DCIT, V. Ahri. Ananda Marakala,

ITA 1584/BANG/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68324 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 03-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVEEN KARANTH JT
• Keywords: Business income; Business expenditure; Retrospective amendment; Question of law; Non-deduction of tax
• Section: 43B; 194C; 201(1); 28; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.1584/BANG/2012 ASSESSMENT YEAR : 2005-06 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1, UDUPI. VS. SHRI ANANDA MARAKALA, PWD CONTRACTOR, DEVI KRUPA HANGARKATTA, UDUPI. PAN : AGGPM 1351G APPELLANT RESPONDENT CO NO.58/BANG/2013 (IN ITA NO.1584/BANG/2012 ) ASSESSMENT YEAR : 2005- 06 SHRI ANANDA MARAKALA, PWD CONTRACTOR, DEVI KRUPA HANGARKATTA, UDUPI. PAN : AGGPM 1351G VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1, UDUPI. CROSS OBJECTOR RESPONDENT APPELLANT BY : SHRI PRAVEEN KARANTH, JT. CIT RESPONDENT BY : SHRI NARENDRA SHARMA, ADVOCATE DATE OF HEARING : 05.09.2013 DATE OF PRONOUNCEMENT : 13.09.2013 ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 2 OF 29 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.1584/12 IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 14.09.2012 OF THE CIT(A), MYSORE RELATING TO A.Y. 2 005-06. IN THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) WHEREBY THE CIT(A) DELETED AN ADDITION OF RS.1,32,33,452 MADE BY THE A O INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME-TAX A CT, 1961 [HEREINAFTER REFERRED TO AS THE ACT] FOR THE ASSESSEES FAILUR E TO DEDUCT TAX AT SOURCE U/S. 194C(2) OF THE ACT. 2. THE ASSESSEE HAS FILED A CROSS OBJECTION IN WHIC H THE ASSESSEE HAS RAISED AN ISSUE THAT THE STATUTORY AMENDMENT TO THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT BY THE FINANCE ACT, 2012 W.E.F . 1.4.2013 IS APPLICABLE RETROSPECTIVELY FROM 1.4.2005 AND THEREFORE THE DIS ALLOWANCE MADE U/S.40(A)(IA) OF THE ACT DESERVES TO BE DELETED APP LYING THE LAW AS AMENDED. 3. THE FACTUAL DETAILS WITH REGARD TO THE APPEAL A ND CROSS OBJECTION ARE AS FOLLOWS. THE ASSESSEE IS AN INDIVIDUAL. HE IS A PWD REGISTERED CONTRACTOR CARRYING ON THE BUSINESS OF CIVIL CONSTR UCTION. HE WAS AWARDED GOVT. CONTRACTS FOR CONSTRUCTION OF CANALS ETC. FO R THE PURPOSE OF EXECUTING THE WORK, THE ASSESSEE ENGAGED CERTAIN CONTRACTORS. IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AY 2005-06, THE AO N OTICED THAT THE ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 3 OF 29 ASSESSEE HAD MADE PAYMENT OF RS.99,95,152 TO SRI DA YANANDA AMIN AND A SUM OF RS.32,38,300 TO D.Y. UPPAR. ACCORDING TO THE AO, THE AFORESAID PAYMENTS WERE MADE TO THE SUB-CONTRACTOR BY THE ASS ESSEE FOR CARRYING OUT WORKS ON BEHALF OF THE ASSESSEE AND THEREFORE T HE ASSESSEE WAS UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE ON SUCH PAYME NTS UNDER THE PROVISIONS OF SECTION 194C(2) OF THE ACT. SINCE TH E ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON SUCH PAYMENTS, THE AO INV OKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT DISALLOWED THE CLAI M OF THE ASSESSEE FOR DEDUCTION OF THE AFORESAID SUM WHILE COMPUTING INCO ME FROM BUSINESS. ACCORDINGLY, INCOME FROM BUSINESS STOOD ENHANCED BY THE AMOUNT DISALLOWED BY THE AO. 4. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONFIRMED THE ORDER OF THE AO. 5. ON FURTHER APPEAL BY THE ASSESSEE, THE ITAT IN ITA NO.420/BANG/2009 BY ITS ORDER DATED 26.4.2010 REMAN DED THE QUESTION REGARDING APPLICABILITY OF THE PROVISIONS OF SECTIO N 194C(2) OF THE ACT TO THE PAYMENTS IN QUESTION. IN THE ORDER PASSED BY THE A O PURSUANT TO ORDER OF THE TRIBUNAL, THE AO HELD THAT THE PAYMENTS MADE BY THE ASSESSEE FELL WITHIN THE AMBIT OF SECTION 194C OF THE ACT AND THA T THE ASSESSEE WAS UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE. 6. THE ASSESSEE HAS BEEN TAKING A STAND EVEN BEFOR E THE AO THAT AS ON THE LAST DATE OF THE PREVIOUS YEAR RELEVANT TO A .Y. 2005-06, THE AMOUNTS ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 4 OF 29 DUE AND PAYABLE TO THE ALLEGED SUB-CONTRACTORS HAD BEEN PAID AND NOTHING REMAINED PAYABLE . THE ASSESSEE ALSO SUBMITTED THAT SHRI DAYANANDA AMIN AND SHRI D.Y. UPPAR HAVE FILED THE RETURNS OF INCOME FOR THE A.Y. 2005-06 AND HAVE INCLUDED THE PAYMENTS RECEIVED BY THE ASSESSEE AS PART OF THEIR INCOME DECLARED IN SUCH RETURNS OF INCOME. THE ASSESSEE ALSO POINTED OUT THAT TAXES DUE HAVE BEEN PAID BY THEM A ND THEREFORE THERE IS NO LOSS TO THE REVENUE. THESE FACTS HAVE NOT BEEN CONTROVERTED OR DISPUTED BY THE AO. 7. THE ASSESSEE CHALLENGED THE FINDINGS OF THE AO BEFORE THE CIT(A). BEFORE THE CIT(A), ONE OF THE CONTENTIONS RAISED BY THE ASSESSEE WAS THAT THE PROVISIONS OF SECTION 40(A)(IA) PROVIDES FOR NO N-DEDUCTION OF AMOUNT WHICH REMAINS PAYABLE TO A RESIDENT. IT IS NOT APP LICABLE WHERE EXPENDITURE IS PAID. IT IS APPLICABLE ONLY IN CASES WHERE PAYM ENTS ARE DUE AND OUTSTANDING. THE CIT(A) PROCEEDED TO DECIDE THE AP PEAL OF THE ASSESSEE ON THE BASIS OF A DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF MERILYN SHIPPING, [2012] 16 ITR(TRIB) 1, VISHAKAPATNAM (SB) . THE RELEVANT OBSERVATIONS OF THE CIT(A) IN THIS REGARD WERE AS FOLLOWS:- 10.1 I HAVE GONE THROUGH THE DECISION OF SPECI AL BENCH OF HONBLE ITAT VISAKAPATNAM IN THE ABOVE CASE. IN THA T CASE, THE ISSUE WAS ON THE PAYMENT OF BROKERAGE EXPENSES AND COMMISSION WITHOUT DEDUCING TDS. EXCEPT THAT, IN THE CASE OF T HE APPELLANT THE PAYMENTS ARE ON ACCOUNT OF SUB CONTRACT PAYMENT . I FIND THAT THE FACTS ARE IDENTICAL AND HENCE I AM OF THE VIEW THAT THE DECISION OF HONBLE SPECIAL BENCH OF VISAKAPATNAM TRIBUNAL I S ON SIMILAR FACTS OF THE CASE OF THE APPELLANT. THIS DECISION I S ALSO ACCEPTED ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 5 OF 29 BY HONBLE ITAT BANGALORE BENCH. THE HONBLE TRIBUN AL ANALYZED THE INTENSION OF THE LEGISLATURE IN REMOVI NG THE