The Supreme Court in CIT vs. M/s. Calcutta Export Company, held that the amendment made to section 40(a)(ia) of the Income Tax Act, 1961 by the Finance Act, 2010 being curative in nature, applies retrospectively.
The assessee-respondent is a partnership firm engaged in the manufacture and export of casting materials. The respondent filed return of income for the assessment year 2005-06 for Rs. 4.18 Crores. The Assessing Officer (A.O) disallowed the export commission charges paid by the assessee to a firm on the ground that the tax deducted at source (TDS) on such commission amount on July, September & October 2004 ought to have been deposited by the Respondent before the end of the previous year i.e. 31st March 2005 to avail the commission amount deducted from the total income in terms of the provisions of Section 40(a)(ia) of the Income Tax Act, 1961. The respondent had deposited the amount only on 1st August 2005. The A.O revised the total income to Rs.4.58 Crores. Aggrieved, the respondent approached the Commissioner of Income Tax (CIT(A)) who allowed the appeal and held that the commission amount was eligible for deduction. Revenue appealed to Tribunal, which was dismissed. On appeal to the High Court, the same was rejected. Thereafter, it approached the Supreme Court.
The Counsel for the Revenue contended that amendment made under Section 40 (a) (ia) by the Finance Act, 2010, clearly states that the amendment has the retrospective effect from the Assessment Year 2010-11 and it cannot be held to be retrospective from the Assessment Year 2005-2006. The amendment made to the said section is to provide that all TDS made during the previous year can be deposited with the Government by the due date of filing the return of income. The idea is to allow additional time to the deductors to deposit the TDS so made.
The Counsel for the Respondent argued that purpose of insertion of provisions of Section 40(a)(ia) of the IT Act was to ensure the compliance of TDS provisions and not to punish those assessees who have deducted and paid the TDS to the government sooner or later. He further submitted that amendments of curative nature have to be applied retrospectively and hence the amendment made in 2010 to the existing provisions of Section 40(a)(ia) should be given retrospective effect from the date of insertion.
The bench comprising of Justice R.K. Agrawal and Justice Abhay Manohar Sapre observed that a proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the Section, is required to be read into the Section to give the Section a reasonable interpretation and requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the Section as a whole.
Upholding the Judgement of the High Court and relying on the decision of the Supreme Court in the case of Allied Motors (P.) Ltd etc. vs. CIT, Delhi, the bench observed that “We are of the view that 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.”
Subscribe Taxscan Premium to view the Judgment
