not given retrospective operationi.e., from the date of substitution of the provision. Transferringor shifting expenses to a subsequent year, in such cases, will notwipe off the adverse effect and the financial stress. Such couldnot be the intention of the legislature. Hence, the amendmentmade by the Finance Act, 2010 being curative in nature requiredto be given retrospective operation i.e., from the date of insertionof the said provision. The amended provision of Sec 40(a)(ia) ofthe IT Act should be interpreted liberally and equitable andapplies retrospectively from the date when Section 40(a)(ia) wasinserted i.e., with effect from the Assessment Year 2005-2006 sothat an assessee should not suffer unintended and deleteriousconsequences beyond what the object and purpose of theprovision mandates. Since the assessee had filed its returns on01.08.2005 i.e., in accordance with the due date under theprovisions of Section 139 IT Act, hence, is allowed to claim thebenefit of the amendment made by Finance Act, 2010 to theprovisions of Section 40(a)(ia) of the IT Act. [Paras 28 and 30][745-A-D, G-H; 746-A-B]

Allied Motors (P.) Ltd etc. v. CIT, Delhi (1997) 224 ITR677 (SC) – relied on.

Bharati Shipyard Ltd. v. Deputy CIT (Decision dated09.09.2011 of ITAT in ITA No. 404/Mumb/2009); CITv. Ansal Land Mark Township Pvt. Ltd. (Decision of AB

C

DE

F

G

H

ADelhi High Court in ITA No. 160/2015) ; Whirlpoolof India Ltd. v. CIT, New Delhi (2000) 245 ITR 3 ;CIT v. Amrit Banaspati (2002) 255 ITR 117 ; CIT v.Alom Enterprises Ltd.(2009) 319 ITR 306– referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 4339-4340 of 2018.

From the Judgment and Order dated 03.09.2012 of the High Courtof Calcutta at Kolkata in GA No. 2029 of 2012 and ITAT No. 175 ofD2012

WITH

Civil Appeal Nos. 4622, 4621, 4467, 4660, 4446, 4449, 4448, 4451,4468, 4623, 4469, 4453, 4454, 4459, 4457, 4456, 4471, 4624, 4460, 4462,E4463, 4466, 4465, 4470, 4386, 4625, 4387, 4388, 4389, 4390, 4473, 4481,4472, 4482, 4474, 4483, 4648, 4391, 4649, 4480, 4615, 4485, 4618, 4552,4650, 4486, 4651, 4488, 4490, 4489, 4491, 4492, 4497, 4498, 4501, 4515,4502, 4503, 4626, 4504, 4505, 4506, 4507, 4508, 4509, 4510, 4511, 4512,4513, 4514 of 2018

FT. C. (C) No.102 of 2015.

K. Radhakrishnan, R. P. Bhat, Sr. Advs., S. Wasim A. Qadri,D.L. Chidanand, H. R. Rao, Ms. Sadhna Sandhu, Mrs. Anil Katiyar,Ms. Pritha Srikumar, Ms. Arunima Kedia, Ms. Anushree Prashit Kapadia,Ms. Priyanka Rathi, Santosh Paul, Joseph Aristotle, Ms. Priya Aristotle,GAshish Yadav, Sreenath S., Rajeev Saxena, Ashwani Kumar Dubey,Ajay Choudhary, Hiren Dasan, Harish Dasan, Rahul Arya, ChandQureshi, Trideep Pais, N.K. Verma, Gautam Narayan, Puneet Jain,Ms. Christi Jain, Abhinav Gupta, Harsh Jain, Salil Kapoor, Ms. SanaiKapoor, Ms. Soumya Singh, Ms. Ananya Kapoor, Sumit Lalchandani,Praveen Swarup, Dr. Rakesh Gupta, Ms. Monika Ghai, Ms. ShyamalimaHBorah, Ambhoj Kumar Sinha, Ms. Manisha T. Karia, Ms. Nidhi Nagpal, Ms. Saumya, S. Mangal, Jay Savla, Ms. Renuka Sahu, Prabhat Chaurasia,Ms. Manju Jetley, Nikilesh Ramachandran, Jai Wadhwa, Kashyap KumarDwivedi, Abhishek Anand Rai, Dr. Sushil Balwada, Lakshmeesh S.Kamakhi, Soheb Rahman, Ajit Sharma, K. V. Mohan, R.K. Raghavan,K.V. Balakrishnan, Advs. for the appearing parties.