PHRASE PAID OR CREDITED THAT WERE IN THE BILL AND FINA LLY RETAINED ONLY PAYABLE. AFTER DETAILED ANALYSIS WHICH WAS CONCLU DED BY MAJORITY BY THE HONBLE SPECIAL BENCH THAT THE LEGI SLATURE CONSCIOUSLY REPLACED THE WORD AMOUNTS CREDITED OR PAID WITH THE WORD PAYABLE IN THE FINAL ENACTMENT. BY THIS, THE LEGISLATIVE INTEND HAS BEEN MADE CLEAR THAT ONLY OU TSTANDING AMOUNTS ARE THE PROVISIONS FOR EXPENSES LIABLE FOR TDS UNDER CHAPTER XVII-B OF THE ACT IS SOUGHT TO BE DISALLOWE D IN THE EVENT THERE IS A DEFAULT IN FOLLOWING THE OBLIGATIONS CAS TED UPON THE ASSESSEE UNDER CHAPTER XVII-B OF THE ACT. WHILE INT ERPRETING THE WORD PAYABLE IN SECTION 40(A)(IA), THE MEANING OF THE WORD STATUTE MUST BE UNDERSTOOD IN ITS NATURAL, ORDINARY OR POPULAR SENSE AND CONSTITUTE ACCORDING TO THE GRAMMATICAL M EANING. THE WORD PAYABLE USED IN SECTION 40(A)(IA) OF THE ACT IS TO BE ASSIGNED STRICT INTERPRETATION IN VIEW OF THE OBJEC T OF LEGISLATION WHICH IS INTENDED FROM THE REPLACEMENT OF THE WORDS IN THE PROPOSED AND ENACTED PROVISION FROM THE WORD AMOUN T CREDITED OR PAID TO PAYABLE. IN VIEW OF THE DETAILED ANAL YSES AND THE ABOVE FINDINGS OF THE HONBLE ITAT, IT WAS HELD BY MAJORITY THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE APPLICABLE ONLY TO THE AMOUNT OF EXPENDITURE WHICH ARE PAYABLE AS O N 31ST MARCH OF EVERY YEAR AND IT CANNOT BE INVOKED TO DISALLOW WHICH HAD BEEN ACTUALLY PAID DURING THE PREVIOUS YEAR WITHOUT DEDUCTION OF TDS. 10.2 I ALSO FIND STRENGTH IN THE ARGUMENT OF THE A PPELLANT THAT IN THE OTHER PROVISIONS LIKE SUB CLAUSES IN SECTION 40 (A)(IC) AND 40(A)(IIA) THE WORDING USED ARE PAID UNLIKE THE W ORD PAYABLE USED IN SECTION 40(A)(IA) MAKES IT CLEAR THAT BOTH THE WORDS ARE TO BE READ IN THE NATURAL CONTEXT. IN FACT THIS ASPECT IS ALSO ANALYZED IN DETAILS BY HONBLE SPECIAL BENCH. IN VIEW OF THE DECISION OF THE HONBLE SPECIAL BENCH BEING FOLLOWED BY HONBLE ITAT BANGALORE WHICH IS BINDING, I DIRECT THE AO TO APPL Y THE PROVISIONS OF SECTION 40(A)(IA) FOR THE AMOUNTS SHO WN AS PAYABLE AS ON 31ST MARCH OF THE PREVIOUS YEAR. 8. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE ASSESSEE H AS FILED A CROSS ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 6 OF 29 OBJECTION IN WHICH THE ASSESSEE HAS AMONGST OTHER G ROUNDS, SUBMITTED THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WERE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE SINCE THE RECIPIENT PAYEE HA S ALREADY DECLARED THE PAYMENTS MADE BY THE ASSESSEE IN THEIR RESPECTIVE R ETURNS. HENCE NO DISALLOWANCE IS WARRANTED UNDER THE PROVISIONS OF S ECTION 40(A)(IA) OF THE ACT. 9. THE LD. DR SUBMITTED THAT THE DECISION OF THE HO NBLE SPECIAL BENCH ITAT IN THE CASE OF MERILYN SHIPPING ( SUPRA ) HAS BEEN REVERSED BY THE HONBLE GUJARAT AND CALCUTTA HIGH COURTS I N CIT VS. SIKANDARKHAN N. TUNVAR & OTHERS IN TAX APPEAL NO. 905 OF 2012 & OTHERS DATED 02/05/2013 AND IN CIT VS. MD.JAKIR HOSSAI MONDAL IN ITA NO.31 OF 2013, GA NO.320 OF 2013 DATED 04.04.2013 RESPECTIVELY. 10. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT T HAT THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF VECTOR SHIPPING SERVICES PVT. LTD. IN IT APPEAL NO.122/2013, ORDER DATED 9.7.2013 HAS HOWEVER UPHELD THE DECISION OF THE SPECIAL BENCH OF THE ITA T. THE LD. COUNSEL SUBMITTED THAT WHERE TWO VIEWS ARE POSSIBLE, THE VI EW IN FAVOUR OF THE ASSESSEE SHOULD BE ACCEPTED AND IN THIS REGARD RELI ED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. VEGETABLES PRODUCTS 88 ITR 192 (SC) . ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 7 OF 29 11. ON THE CROSS OBJECTION FILED BY THE ASSESSEE, THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE INSERTION TO THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT BY THE FINANCE ACT, 20 12 W.E.F. 1.4.2013 AND SUBMITTED THAT WHERE TAX IS PAID BY THE RECIPIENT T HEN NO DISALLOWANCE U/S. 40(A)(IA) SHOULD BE MADE AS PER THE SECOND PROVISO REFERRED TO ABOVE. IT WAS HIS SUBMISSION THAT THE AFORESAID PROVISO THOUG H STATED TO BE W.E.F. 1.4.2013 SHOULD BE CONSTRUED AS HAVING OPERATION WI TH RETROSPECTIVE EFFECT FROM 1.4.2005 WHEN THE PROVISIONS OF SECTION 40(A)( IA) OF THE ACT WERE FIRST INTRODUCED. IT WAS HIS SUBMISSION THAT THE PROVISI ONS ARE INTENDED TO REMOVE HARDSHIP WHICH WAS NEVER CONTEMPLATED AND TH EREFORE SHOULD BE CONSTRUED AS HAVING RETROSPECTIVE OPERATION. IN TH IS REGARD, RELIANCE WAS PLACED BY THE LD. COUNSEL FOR THE ASSESSEE ON THE D ECISION OF HONBLE SUPREME COURT IN THE CASE OF ALLIED MOTORS 224 ITR 677 (SC) AND IN THE CASE OF ALOM EXTRUSIONS LTD. 319 ITR 306 (SC) WHEREIN THE HONBLE SUPREME COURT IN THE CONTEXT OF AMENDMENTS TO THE P ROVISIONS OF SECTION 43B OF THE ACT TOOK THE VIEW THAT THE AMENDMENT WER E INTENDED TO REMOVE HARDSHIP AND THOUGH THEY WERE NOT STATED TO BE RETR OSPECTIVE IN OPERATION, WILL APPLY RETROSPECTIVELY. 12. THE LD. DR SUBMITTED THAT IT IS NOT POSSIBLE T O INFER RETROSPECTIVITY OF OPERATION UNLESS SPECIFICALLY SAID SO BY THE LEGISL ATURE. ACCORDING TO HIM, HAD THE LEGISLATURE WANTED THE PROVISIONS TO APPLY RETROSPECTIVELY, THEY WOULD HAVE SAID SO SPECIFICALLY. IN THE ABSENCE OF SUCH INTENTION OF THE ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 8 OF 29 LEGISLATURE HAVING BEEN EXPRESSED, IT IS NOT POSSIB LE TO CONSTRUE THE AMENDMENT AS HAVING RETROSPECTIVE OPERATION. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS FAR AS THE CROSS OBJECTION IS CONCERNED, THE QUESTION FOR OUR CONSID ERATION IS AS TO WHETHER SECTION 40(A)(IA) AMENDED BY THE FINANCE ACT, 2012 WITH EFFECT FROM 01.04.2013 IS RETROSPECTIVE FROM 01.04.2005 OR PROS PECTIVE FROM THE DATE SPECIFIED. 