DCIT, Cen. Cir-VIII, Kolkata, Kolkata V. M/s Rupa & Co. Ltd., Kolkata

ITA 149/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4737 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 27-01-2014
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Assessee Lawyers: A K TULSIYAN
• Keywords: Business income; Business expenditure; Retrospective amendment; Non-deduction of tax; Royalty expenses
• Section: 43B; 143(3); 201(1); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & DR.ARJUN LAL SAINI, AM] I.T.A NO. 149/KOL/201 4 ASSESSMENT YEAR : 2007-0 8 D.C.I.T., CENTRAL CIRCLE-VIII, -VS.- M/S. R UPA & CO. LTD. KOLKATA KOLKATA [PAN : AABCR 2648 M] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI G.MALLIKARJUN A, CIT(DR) FOR THE RESPONDENT : SHRI A.K.TULSIYAN, FCA DATE OF HEARING : 09.08.2016. DATE OF PRONOUNCEMENT : 12.08.2016. ORDER PER N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 18.11.2013 OF CIT(A)- CENTRAL-I, KOLKATA RELATING TO AY 2007-08. 2. GROUNDS OF APPEAL RAISED BY THE REVENUE READS AS FOLLOWS :- 1. THAT CONSIDERING THE FACTS AND CIRCUMSTANCE OF T HE CASE THE LD. CIT(A)-C-1, KOLKATA WAS NOT CORRECT IN DELETING THE DISALLOWANCE OF ROY ALTY PAYMENT OF RS.1,44,15,452/- ON WHICH TDS WAS NOT DEDUCTED U/S 194J OF THE INCOME T AX ACT, 1961. 2. THAT DEPARTMENT CRAVES TO ADD, MODIFY OR ALTER T HE GROUNDS OF APPEAL DURING THE COURSE OF HEARING OF THE CASE. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSIN ESS OF MANUFACTURING AND TRADING OF KNITWEAR. IN THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961 (ACT), THE AO NOTICED THAT THE ASSESSEE HAD DE BITED A SUM OF RS.1,44,15,452/- UNDER THE HEAD ROYALTY IN THE PROFIT AND LOSS AC COUNT. UNDER THE PROVISIONS OF SECTION 194J(1)(C ) OF THE ACT ANY PERSON RESPONSIBLE FOR P AYING TO A RESIDENT ANY SUM BY WAY OF ROYALTY SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE PAYEE OR AT THE 2 ITA NO.149/KOL/2014 M/S. RUPA & CO. LTD.. A.YR.2007-08 2 TIME OF PAYMENTS THEREOF IN CASH OR BY ISSUE OF CHE QUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO 10% OF SUCH SUM AS INCOME TAX ON INCOME COMPRISED THEREIN. IT IS PERTINENT TO NOTE T HAT U/S 194J OF THE ACT, OBLIGATION TO DEDUCT TAX AT SOURCE ON PAYMENT OF ANY SUM AS ROYAL TY WAS INTRODUCED BY TAXATION LAWS (AMENDMENT) ACT 2006 W.E.F. 13.07.2006 ONLY. PRIOR TO THAT DATE FOR ANY PAYMENT OF ROYALTY TO A RESIDENT THERE WAS NO OBLIG ATION TO DEDUCT TAX AT SOURCE U/S.194J OF THE ACT. IN THE BOOKS OF ACCOUNTS OF THE ASSES SEE THE CREDIT OF SUM PAYABLE AS ROYALTY TO M/S. BINOD HOSIERY WAS MADE ON 30.06.2006. AS ON THIS DATE THERE WAS NO OBLIGATION TO DEDUCT TAX ON THE PAYMENT OF ROYALTY. AS WE HAV E ALREADY STATED IT WAS ONLY FROM 13.07.2006, THERE WAS AN OBLIGATION TO DEDUCT TAX A T SOURCE ON SUCH PAYMENT. THE PLEA OF THE ASSESSEE WAS THAT THERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE, AS ON THE DATE WHEN THE CREDIT OF THE SUM WAS MADE IN THE ACCOUNT OF M/S.BINOD HOSIERY ON ACCOUNT OF ROYALTY AND THEREFORE THERE CAN BE NO