The Judgment of the Court was delivered by

R. K. AGRAWAL, J. 1. Leave granted.

2. The present appeal has been filed against the impugned finaljudgment and order dated 03.09.2012 passed by the High Court at Calcuttain GA No. 2029 of 2012 ITAT No. 175 of 2012 whereby a DivisionBench of the High Court dismissed the appeal filed by the Appellantagainst the order dated 29.02.2012 passed by the Income Tax AppellateTribunal (in short “the Tribunal”) in ITA No. 1487/Kol/2011.

3. Brief facts:-

(a) M/s. Calcutta Export Company - the Respondent is apartnership firm and is a manufacturer and exporter of casting materialshaving its principal place of business at Kolkata. The Respondent filedits return of income for the Assessment Year 2005-06 for Rs. 4,18,17,910/-.The case was selected for scrutiny and the assessment under Section143(3) of the Income Tax Act, 1961 (in short ‘the IT Act’) was completedon 28.12.2007. The Assessing Officer, vide order dated 12.10.2009,disallowed the export commission charges paid by the assessee toM/s. Steel Crackers Pvt. Ltd. amounting to Rs. 40,82,089/- while statingthat the tax deducted at source (TDS) on such commission amount on07.07.2004, 07.09.2004 and 07.10.2004 ought to have been deposited bythe Respondent before the end of the previous year i.e. 31.03.2005 toget the commission amount deducted from the total income in terms ofthe provisions of Section 40(a)(ia) of the IT Act as it stood then. But thesame was deposited on 01.08.2005, hence, the Respondent cannot beallowed to claim deduction of the commission amount from the totalincome. The Assessing Officer revised the total income toRs. 4,58,99,999/- with the requirement to pay the additional tax amountof Rs. 23,88,832/- by the Respondent.

(b) Being aggrieved by the order dated 12.10.2009, the Respondentpreferred an appeal before the Commissioner of Income tax (Appeals).Learned CIT (Appeals), vide order dated 01.08.2011, allowed the appeal A

B

C

DEF

G

H

Awhile holding that the commission amount is eligible for deduction underthe said Assessment Year.

(c) Being aggrieved, the Revenue preferred an appeal being ITANo. 1487/Kol/2011 before the Tribunal which came to be dismissed on29.02.2012.

B

(d) Being aggrieved by the order dated 29.02.2012, the Revenuepreferred an appeal before the High Court. The High Court, vide judgmentand order dated 03.09.2012, had dismissed the appeal.

(e) Aggrieved by the judgment and order dated 03.09.2012, theRevenue has preferred this appeal before this Court.

C

4. Heard learned senior counsel for the parties and perused thefactual matrix of the case.

Point(s) for consideration:-

5. Whether the amendment made by the Finance Act, 2010 inDSection 40(a)(ia) of the IT Act is retrospective in nature to apply to thepresent facts and circumstances of the case.

Rival contentions:-

6. Learned senior counsel appearing on behalf of the Revenuecontended that the impugned judgment passed by the High Court is badEin law and is liable to be set aside by this Court.

7. Learned senior counsel further contended that the courts belowhave erred in extending the meaning of the amendment made in Section40(a) (ia) and in not accepting the plain meaning of the Section as beingprohibitory in nature which makes the Respondent to deduct the TDSFand remit it in government account within the time limit prescribed underthe Section. He further contended that the amendment made underSection 40 (a) (ia) by the Finance Act, 2010, clearly states that theamendment has the retrospective effect from the Assessment Year2010-11 and it cannot be held to be retrospective from the AssessmentGYear 2005-2006.

8. Learned senior counsel further contended that the High Courterred in relying on the decision given by the jurisdictional High Court inITAT No. 302/2011 (G.A. No. 3200/2011) considering the fact that noappeal was preferred against the said judgment considering the low taxeffect in the said matter.H

9. Learned senior counsel finally contended that though the taxeffect is low in the present case also and the High Court has decided theissue in favour of the tax payer but in similar situation in the case ofBharati Shipyard Ltd. vs. Deputy CIT(ITA No. 404/Mumb/2009) theSpecial Bench of the ITAT has decided the issue in favour of the Revenueon 09.09.2011. Learned senior counsel finally contended that in view ofthe conflicting opinions by the coordinate Benches, correct interpretationof law is required by this Court.

10. Per contra, learned senior counsel appearing on behalf of theRespondent submitted that the purpose of insertion of provisions ofSection 40(a)(ia) of the IT Act was to ensure the compliance of TDSprovisions and not to punish those assessees who have deducted andpaid the TDS to the government sooner or later. The said purpose is alsovery much clear from the amendment made in 2008 and further by theamendment in 2010 to the existing provisions of Section 40(a)(ia). Insupport of this argument, learned senior counsel placed reliance on adecision of the Division Bench of the Delhi High Court in CIT v. AnsalLand Mark Township Pvt Ltd.in ITA No. 160/2015.