14. IN ORDER TO FIND ANSWER TO THIS QUESTION, IT W OULD BE RELEVANT TO NOTE DOWN THE LEGISLATIVE HISTORY OF THE PROVISION. SECT ION 40 HAS CERTAIN CLAUSES PROVIDING FOR THE AMOUNTS WHICH ARE NOT DEDUCTIBLE. SUB-CLAUSE (IA) OF CLAUSE (A) OF SECTION 40 WAS INSERTED BY THE FINANC E (NO.2) ACT, 2004 WITH EFFECT FROM 1 ST APRIL, 2005 READING AS UNDER:- 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SE CTIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTED THE INCOME CHARGEABLE UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. .. (IA) ANY INTEREST, COMMISSION OR BROKERAGE, FEES FO R PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABO UR FOR CARRYING OUT ANY WORK), ON OR, AFTER DEDUCTION, HAS NOT BEEN PAID DURING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200 : PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR OR, HAS BEEN DEDUCT ED IN THE ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 9 OF 29 PREVIOUS YEAR BUT PAID IN ANY SUBSEQUENT YEAR AFTER THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTIO N 200, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING TH E INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. EXPLANATION. FOR THE PURPOSES OF THIS SUB-CLAUSE, - (I) COMMISSION OR BROKERAGE SHALL HAVE THE SAME MEANING AS IN CLAUSE (I) OF THE EXPLANATION TO SECTION 194H ; (II) FEES FOR TECHNICAL SERVICES SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9; (III) PROFESSIONAL SERVICES SHALL HAVE THE S AME MEANING AS IN CLAUSE (A) OF THE EXPLANATION TO SECTION 194J; (IV) WORK SHALL HAVE THE SAME MEANING AS IN EXPLANATION III TO SECTION 194C; THE MEMORANDUM EXPLAINING THE PROVISIONS IN THE FIN ANCE BILL EXPLAINED THE RATIONALE OF THE INSERTION OF THE NEW PROVISION IN FOLLOWING WORDS :- WITH A VIEW TO AUGMENT COMPLIANCE OF TDS PROVISIONS, IT IS PROPOSED TO EXTEND THE PROVISIONS OF SECTION 40(A)( I) TO PAYMENTS OF INTEREST, COMMISSION OR BROKERAGE, FEES FOR PROF ESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES TO RESIDENT S, AND PAYMENTS TO A RESIDENT CONTRACTOR OR SUB-CONTRACTOR FOR CARR YING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT A NY WORK), ON WHICH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION, HAS NOT BEEN PAID BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200 AND IN ACCORDANCE WITH THE OTHER PROVISIONS OF CHAPTER XVII-B. IT IS ALSO PROPOSED TO PROVIDE THAT WHERE IN RESPECT OF PAYMENT OF ANY SUM, TAX HAS BEEN DEDUCTE D UNDER CHAPTER XVII-B OR PAID IN ANY SUBSEQUENT YEAR, THE SUM OF PAYMENT SHALL BE ALLOWED IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. THE PROPOSED AMENDMENT WILL TAKE EFFECT FROM 1ST DA Y OF APRIL, 2005 AND WILL, ACCORDINGLY, APPLY IN RELATION TO TH E ASSESSMENT YEAR 2005- 2006 AND SUBSEQUENT YEARS. [CLAUSE 11] ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 10 OF 29 THEREAFTER THE FINANCE ACT, 2008 MADE AMENDMENT TO CLAUSE (A) IN SUB- CLAUSE (IA) IN SECTION 40 WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL, 2005. THE SECTION AS AMENDED BY THE FINANCE ACT, 2008 READ AS UNDER:- (IA) ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICE S PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB -CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDIN G SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BE EN PAID,- (A) IN A CASE WHERE THE TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR , ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTIO N 139 ; OR (B) IN ANY OTHER CASE, ON OR BEFORE THE LAST DA Y OF THE PREVIOUS YEAR. PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCT ED- (A) DURING THE LAST MONTH OF THE PREVIOUS YEAR BUT PAID AFTER THE SAID DUE DATE ; OR (B) DURING ANY OTHER MONTH OF THE PREVIOUS YEAR BUT PAID AFTER THE END OF THE SAID PREVIOUS YEAR, SUCH SUM SHALL B E ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS Y EAR IN WHICH SUCH TAX HAS BEEN PAID. ; 15. THE FINANCE ACT, 2008 BROUGHT OUT AMENDMENT TO SECTION 40(A)(IA) W.R.E.F. 1.4.2005 BY RELAXING EARLIER POSITION TO S OME EXTENT. IT MADE TWO CATEGORIES OF DEFAULTS CAUSING DISALLOWANCE ON THE BASIS OF THE PERIOD OF THE PREVIOUS YEAR IN WHICH TAX WAS DEDUCTIBLE. THE FIRST CATEGORY OF DISALLOWANCES INCLUDED THE CASES IN WHICH TAX WAS D EDUCTIBLE AND WAS SO ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 11 OF 29 DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR BUT THERE WAS FAILURE TO PAY SUCH TAX ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 OF THE ACT. IN OTHER WORDS, IF ANY AMOU NT ON WHICH TAX WAS DEDUCTIBLE DURING LAST MONTH OF THE PREVIOUS YEAR, THAT IS MARCH 2005, BUT WAS PAID BEFORE 31 ST OCTOBER, 2005, BEING THE DUE DATE U/S 139(1), THE DEDUCTIBILITY OF THE AMOUNT WAS KEPT INTACT. THE SE COND CATEGORY INCLUDED CASES OTHER THAN THOSE GIVEN IN CATEGORY FIRST. TO PUT IT SIMPLY, IF TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE FIRST ELE VEN MONTHS OF THE PREVIOUS YEAR, THAT IS, UP TO FEBRUARY, 2005, THE D ISALLOWANCE WAS TO BE MADE IF THE ASSESSEE FAILED TO PAY IT BEFORE 31 ST MARCH, 2005. 16. THEN CAME THE AMENDMENT TO SECTION 40(A)(IA) B Y THE FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL, 2010. THE PROVISION SO AMENDED, NOW READS AS UNDER :- (IA) ANY INTEREST, COMMISSION OR BROKERAGE, RENT , ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SER VICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR S UB-CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDIN G SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BE EN DEDUCTED OR; AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCT ED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 12 OF 29 17. FROM THE ABOVE PROVISION AS AMENDED BY THE FINA NCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL, 2010 IT CAN BE SEEN THAT THE ONLY DIFFERENCE WHICH THIS AMENDMENT HAS MADE IS DISPENS ING WITH THE EARLIER TWO CATEGORIES OF DEFAULTS AS PER THE FINANCE ACT, 2008, AS DISCUSSED IN THE EARLIER PARA, CAUSING DISALLOWANCE ON THE BASIS OF THE PERIOD OF THE PREVIOUS YEAR DURING WHICH TAX WAS DEDUCTIBLE. THE FIRST CATEGORY OF DISALLOWANCES INCLUDED THE CASES