BHARTI SHIPYARD LTD, MUMBAI v. DCIT CIR 3(1), MUMBAI

ITA 2404/MUM/2009 | 2005-2006
Pronouncement Date: 09-09-2011 | Result: Partly Allowed

Appeal Details

RSA Number 240419914 RSA 2009
Assessee PAN AAACB1688E
Bench Mumbai
Appeal Number ITA 2404/MUM/2009
Duration Of Justice 2 year(s) 4 month(s) 24 day(s)
Appellant BHARTI SHIPYARD LTD, MUMBAI
Respondent DCIT CIR 3(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-09-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 09-09-2011
Date Of Final Hearing 07-07-2011
Next Hearing Date 07-07-2011
Assessment Year 2005-2006
Appeal Filed On 15-04-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI SPECIAL BENCH B MUMBAI BEFORE SHRI R.S.SYAL A.M. SHRI D.K.AGARWAL JM AND SHRI RAJENDRA SINGH A.M. ITA NO.2404/MUM/2009 :ASST.YEAR 2005-2006 M/S. BHARATI SHIPYARD LIMITED 302 WAKEFIELD HOUSE 3 RD FLOOR SPORT ROAD BALLARD ESTATE MUMBAI 400 038. PAN :AAACB1688E. VS. THE DY .COMMISSIONER OF INCOME - TAX CIRCLE 3(1) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIJAY MEHTA RESPONDENT BY : SHRI PRADEEP SHARMA DATE OF HEARING :25.08.2011 DATE OF PRONOUNCEMENT :09.09.2011 O R D E R PER R.S.SYAL AM : THE HONBLE PRESIDENT OF THE INCOME TAX APPELLATE TRIBUNAL ON A REFERENCE MADE BY A DIVISION BENCH HAS CONSTITUTED THIS SPEC IAL BENCH BY POSTING THE FOLLOWING QUESTION FOR OUR CONSIDERATION AND DECISI ON:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE AMENDMENT BROUGHT OUT BY THE FINANCE ACT 2010 TO S ECTION 40(A)(IA) W.E.F. 01.04.2010 IS REMEDIAL AND CURATIVE IN NATU RE AND IS THEREFORE RETROSPECTIVE IN NATURE. 2. GROUND NO. 2 OF THIS APPEAL BY THE ASSESSEE A RISING OUT OF THE ORDER PASSED BY THE CIT(A) ON 15.01.2001 IN RELATION TO THE A. Y. 2005-06 IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.2 31 820 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DELAYED PAYMENT OF ESI & PF DUES. 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE SAID CONTRIBUTION RECEIVED FROM THE EMPLOYEES HAS BEEN ADMITTEDLY DEPOSITED AFTER THE DUE DATE UNDER THE R ESPECTIVE ACT BUT BEFORE THE M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 2 CLOSE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSME NT YEAR UNDER CONSIDERATION. THE HONBLE MADRAS HIGH COURT IN CIT VS. SHRI GANAPATHY MILLS COMPANY LIMITED [(2000) 243 ITR 879 (MAD.)] HAS HELD THAT NO DISALLOWANCE CAN BE MADE WHERE TH E CONTRIBUTION IS DEPOSITED LATE BUT WITHIN THE GRACE PERIOD. IN MOST OF THE CASES THE DEPOSIT HAS BEEN MADE WITH IN THE GRACE PERIOD. TH E HONBLE DELHI HIGH COURT IN CIT VS. AIMIL LTD. & ORS. [(2010) 321 ITR 508 (DEL) ] HAS HELD THAT IF THE EMPLOYEES SHARE OF CONTRIBUTION IS PAID BEFORE THE DUE DATE OF FILING THE RETURN U/S 139(1) OF THE INCOME-TAX ACT 1961 (HEREINAFTER CAL LED THE ACT) THEN NO DISALLOWANCE CAN BE MADE. IN VIEW OF THE FOREGOING FACTS IT IS CLEAR THAT THE ASSESSEE DESERVES AND IS HEREBY ALLOWED RELIEF ON T HIS ISSUE IN THE LIGHT OF THE ABOVE PRECEDENTS. THIS GROUND IS ALLOWED. 