CONSEQUENT DISALLOWANCE OF ROYALTY EXPENSES U/S 40(A)(IA) OF THE ACT. BESIDES THE ABOVE STAND T HE ASSESSEE ALSO TOOK THE OTHER STAND WHICH THE AO HAS DISCUSSED IN THE ORDER OF ASSESSME NT. THESE REASONS ARE NOT DISCUSSED FOR THE REASON THAT THE ULTIMATE DECISION IN THE CA SE WOULD REST ON SUBSEQUENT AMENDMENT TO THE PROVISION OF SECTION 40(A)(IA) OF THE ACT. THE AO INVOKING THE PROVISION OF SECTION 40(A)(IA) OF THE ACT DISALLOWE D THE SUM OF RS.1,44,15,458/- WHICH WAS ROYALTY PAID TO M/.S. BINOD HOSIERY FOR FAILURE TO DEDUCT TAX AT SOURCE BY INVOKING THE PROVISION OF SECTION 40(A)(IA) OF THE ACT, HOLD ING THAT THE ENTRY OF PAYMENT OF ROYALTY MADE ON 30.6.2006 WAS AN AFTERTHOUGHT. 4. ON APPEAL BY THE ASSESSEE THE CIT(A) DELETED THE ADDITION MADE BY THE AO FOR THE FOLLOWING REASONS :- IN ORDER TO INVOKE SECTION 40(A)(IA), IT IS NECESS ARY FOR THE AO TO PROVE THAT THE ASSESSEE HAD LEGAL OBLIGATION TO DEDUCT TAX FROM AN EXPENDIT URE IN CONFORMITY WITH CHAPTER XVIIB OF THE ACT AND THAT THE ASSESSEE EITHER FAILED TO D EDUCT OR HAVING DEDUCTED THE TAX FAILED TO PAY THE SAME TO THE CREDIT OF THE CENTRAL GOVERNMEN T. HOWEVER AS DISCUSSED ABOVE, THE ASSESSEE IN ITS BOOKS CREDITED THE ACCOUNT OF M/S. BINOD HOSIERY BY THE SUM PAYABLE AS ROYALTY ON 30-06-2006; AND, AS PER THE PROVISIONS O F SECTION 194J SUBSISTING IN THE ACT ON THE DATE OF GIVING THE CREDIT, THE ASSESSEE HAD NO OBLIGATION TO DEDUCT TAX U/S 194J. SUCH 3 ITA NO.149/KOL/2014 M/S. RUPA & CO. LTD.. A.YR.2007-08 3 OBLIGATION, IF ANY, CAME INTO LEGAL FORCE ONLY ON 1 3-07-2006. UNDER THE CIRCUMSTANCES, I AM SATISFIED THAT IN RESPECT OF ROYALTY OF RS.1,44, 15,452/- WHICH WAS CREDITED TO THE PAYEES ACCOUNT ON 30-06-2006; THE ASSESSEE HAD NO OBLIGATION TO DEDUCT TAX UNDER CHAPTER XVIIB. IN THAT VIEW OF THE MATTER, THE ASSE SSEE DID NOT CONTRAVENE THE PROVISIONS OF CHAPTER XVIIB AND MORE SPECIFICALLY SECTION 194J . IN ABSENCE OF ANY BREACH OF THE STATUTORY PROVISIONS OF CHAPTER XVIIB BY THE ASSESS EE, THE AO WAS NOT JUSTIFIED IN INVOKING PROVISIONS OF SECTION 40(A)(IA). IN VIEW O F THE ABOVE, THE DISALLOWANCE OF RS.1,44,15,452/- BY APPLYING SECTION 40(A)(IA) IS D IRECTED TO BE DELETED. SINCE THE ASSESSEES APPEAL IS ALLOWED ON THE PRELIMINARY GRO UND, THE ALTERNATIVE SUBMISSIONS REGARDING RETROSPECTIVE APPLICATION OF THE AMENDED PROVISIONS OF SECTION 40(A)(IA) BEING EFFECTIVE FROM 01-04-2013 ARE NOT ADJUDICATED. 5. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVE NUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 6. WE ARE OF THE VIEW THAT THE ISSUES RAISED BY THE REVENUE IN THE APPEAL NEED NOT BE ADJUDICATED AND IT WOULD BE SUFFICIENT IF WE GIVE A DIRECTION TO THE AO TO VERIFY IF THE PAYEES HAVE DECLARED THE RECEIPT FROM THE ASSESSEE IN THEIR RETURN OF INCOME AND IF IT IS FOUND THAT THE PAYEES HAVE SO DECLARED, THEN THE AD DITION U/S.40(A)(IA) OF THE ACT SHOULD BE DELETED BY THE AO. THE ABOVE CONCLUSIONS OF OUR S ARE MADE IN THE CONTEXT OF THE FOLLOWING AMENDMENTS TO THE PROVISIONS OF SEC.40(A) (IA) OF THE ACT. WITH