IN WHICH TAX WAS D EDUCTIBLE AND WAS SO DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR BUT THERE WAS FAILURE TO PAY SUCH TAX ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139. THE FINANCE ACT, 2010 HAS NOT TINKERED WITH THIS POSITION. THE SECOND CATEGORY OF THE FINANCE ACT, 2008 WHICH REQU IRED THE DEPOSIT OF TAX BEFORE THE CLOSE OF THE PREVIOUS YEAR IN CASE OF DE DUCTION DURING THE FIRST ELEVEN MONTHS, AS A PRE-CONDITION FOR THE GRANT OF DEDUCTION IN THE YEAR OF INCURRING EXPENDITURE, HAS BEEN ALTERED. THE HITHER TO REQUIREMENT OF THE ASSESSEE DEDUCTING TAX AT SOURCE DURING THE FIRST E LEVEN MONTHS OF THE PREVIOUS YEAR AND PAYING IT BEFORE THE CLOSE OF THE PREVIOUS YEAR UP TO 3 1 ST MARCH OF THE PREVIOUS YEAR AS A REQUIREMENT FOR GRA NT OF DEDUCTION IN THE YEAR OF INCURRING SUCH EXPENDITURE, HAS BEEN EASED TO EXTEND SUCH TIME FOR PAYMENT OF TAX UP TO DUE DATE U/S 139(1) OF THE ACT . AS PER THE NEW AMENDMENT, THE DISALLOWANCE WILL BE MADE IF AFTER D EDUCTING TAX AT SOURCE, THE ASSESSEE FAILS TO PAY THE AMOUNT OF TAX ON OR B EFORE THE DUE DATE SPECIFIED IN SUBSECTION (1) OF SECTION 139 OF THE A CT. THE EFFECT OF THIS AMENDMENT IS THAT NOW THE ASSESSEE DEDUCTING TAX EI THER IN THE LAST MONTH ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 13 OF 29 OF THE PREVIOUS YEAR OR FIRST ELEVEN MONTHS OF THE PREVIOUS YEAR SHALL BE ENTITLED TO DEDUCTION OF THE EXPENDITURE IN THE YEA R OF INCURRING IT, IF THE TAX SO DEDUCTED AT SOURCE IS PAID ON OR BEFORE THE DUE DATE U/S 139(1). THIS IS THE ONLY DIFFERENCE WHICH HAS BEEN MADE BY THE FINA NCE ACT, 2010. 18. THE QUESTION AS TO WHETHER THE AMENDMENT BY TH E FINANCE ACT, 2010 AS AFORESAID IS PROSPECTIVE OR RETROSPECTIVE F ROM 1.4.2005 CAME UP FOR CONSIDERATION BEFORE THE MUMBAI SPECIAL BENCH I TAT IN THE CASE OF BHARATI SHIPYARD LTD . BEFORE THE SPECIAL BENCH, IT WAS ARGUED THAT THE AMENDMENT WAS MADE WITH A VIEW TO REMOVE THE UNNECE SSARY HARDSHIP CAUSED TO THE ASSESSEE BY THE EARLIER PROVISION. TH E SPECIAL BENCH BY ITS ORDER DATED 9.9.2011, HOWEVER, HELD THAT THE AMENDMENT CARRIED OUT BY THE FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FRO M ASSESSMENT YEAR 2010-2011 CANNOT BE HELD TO BE RETROSPECTIVE FROM A SSESSMENT YEAR 2005- 2006. THE SPECIAL BENCH HELD THAT THE AMENDMENT B ROUGHT OUT BY THE FINANCE ACT, 2010 TO SECTION 40(A)(IA) W.E.F. 01.04 .2010, IS NOT REMEDIAL AND CURATIVE IN NATURE. 19. PRIOR TO THE DECISION OF THE SPECIAL BENCH, ID ENTICAL ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE ITAT KOLKATA BENCH IN THE CASE OF VIRGIN CREATIONS VS. ITO, WARD 32(4), KOLKATA ITA NO. 267/ KOL/2009 FOR AY 05-06 . THE ISSUE THAT AROSE FOR CONSIDERATION WAS DISAL LOWANCE OF EXPENSES U/S.40(A)(IA)CLAIMED AS DEDUCTION WHILE CO MPUTING INCOME FROM ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 14 OF 29 BUSINESS BEING EMBROIDERY CHARGES, DYEING CHARGES, INTEREST ON LOAN AND FREIGHT CHARGES WITHOUT DEDUCTING TAX AT SOURCE. T HE EMBROIDERY CHARGES WERE PAID BETWEEN 22 ND MAY, 2004 TO 30.11.2004. TAX HAD BEEN DEDUCTED AT SOURCE BUT WERE PAID TO THE GOVERNMENT ONLY ON 2 8.10.2005 AND NOT WITHIN THE TIME CONTEMPLATED BY SECTION 200(1) OF T HE ACT. THE DYEING CHARGES WERE PAID BETWEEN 5.4.2004 TO 20.8.2004. T AX WAS DEDUCTED AT SOURCE BUT WAS PAID TO THE GOVERNMENT ONLY ON 28.10 .2005. FRIEGHT OUTWARD CHARGES WERE PAID WITHOUT DEDUCTION OF TAX AT SOURCE. INTEREST ON LOANS WERE CREDITED TO THE CREDITORS ACCOUNT ON 31. 3.2005 TO THE EXTENT THEY WERE PAID AFTER THE DUE DATE FOR FILING RETURN OF I NCOME U/S.139(1) OF THE ACT, THE DISALLOWANCE WAS MADE U/S.40(A)(IA) OF THE ACT. BEFORE THE TRIBUNAL, THE ASSESSEE CONTENTED THAT THE AMENDMENT BY THE FI NANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL, 2010 WHEREBY AMOUNT OF TAX DEDUCTED AT THE TIME OF MAKING PAYMENT IN RESPECT OF EXPENDITUR E REFERRED TO IN SEC.40(A)(IA) OF THE ACT, IF PAID TO THE GOVERNMENT ON OR BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME DUE DATE U/S 1 39(1) OF THE ACT SHOULD BE ALLOWED AS A DEDUCTION. IN OTHER WORDS IT WAS ARG UED THAT THE AMENDMENT BY THE FINANCE ACT, 2010 TO THE PROVISIONS OF SEC.4 0(A)(IA) HAS TO BE HELD TO BE RETROSPECTIVE W.E.F. 1-4-2005. THE ITAT KOLK ATA BENCH BY ITS ORDER DATED 15.12.2010 , HELD AS FOLLOWS: 8. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAR EFUL PERUSAL OF THE MATERIALS AVAILABLE ON RECORD, KEEPING IN VIEW OF THE FACT THAT THOUGH THE LD.D.R. SUBMITTED THAT THE DECISIONS OF THE COORDINATE BENCHES ARE NOT BINDING AND THE KOLKATA BENCHES MAY TAKE A ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 15 OF 29 DIFFERENT VIEW, SINCE MUMBAI BENCH AFTER ANALYZING THE PROVISIONS OF SEC.40(A)9IA) SINCE ITS INCEPTION AND VARIOUS AMENDMENTS MADE TO THE SAME INCLUDING THE SUGGESTIO N MADE BY THE INDUSTRY IN THE FORM OF REPRESENTATION IN THEIR PRE-BUDGET MEMORANDUM TO THE HONBLE FINANCE MINISTER AND BY A PPLYING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF ALOM EXTRUSIONS LTD., HAS OBSERVED THAT THE PROVISIONS OF SECTION 40(A)(IA) AS STOOD PRIOR TO THE AMENDMENTS MADE BY THE FINANCE ACT 2010 THUS WERE RESULTING INTO UNINTENDED CONSEQ UENCES AND CAUSING GRAVE AND GENUINE HARDSHIPS TO THE ASSESSES WHO HAD SUBSTANTIALLY COMPLIED WITH THE RELEVANT TDS PROVIS IONS BY DEDUCTING THE TAX AT SOURCE AND BY PAYING THE SAME TO THE CREDIT OF THE GOVERNMENT BEFORE THE DUE DATE OF FILING OF THEIR RETURNS U/S.139(1). IN ORDER TO REMEDY THIS POSITION AND T O REMOVE THE HARDSHIPS WHICH WAS BEING CAUSED TO THE ASSESSEE BE LONGING TO SUCH CATEGORY, AMENDMENTS HAVE BEEN MADE IN THE PRO VISIONS OF SECTION 40(A)(IA) BY THE FINANCE ACT, 2010. THE SA ID AMENDMENTS, IN OUR OPINION, THUS ARE CLEARLY REMEDI AL/CURATIVE IN NATURE AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF ALLIED MOTORS PVT. LTD. (SUPRA) AND MOM EXTRUSIONS LTD. (SUPRA) AND THE SAME THEREFORE WOULD