4. GROUND NO. 4 ABOUT THE CONFIRMATION OF DISALLOWA NCE OF RS.1 55 161 MADE BY THE A.O. U/S 14A OF THE ACT WAS NOT PRESSED BY T HE LEARNED A.R. THE SAME IS THEREFORE DISMISSED. 5. GROUND NO. 5 ABOUT THE LEVY OF INTEREST U/S 234A 234B AND 234C IS CONSEQUENTIAL AND ACCORDINGLY DISPOSED OFF. 6. GROUND NO. 3 IS AGAINST THE CONFIRMATION OF DISA LLOWANCE OF RS.50 12 311 MADE BY THE ASSESSING OFFICER U/S 40(A)(IA) OF THE ACT. THIS GROUND FORMS THE SUBJECT MATTER OF THE QUESTION EXTRACTED ABOVE PLAC ED BEFORE THE SPECIAL BENCH FOR CONTEMPLATION AND DECISION. BRIEFLY STATED THE FACT S APROPOS THIS ISSUE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MA NUFACTURING OF MEDIUM SIZED SHIPS BARGES TUGS ETC. A NOTE TO THE COMPUTATION OF INCOME WAS ATTACHED BY THE ASSESSEE STATING THAT THE PROVISIONS OF SECTION 40( A)(IA) ARE DIRECTORY AND NOT MANDATORY. THE AO NOTED THAT THE ASSESSEE FAILED TO DEPOSIT TAX DEDUCTED AT SOURCE WITHIN THE SPECIFIED TIME. ON BEING SHOW CAUSED IT WAS STATED THAT THE AMOUNT OF TAX DEDUCTED AT SOURCE WAS PAID BEFORE THE FILING O F RETURN OF INCOME U/S 139(1) OF THE ACT AND HENCE NO DISALLOWANCE OF EXPENSES WAS C ALLED FOR U/S 40(A)(IA). NOT M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 3 CONVINCED THE ASSESSING OFFICER MADE ADDITION U/S 40(A)(IA). THE ASSESSEE WAS PARTLY SUCCESSFUL BEFORE THE LEARNED CIT(A). THE LD . DR HAS NOT BROUGHT TO OUR NOTICE ANY APPEAL FILED BY THE REVENUE AGAINST THE RELIEF ALLOWED IN THE FIRST APPEAL. IT SHOWS THAT THE IMPUGNED ORDER HAS BEEN ACCEPTED BY THE REVENUE. IN THE PRESENT APPEAL BY THE ASSESSEE WE ARE CONCERNED WITH THE CO NFIRMATION OF DISALLOWANCE OF RS.50 12 311 WHICH CONSISTS OF TWO AMOUNTS. FIRST I S THE PROFESSIONAL FEE OF RS. 4 228 WHICH WAS CREDITED/PAID BY THE ASSESSEE UP TO 28.02.2005 AND THE AMOUNT OF TAX DEDUCTED AT SOURCE WAS PAID ON 8TH APRIL 2005 AS AGAINST DUE DATE OF PAYMENT OF 7TH MARCH 2005. SECOND ITEM IS THE AMOUNT PAID TO CONTRACTORS TOTALING TO RS.50 08 083 UP TO 28.02.2005 ON WHICH TAX DEDUCTED AT SOURCE WAS ACTUALLY PAID ON 23RD JUNE 2005 AS AGAINST THE DUE DATE OF PAYME NT ON 7TH MARCH 2005. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD IN THE LIGHT OF PRECEDENTS CITED BEFORE US. THE QUESTION FOR OUR CONSIDERATION IS AS TO WHETHER SECTION 40(A)(IA) AMENDED BY THE F INANCE ACT 2010 WITH EFFECT FROM 01.04.2010 IS RETROSPECTIVE FROM 01.04.2005 OR PROSPECTIVE FROM THE DATE SPECIFIED. UNLESS STATED OTHERWISE THE PROVISIONS OF THE FINANCE ACT 2010 WOULD HAVE APPLIED W.E.F. 01.04.2011 I.E. A.Y. 2011-12. THE PROVISION IN QUESTION HAS BEEN SPECIFICALLY GIVEN RETROSPECTIVE EFFECT FROM A.Y. 2010-11. NOW THE CASE OF THE ASSESSEE IS THAT THE AMENDMENT MADE BY THE FIN ANCE ACT 2010 SHOULD BE GIVEN RETROSPECTIVE EFFECT FROM 01.04.2005 BEING THE DAT E FROM WHICH SUB-CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2) ACT 2004. IN ORDER TO FIND ANSWER TO THIS QUESTION IT WOULD BE RELEVANT TO NOT E DOWN THE LEGISLATIVE HISTORY OF THE PROVISION. 