CIT v. Rajinder Kumar - Taxpublishers.in

SUBSCRIBE FOR FULL CONTENT


The Tax PublishersIT Appeal No. 65 of 2013 2013 TaxPub(DT) 1875 (Del-HC) : (2013) 053 (I) ITCL 0302 : (2014) 362 ITR 0241 : (2013) 260 CTR 0113 : (2014) 220 TAXMAN 0003 : (2013) 090 DTR 0297 Income Tax Act, 1961 --TDS--Disallowance under section 40(a)(ia)TDS deducted during last month of previous year and paid before due date for filing of return--Where assessee had deducted TDS in March 2007, i.e., last month of the relevant previous year and paid the same in April, 2007, i.e., before the date on which return under section 139(1) was to be filed, section 40(a)(ia) could not be invoked. Further, provisions of section 40(a)(ia) as amended by Finance Act, 2010 clearly support the view that the expression 'said due date' used in clause (A) of proviso to unamended section refers to time specified in section 139(1). Assessee had made payment of Rs. 78,51,800 in the month of March, 2007 only and not in the month of February, 2007. The assessee has throughout stated and it is not disputed either in the assessment order or in the order passed by the first appellate authority that they were for convenience maintaining a memorandum relating to pending bills but this memorandum did not get reflected and was not shown in the annual accounts as sundry creditors or liabilities, which were payable. It was not booked as an expense or liability. The assessment order nowhere records or specifically holds that the account of the payee was credited with Rs. 78,51,800 or with Rs. 1,48,49,500. The first appellate order again does not specifically state so. In such circumstances, court feels a pragmatic and a practical approach has to be adopted. The respondent-assessee had deducted tax at source when the payment was made in the month of March, 2007 and thereafter deposited the payment in the month of April, 2007. It is an accepted position that in case tax was deductible in the month of March, 2007 the due date of payment was in April, 2007 and before due date payment, Rs. 4,40,843 deducted as IDS in the month of March, 2007 was duly paid. It has to be accepted and it is logical that there would be some time gap between date of deduction of tax at source and when payment is deposited. Section 40(a)(ia) and the proviso as amended by Finance Act, 2008 with respect effective from 1-4-2005 notices and acknowledges the said position and, therefore, clause (A) states that where tax 'was' deductible and was so deducted during the last month of the previous year but stands paid before the due date specified under sub-section (1) to section 139, deduction shall be allowed in the said year. [Para 18] Clause (A) of the main section and clause (A) of the proviso will apply in different factual matrix or situations. Clause (A) of the main section applies when the tax was deductible and was so deducted during the last month of the assessment (sic. previous) year and was paid on or before the due date for filing of the return under section 139(1). The proviso applies when tax has been deducted in any subsequent year or has been deducted as per clause (A) thereto during last month of the previous year, but has been paid after the said due date. The expression 'said due date' cannot mean the date on which TDS as per the Chapter XVII-B should have been paid. It refers to the due date for filing of the return under section 139(1). Any other interpretation would lead to difficulties, incongruities and conflict between clause (A) of the main section and clause (A) of the proviso. Both would be applicable to the same factual matrix/situation with contradictory stipulations or consequences. Under clause (A) of the main section, the TDS deductible and so deducted during the last month should be paid on or before the due date for filing of the return under section 139(1) but as per the