A VIEW TO LIBERALIZE PROVISIONS OF SECTION 40(A)(IA) OF THE A CT FINANCE ACT 2012 BROUGHT AMENDMENT W.E.F 01.04.2013 AS UNDER. THE FOLLOWING SECOND PROVISO WAS INSERTE D IN SUB-CLAUSE ( IA) OF CLAUSE ( A ) OF SECTION 40 BY THE FINANCE ACT, 2012, W.E.F. 1- 4-2013 : PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII-B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE F IRST PROVISO TO SUB-SECTION (1) OF SECTION 201, THEN, FOR THE PURPOSE OF THIS SUB-CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVI SO. 7. SINCE PROVISIONS OF SECTION 40(A)(IA) AS AMEND ED BY FINANCE ACT, 2012 IS LINKED TO SECTION 201 OF THE ACT, IN WHICH A PROVISO WAS INSE RTED, IT IS NECESSARY TO LOOK INTO THOSE PROVISIONS WHICH READ THUS: SEC.201: (1) WHERE ANY PERSON, INCLUDING THE PRINC IPAL OFFICER OF A COMPANY 4 ITA NO.149/KOL/2014 M/S. RUPA & CO. LTD.. A.YR.2007-08 4 (A) WHO IS REQUIRED TO DEDUCT ANY SUM IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT; OR (B) REFERRED TO IN SUB-SECTION (1A) OF SECTION 192, BEING AN EMPLOYER, DOES NOT DEDUCT, OR DOES NOT PAY, OR AFTER SO DEDUCTING FAIL S TO PAY, THE WHOLE OR ANY PART OF THE TAX , AS REQUIRED BY OR UNDER THIS ACT, THEN, SUCH PERSON , SHALL, WITHOUT PREJUDICE TO ANY OTHER CONSEQUENCES WHICH HE MAY INCUR, BE DE EMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX: PROVIDED THAT ANY PERSON, INCLUDING THE PRINCIPAL OFFICER OF A COMPANY, WHO FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT SHALL NOT BE DEEMED TO BE AN ASSESSEE IN D EFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT (I) HAS FURNISHED HIS RETURN OF INCOME UNDER SE CTION 139; (II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTIN G INCOME IN SUCH RETURN OF INCOME; AND (III) HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME, AND THE PERSON FURNISHES A CERTIFICATE TO THIS EFFE CT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED: 8. MEMORANDUM EXPLAINING THE PROVISIONS WHILE INTR ODUCING FINANCE BILL, 2012 PROVIDES THE JUSTIFICATION OF THE AMENDMENT TO SECT ION 40(A)(IA) IN THE FOLLOWING WORDS:- IN ORDER TO RATIONALISE THE PROVISIONS OF DISALLOW ANCE ON ACCOUNT OF NON- DEDUCTION OF TAX FROM THE PAYMENTS MADE TO A RESIDE NT 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 RE SIDENT PAYEE WITHOUT DEDUCTION OF TAX AND IS NOT DEEMED TO BE AN ASSESSE E IN DEFAULT UNDER SECTION 201(1) ON ACCOUNT OF PAYMENT OF TAXES BY THE PAYEE, THEN, FOR THE PURPOSE OF ALLOWING DEDUCTION OF SUCH SUM, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE O F FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE. 9. THE PROVISIONS OF SEC.40(A)(IA) OF THE ACT ARE MEANT TO ENSURE THAT THE ASSESSEES PERFORM THEIR OBLIGATION TO DEDUCT TAX AT SOURCE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. SUCH COMPLIANCE WILL ENSURE REVENUE COLLECTIO N WITHOUT MUCH HASSLE. WHEN THE OBJECT SOUGHT TO BE ACHIEVED BY THOSE PROVISIONS AR E FOUND TO BE ACHIEVED, IT WOULD BE UNJUST TO DISALLOWANCE LEGITIMATE BUSINESS EXPENSES OF AN ASSESSEE. DESPITE DUE 5 