APPLY RETROSPECTIVELY W.E.F. 1 ST APRIL, 2005. IN THE CASE OF R.B.JODHA MAL KUTHIALA 82 ITR 570, IT WAS HELD BY THE HONBLE SUPREME COURT THAT A PRO VISO WHICH IS INSERTED TO REMEDY UNINTENDED CONSEQUENCES AND TO M AKE THE PROVISION WORKABLE, REQUIRES TO BE TREATED AS RETRO SPECTIVE IN OPERATION SO THAT A REASONABLE INTERPRETATION CAN B E GIVEN TO THE SECTION AS A WHOLE. IN THE PRESENT CASE, THE AMOUN T OF TAX DEDUCTED AT SOURCE FROM THE FREIGHT CHARGES DURING THE PERIOD 01/04/2005 TO 28/02/2006 WAS PAID BY THE ASSESSEE IN THE MONTH OF JULY AND AUGUST 2006 I.E., WELL BEFORE THE DUE D ATE OF FILING OF ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON. THIS BEING THE UNDISPUTED POSITION, WE HOLD THAT THE DISALLOWA NCE MADE BY THE A.O. AND CONFIRMED BY THE LEARNED CIT(A) ON ACC OUNT OF FREIGHT CHARGES BY INVOKING THE PROVISIONS OF SECTI ON 40(A)(IA) IS NOT SUSTAINABLE AS PER THE AMENDMENTS MADE IN THE S AID PROVISIONS BY THE FINANCE ACT, 2010 WHICH, BEING REMEDIAL/CURATIVE IN NATURE, HAVE RETROSPECTIVE APP LICATION, WE FIND NO REASON TO DEVIATE FROM THE DECISIONS OF THE ITATS MUMBAI BENCH AND AHMEDABAD BENCH, IN THE ABSENCE OF A CONTRARY VIEW, EXCEPT THE OTHER BENCHES DECISIONS O R ANY OTHER HIGH COURT. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 16 OF 29 COORDINATE BENCHES (SUPRA), WE ALLOW THE GROUND NOS . I TO 3 OF THE ASSESSEES APPEAL. 20. AS AGAINST THE AFORESAID DECISION, THE REVENUE PREFERRED APPEAL BEFORE THE HONBLE CALCUTTA HIGH COURT. THE HONBL E CALCUTTA HIGH COURT IN ITA NO. 302 OF 2011, GA 3200/2011 DECIDED ON 23.1 1.2011 , HELD AS FOLLOWS: WE HAVE HEARD MR. NIZAMUDDIN AND GONE THROUGH THE IMPUGNED JUDGMENT AND ORDER. WE HAVE ALSO EXAMINED THE POINT FORMULATED FOR WHICH THE PRESENT APPEAL IS SOUGHT TO BE ADMITT ED. IT IS ARGUED BY MR. NIZAMUDDIN THAT THIS COURT NEEDS TO TAKE DEC ISION AS TO WHETHER SECTION 40(A)(IA) IS HAVING RETROSPECTIVE O PERATION OR NOT. THE LEARNED TRIBUNAL ON FACT FOUND THAT THE ASSESSE E HAD DEDUCTED TAX AT SOURCE FROM THE PAID CHARGES BETWEEN THE PER IOD APRIL 1, 2005 AND APRIL 28, 2006 AND THE SAME WERE PAID BY T HE ASSESSEE IN JULY AND AUGUST 2006, I.E. WELL BEFORE THE DUE D ATE OF FILING OF THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON. THIS FACTUAL POSITION WAS UNDISPUTED. MOREOVER, THE SUPREME COUR T, AS HAS BEEN RECORDED BY THE LEARNED TRIBUNAL, IN THE CASE OF ALLIED MOTORS PVT. LTD. AND ALSO IN THE CASE OF ALOM EXTRU SIONS LTD., HAS ALREADY DECIDED THAT THE AFORESAID PROVISION HA S RETROSPECTIVE APPLICATION. AGAIN, IN THE CASE REPORTED IN 82 ITR 570, THE SUPREME COURT HELD THAT THE PROVISION, WHICH HAS IN SERTED THE REMEDY TO MAKE THE PROVISION WORKABLE, REQUIRES TO BE TREATED WITH RETROSPECTIVE OPERATION SO THAT REASONABLE DED UCTION CAN BE GIVEN TO THE SECTION AS WELL. IN VIEW OF THE AUTHOR ITATIVE PRONOUNCEMENT OF THE SUPREME COURT, THIS COURT CANN OT DECIDE OTHERWISE. HENCE WE DISMISS THE APPEAL WITHOUT ANY ORDER AS TO COSTS. 21. FURTHER LIBERALIZATION OF PROVISIONS OF SECTION 40(A)(IA) WAS MADE THROUGH AMENDMENT BROUGHT BY THE FINANCE ACT 2012. WITH A VIEW TO ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 17 OF 29 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 SHALL BE INSERTED 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 FIRST 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 PROVISO. 22. SINCE PROVISIONS OF SECTION 40(A)(IA) AS AMENDE D BY FINANCE ACT, 2012 IS LINKED TO SECTION 201 OF THE ACT, IN WHICH A PROVISO WAS INSERTED, IT IS NECESSARY TO LOOK INTO THOSE PROVISIONS WHICH RE AD THUS: SEC.201: (1) WHERE ANY PERSON, INCLUDING THE PRINC IPAL OFFICER OF A COMPANY (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 AFTE R SO DEDUCTING FAILS TO PAY, THE WHOLE OR ANY PART OF THE TAX , AS REQUIRED BY OR UNDER THIS ACT, THEN, SUCH PERSON, SHALL, WITHOUT P REJUDICE TO ANY OTHER CONSEQUENCES WHICH HE MAY INCUR, BE DEEMED 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 T HE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 18 OF 29 SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT 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 CERTIF ICATE TO THIS EFFECT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PR ESCRIBED: 23. MEMORANDUM EXPLAINING THE PROVISIONS WHILE INTR ODUCING FINANCE BILL, 2012 PROVIDES THE JUSTIFICATION OF THE AMENDM ENT TO SECTION 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 RESIDENT PAYEE, IT IS PROPOSED TO AMEND SECTION 40(A)(IA) TO PROVIDE THAT WHERE AN ASSESSEE MAKES PAYMENT OF THE NATURE SPECI FIED IN THE SAID SECTION TO A RESIDENT PAYEE WITHOUT DEDUCTION OF TAX AND IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER SECTI ON 201(1) ON ACCOUNT OF PAYMENT OF TAXES BY THE PAYEE, THEN, FOR THE PURPOSE OF ALLOWING DEDUCTION OF SUCH SUM, IT SHALL BE DEEM ED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYE E. 24. THE PROVISIONS OF SEC.40(A)(IA) OF THE ACT ARE MEANT TO ENSURE THAT THE ASSESSEES PERFORM THEIR OBLIGATION TO DEDUCT T AX AT SOURCE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. SUCH CO MPLIANCE WILL ENSURE REVENUE COLLECTION WITHOUT MUCH HASSLE. WHEN THE O BJECT SOUGHT TO BE ACHIEVED BY THOSE PROVISIONS ARE FOUND TO BE ACHIEV ED, IT WOULD BE UNJUST TO DISALLOWANCE LEGITIMATE BUSINESS EXPENSES OF AN ASSESSEE. DESPITE ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 19 OF 29 DUE COLLECTION OF TAXES DUE, IF DISALLOWANCE OF GEN UINE BUSINESS EXPENSES ARE MADE THAN THAT WOULD BE UNJUST ENRICHMENT ON THE PART OF THE GOVERNMENT AS THE PAYEE WOULD HAVE ALSO PAID THE TA XES ON SUCH INCOME. IN ORDER TO REMOVE THIS ANOMALY, THIS AMENDMENT HAS BEEN INTRODUCED. IN CASE OF PAYMENT TO NON RESIDENT, THE GOVERNMENT DOE S NOT HAVE ANY OTHER MECHANISM TO RECOVER THE DUE TAXES. HENCE, NO AMEND MENT 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 SEC TION WILL BE ALLOWED 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. 