8. SECTION 40 HAS CERTAIN CLAUSES PROVIDING FOR THE AMOUNTS WHICH ARE NOT DEDUCTIBLE. SUB-CLAUSE (IA) OF CLAUSE (A) OF SECTIO N 40 WAS INSERTED BY THE FINANCE (NO.2) ACT 2004 WITH EFFECT FROM 1 ST APRIL 2005 READING AS UNDER:- M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 4 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38 THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTED THE INCOM E 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 LABOUR F OR CARRYING OUT ANY WORK) ON OR AFTER DEDUCTION HAS NOT BEEN PAI D 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 TA X HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR OR HAS BEEN DEDUCT ED IN THE PREVIOUS YEAR BUT PAID IN ANY SUBSEQUENT YEAR AFTER THE EXPI RY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200 SU CH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF T HE 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 SAME MEANING AS IN CLAUSE (A) OF THE EXPLANATION TO SECTION 194J; (IV) WORK SHALL HAVE THE SAME MEANING AS IN EXPL ANATION III TO SECTION 194C; 9. THE MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE 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 PROFESS IONAL SERVICES OR M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 5 FEES FOR TECHNICAL SERVICES TO RESIDENTS AND PAYME NTS TO A RESIDENT CONTRACTOR OR SUB-CONTRACTOR FOR CARRYING OUT ANY W ORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK) ON WHI CH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION HAS NOT BEEN PAID BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SEC TION 200 AND IN ACCORDANCE WITH THE OTHER PROVISIONS OF CHAPTER XVI I-B. IT IS ALSO PROPOSED TO PROVIDE THAT WHERE IN RESPECT OF PAYMEN T OF ANY SUM TAX HAS BEEN DEDUCTED UNDER CHAPTER XVII-B OR PAID IN A NY SUBSEQUENT YEAR THE SUM OF PAYMENT SHALL BE ALLOWED IN COMPUT ING 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 THE ASS ESSMENT YEAR 2005- 2006 AND SUBSEQUENT YEARS. [CLAUSE 11] (EMPHASIS SUPPLIED BY US) 10. AT THIS JUNCTURE IT WOULD BE RELEVANT TO NOTE T HAT CLAUSE (A) OF SECTION 40 PROVIDES THAT IN THE CASE OF ANY ASSESSEE (I) ANY I NTEREST ROYALTY FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT WH ICH IS PAYABLE OUTSIDE INDIA; OR IN INDIA TO A NON-RESIDENT NOT BEING A COMPANY OR TO A FOREIGN COMPANY ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVI I-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION HAS NOT BEEN PAID DUR ING THE PREVIOUS YEAR OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESC RIBED UNDER SUB-SECTION (1) OF SECTION 200 SHALL NOT BE ALLOWED AS DEDUCTION. THE RE IS A PROVISO TO SUB-CLAUSE (I) WHICH PROVIDES THAT WHERE IN RESPECT OF ANY SUCH SU M TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR OR HAS BEEN DEDUCTED IN THE PRE VIOUS YEAR BUT PAID IN A SUBSEQUENT YEAR AFTER THE EXPIRY OF THE TIME PRESCR IBED U/S 200(1) SUCH SUM SHALL BE ALLOWED AS DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. SUB-CLAUSE (I) OF SECTION 4 0(A) IS THERE IN THE INCOME-TAX ACT 1961 SINCE INCEPTION. ALIKE PROVISION WAS THE RE IN THE 1922 ACT