11. Learned senior counsel further submitted that the amendmentsof curative nature have to be applied retrospectively and hence theamendment made in 2010 to the existing provisions of Section 40(a)(ia)should be given retrospective effect from the date of insertion and insupport of this contention learned senior counsel relied on a decision ofthis Court in Allied Motors (P.) Ltd etc. vs. CIT, Delhi- (1997) 224 ITR677(SC).

12. Learned counsel for the Respondent finally submitted that thedecision of the High Court is well within the parameters of law andrequires no interference.

Discussion:-

13. The dispute in the present case revolves around the fact thatwhether the amendment made by the Finance Act, 2010 to the provisionsof Section 40 (a) (ia) of the IT Act is retrospective in nature so as toapply to the present case or not. If it is so, then the tax duly paid by theassessee on 01.08.2005 is well in accordance with law and the assesseeis allowed to claim deduction for the tax deducted and paid to thegovernment, in the previous year in which the tax was deducted.

AB

CD

E

F

G

H

A

14. For deciding as to the retrospective effect of the amendmentmade by Finance Act, 2010, it is required to see the Section as it standsbefore and after the amendment made through the Finance Act, 2010and the purpose of such insertion or amendment to the said provisions.The provisions of Section 40(a)(ia) came into force in the year 2005which stood as under:- B

“40. Amounts not deductible- Notwithstanding anything to thecontrary in [Sections 30 to 38], the following amounts shall not bededucted in computing the income chargeable under the head“Profits and gains of business or profession,- (a) in the case ofany assessee- C

(i) ……

(ia) any interest, commission or brokerage, rent, royalty, fees forprofessional services or fees for technical services payable to aresident, or amounts payable to a contractor or sub contractor,being resident, for carrying out any work (including supply of labourfor carrying out any work), on which tax is deductible at sourceunder Chapter XVIIB and such tax has not been deducted or,after deduction, has not been paid during the previous year, or inthe subsequent year before the expiry of the time prescribed undersub-section(1) of section 200; D

E

Provided that where in respect of any such sum, tax has beendeducted in any subsequent year or, has been deducted during theprevious year but paid in any subsequent year after the expiry ofthe time prescribed under sub-section (1) of section 200, suchsum shall be allowed as a deduction in computing the income ofFthe previous year in which such tax has been paid.”

15. The purpose of bringing the said amendment to the existingprovision of Section has been highlighted in the memorandum explainingthe provision which reads as under:- “With a view to augment compliance of TDS provisions, it isproposed to extend the provisions of the section 40(a)(ia) topayments of interest, commission or brokerage, fee for professionalservices or fee for technical services to the residents and paymentsto a residential contractor or sub-contractor for carrying out anywork (including supply of labour for carrying out any work), on G

H

which tax has not been deducted or after deduction, has not beenpaid before the expiry of the time prescribed under sub-section(1)of section 200 and in accordance with the provisions of otherprovisions of Chapter XVII-B.”

16. The purpose is very much clear from the above referredexplanation by the memorandum that it came with a purpose to ensuretax compliance. The fact that the intention of the legislature was not topunish the assessee is further reflected from a bare reading of theprovisions of Section 40(a)(ia) of the IT Act. It only results in shifting ofthe year in which the expenditure can be claimed as deduction. In acase where the tax deducted at source was duly deposited with thegovernment within the prescribed time, the said amount can be claimedas a deduction from the income in the previous year in which the TDSwas deducted. However, when the amount deducted in the form of TDSwas deposited with the government after the expiry of period allowedfor such deposit then the deductions can be claimed for such depositedTDS amount only in the previous year in which such payment was madeto the government.

17. However, it has caused some genuine and apparent hardshipto the assesses especially in respect of tax deducted at source in the lastmonth of the previous year, the due date for payment of which as perthe time specified in Section 200 (1) of IT Act was only on 7[th] of April inthe next year. The assessee in such case, thus, had a period of onlyseven days to pay the tax deducted at source from the expenditureincurred in the month of March so as to avoid disallowance of the saidexpenditure under Section 40(a)(ia) of IT Act.