25. THE QUESTION IS AS TO WHETHER THE AMENDMENT MAD E AS ABOVE IS PROSPECTIVE OR RETROSPECTIVE W.E.F. 1.4.2005 WHEN T HE PROVISIONS OF SEC.40(A)(IA) WERE INTRODUCED. KEEPING IN VIEW THE PURPOSE BEHIND THE PROVISO INSERTED BY THE FINANCE ACT, 2012 IN SECTIO N 40(A)(IA) OF THE ACT, IT CAN BE SAID TO BE DECLARATORY AND CURATIVE IN NATUR E AND THEREFORE, SHOULD BE GIVEN RETROSPECTIVE EFFECT FROM 1ST APRIL, 2005, BEING THE DATE FROM WHICH SUB-CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2) ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 20 OF 29 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 THE SECOND PROVISO TO S. 43B OF THE I T 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? PRIOR TO FI NANCE ACT, 2003, THE SECOND PROVISO TO S. 43B OF THE IT ACT, 1961 (FOR S HORT, 'THE ACT') RESTRICTED THE DEDUCTION IN RESPECT OF ANY SUM PAYABLE BY AN E MPLOYER BY WAY OF CONTRIBUTION TO PROVIDENT FUND/SUPERANNUATION FUND OR ANY OTHER FUND FOR THE WELFARE OF EMPLOYEES, UNLESS IT STOOD PAID WITHIN T HE SPECIFIED DUE DATE. ACCORDING TO THE SECOND PROVISO, THE PAYMENT MADE B Y THE EMPLOYER TOWARDS CONTRIBUTION TO PROVIDENT FUND 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 WITH THE RETURN OF INCOME. IN OTHER WORDS, IF CONTRIBUTION STOOD PAID AFTER THE DATE FOR FILING OF THE RETURN, IT STOOD DISALLOWED. THIS RESULTED IN G REAT 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, 2003, BY WHICH T HE SECOND PROVISO STOOD DELETED W.E.F. 1ST APRIL, 2004, AND CERTAIN C HANGES WERE ALSO MADE IN THE FIRST PROVISO BY WHICH UNIFORMITY WAS BROUGHT A BOUT BETWEEN PAYMENT OF FEES, TAXES, CESS, ETC., ON ONE HAND AND CONTRIBUTI ON MADE TO EMPLOYEES' PROVIDENT FUND, ETC., ON THE OTHER. ACCORDING TO THE DEPARTMENT, THE OMISSION OF THE SECOND PROVISO GIVING RELIEF TO THE ASSESSEE(S) ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 21 OF 29 [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 (R ETROSPECTIVELY). THE HONBLE SUPREME COURT HELD THAT THE DELETION OF THE SECOND PROVISO WAS RETROSPECTIVE W.E.F.1.4.2004. THE COURT CONSIDERED THE SCHEME OF THE ACT AND THE HISTORICAL BACKGROUND AND THE OBJECT OF INT RODUCTION OF THE PROVISIONS OF S. 43B. THE COURT ALSO REFERRED TO TH E EARLIER AMENDMENTS MADE IN 1988 WITH INTRODUCTION OF THE FIRST AND SEC OND 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 O F THE VIEW THAT IT WAS CLEAR THAT PRIOR TO THE AMENDMENT OF 2003, THE EMPL OYER WAS ENTITLED TO DEDUCTION ONLY IF THE CONTRIBUTION STANDS CREDITED ON OR BEFORE THE DUE DATE GIVEN IN THE PROVIDENT FUND ACT ON ACCOUNT OF SECON D PROVISO TO S. 43B. THE SITUATION CREATED FURTHER DIFFICULTIES AND AS A RESULT OF REPRESENTATIONS MADE BY THE INDUSTRY, THE AMENDMENT OF 2003 WAS CAR RIED 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 ABOV E, S. 43B (MAIN SECTION), WHICH STOOD INSERTED BY FINANCE ACT, 1983 , W.E.F. 1ST APRIL, 1984, EXPRESSLY COMMENCES WITH A NON OBSTANTE CLAUS E, THE UNDERLYING OBJECT BEING TO DISALLOW DEDUCTIONS CLAI MED MERELY BY MAKING A BOOK ENTRY BASED ON MERCANTILE SYSTEM OF A CCOUNTING. AT THE SAME TIME, S. 43B (MAIN SECTION) MADE IT MANDAT ORY FOR THE DEPARTMENT TO GRANT DEDUCTION IN COMPUTING THE INCO ME UNDER S. 28 IN THE YEAR IN WHICH TAX, DUTY, CESS, ETC., IS ACTU ALLY PAID. HOWEVER, ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 22 OF 29 PARLIAMENT TOOK COGNIZANCE OF THE FACT THAT ACCOUNT ING YEAR OF A COMPANY DID NOT ALWAYS TALLY WITH THE DUE DATES UND ER THE PROVIDENT FUND ACT, MUNICIPAL CORPORATION ACT (OCTROI) AND OT HER TAX LAWS. THEREFORE, BY WAY OF FIRST PROVISO, AN INCENTIVE/RE LAXATION WAS SOUGHT TO BE GIVEN IN RESPECT 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 ASSESSE E(S) THEN WOULD BE ENTITLED TO DEDUCTION. HOWEVER, THIS RELAXATION/ INCENTIVE WAS RESTRICTED ONLY TO TAX, DUTY, CESS AND FEE. IT DID NOT APPLY TO CONTRIBUTIONS TO LABOUR WELFARE FUNDS. THE REASON A PPEARS TO BE THAT THE EMPLOYER(S) SHOULD NOT SIT ON THE COLLECTED CON TRIBUTIONS AND DEPRIVE THE WORKMEN OF THE RIGHTFUL BENEFITS UNDER SOCIAL WELFARE LEGISLATIONS BY DELAYING PAYMENT OF CONTRIBUTIONS T O THE WELFARE FUNDS. HOWEVER, AS STATED ABOVE, THE SECOND PROVISO RESULTED IN IMPLEMENTATION PROBLEMS, WHICH HAVE BEEN MENTIONED HEREINABOVE, AND WHICH RESULTED IN THE ENACTMENT OF FINANCE ACT, 2003, DELETING THE SECOND PROVISO AND BRINGING ABOUT UNIFORMITY IN THE FIRST PROVISO BY EQUATING TAX, DUTY, CESS AND FEE WITH CONTRIBUTI ONS TO WELFARE FUNDS. ONCE THIS UNIFORMITY IS BROUGHT ABOUT IN THE FIRST PROVISO, THEN, IN OUR VIEW, THE FINANCE ACT, 2003, WHICH IS MADE A PPLICABLE 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. SECONDLY, IT MAY BE NOTED THAT, IN THE CASE OF ALLI ED MOTORS (P) LTD. ETC. VS. CIT (1997) 139 CTR (SC) 364 : (1997) 224 I TR 677 (SC), THE SCHEME OF S. 43B OF THE ACT CAME TO BE EXAMINED . IN THAT CASE, THE QUESTION WHICH AROSE FOR DETERMINATION WAS, WHE THER SALES-TAX COLLECTED BY THE ASSESSEE AND PAID AFTER THE END OF THE RELEVANT PREVIOUS YEAR BUT WITHIN THE TIME ALLOWED UNDER THE RELEVANT SALES- TAX LAW SHOULD BE DISALLOWED UNDER S. 43B OF THE AC T WHILE COMPUTING THE BUSINESS INCOME OF THE PREVIOUS YEAR ? THAT WAS A CASE WHICH RELATED TO ASST. YR. 1984-85. THE RELEVA NT ACCOUNTING PERIOD ENDED ON 30TH JUNE, 1983. THE ITO DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE WHICH WAS ON ACCOUNT OF SAL ES-TAX COLLECTED BY THE ASSESSEE FOR THE LAST QUARTER OF T HE RELEVANT ACCOUNTING YEAR. THE DEDUCTION WAS DISALLOWED UNDER S. 43B WHICH, AS STATED ABOVE, WAS INSERTED W.E.F. 1ST APRIL, 198 4. 