ALSO AS A PORTION OF PROVISO TO SECTION 10(2)(III). THE EFFEC T OF SUB-CLAUSE (I) OF SECTION 40(A) IS THAT THE AMOUNT IN THE NATURE OF ITEMS SPECIFIED IN THIS PROVISION WHICH IS PAYABLE OUTSIDE INDIA OR IN INDIA TO A NON-RESIDENT ETC. ON WHICH TAX IS DEDUCTIBLE IT IS NECESSARY THAT SUCH TAX MUST BE DEDUCTED AND PAID A FTER DEDUCTION DURING THE M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 6 PREVIOUS YEAR OR BEFORE THE EXPIRY OF TIME U/S 200( 1). IF SUCH TAX IS NOT SO PAID THE EXPENDITURE REFERRED TO IN THE SUB-CLAUSE SHALL NOT BE ALLOWED AS DEDUCTION. PROVISO TO THIS PROVISION PROVIDES THAT WHERE SUCH TAX HAS BEEN DEDUCTED IN SUBSEQUENT YEAR OR DEDUCTED IN THE PREVIOUS YEAR BUT PAID IN ANY SU BSEQUENT YEAR AFTER THE EXPIRY OF TIME U/S 200(1) SUCH SUM SHALL BE ALLOWED AS DEDUC TION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH TAX HAS BEEN PAID. TH US THE STRICTNESS OF THE MAIN PROVISION OF SECTION 40(A)(I) PROVIDING FOR DISALLO WANCE OF EXPENDITURE IN THE YEAR OF ITS SPENDING STANDS SOFTENED BY THE PROVISO IN GRANTING ALLOWANCE OF SUCH EXPENDITURE IN THE YEAR OF PAYMENT OF DUE TAX. IT I S EVIDENT THAT THE OPERATION OF THIS PROVISION IS RESTRICTED ON THE PAYMENT MADE OUTSIDE INDIA OR TO A NON-RESIDENT IN INDIA ETC. 11. IT CAN BE SEEN THAT THE FINANCE (NO.2) A CT 2004 EXTENDED THE SCOPE OF SECTION 40(A)(I) BY WAY OF INSERTION OF SUB-CLAUSE (IA). WHEREAS SUB-CLAUSE (I) DEALS WITH THE DISALLOWANCE OF EXPENSES PAID TO NON-RESID ENTS ETC. ON THE FAILURE TO DEDUCT OR DEPOSIT AFTER DEDUCTION OF TAX DURING THE PREVI OUS YEAR OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF TIME PRESCRIBED UNDER SECTION 200(1) SUB-CLAUSE (IA) EXTENDED THE APPLICATION OF THE SAME PROVISION TO THE PAYME NTS MADE TO RESIDENTS WITHIN THE SAME TIME FRAME. THE REMEDY FOR GRANTING DEDUCTION IN THE SUBSEQUENT YEAR ON PAYMENT THROUGH PROVISO IN BOTH THE PROVISIONS IS ALSO SIMILAR. IN NUTSHELL THE INSERTION OF SUB-CLAUSE (IA) IS NOTHING BUT EXPANSI ON OF THE EXISTING SUB-CLAUSE (I) TO THE RESIDENTS. 12. THE TAXATION LAWS (AMENDMENT) ACT 2006 WIDENED THE SCOPE OF THIS PROVISION WITH EFFECT FROM 1 ST DAY OF APRIL 2006 WITH WHICH WE ARE NOT CONCERNED IN THE INSTANT APPEAL. 13. THEREAFTER THE FINANCE ACT 2008 MADE AMENDM ENT 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:- M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 7 (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 (INCLUDING SUPP LY OF LABOUR FOR CARRYING OUT ANY WORK) ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN PAID - (A) IN A CASE WHERE THE TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR ON OR B EFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 ; OR (B) IN ANY OTHER CASE ON OR BEFORE THE LAST DAY 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 BE ALLOWED AS A DEDUCTION IN COMPUTI NG THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID.' ; 14. HERE IT IS IMPORTANT TO NOTE THAT CHAPTER IV-D DEALS WITH THE INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSI ON. SECTION 28 CONTAINS A LIST OF ITEMS OF INCOME WHICH SHALL BE CHARGEABLE TO INCOME -TAX UNDER THIS HEAD. SECTION 29 IS COMPUTING PROVISION WHICH PROVIDES THAT INCOM E REFERRED TO IN SECTION 28 SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTIONS 30 TO 43D. SECTIONS 30 TO 37 GRANT VARIOUS DEDUCTIONS ON ACCOUNT OF EXPENSES / ALLOWANCES ETC. SECTION 38 RESTRICTS THE AMOUNT OF DEPRECIATION ALLOWANCE U/S 32. THEN COMES SECTION 40 WITH THE MARGINAL NOTE AMOUN TS NOT DEDUCTIBLE. IT STARTS WITH THE NON-OBSTANTE CLAUSE BY PROVIDING THAT NOTW ITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38 THE AMOUNTS SPECIFIE D IN THIS SECTION SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER T HE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THUS IT IS VIVID THAT SEC TION 40 HAS OVERRIDING EFFECT OVER SECTIONS 30 TO 38. IN OTHER WORDS IF ANY EXPENDITUR E OR ALLOWANCE IS DEDUCTIBLE AS M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 8 PER THE PROVISIONS CONTAINED IN SECTIONS 30 TO 38 IT SHALL CEASE TO BE DEDUCTIBLE IF IT FALLS WITHIN THE DOMAIN OF SECTION 40. BUT FOR THE PRESCRIPTION OF SECTION 40 THE EXPENSES OR ALLOWANCES OTHERWISE DEDUCTIBLE U/SS 30 TO 38 DO NOT FAIL TO QUALIFY FOR DEDUCTION. THUS IT IS PALPABLE THAT SECTION 40 IS A SUBSTANTIVE PROVISION WHICH APPROACHES TO INCREASE THE TAX LIABILITY OF THE ASS ESSEE IN THE YEAR OF FAILURE TO DEPOSIT TAX WITHIN THE PRESCRIBED PERIOD. 15. FAILURE OF THE ASSESSEE TO DEDUCT TAX AT SO URCE IPSO FACTO CAUSES DISALLOWANCE BOTH AS PER THE PRE AND POST-AMENDMENT OF SECTION 4 0(A)(IA) BY THE FINANCE ACT 2008. POSITION WAS CHANGED BY THE FINANCE ACT 2008 AS REGARDS THE CASES WHERE DEDUCTION OF TAX AT SOURCE IS MADE BUT THERE IS DEL AY IN THE PAYMENT. 16. AS PER THE SCHEME OF SECTION 40(A)(IA) FR OM ITS INSERTION SIMILAR TO SECTION 40(A)(I) DISALLOWANCE WAS MADE ON THE FAILURE OF THE ASSESSEE TO PAY TAX DEDUCTED DURING THE PREVIOUS YEAR OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED U/S 200(1). SUB-SECTION (1) OF SECTION 2 00 PROVIDES THAT ANY PERSON DEDUCTING ANY SUM IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER SHALL PAY WITHIN THE PRESCRIBED TIME THE SUM SO DEDUCTED TO T HE CREDIT OF THE CENTRAL GOVERNMENT OR AS THE BOARD DIRECTS. RULE 30 OF THE INCOME-TAX RULES 1962 PRESCRIBES TIME FOR PAYMENT TO GOVERNMENT ACCOUNT O F THE TAX DEDUCTED AT SOURCE. DIFFERENT TIME LIMITS HAVE BEEN PRESCRIBED FOR DEPO SITING TAX DEDUCTED AT SOURCE UNDER VARIOUS SECTIONS. IN SOME CASES SUCH TAX DEDU CTED AT SOURCE IS REQUIRED TO BE DEPOSITED ON THE SAME DAY IN OTHERS ON OR BEFORE 7 DAYS FROM THE END OF THE MONTH IN WHICH THE DEDUCTION IS MADE ETC. HENCE IN NO CAS E THE TIME LIMIT FOR DEPOSITING THE AMOUNT OF TAX DEDUCTED AT SOURCE DURING THE FIN ANCIAL YEAR IS BEYOND 30 TH APRIL OF THE NEXT FINANCIAL YEAR. THIS IS THE MANDATE OF SECTION 200(1) READ WITH RULE 30. REVERTING TO SECTION 40(A)(IA) AS ORIGINALLY INSERT ED ANY TAX DEDUCTED AT SOURCE DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEA R 2005-2006 WAS OBLIGED TO BE PAID EITHER UPTO 31 ST MARCH 2005 AND IN CERTAIN CASES WHERE THE TIME IS AVAILABLE U/S 200(1) LATEST BY 30 TH APRIL 2005 DEPENDING UPON THE PROVISION UNDER WHI CH M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 9 TAX IS DEDUCTED. FAILURE TO ABIDE BY SUCH TIME LIMI TS CAUSED DISALLOWANCE U/S 40(A)(IA) AS PER BY THE FINANCE (NO.2) ACT 2004. 