ITA NO.149/KOL/2014 M/S. RUPA & CO. LTD.. A.YR.2007-08 5 COLLECTION OF TAXES DUE, IF DISALLOWANCE OF GENUINE BUSINESS EXPENSES ARE MADE THAN THAT WOULD BE UNJUST ENRICHMENT ON THE PART OF THE GOVERNMENT AS THE PAYEE WOULD HAVE ALSO PAID THE TAXES ON SUCH INCOME. IN ORDER TO REM OVE THIS ANOMALY, THIS AMENDMENT HAS BEEN INTRODUCED. IN CASE OF PAYMENT TO NON-RESI DENT, THE GOVERNMENT DOES NOT HAVE ANY OTHER MECHANISM TO RECOVER THE DUE TAXES. HENCE , NO AMENDMENT WAS MADE IN SECTION 40(A)(I). THE LEGISLATURE HAS NOT GIVEN BL ANKET DEDUCTION UNDER SECTION 40(A)(IA). THE DEDUCTION AS PER AMENDED SECTION WILL BE ALLOWE D ONLY IF THE - (I) PAYEE HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139; (II) PAYEE HAS TAKEN INTO ACCOUNT SUCH SUM FOR COM PUTING INCOME IN SUCH RETURN OF INCOME; AND (III) PAYEE HAS PAID THE TAX DUE ON THE INCOME DEC LARED BY HIM IN SUCH RETURN OF INCOME, AND THE PAYER FURNISHES A CERTIFICATE TO THIS EFFEC T FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED. 10. THE QUESTION IS AS TO WHETHER THE AMENDMENT MA DE AS ABOVE IS PROSPECTIVE OR RETROSPECTIVE W.E.F. 1.4.2005 WHEN THE PROVISIONS O F SEC.40(A)(IA) WERE INTRODUCED. KEEPING IN VIEW THE PURPOSE BEHIND THE PROVISO INS ERTED BY THE FINANCE ACT, 2012 IN SECTION 40(A)(IA) OF THE ACT, IT CAN BE SAID TO BE DECLARATORY AND CURATIVE IN NATURE AND THEREFORE, SHOULD BE GIVEN RETROSPECTIVE EFFECT FRO M 1ST APRIL, 2005, BEING THE DATE FROM WHICH SUB-CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2) ACT, 2004. IN CIT VS. ALOM EXTRUSIONS LTD. 319 ITR 306 (SC) , THE HONBLE SUPREME COURT HAD TO DEAL WITH THE QUESTION, WHETHER OMISSION (DELETION) OF T HE SECOND PROVISO TO S. 43B OF THE IT ACT, 1961, BY THE FINANCE ACT, 2003, OPERATED W.E.F . 1ST APRIL, 2004, OR WHETHER IT OPERATED RETROSPECTIVELY W.E.F. 1ST APRIL, 1988? PR IOR TO FINANCE ACT, 2003, THE SECOND PROVISO TO S. 43B OF THE IT ACT, 1961 (FOR SHORT, ' THE ACT') RESTRICTED THE DEDUCTION IN RESPECT OF ANY SUM PAYABLE BY AN EMPLOYER BY WAY OF CONTRIBUTION TO PROVIDENT 6 ITA NO.149/KOL/2014 M/S. RUPA & CO. LTD.. A.YR.2007-08 6 FUND/SUPERANNUATION FUND OR ANY OTHER FUND FOR THE WELFARE OF EMPLOYEES, UNLESS IT STOOD PAID WITHIN THE SPECIFIED DUE DATE. ACCORDING TO TH E SECOND PROVISO, THE PAYMENT MADE BY THE EMPLOYER TOWARDS CONTRIBUTION TO PROVIDENT F UND OR ANY OTHER WELFARE FUND WAS ALLOWABLE AS DEDUCTION, IF PAID BEFORE THE DATE FOR FILING THE RETURN OF INCOME AND NECESSARY EVIDENCE OF SUCH PAYMENT WAS ENCLOSED WIT H THE RETURN OF INCOME. IN OTHER WORDS, IF CONTRIBUTION STOOD PAID AFTER THE DATE FO R FILING OF THE RETURN, IT STOOD DISALLOWED. THIS RESULTED IN GREAT HARDSHIP TO THE EMPLOYERS. THEY REPRESENTED TO THE GOVERNMENT ABOUT THEIR HARDSHIP AND, CONSEQUENTLY, PURSUANT TO THE REPORT OF THE KELKAR COMMITTEE, THE GOVERNMENT INTRODUCED FINANCE ACT, 2 003, BY WHICH THE SECOND PROVISO STOOD DELETED W.E.F. 1ST APRIL, 2004, AND C ERTAIN CHANGES WERE ALSO MADE IN THE FIRST PROVISO BY WHICH UNIFORMITY WAS BROUGHT ABOUT BETWEEN PAYMENT OF FEES, TAXES, CESS, ETC., ON ONE HAND AND CONTRIBUTION MADE TO EM PLOYEES' PROVIDENT FUND, ETC., ON THE OTHER. 