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 AS SESSMENTS WERE MADE IN THE CASE OF ALLIED MOTORS (P) LTD. ETC. (SU PRA). HOWEVER, THE ASSESSEE CONTENDED THAT EVEN THOUGH THE FIRST PROVI SO 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 INSERTED. THIS IS HOW THE QUESTIO N OF RETROSPECTIVITY 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 T O MAKE THE ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 23 OF 29 SECTION WORKABLE, A PROVISO WHICH SUPPLIES AN OBVIO US OMISSION IN THE SECTION AND WHICH PROVISO IS REQUIRED TO BE REA D INTO THE SECTION TO GIVE THE SECTION A REASONABLE INTERPRETATION, IT COULD BE READ RETROSPECTIVE IN OPERATION, PARTICULARLY TO GIVE EF FECT TO THE SECTION AS A WHOLE. ACCORDINGLY, THIS COURT, IN ALLIED MOTORS (P) LTD. ETC. (SUPRA), HELD THAT THE FIRST PROVISO WAS CURATIVE I N NATURE, HENCE, RETROSPECTIVE IN OPERATION W.E.F. 1ST APRIL, 1988. IT IS IMPORTANT TO NOTE ONCE AGAIN THAT, BY FINANCE ACT, 2003, NOT ONL Y 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 EM PLOYEE(S) ON THE OTHER. THIS IS ONE MORE REASON WHY WE HOLD THAT THE FINANCE ACT, 2003, IS RETROSPECTIVE IN OPERATION. MOREOVER, 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 HOL D THAT FINANCE ACT, 2003, WILL OPERATE RETROSPECTIVELY W.E.F. 1ST APRIL, 1988 (WHEN THE FIRST PROVISO STOOD INSERTED). LASTLY, WE MAY P OINT OUT THE HARDSHIP AND THE INVIDIOUS DISCRIMINATION WHICH WOU LD BE CAUSED TO THE ASSESSEE(S) IF THE CONTENTION OF THE DEPARTMENT IS TO BE ACCEPTED THAT FINANCE ACT, 2003, TO THE ABOVE EXTEN T, OPERATED PROSPECTIVELY. TAKE AN EXAMPLEIN 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 FILI NG OF THE RETURNS UNDER THE IT ACT AND THE DATE OF PAYMENT FALLS AFTE R THE DUE DATE UNDER THE EMPLOYEES' PROVIDENT FUND ACT, THEY WILL BE DENIED DEDUCTION FOR ALL TIMES. IN VIEW OF THE SECOND PROV ISO, 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 LOSE THE BENEFIT OF DEDUCTION EVE N IN THE YEAR OF ACCOUNT IN WHICH THEY PAY THE CONTRIBUTIONS TO THE WELFARE FUNDS, WHEREAS A DEFAULTER, WHO FAILS TO PAY THE CONTRIBUT ION TO THE WELFARE FUND RIGHT UPTO 1ST APRIL, 2004, AND WHO PAYS THE C ONTRIBUTION AFTER 1ST APRIL, 2004, WOULD GET THE BENEFIT OF DEDUCTION UNDER S. 43B OF THE ACT. IN OUR VIEW, THEREFORE, FINANCE ACT, 2003, TO THE EXTENT INDICATED ABOVE, SHOULD BE READ AS RETROSPECTIVE. I T WOULD, THEREFORE, OPERATE FROM 1ST APRIL, 1988, WHEN THE FIRST PROVIS O WAS INTRODUCED. IT IS TRUE THAT THE PARLIAMENT HAS EXPLICITLY STATE D THAT FINANCE ACT, 2003, WILL OPERATE W.E.F. 1ST APRIL, 2004. HOWEVER, THE MATTER BEFORE US INVOLVES THE PRINCIPLE OF CONSTRUCTION TO BE PLA CED 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 CTR (SC) 363 : (1985) 156 ITR 323 (SC), WHICH RE ADS AS UNDER : ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 24 OF 29 'WE SHOULD FIND OUT THE INTENTION FROM THE LANGUAGE USED BY THE LEGISLATURE AND IF STRICT LITE RAL CONSTRUCTION LEADS TO AN ABSURD RESULT, I.E., A RES ULT NOT INTENDED TO BE SUBSERVED BY THE OBJECT OF THE LEGISLATION FOUND IN THE MANNER INDICATED BEFORE, THEN IF ANOTHER CONSTRUCTION IS POSSIBLE APART FROM STRICT LITERAL CONSTRUCTION, THEN THAT CONSTRUCTION SHOULD BE PREFERRED TO THE STRICT LITERAL CONSTRUCT ION. THOUGH EQUITY AND TAXATION ARE OFTEN STRANGERS, ATTEMPTS SHOULD BE MADE THAT THESE DO NOT REMAIN ALWAYS SO AND IF A CONSTRUCTION RESULTS IN EQUITY RATHER THAN IN INJUSTICE, THEN SUCH CONSTRUCTION SHOULD BE PREFERRED 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 IS RETROSPECTIVE AND IT WOULD OPERATE W.E.F. 1ST AP RIL, 1988 (WHEN THE FIRST PROVISO CAME TO BE INSERTED). FOR THE ABO VE REASONS, WE FIND NO MERIT IN THIS BATCH OF CIVIL APPEALS FILED BY THE DEPARTMENT WHICH ARE HEREBY DISMISSED WITH NO ORDER AS TO COSTS. 26. WE ARE OF THE VIEW THAT THE REASONING OF THE HO NBLE SUPREME COURT IN THE CASE OF ALOM EXTRUSIONS LTD(SUPRA) WILL EQUA LLY TO THE AMENDMENT TO SEC.40(A)(IA) OF THE ACT WHEREBY A SECOND PROVISO W AS INSERTED IN SUB- CLAUSE (IA) OF CLAUSE (A) OF SECTION 40 BY THE FINA NCE ACT, 2012, W.E.F. 1-4- 2013. THE PROVISIONS ARE INTENDED TO REMOVE HARDSHIP. IT WAS ARGUED ON BEHALF OF THE REVENUE THAT THE EXISTING PROVISIONS ALLOW DEDUCTION IN THE YEAR OF PAYMENT AND TO THAT EXTENT THERE IS NO HARD SHIP. WE ARE OF THE VIEW THAT THE HARDSHIP IN SUCH AN EVENT WOULD BE TAXING AN ASSESSEE ON A HIGHER INCOME IN ONE YEAR AND TAXING HIM ON LOWER I NCOME IN A SUBSEQUENT YEAR. TO THE EXTENT THE ASSESSEE IS MADE TO PAY TA X ON A HIGHER INCOME IN ONE YEAR, THERE WOULD STILL BE HARDSHIP. ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 25 OF 29 27. AS FAR AS THE APPEAL OF THE REVENUE IS CONCERN ED, WE FIND THAT THE USE OF WORD PAYABLE, IN SECTION 40(A)(IA) OF THE ACT HAS CREATED CONTROVERSY AS TO WHETHER PAYABLE INCLUDES AMOUNTS PAID DURING THE YEAR. THERE WERE CONFLICTING DECISIONS RENDERED BY THE TR IBUNAL. IN THE CASE OF DCIT VS. ASHIKA STOCK BROKING LTD. REPORTED IN 44 SOT 556 THE HONBLE KOLKATTA ITAT HA S DECIDED THE MATTER IN FAVOUR OF REVENUE AND AFTER FOLLOWING ITS DECISION DATED 15.01.2010 IN THE CASE OF PODDAR SONS EXL. P LTD VS. ITO IN ITA NO. 1418(KOL.)/09 HAS HELD THAT PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE APPLICABLE TO EVEN SUMS PA ID DURING THE YEAR. IN THE CASE OF TEJA CONSTRUCTION VS. ACIT REPORTED IN 39 SOT 13 THE HONBLE HYDERABAD ITAT HAS DECIDED THE ISSUE AGAINST THE REVENUE AND HAS HELD THAT PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE NOT APPLICABLE IN RESPECT OF SUMS/AMOUNT PAID DURING TH E YEAR AND WHICH ARE NOT PAYABLE AT END OF THE YEAR O N DATE OF BALANCE SHEET, AS IT IS APPLICABLE ONLY IN RESPECT OF PAYABLE AMOUNT SHOWN IN BALANCE SHEET AS OUTSTANDING EXPENSES ON WHICH TDS HAS NOT BEEN MADE . SIMILAR LAWS WERE LAID IN VARIOUS OTHER CASES. TO RESOLVE THE ABOVE ISSUE SPECIAL BENCH WAS CONSTITUTED AND THE HONBLE VISAKHAPATNAM SPECIAL BENCH OF ITAT IN THE CASE OF MERILYN SHIPPING & TRANSPORT VS. ADDL CIT REPORTED IN 20 TAXMANN.COM 244 HAS DECIDED THE ISSUE AGAINST THE REVENUE AND AFTER COMPARING THE PROPOSED AND ENACTED PROVISION WHICH IS INTENDED FROM THE REPLACEMENT OF THE