17. THE FINANCE ACT 2008 BROUGHT OUT AMEND MENT TO SECTION 40(A)(IA) W.R.E.F. 1.4.2005 BY RELAXING EARLIER POSITION TO SOME EXTEN T. IT MADE TWO CATEGORIES OF DEFAULTS CAUSING DISALLOWANCE ON THE BASIS OF THE P ERIOD OF THE PREVIOUS YEAR IN WHICH TAX WAS DEDUCTIBLE. THE FIRST CATEGORY OF DIS ALLOWANCES INCLUDED THE CASES IN WHICH TAX WAS DEDUCTIBLE 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 OF THE ACT. IN OTHER WORDS IF ANY AMOUNT ON WHICH TAX WAS DEDUCTIBLE DURING LAST MON TH 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. T HE SECOND 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 DISALLOWANCE WAS TO BE MADE IF THE ASSESSEE FAILED TO PAY IT BEFORE 31 ST MARCH 2005. THE CASE OF THE ASSESSEE FALLS IN THI S CATEGORY AS IT DEDUCTED TAX AT SOURCE IN THE PERIOD ENDING FEB. 2005 BUT DEPOSITED SUCH TAX IN APRIL/JUNE 2005. THIS RESULTED INTO DISALLOWANCE OF THE EXPENDITURE. 18. IT CAN THUS BE SEEN THAT THE TIME LIMIT ORIGINA LLY PROVIDED BY SECTION 40(A)(IA) WITH EFFECT FROM 01.04.2005 WAS RELAXED TO SOME EXT ENT BY WAY OF THE AMENDMENT CARRIED OUT BY THE FINANCE ACT 2008. THIS AMENDMEN T BY THE FINANCE ACT 2008 WAS SPECIFICALLY MADE WITH RETROSPECTIVE EFFECT FRO M 01.04.2005 BEING THE DATE OF INSERTION OF SECTION 40(A)(IA). IT IS RELEVANT TO NOTE THAT PROVISO TO SECTION 40(A)(IA) WAS ALSO CONSEQUENTLY AMENDED TO PROVIDE THAT WHERE IN RESPECT OF ANY SUCH SUM TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR OR HA S BEEN DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR BUT PAID AFTER THE SAID DUE DATE; OR DURING ANY OTHER MONTH OF THE PREVIOUS YEAR BUT PAID AFTER THE END O F THE SAID PREVIOUS YEAR SUCH M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 10 SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING TH E INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. 19. THEN CAME THE AMENDMENT TO SECTION 40(A)(IA) BY 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 SERVICE S PAYABLE TO A RESIDENT OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB -CONTRACTOR BEING RESIDENT FOR CARRYING OUT ANY WORK (INCLUDING SUPP LY OF LABOUR FOR CARRYING OUT ANY WORK) ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR; AFTER DEDUCTION HAS NOT BEEN PAID ON OR BEFORE THE DUE D ATE 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 DEDU CTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX H AS BEEN PAID. 20. 