11 . ACCORDING TO THE DEPARTMENT, THE OMISSION OF THE SE COND PROVISO GIVING RELIEF TO THE ASSESSEE(S) [EMPLOYER(S)] OPERATED ONLY W.E.F. 1ST APRIL, 2004, WHEREAS, ACCORDING TO THE ASSESSEE(S)-EMPLOYER(S), THE SAID FINANCE ACT, 2003, TO THE EXTENT INDICATED ABOVE, OPERATED W.E.F. 1ST APRIL, 1988 (RETROSPECTIVELY). THE HONBLE SUPREME COURT HELD THAT THE DELETION OF THE SECOND PROVISO WAS RETROSPECTIV E W.E.F.1.4.2004. THE COURT CONSIDERED THE SCHEME OF THE ACT AND THE HISTORICAL BACKGROUND AND THE OBJECT OF INTRODUCTION OF THE PROVISIONS OF S. 43B. THE COURT ALSO REFERRED TO THE EARLIER AMENDMENTS MADE IN 1988 WITH INTRODUCTION OF THE FI RST AND SECOND PROVISOS. THE COURT ALSO NOTED FURTHER AMENDMENT MADE IN 1989 IN THE SE COND PROVISO DEALING WITH THE ITEMS COVERED IN S. 43B(B) ( I.E., CONTRIBUTION TO EMPLOYEES WELFARE FUNDS). AFTER CONSIDERING THE SAME, THE COURT WAS OF THE VIEW THA T IT WAS CLEAR THAT PRIOR TO THE AMENDMENT OF 2003, THE EMPLOYER WAS ENTITLED TO DED UCTION ONLY IF THE CONTRIBUTION STANDS CREDITED ON OR BEFORE THE DUE DATE GIVEN IN THE PROVIDENT FUND ACT ON ACCOUNT OF SECOND PROVISO TO S. 43B. THE SITUATION CREATED FUR THER DIFFICULTIES AND AS A RESULT OF 7 ITA NO.149/KOL/2014 M/S. RUPA & CO. LTD.. A.YR.2007-08 7 REPRESENTATIONS MADE BY THE INDUSTRY, THE AMENDMENT OF 2003 WAS CARRIED OUT WHICH DELETED THE SECOND PROVISO AND ALSO MADE FIRST PROV ISO APPLICABLE TO CONTRIBUTION TO EMPLOYEES WELFARE FUNDS REFERRED TO IN S. 43B(B). 15. WE FIND NO MERIT IN THESE CIVIL APPEALS FILED BY TH E DEPARTMENT FOR THE FOLLOWING REASONS : FIRSTLY, AS STATED ABOVE, S. 43B (MAIN SE CTION), WHICH STOOD INSERTED BY FINANCE ACT, 1983, W.E.F. 1ST APRIL, 1984, EXPRESSL Y COMMENCES WITH A NON OBSTANTE CLAUSE, THE UNDERLYING OBJECT BEING TO DISALLOW DED UCTIONS CLAIMED MERELY BY MAKING A BOOK ENTRY BASED ON MERCANTILE SYSTEM OF ACCOUNTING . AT THE SAME TIME, S. 43B (MAIN SECTION) MADE IT MANDATORY FOR THE DEPARTMENT TO GR ANT DEDUCTION IN COMPUTING THE INCOME UNDER S. 28 IN THE YEAR IN WHICH TAX, DUTY, CESS, ETC., IS ACTUALLY PAID. HOWEVER, PARLIAMENT TOOK COGNIZANCE OF THE FACT THAT ACCOUNT ING YEAR OF A COMPANY DID NOT ALWAYS TALLY WITH THE DUE DATES UNDER THE PROVIDENT FUND ACT, MUNICIPAL CORPORATION ACT (OCTROI) AND OTHER TAX LAWS. THEREFORE, BY WAY OF FIRST PROVISO, AN INCENTIVE/RELAXATION WAS SOUGHT TO BE GIVEN IN RESP ECT OF TAX, DUTY, CESS OR FEE BY EXPLICITLY STATING THAT IF SUCH TAX, DUTY, CESS OR FEE IS PAID BEFORE THE DATE OF FILING OF THE RETURN UNDER THE IT ACT (DUE DATE), THE ASSESSEE(S) THEN WOULD BE ENTITLED TO DEDUCTION. HOWEVER, THIS RELAXATION/INCENTIVE WAS RESTRICTED O NLY TO TAX, DUTY, CESS AND FEE. IT DID NOT APPLY TO CONTRIBUTIONS TO LABOUR WELFARE FUNDS. THE REASON APPEARS TO BE THAT THE EMPLOYER(S) SHOULD NOT SIT ON THE COLLECTED CONTRIB UTIONS AND DEPRIVE THE WORKMEN OF THE RIGHTFUL BENEFITS UNDER SOCIAL WELFARE LEGISLAT IONS BY