18. With a view to mitigate this hardship, Section 40(a)(ia) wasamended by the Finance Act, 2008 and the provision so amended readas under:- “40. Notwithstanding anything to the contrary in Sections 30 to38, the following amounts shall not be deducted in computing theincome chargeable under the head “profit and gains of businessor profession (ia) any interest, commission or brokerage, rent, royalty, fees forprofessional services or fees for technical services payable to aresi-dent, or amounts payable to a contactor or sub-contractor, A

BC

D

E

F

G

H

Abeing resident, for carrying out any work (including supply of labourfor carrying out any work), on which tax is deductible at sourceunder Chapter XVII-B and such tax has not been deducted orafter deduction has not been paid- (A) in a case where the tax was deductible and was so deductedBduring the last month of the previous year, on or before the duedate specified in sub-section (1) of section 139; or (B) in any other case, on or before the last day of the previousyear; Provided that where in respect of any such sum, tax has beenCdeducted in any subsequent year, or has been deducted (A) during the last month of the previous year but paid after thesaid due date; or (B) during any other month of the previous year but paid after theDend of the said previous year,such sum shall be allowed as a deduction in computing the incomeof the previous year in which such tax has been paid.”

19. The above amendments made by the Finance Act, 2008 thusprovided that no disallowance under Section 40 (a) (ia) of the IT ActEshall be made in respect of the expenditure incurred in the month ofMarch if the tax deducted at source on such expenditure has been paidbefore the due date of filing of the return. It is important to mention herethat the amendment was given retrospective operation from the date of01.04.2005 i.e., from the very date of substitution of the provision.

F20. Therefore, the assesses were, after the said amendment in2008, classified in two categories namely; one; those who have deductedthat tax during the last month of the previous year and two; those whohave deducted the tax in the remaining eleven months of the previousyear. It was provided that in case of assessees falling under the firstcategory, no disallowance under Section 40(a) (ia) of the IT Act shall beGmade if the tax deducted by them during the last month of the previousyear has been paid on or before the last day of filing of return inaccordance with the provisions of Section 139(1) of the IT Act for thesaid previous year. In case, the assessees are falling under the secondcategory, no disallowance under Section 40(a)(ia) of IT Act where theHtax was deducted before the last month of the previous year and the same was credited to the government before the expiry of the previousyear. The net effect is that the assessee could not claim deduction forthe TDS amount in the previous year in which the tax was deducted andthe benefit of such deductions can be claimed in the next year only.

21. The amendment though has addressed the concerns of theassesses falling in the first category but with regard to the case falling inthe second category, it was still resulting into unintended consequencesand causing grave and genuine hardships to the assesses who hadsubstantially complied with the relevant TDS provisions by deductingthe tax at source and by paying the same to the credit of the Governmentbefore the due date of filing of their returns under Section 139(1) of theIT Act. The disability to claim deductions on account of such latelycredited sum of TDS in assessment of the previous year in which it wasdeducted, was detrimental to the small traders who may not be in aposition to bear the burden of such disallowance in the present AssessmentYear.

22. In order to remedy this position and to remove hardships whichwere being caused to the assessees belonging to such second category,amendments have been made in the provisions of Section 40(a) (ia) bythe Finance Act, 2010.

23. Section 40(a)(ia), as amended by Finance Act, 2010, witheffect from 01.04.2010 and now reads as under:

“4(a)(ia) any interest, commission or brokerage, rent, royalty, feesfor professional services or fees for technical services payable toa resident, or amounts payable to a contractor or sub-contractor,being resident, for carrying out any work (including supply of labourfor carrying out any work), on which tax is deductible at sourceunder Chapter XVII-B and such tax has not been deducted or;after deduction, has not paid on or before the due date specifiedin sub-section (1) of Section 139:

Provided that where in respect of any such sum, tax has beendeducted in any subsequent year, or has been deducted during theprevious year but paid after the due date specified in sub-section(1) of section 139, such sum shall be allowed as a deducted incomputing the income of the previous year in which such tax hasbeen paid.”

A

B

C

D

E

F

G

H

A

A24. Thus, the Finance Act, 2010 further relaxed the rigors of Section40(a)(ia) of the IT Act to provide that all TDS made during the previousyear can be deposited with the Government by the due date of filing thereturn of income. The idea was to allow additional time to the deductorsto deposit the TDS so made. However, the Memorandum explaining theprovisions of the Finance Bill, 2010 expressly mentioned as follows: “ThisBamendment is proposed to take effect retrospectively from 1st April,2010 and will, accordingly, apply in relation to the Assessment Year 2010-11and subsequent years.”