Revenue under the proviso clause (A), TDS should be deducted during the last month of the previous year but paid before the 'said due date', i.e., the date by which TDS is payable under the Act. This interpretation if accepted means that clause (A) of the proviso and clause (A) of the main section would become irreconcilable and mutually contradictory. Clause (A) of the proviso does not postulate the obvious but seeks to relax the rigor when tax deducted stands paid. This is the reason why the proviso in clause (A) does not use the expression 'tax was deductible and was so deducted' but uses the expression 'tax has been deducted during the last month of the previous year'. The expression 'said due date' in clause (A) to the proviso does not mean and refer to the date on which tax should have been deposited without interest or penalty under Chapter XVII-B. This is obvious. Clause (A) to the proviso applies when the deduction is post the period specified by law but in the last month of a previous year. In such cases, under the proviso clause (A) TDS should be paid before 'the said due date' i.e., the date on which return under section 139(1) of the Act is to be filed. [Para 19] Therefore, when the respondent-assessee deducted TDS in March, 2007, i.e., last month of the previous year and paid the same before in April, 2007 before the said due date, i.e., the date on which return of income under section 139(1) is to be filed, section 40(a)(ia) could not have been invoked. [Para 20] Reference to Explanation clause (c) which states that credit to suspense account or any other account in books would be deemed to be credit in account of the payee is inappropriate. The said clause in the Explanation is meant to curtail possibility or chance of non-deduction if an assessee credits a third account/head, instead of crediting the account of the payee to await deduction of TDS. It would not be appropriate to apply clause (c) of Explanation to section 194J to factual matrix of the current case. The amount was credited to the account of the payee, payment was made and TDS was deducted in March, 2007 and paid/deposited in April, 2007. [Para 21] Even prior to the amendment made by Finance Bill, 2010, section 40(a)(ia) had stipulated that in case where the tax was deductible and so deducted during the last month of the previous year but was paid on or before the due date specified in section 139(1) deduction/expenditure will be allowed in the previous year notwithstanding the main section. The section as well as the proviso before the amendment in 2010 had ambiguities and doubts. The proviso as amended by Finance Act, 2008 with retrospective effect from 1-4-2005 was not free from interpretative difficulties and problems. This aspect is highlighted above. The intention behind section 40(a)(ia) is to ensure that TDS is deducted and paid. The object of introduction of section 40(a)(ia) is to ensure that TDS provisions are scrupulously implemented without default in order to augment recoveries. It is not to penalise an assessee when payment has been made within the time stated. Failure to deduct TDS or deposit TDS results in loss of revenue and may deprive the Government of the tax due and payable. The provision should be interpreted in a fair, just and equitable manner. It should not be interpreted in a manner which results in injustice and creates tax liabilities when TDS has been deposited/paid and the respondent who is following cash system of accountancy has made actual payment to the third party for services rendered. If the said object and purpose is kept in view, the assessing officer was justified in disallowing and in invoking section 40(a)(ia) in the present case. The question of law is accordingly answered in negative, i.e., in favour of the respondent-assessee and against the revenue. [Para 26] SUBSCRIBE FOR FULL CONTENT