DELAYING PAYMENT OF CONTRIBUTIONS TO THE WELFARE FUNDS. HOWEVER, AS STA TED ABOVE, THE SECOND PROVISO RESULTED IN IMPLEMENTATION PROBLEMS, WHICH HAVE BEE N MENTIONED HEREINABOVE, AND WHICH RESULTED IN THE ENACTMENT OF FINANCE ACT, 200 3, DELETING THE SECOND PROVISO AND BRINGING ABOUT UNIFORMITY IN THE FIRST PROVISO BY E QUATING TAX, DUTY, CESS AND FEE WITH CONTRIBUTIONS TO WELFARE FUNDS. ONCE THIS UNIFORMIT Y IS BROUGHT ABOUT IN THE FIRST PROVISO, THEN, IN OUR VIEW, THE FINANCE ACT, 2003, WHICH IS MADE APPLICABLE BY THE PARLIAMENT ONLY W.E.F. 1ST APRIL, 2004, WOULD BECOM E CURATIVE IN NATURE, HENCE, IT WOULD APPLY RETROSPECTIVELY W.E.F. 1ST APRIL, 1988. SECON DLY, IT MAY BE NOTED THAT, IN THE CASE OF ALLIED MOTORS (P) LTD. ETC. VS. CIT (1997) 139 CTR (SC) 364 : (1997) 224 ITR 677 (SC), THE SCHEME OF S. 43B OF THE ACT CAME TO BE EX AMINED. IN THAT CASE, THE QUESTION WHICH AROSE FOR DETERMINATION WAS, WHETHER SALES-TA X COLLECTED BY THE ASSESSEE AND PAID AFTER THE END OF THE RELEVANT PREVIOUS YEAR BU T WITHIN THE TIME ALLOWED UNDER THE RELEVANT SALES-TAX LAW SHOULD BE DISALLOWED UNDER S . 43B OF THE ACT WHILE COMPUTING THE BUSINESS INCOME OF THE PREVIOUS YEAR ? THAT WAS A C ASE WHICH RELATED TO ASST. YR. 1984- 85. THE RELEVANT ACCOUNTING PERIOD ENDED ON 30TH JU NE, 1983. THE ITO DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE WHICH WAS ON ACCO UNT OF SALES-TAX COLLECTED BY THE ASSESSEE FOR THE LAST QUARTER OF THE RELEVANT ACCOU NTING YEAR. THE DEDUCTION WAS DISALLOWED UNDER S. 43B WHICH, AS STATED ABOVE, WAS INSERTED W.E.F. 1ST APRIL, 1984. IT IS ALSO RELEVANT TO NOTE THAT THE FIRST PROVISO WHICH CAME INTO FORCE W.E.F. 1ST APRIL, 1988 WAS NOT ON THE STATUTE BOOK WHEN THE ASSESSMENTS WE RE MADE IN THE CASE OF ALLIED MOTORS (P) LTD. ETC. (SUPRA). HOWEVER, THE ASSESSEE CONTENDED THAT EVEN THOUGH THE FIRST PROVISO CAME TO BE INSERTED W.E.F. 1ST APRIL, 1988, IT WAS ENTITLED TO THE BENEFIT OF THAT PROVISO BECAUSE IT OPERATED RETROSPECTIVELY FROM 1S T APRIL, 1984, WHEN S. 43B STOOD 8 ITA NO.149/KOL/2014 M/S. RUPA & CO. LTD.. A.YR.2007-08 8 INSERTED. THIS IS HOW THE QUESTION OF RETROSPECTIVI TY AROSE IN ALLIED MOTORS (P) LTD. ETC. (SUPRA). THIS COURT, IN ALLIED MOTORS (P) LTD. ETC. (SUPRA) HELD THAT WHEN A PROVISO IS INSERTED TO REMEDY UNINTENDED CONSEQUENCES AND TO M AKE THE SECTION WORKABLE, A PROVISO WHICH SUPPLIES AN OBVIOUS OMISSION IN THE S ECTION AND WHICH PROVISO IS REQUIRED TO BE READ INTO THE SECTION TO GIVE THE SE CTION A REASONABLE INTERPRETATION, IT COULD BE READ RETROSPECTIVE IN OPERATION, PARTICULA RLY TO GIVE EFFECT TO THE SECTION AS A WHOLE. ACCORDINGLY, THIS COURT, IN ALLIED MOTORS (P ) LTD. ETC. (SUPRA), HELD THAT THE FIRST PROVISO WAS CURATIVE IN NATURE, HENCE, RETROSPECTIV E IN OPERATION W.E.F. 1ST APRIL, 1988. IT IS IMPORTANT TO NOTE ONCE AGAIN THAT, BY FINANCE ACT, 2003, NOT ONLY THE SECOND PROVISO IS DELETED BUT EVEN THE FIRST PROVISO IS SO UGHT TO BE AMENDED BY BRINGING ABOUT AN UNIFORMITY IN TAX, DUTY, CESS AND FEE ON THE ONE HAND VIS-A-VIS