25. The controversy surrounding the above amendment waswhether the amendment being curative in nature should be appliedCretrospectively i.e., from the date of insertion of the provisions of Section40(a)(ia) or to be applicable from the date of enforcement.

26. TDS results in collection of tax and the deductor dischargesdual responsibility of collection of tax and its deposition to the government.Strict compliance of Section 40(a)(ia) may be justified keeping in viewDthe legislative object and purpose behind the provision but a provision ofsuch nature, the purpose of which is to ensure tax compliance and not topunish the tax payer, should not be allowed to be converted into an ironrod provision which metes out stern punishment and results in malevolentresults, disproportionate to the offending act and aim of the legislation.Legislature can and do experiment and intervene from time to time whenEthey feel and notice that the existing provision is causing and creatingunintended and excessive hardships to citizens and subject or haveresulted in great inconvenience and uncomfortable results. Obedienceto law is mandatory and has to be enforced but the magnitude ofpunishment must not be disproportionate by what is required andFnecessary. The consequences and the injury caused, if disproportionatedo and can result in amendments which have the effect of streamliningand correcting anomalies. As discussed above, the amendments madein 2008 and 2010 were steps in the said direction only. Legislative purposeand the object of the said amendments were to ensure payment anddeposit of TDS with the Government.G

27. A proviso which is inserted to remedy unintended consequencesand to make the provision workable, a proviso which supplies an obviousomission in the Section, is required to be read into the Section to give theSection a reasonable interpretation and requires to be treated asretrospective in operation so that a reasonable interpretation can be givenHto the Section as a whole.

28. The purpose of the amendment made by the Finance Act,2010 is to solve the anomalies that the insertion of section 40(a)(ia) wascausing to the bona fide tax payer. The amendment, even if not givenoperation retrospectively, may not materially be of consequence to theRevenue when the tax rates are stable and uniform or in cases of bigassessees having substantial turnover and equally huge expenses andnecessary cushion to absorb the effect. However, marginal and mediumtaxpayers, who work at low gross product rate and when expenditurewhich becomes subject matter of an order under Section 40(a)(ia) issubstantial, can suffer severe adverse consequences if the amendmentmade in 2010 is not given retrospective operation i.e., from the date ofsubstitution of the provision. Transferring or shifting expenses to asubsequent year, in such cases, will not wipe off the adverse effect andthe financial stress. Such could not be the intention of the legislature.Hence, the amendment made by the Finance Act, 2010 being curative innature required to be given retrospective operation i.e., from the date ofinsertion of the said provision.

29. Further, in Allied Motors (P) Limited (supra),this Court whiledealing with a similar question with regard to the retrospective effect ofthe amendment made in section 43-B of the Income Tax Act,1961 hasheld that the new proviso to Section 43B should be given retrospectiveeffect from the inception on the ground that the proviso was added toremedy unintended consequences and supply an obvious omission. Theproviso ensured reasonable interpretation and retrospective effect wouldserve the object behind the enactment. The aforesaid view hasconsistently been followed by this Court in the following cases, viz.,Whirlpool of India Ltd., vs. CIT, New Delhi (2000) 245 ITR 3, CITvs. Amrit Banaspati (2002) 255 ITR 117 and CIT vs. Alom EnterprisesLtd. (2009) 319 ITR 306.

30. Hence, in light of the forgoing discussion and the binding effectof the judgment given in Allied Moters (supra), we are of the view thatthe amended provision of Sec 40(a)(ia) of the IT Act should be interpretedliberally and equitable and applies retrospectively from the date whenSection 40(a)(ia) was inserted i.e., with effect from the AssessmentYear 2005-2006 so that an assessee should not suffer unintended anddeleterious consequences beyond what the object and purpose of theprovision mandates. As the developments with regard to the Sectionrecorded above shows that the amendment was curative in nature, it AB

C

D

E

F

G

H

Ashould be given retrospective operation as if the amended provisionexisted even at the time of its insertion. Since the assessee has filed itsreturns on 01.08.2005 i.e., in accordance with the due date under theprovisions of Section 139 IT Act, hence, is allowed to claim the benefitof the amendment made by Finance Act, 2010 to the provisions of Section40(a)(ia) of the IT Act.B

31. In light of the forgoing discussion, we are of the view thatjudgment of the High Court does not call for any interference and, hence,the appeals are accordingly dismissed. In view of the above, all theconnecting appeals, interlocutory applications, if any, transferred casesas well as diary numbers are disposed off accordingly. Parties to bearCcost on their own.

Divya Pandey

Matters disposed of.

D

E

F

G

H