COMMISSIONER OF INCOME TAX vs. CALCUTTA EXPORT COMPANY

commissioner of income tax vs Calcutta export company

 1,331 total views

COMMISSIONER OF INCOME TAX vs. CALCUTTA EXPORT COMPANY

SUPREME COURT OF INDIA

R. K. AGRAWAL & ABHAY MANOHAR SAPRE, JJ.

Apr 24, 2018

(2018) 101 CCH 0191 ISCC

(2018) 165 DTR 0321 (SC), (2018) 302 CTR 0201 (SC)

Legislation Referred to

Section 40(a)(ia)

Case pertains to

Asst. Year 2005-06

Decision in favour of:

Assessee

Business expenditure—Export commission charges—Non-deduction of TDS—Disallowance—Validity—Assessee was partnership firm and was manufacturer and exporter of casting materials—Assessee filed its return—Case was selected for scrutiny and assessment was completed u/s 143(3)—AO disallowed export commission charges paid by assessee to S while stating that tax deducted at source (TDS) on such commission amount ought to have been deposited by assessee before end of previous year i.e. 31.03.2005 to get commission amount deducted from total income in terms of provisions of Section 40(a)(ia) as it stood then—But same was deposited on 01.08.2005, hence assessee could not be allowed to claim deduction of commission amount from total income—CIT(A) allowed appeal while holding that commission amount was eligible for deduction in said Assessment Year—Tribunal and High court upheld order of CIT(A)—Whether or not amendment made by Finance Act, 2010 in section 40(a)(ia) was retrospective in nature to apply to facts and circumstances of case—Held, when amount deducted in form of TDS is deposited with government after expiry of period allowed for such deposit then deductions could be claimed for such deposited TDS amount only in previous year in which such payment was made to government—No disallowance u/s 40(a)(ia) can be made where tax was deducted before last month of previous year and same was credited to government before expiry of previous year—Strict compliance of Section 40(a)(ia) might be justified keeping in view legislative object and purpose behind provision but provision of such nature, purpose of which was to ensure tax compliance and not to punish tax payer, should not be allowed to be converted into iron rod provision which metes out stern punishment and results in malevolent results, disproportionate to offending act and aim of legislation—Amended provision of section 40(a)(ia) should be interpreted liberally and equitably and should be applied retrospectively from date when Section 40(a)(ia) was inserted so that assessee should not suffer unintended and deleterious consequences beyond what object and purpose of provision mandates—As developments with regard to Section recorded above showed that amendment was curative in nature, it should be given retrospective operation as if amended provision existed even at time of its insertion—Revenue’s appeal dismissed.

Held

In a case where the tax deducted at source was duly deposited with the government within the prescribed time, the said amount can be claimed as a deduction from the income in the previous year in which the TDS was deducted. However, when the amount deducted in the form of TDS was deposited with the government after the expiry of period allowed for such deposit then the deductions can be claimed for such deposited TDS amount only in the previous year in which such payment was made to the government.

(Para 16)

Assessees are falling under the second category, no disallowance under Section 40(a)(ia) of IT Act where the tax was deducted before the last month of the previous year and the same was credited to the government before the expiry of the previous year. The net effect is that the assessee could not claim deduction for the TDS amount in the previous year in which the tax was deducted and the benefit of such deductions can be claimed in the next year only.

(Para 20)

TDS results in collection of tax and the deductor discharges dual responsibility of collection of tax and its deposition to the government. Strict compliance of Section 40(a)(ia) may be justified keeping in view the legislative object and purpose behind the provision but a provision of such nature, the purpose of which is to ensure tax compliance and not to punish the tax payer, should not be allowed to be converted into an iron rod provision which metes out stern punishment and results in malevolent results, disproportionate to the offending act and aim of the legislation. Legislature can and do experiment and intervene from time to time when they feel and notice that the existing provision is causing and creating unintended and excessive hardships to citizens and subject or have resulted in great inconvenience and uncomfortable results. Obedience to law is mandatory and has to be enforced but the magnitude of punishment must not be disproportionate by what is required and necessary. The consequences and the injury caused, if disproportionate do and can result in amendments which have the effect of streamlining and correcting anomalies. As discussed above, the amendments made in 2008 and 2010 were steps in the said direction only. Legislative purpose and the object of the said amendments were to ensure payment and deposit of TDS with the Government.

(Para 26) 

In Allied Motors (P) Limited, this Court while dealing with a similar question with regard to the retrospective effect of the amendment made in section 43-B of the Income Tax Act,1961 has held that the new proviso to Section 43B should be given retrospective effect from the inception on the ground that the proviso was added to remedy unintended consequences and supply an obvious omission. The proviso ensured reasonable interpretation and retrospective effect would serve the object behind the enactment. Allied Motors (P) Limited (followed)

(Para 29)

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. Since the assessee has filed its returns on 01.08.2005 i.e., in accordance with the due date under the provisions of Section 139 IT Act, hence, is allowed to claim the benefit of the amendment made by Finance Act, 2010 to the provisions of Section 40(a)(ia) of the IT Act.

(Para 30)

Conclusion

Amended provision of section 40(a)(ia) should be interpreted liberally and equitably and should be applied retrospectively from date when Section 40(a)(ia) was inserted so that assessee should not suffer unintended and deleterious consequences beyond what object and purpose of provision mandates.

In favour of

Assessee

Cases Referred to

Bharati Shipyard Ltd. vs. Deputy CIT (ITA No. 2404/Mumb/2009
CIT v. Ansal Land Mark Township Pvt Ltd. in ITA No. 160/2015
Allied Motors (P.. Ltd etc. vs. CIT, Delhi – (1997. 224 ITR 677(SC)
Whirlpool of India Ltd., vs. CIT, New Delhi (2000) 245 ITR 3
CIT vs. Amrit Banaspati (2002) 255 ITR 117
CIT vs. Alom Enterprises Ltd. (2009) 319 ITR 306


[button color=”” size=”” type=”round” target=”” link=”https://thetaxtalk.com/”]home[/button]  [button color=”” size=”” type=”round” target=”” link=”https://thetaxtalk.com/submit-article-publish-your-articles-here/”]Submit Article [/button]  [button color=”” size=”” type=”round” target=”” link=”https://thetaxtalk.com/discussion-on-tax-problem/”]Discussion[/button]

Leave a Comment

Your email address will not be published.

the taxtalk

online portal for tax news, update, judgment, article, circular, income tax, gst, notification Simplifying the tax and tax laws is the main motto of the team tax talk, solving