CONTRIBUTIONS TO WELFARE FUNDS OF EMPLOYEE(S) ON THE OTHER. THIS IS ONE MORE REASON WHY WE HOLD THAT THE FINANCE ACT, 2003, IS RETROSPECTIVE IN OPERATION. M OREOVER, THE JUDGMENT IN ALLIED MOTORS (P) LTD. ETC. (SUPRA) IS DELIVERED BY A BENC H OF THREE LEARNED JUDGES, WHICH IS BINDING ON US. ACCORDINGLY, WE HOLD THAT FINANCE AC T, 2003, WILL OPERATE RETROSPECTIVELY W.E.F. 1ST APRIL, 1988 (WHEN THE FIRST PROVISO STOO D INSERTED). LASTLY, WE MAY POINT OUT THE HARDSHIP AND THE INVIDIOUS DISCRIMINATION WHICH WOULD BE CAUSED TO THE ASSESSEE(S) IF THE CONTENTION OF THE DEPARTMENT IS TO BE ACCEPT ED THAT FINANCE ACT, 2003, TO THE ABOVE EXTENT, OPERATED PROSPECTIVELY. TAKE AN EXAMP LEIN THE PRESENT CASE, THE RESPONDENTS HAVE DEPOSITED THE CONTRIBUTIONS WITH T HE R.P.F.C. AFTER 31ST MARCH (END OF ACCOUNTING YEAR) BUT BEFORE FILING OF THE RETURNS U NDER THE IT ACT AND THE DATE OF PAYMENT FALLS AFTER THE DUE DATE UNDER THE EMPLOYEE S' PROVIDENT FUND ACT, THEY WILL BE DENIED DEDUCTION FOR ALL TIMES. IN VIEW OF THE SECO ND PROVISO, WHICH STOOD ON THE STATUTE BOOK AT THE RELEVANT TIME, EACH OF SUCH ASSESSEE(S) WOULD NOT BE ENTITLED TO DEDUCTION UNDER S. 43B OF THE ACT FOR ALL TIMES. THEY WOULD L OSE THE BENEFIT OF DEDUCTION EVEN IN THE YEAR OF ACCOUNT IN WHICH THEY PAY THE CONTRIBUT IONS TO THE WELFARE FUNDS, WHEREAS A DEFAULTER, WHO FAILS TO PAY THE CONTRIBUTION TO THE WELFARE FUND RIGHT UPTO 1ST APRIL, 2004, AND WHO PAYS THE CONTRIBUTION AFTER 1ST APRIL , 2004, WOULD GET THE BENEFIT OF DEDUCTION UNDER S. 43B OF THE ACT. IN OUR VIEW, THE REFORE, FINANCE ACT, 2003, TO THE EXTENT INDICATED ABOVE, SHOULD BE READ AS RETROSPEC TIVE. IT WOULD, THEREFORE, OPERATE FROM 1ST APRIL, 1988, WHEN THE FIRST PROVISO WAS IN TRODUCED. IT IS TRUE THAT THE PARLIAMENT HAS EXPLICITLY STATED THAT FINANCE ACT, 2003, WILL OPERATE W.E.F. 1ST APRIL, 2004. HOWEVER, THE MATTER BEFORE US INVOLVES THE PR INCIPLE OF CONSTRUCTION TO BE PLACED ON THE PROVISIONS OF FINANCE ACT, 2003. 16. BEFORE CONCLUDING, WE EXTRACT HEREINBELOW THE RELEV ANT OBSERVATIONS OF THIS COURT IN THE CASE OF CIT VS. J.H. GOTLA (1985) 48 C TR (SC) 363 : (1985) 156 ITR 323 (SC), WHICH READS AS UNDER : 'WE SHOULD FIND OUT THE INTENTION FROM THE LANGUAGE USED BY THE LEGISLATURE AND IF STRICT LITERAL CONSTRUCTION LEAD S TO AN ABSURD RESULT, I.E., A RESULT NOT INTENDED TO BE SUBSERVED BY THE OBJECT OF THE LEGISLATION FOUND IN THE MANNER INDICATED BEFORE, THEN IF ANOTH ER CONSTRUCTION IS POSSIBLE APART FROM STRICT LITERAL CONSTRUCTION, TH EN THAT CONSTRUCTION SHOULD BE PREFERRED TO THE STRICT LITERAL CONSTRUCT ION. THOUGH EQUITY AND TAXATION ARE OFTEN STRANGERS, ATTEMPTS SHOULD BE MA DE THAT THESE DO NOT 9 ITA NO.149/KOL/2014 M/S. RUPA & CO. LTD.. A.YR.2007-08 9 REMAIN ALWAYS SO AND IF A CONSTRUCTION RESULTS IN E QUITY RATHER THAN IN INJUSTICE, THEN SUCH CONSTRUCTION SHOULD BE PREFERR ED TO THE LITERAL CONSTRUCTION.' 