The Tax PublishersIT Appeal No. 65 of 2013
2013 TaxPub(DT) 1875 (Del-HC) : (2013) 053 (I) ITCL 0302 : (2014) 362 ITR 0241 : (2013) 260 CTR 0113 : (2014) 220 TAXMAN 0003 : (2013) 090 DTR 0297

Income Tax Act, 1961

--TDS--Disallowance under section 40(a)(ia)TDS deducted during last month of previous year and paid before due date for filing of return--Where assessee had deducted TDS in March 2007, i.e., last month of the relevant previous year and paid the same in April, 2007, i.e., before the date on which return under section 139(1) was to be filed, section 40(a)(ia) could not be invoked. Further, provisions of section 40(a)(ia) as amended by Finance Act, 2010 clearly support the view that the expression 'said due date' used in clause (A) of proviso to unamended section refers to time specified in section 139(1).

Assessee had made payment of Rs. 78,51,800 in the month of March, 2007 only and not in the month of February, 2007. The assessee has throughout stated and it is not disputed either in the assessment order or in the order passed by the first appellate authority that they were for convenience maintaining a memorandum relating to pending bills but this memorandum did not get reflected and was not shown in the annual accounts as sundry creditors or liabilities, which were payable. It was not booked as an expense or liability. The assessment order nowhere records or specifically holds that the account of the payee was credited with Rs. 78,51,800 or with Rs. 1,48,49,500. The first appellate order again does not specifically state so. In such circumstances, court feels a pragmatic and a practical approach has to be adopted. The respondent-assessee had deducted tax at source when the payment was made in the month of March, 2007 and thereafter deposited the payment in the month of April, 2007. It is an accepted position that in case tax was deductible in the month of March, 2007 the due date of payment was in April, 2007 and before due date payment, Rs. 4,40,843 deducted as IDS in the month of March, 2007 was duly paid. It has to be accepted and it is logical that there would be some time gap between date of deduction of tax at source and when payment is deposited. Section 40(a)(ia) and the proviso as amended by Finance Act, 2008 with respect effective from 1-4-2005 notices and acknowledges the said position and, therefore, clause (A) states that where tax 'was' deductible and was so deducted during the last month of the previous year but stands paid before the due date specified under sub-section (1) to section 139, deduction shall be allowed in the said year. [Para 18] Clause (A) of the main section and clause (A) of the proviso will apply in different factual matrix or situations. Clause (A) of the main section applies when the tax was deductible and was so deducted during the last month of the assessment (sic. previous) year and was paid on or before the due date for filing of the return under section 139(1). The proviso applies when tax has been deducted in any subsequent year or has been deducted as per clause (A) thereto during last month of the previous year, but has been paid after the said due date. The expression 'said due date' cannot mean the date on which TDS as per the Chapter XVII-B should have been paid. It refers to the due date for filing of the return under section 139(1). Any other interpretation would lead to difficulties, incongruities and conflict between clause (A) of the main section and clause (A) of the proviso. Both would be applicable to the same factual matrix/situation with contradictory stipulations or consequences. Under clause (A) of the main section, the TDS deductible and so deducted during the last month should be paid on or before the due date for filing of the return under section 139(1) but as per the Revenue under the proviso clause (A), TDS should be deducted during the last month of the previous year but paid before the 'said due date', i.e., the date by which TDS is payable under the Act. This interpretation if accepted means that clause (A) of the proviso and clause (A) of the main section would become irreconcilable and mutually contradictory. Clause (A) of the proviso does not postulate the obvious but seeks to relax the rigor when tax deducted stands paid. This is the reason why the proviso in clause (A) does not use the expression 'tax was deductible and was so deducted' but uses the expression 'tax has been deducted during the last month of the previous year'. The expression 'said due date' in clause (A) to the proviso does not mean and refer to the date on which tax should have been deposited without interest or penalty under Chapter XVII-B. This is obvious. Clause (A) to the proviso applies when the deduction is post the period specified by law but in the last month of a previous year. In such cases, under the proviso clause (A) TDS should be paid before 'the said due date' i.e., the date on which return under section 139(1) of the Act is to be filed. [Para 19] Therefore, when the respondent-assessee deducted TDS in March, 2007, i.e., last month of the previous year and paid the same before in April, 2007 before the said due date, i.e., the date on which return of income under section 139(1) is to be filed, section 40(a)(ia) could not have been invoked. [Para 20] Reference to Explanation clause (c) which states that credit to suspense account or any other account in books would be deemed to be credit in account of the payee is inappropriate. The said clause in the Explanation is meant to curtail possibility or chance of non-deduction if an assessee credits a third account/head, instead of crediting the account of the payee to await deduction of TDS. It would not be appropriate to apply clause (c) of Explanation to section 194J to factual matrix of the current case. The amount was credited to the account of the payee, payment was made and TDS was deducted in March, 2007 and paid/deposited in April, 2007. [Para 21] Even prior to the amendment made by Finance Bill, 2010, section 40(a)(ia) had stipulated that in case where the tax was deductible and so deducted during the last month of the previous year but was paid on or before the due date specified in section 139(1) deduction/expenditure will be allowed in the previous year notwithstanding the main section. The section as well as the proviso before the amendment in 2010 had ambiguities and doubts. The proviso as amended by Finance Act, 2008 with retrospective effect from 1-4-2005 was not free from interpretative difficulties and problems. This aspect is highlighted above. The intention behind section 40(a)(ia) is to ensure that TDS is deducted and paid. The object of introduction of section 40(a)(ia) is to ensure that TDS provisions are scrupulously implemented without default in order to augment recoveries. It is not to penalise an assessee when payment has been made within the time stated. Failure to deduct TDS or deposit TDS results in loss of revenue and may deprive the Government of the tax due and payable. The provision should be interpreted in a fair, just and equitable manner. It should not be interpreted in a manner which results in injustice and creates tax liabilities when TDS has been deposited/paid and the respondent who is following cash system of accountancy has made actual payment to the third party for services rendered. If the said object and purpose is kept in view, the assessing officer was justified in disallowing and in invoking section 40(a)(ia) in the present case. The question of law is accordingly answered in negative, i.e., in favour of the respondent-assessee and against the revenue. [Para 26]