WORDS IN THE PROPOSED AND ENACTED PROVISION FROM THE WORDS AMOUNT CREDITED OR PAID TO PAYABLE HAS HELD THAT IT HAS TO BE CONCLUDED THAT PROVISIONS OF SECTION 40(A )(IA) ARE APPLICABLE ONLY TO THE AMOUNTS OF EXPENDITURE W HICH ARE PAYABLE AS ON THE DATE 31ST MARCH OF EVERY YEAR AND IT CANNOT BE INVOKED TO DISALLOW EXPENDITURE WHICH HAS ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 26 OF 29 BEEN ACTUALLY PAID DURING THE PREVIOUS YEAR, WITHOU T DEDUCTION OF TDS. 28. IN CIT VS. SIKANDARKHAN N.TUNVAR & OTHERS, TAX APPEAL NO. 905 OF 2012 & OTHERS DATED02/05/2013 , THE HONBLE GUJARAT HIGH COURT HELD THAT IN MERILYN SHIPPING 146 TTJ 1 (VIZ) (SB,) THE MAJORITY HELD THAT AS THE FINANCE BILL PROPOSED THE WORDS AMOUNT CREDITED OR PAID AND AS THE FINANCE ACT USED THE WORDS AMO UNTS PAYABLE, S. 40(A)(IA) COULD ONLY APPLY TO AMOUNTS THAT ARE OUTS TANDING AS OF 31ST MARCH AND NOT TO AMOUNTS ALREADY PAID DURING THE YEAR. TH IS VIEW IS NOT CORRECT FOR TWO REASONS. FIRSTLY, A STRICT READING OF S. 40(A)( IA) SHOWS THAT ALL THAT IT REQUIRES IS THAT THERE SHOULD BE AN AMOUNT PAYABLE OF THE NATURE DESCRIBED, WHICH IS SUCH ON WHICH TAX IS DEDUCTIBLE AT SOURCE BUT SUCH TAX HAS NOT BEEN DEDUCTED OR IF DEDUCTED NOT PAID BEFORE THE DU E DATE. THE PROVISION NOWHERE REQUIRES THAT THE AMOUNT WHICH IS PAYABLE M UST REMAIN SO PAYABLE THROUGHOUT DURING THE YEAR. IF THE ASSESSEE S INTERPRETATION IS ACCEPTED, IT WOULD LEAD TO A SITUATION WHERE THE AS SESSEE WHO THOUGH WAS REQUIRED TO DEDUCT THE TAX AT SOURCE BUT NO SUCH DE DUCTION WAS MADE OR MORE FLAGRANTLY DEDUCTION THOUGH MADE IS NOT PAID T O THE GOVERNMENT, WOULD ESCAPE THE CONSEQUENCE ONLY BECAUSE THE AMOUN T WAS ALREADY PAID OVER BEFORE THE END OF THE YEAR IN CONTRAST TO ANOT HER ASSESSEE WHO WOULD OTHERWISE BE IN SIMILAR SITUATION BUT IN WHOSE CASE THE AMOUNT REMAINED PAYABLE TILL THE END OF THE YEAR. THERE IS NO LOGIC WHY THE LEGISLATURE WOULD ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 27 OF 29 HAVE DESIRED TO BRING ABOUT SUCH IRRECONCILABLE AND DIVERSE CONSEQUENCES. SECONDLY, THE PRINCIPLE OF DELIBERATE OR CONSCIOUS OMISSION IS APPLIED MAINLY WHEN AN EXISTING PROVISION IS AMENDED AND A CHANGE IS BROUGHT ABOUT. THE SPECIAL BENCH WAS WRONG IN COMPARING THE LANGUAGE USED IN THE DRAFT BILL TO THAT USED IN THE FINAL ENACTMENT TO ASSIGN A PARTICULAR MEANING TO S. 40(A)(IA). ACCORDINGLY, MERILYN SHIPPING DOES NOT LAY DOWN CORRECT LAW. THE CORRECT LAW IS THAT S. 40(A)(IA) C OVERS NOT ONLY TO THE AMOUNTS WHICH ARE PAYABLE AS ON 31ST MARCH OF A PAR TICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. THE HONBLE KOLKATTA HIGH COURT IN CIT VS. MD.JAKIR HOSSAI MONDAL (SUPRA) DID NOT AGREE WITH THE VIEW OF THE SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING FOLLOWING ITS JUDGMENT ON 3RD APRIL, 2013 IN ITAT NO. 20 OF 2013, G.A. NO. 190 OF 2013 (CIT, KOLKATA-XI VS. CRESCENT EXPORT SY NDICATES) HOLDING THAT THE VIEWS EXPRESSED IN THE CASE OF MERILYN SHIPPING & TRANSPORTS (ITA.477/VIZ./2008 DATED 20.3.2012) WERE NOT ACCEPTABLE. 29. HOWEVER, WE FIND THAT THE HONBLE ALLAHABAD HI GH COURT HAS HOWEVER UPHELD THE VIEW TAKEN BY THE SPECIAL BENCH ITAT IN THE CASE OF MERILYN SHIPPING (SUPRA) IN THE CASE OF M/S. VECTOR SHIPPING SERVICES PVT. LTD. (SUPRA). THE RELEVANT OBSERVATIONS OF THE HONBLE COURT WERE AS FOLLOWS:- ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 28 OF 29 WE DO NOT FIND THAT THE REVENUE CAN TAKE ANY BENEF IT FROM THE OBSERVATIONS MADE BY THE SPECIAL BENCH OF THE TRIBU NAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORT LTD. (136 LT D 23) (SB) QUOTED AS ABOVE TO THE EFFECT SECTION 40(A)(IA) WAS INTRODUCED IN THE ACT BY THE FINANCE ACT, 2004 WITH EFFECT FROM 1 .4.2005 WITH A VIEW TO AUGMENT THE REVENUE THROUGH THE MECHANISM OF TAX DEDUCTION AT SOURCE. THIS PROVISION WAS BROUGHT ON STATUTE TO DISALLOW THE CLAIM OF EVEN GENUINE AND ADMISSIBLE E XPENSES OF THE ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS A ND PROFESSION IN CASE THE ASSESSEE DOES NOT DEDUCT TD S ON SUCH EXPENSES. THE DEFAULT IN DEDUCTION OF TDS WOULD RES ULT IN DISALLOWANCE OF EXPENDITURE ON WHICH SUCH TDS WAS D EDUCTIBLE. IN THE PRESENT CASE TAX WAS DEDUCTED AS TDS FROM TH E SALARIES OF THE EMPLOYEES PAID BY M/S MERCATOR LINES LTD., AND THE CIRCUMSTANCES IN WHICH SUCH SALARIES WERE PAID BY M /S MERCATOR LINES LTD., FOR M/S VECTOR SHIPPING SERVICES, THE A SSESSEE WERE SUFFICIENTLY EXPLAINED. IT IS TO BE NOTED THAT FOR DISALLOWING EXPENSES FRO M BUSINESS AND PROFESSION ON THE GROUND THAT TDS HAS NOT BEEN DEDU CTED, THE AMOUNT SHOULD BE PAYABLE AND NOT WHICH HAS BEEN PAI D BY THE END OF THE YEAR. WE DO NOT FIND THAT THE TRIBUNAL HAS COMMITTED ANY ERROR IN RECORDING THE FINDING ON THE FACTS, WHICH WERE NOT CONTROVERTED BY THE DEPARTMENT AND THUS THE QUESTION OF LAW AS F RAMED DOES NOT ARISE FOR CONSIDERATION IN THE APPEAL. THE INCOME TAX APPEAL IS DISMISSED. 30. THUS THERE ARE TWO VIEWS ON THE ISSUE, ONE IN F AVOUR OF THE ASSESSEE EXPRESSED BY THE HONBLE ALLAHABAD HIGH COURT AND T HE OTHER AGAINST THE ASSESSEE EXPRESSED BY THE HONBLE GUJARAT & CALCUTT A HIGH COURTS. ADMITTEDLY, THERE IS NO DECISION RENDERED BY THE JU RISDICTIONAL HIGH COURT ON THIS ISSUE. IN THE GIVEN CIRCUMSTANCES, FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF VEGETABLE PRODUCTS LTD. ( SUPRA ), WE HOLD ITA NO. 1584/BANG/2012 & CO NO.58/BANG/2013 PAGE 29 OF 29 THAT WHERE TWO VIEWS ARE POSSIBLE ON AN ISSUE, THE VIEW IN FAVOUR OF THE ASSESSEE HAS TO BE PREFERRED. FOLLOWING THE DECISIO N OF THE HONBLE ALLAHABAD HIGH COURT, WE UPHOLD THE ORDER OF THE CI T(A). 31. IN THE RESULT, THE APPEAL BY THE REVENUE IS DI SMISSED, WHILE THE CROSS OBJECTION BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF SEPTEMBER, 2013. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 13 TH SEPTEMBER, 2013. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.