17. FOR THE AFORESTATED REASONS, WE HOLD THAT FINANCE A CT, 2003, TO THE EXTENT INDICATED ABOVE, IS CURATIVE IN NATURE, HENCE, IT I S RETROSPECTIVE AND IT WOULD OPERATE W.E.F. 1ST APRIL, 1988 (WHEN THE FIRST PROV ISO CAME TO BE INSERTED). FOR THE ABOVE REASONS, WE FIND NO MERIT IN THIS BATCH OF CI VIL APPEALS FILED BY THE DEPARTMENT WHICH ARE HEREBY DISMISSED WITH NO ORDER AS TO COSTS. 12. WE ARE OF THE VIEW THAT THE REASONING OF THE H ONBLE SUPREME COURT IN THE CASE OF ALOM EXTRUSIONS LTD(SUPRA) WILL EQUALLY TO THE AMEN DMENT TO SEC.40(A)(IA) OF THE ACT WHEREBY A SECOND PROVISO WAS INSERTED IN SUB-CLAUSE (IA) OF CLAUSE (A) OF SECTION 40 BY THE FINANCE ACT, 2012, W.E.F. 1-4-2013. THE PROVIS IONS ARE INTENDED TO REMOVE HARDSHIP. IT WAS ARGUED ON BEHALF OF THE REVENUE T HAT THE EXISTING PROVISIONS ALLOW DEDUCTION IN THE YEAR OF PAYMENT AND TO THAT EXTENT THERE IS NO HARDSHIP. WE ARE OF THE VIEW THAT THE HARDSHIP IN SUCH AN EVENT WOULD BE TA XING AN ASSESSEE ON A HIGHER INCOME IN ONE YEAR AND TAXING HIM ON LOWER INCOME IN A SUB SEQUENT YEAR. TO THE EXTENT THE ASSESSEE IS MADE TO PAY TAX ON A HIGHER INCOME IN O NE YEAR, THERE WOULD STILL BE HARDSHIP. 13. THE HONBLE DELHI HIGH COURT IN THE CASE OF CI T VS. ANSAL LAND MARK TOWNSHIP (I) PVT.LTD., IN ITA NO.160/2015 JUDGMENT DATED 26. 8.2015 HAS TAKEN THE VIEW THAT THE INSERTION OF THE SECOND PROVISO TO SEC.40(A)(IA) OF THE ACT IS RETROSPECTIVE AND WILL APPLY FROM 1.4.2005. THE LEARNED COUNSEL FOR THE ASSESSE E HAS FILED BEFORE US THE COPIES OF THE RETURNS OF INCOME OF M/S.BINOD HOSIERY FOR AY 2 007-08 AND COMPUTATION OF TOTAL INCOME AND THE PROFIT AND LOSS ACCOUNT TO DEMONSTRA TE THE FACT THAT THE PAYEES HAVE INCLUDED THE AMOUNT RECEIVED FROM THE ASSESSEE IN T HEIR RETURN OF INCOME AND THEREFORE THERE IS NO LOSS TO THE REVENUE. IN FACT, HE ALSO POINTED OUT THAT THE AO MADE ENQUIRIES IN THIS REGARD WITH M/S.BINOD HOSIERY AND WAS SATIS FIED THAT THE PAYEES HAVE INCLUDED THE SUM RECEIVED FROM THE ASSESSEE IN THEIR RETURN OF INCOME AND THIS SATISFACTION WILL EMANATE FROM IN PARAGRAPH 8.1 OF THE ASSESSMENT ORD ER. IT WAS HIS SUBMISSION THAT THERE 10 ITA NO.149/KOL/2014 M/S. RUPA & CO. LTD.. A.YR.2007-08 10 WAS NO NEED TO REMAND THE ISSUE TO THE AO ALSO. WE ARE OF THE VIEW THAT IT WOULD BE SUFFICIENT IF THE ORDER OF THE CIT(A) IS SET ASIDE AND THE ISSUE REMANDED TO THE AO FOR VERIFICATION AS TO WHETHER PAYEES HAVE INCLUDED THE RECEIPTS FROM THE ASSESSEE IN THEIR RETURNS OF INCOME IN TERMS OF THE DECISIONS REFERRE D TO ABOVE. THE OTHER ISSUES RAISED BY THE REVENUE IN THEIR APPEAL ARE THEREFORE LEFT OPEN WITHOUT ADJUDICATION, FOR THE PRESENT. 14. THE APPEAL OF THE REVENUE IS ACCORDINGLY ALLOW ED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON 12.08.2016. SD/- SD/- [DR.ARJUN LAL SAINI] [ N.V.VASUDEVA N ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 12.08.2016. [RG PS] COPY OF THE ORDER FORWARDED TO: 1. M/S. RUPA & CO. LTD., 1, HO CHI MINH SARANI, KOL KATA-700071. 2. D.C.I.T., CENTRAL CIRCLE-VIII, KOLKATA. 3. CIT(A)-CENTRAL-I, KOLKATA. 4. CIT-CENTR AL-I, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSTT.REGISTRAR, ITAT, KOLKATA BENCHES