Thursday, 12 September 2013

Whether remedial amendments are normally not retrospective in effect and thus amendment to Sec 40(a)(ia) is not retrospective - YES: Delhi HC

THE issues before the Bench are - Whether the amendments made to Section 40(a)(ia) by Finance Act, 2010 is retrospective in effect as it is only a procedural change in the Act and Whether remedial amendments are normally not retrospective in nature. And the verdict goes against the Revenue.
Facts of the case

In
the case of assessee there was late deposit of TDS. In the assessment proceedings AO observed that tax deducted at source prior to February, 2008 was required to be deposited by March, 2008 and TDS deducted in the month of March, 2008 had to be deposited before filing of the return. In such case assessee would not be entitled to expenditure actually incurred and would be disallowed and added back in the profit and loss account. CIT (A) confirmed the order of CIT (A). ITAT allowed the appeal of the assessee as the amount was paid much before the date on which return of income u/s 139(1) had to be filed.

After hearing both the parties, the High Court held that,

++ provisions relating to deduction of tax at source are important as this ensures that tax so deducted gets deposited with the Government and non-taxpayers/filers can be identified. The deductee does not suffer and are not deprived of credit of deduction made from their income. Section 40(a)(ia) is a provision incorporated with the said objective and purpose in mind. It is not basically a penal provision as when the TDS is deposited, the amount on which deduction was made is allowed as an expenditure incurred in previous year in which the payment of TDS is made;

++ strict compliance of Section 40(1)(ia) may be justified keeping in view the legislative object and purpose behind the provision but a provision of such nature should not be allowed to be converted into an iron rod provision which metes out stern punishment and results in malevolent results, disproportionate to the offending act and aim of the legislation. Legislative purpose and the object is to ensure payment and deposit of TDS with the Government. TDS results in collection of tax. Legislature can and do experiment and intervene from time to time when they feel and notice that the existing provision is causing and creating unintended and excessive hardships to citizens and subjects or have resulted in great inconvenience and uncomfortable results. Obedience to law is mandatory and has to be enforced but the magnitude of punishment must not be disproportionate by what is required and necessary. The consequences and the injury caused, if disproportionate do and can result in amendments which have the effect of streamlining and correcting anomalies. The amendments made in 2010 were a step in the said direction and this aspect has to be kept in mind when we examine and consider whether the amendment should be given retrospective effect or not;

++ section 40(a)(ia) at least to the extent of the amendment is procedural as by enacting Section 40(a)(ia) the Legislature did not want to impose a new tax but wanted to ensure collection of TDS and the amendments made streamline and remedy the anomalies noticed in the said procedure by allowing deduction in the year when the expenditure is incurred provided TDS is paid before the due date for filing of the return. Remedial statutes are normally not retrospective, on the ground that they may affect vested rights. But these statutes are construed liberally when justified and rule against retrospectivity may be applied with less resistance;

++ the Section 40(a)(ia) has to be given full play keeping in mind the object and purpose behind the section. At the same time, the provision can be and should be interpreted liberally and equitable so that an assessee should not suffer unintended and deleterious consequences beyond what the object and purpose of the provision mandates.

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