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 DIFFERENC E WHICH THIS AMENDMENT HAS MADE IS DISPENSING WITH TH E EARLIER TWO CATEGORIES OF DEFAULTS AS PER THE FINANCE ACT 2008 AS DISCUSSED IN PARA 17 OF THIS ORDER CAUSING DISALLOWANCE ON THE BASIS OF THE PERIOD OF THE PREV IOUS YEAR DURING WHICH TAX WAS DEDUCTIBLE. THE FIRST CATEGORY OF DISALLOWANCES INC LUDED THE CASES IN WHICH TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE LAST MONT H OF THE PREVIOUS YEAR BUT THERE WAS FAILURE TO PAY SUCH TAX ON OR BEFORE THE DUE DA TE 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 REQUIRED TH E DEPOSIT OF TAX BEFORE THE CLOSE OF THE PREVIOUS YEAR IN CASE OF DEDUCTION DUR ING THE FIRST ELEVEN MONTHS AS A PRE-CONDITION FOR THE GRANT OF DEDUCTION IN THE YEA R OF INCURRING EXPENDITURE HAS M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 11 BEEN ALTERED. THE HITHERTO REQUIREMENT OF THE AS SESSEE DEDUCTING TAX AT SOURCE DURING THE FIRST ELEVEN MONTHS OF THE PREVIOUS YEAR AND PAYING IT BEFORE THE CLOSE OF THE PREVIOUS YEAR UP TO 31 ST MARCH OF THE PREVIOUS YEAR AS A REQUIREMENT FOR GR ANT OF DEDUCTION IN THE YEAR OF INCURRING SUCH EXPENDIT URE 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 BEFOR E THE DUE DATE SPECIFIED IN SUB- SECTION (1) OF SECTION 139 OF THE ACT. THE EFFECT O F THIS AMENDMENT IS THAT NOW THE ASSESSEE DEDUCTING TAX EITHER IN THE LAST MONTH OF THE PREVIOUS YEAR OR FIRST ELEVEN MONTHS OF THE PREVIOUS YEAR SHALL BE ENTITLED TO DE DUCTION OF THE EXPENDITURE IN THE YEAR OF INCURRING IT IF THE TAX SO DEDUCTED AT SOU RCE IS PAID ON OR BEFORE THE DUE DATE U/S 139(1). THIS IS THE ONLY DIFFERENCE WHICH HAS B EEN MADE BY THE FINANCE ACT 2010. 21. NON-DEDUCTION OF TAX AT SOURCE FROM THE SPEC IFIED PAYMENTS CONTINUES TO GIVE REASON FOR DISALLOWANCE U/S 40(A)(IA) UNDER THE AME NDED PROVISION AS WAS THERE DURING THE PREVALENCE OF THE FINANCE (NO. 2) ACT 2004 AND THE FINANCE ACT 2008. FURTHER THE DISALLOWANCE HAS ALSO BEEN MAINTAINED I N THE PROVISION IN ITS CURRENT FORM WHERE THE ASSESSEE AFTER DEDUCTION OF TAX AT SOURCE FAILS TO PAY IT WITHIN THE SPECIFIED TIME. PARTIAL CHANGE HAS BEEN MADE IN TH E SPECIFIED TIME FOR PAYMENT AS A SINE QUA NON FOR DEDUCTION IN THE YEAR OF INCURRING THE EXPENDIT URE. STILL FURTHER THE MANDATE OF PROVISO CONSEQUENTLY PROVIDING THE R EMEDIAL RELIEF BY GRANTING DEDUCTION IN THE SUBSEQUENT YEAR IN WHICH TAX HAS B EEN PAID ALSO EXISTS. 22. HAVING SEEN THE AMBIT OF SECTION 40(A)(IA) R IGHT FROM ITS INSERTION UP TO THE AMENDMENT MADE BY THE FINANCE ACT 2010 NOW WE PR OCEED TO EXAMINE AS TO WHETHER SUCH AMENDMENT TO FINANCE ACT 2010 IS RETR OSPECTIVE FROM 1 ST APRIL 2005 AS CONTENDED BY THE ASSESSEE OR RETROSPECTIVE FROM 1 ST APRIL 2010 BY WHICH DATE THIS PROVISION HAS BEEN SUBSTITUTED. AT THIS STAGE IT WOULD BE RELEVANT TO CONSIDER M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 12 THE NOTES ON CLAUSES AND MEMORANDUM EXPLAINING THE PROVISION WHILE INTRODUCING FINANCE BILL 2010 AS UNDER :- NOTES ON CLAUSES CLAUSE 12 OF THE BILL SEEKS TO AMEND SECTION 40 OF THE INCOME-TAX ACT RELATING TO AMOUNTS NOT DEDUCTIBLE. UNDER THE EXISTING PROVISIONS CONTAINED IN SUB-CLA USE (IA) OF CLAUSE (A) OF THE AFORESAID SECTION NON-DEDUCTION OF TAX OR NON-PAYMENT OF TAX AFTER DEDUCTION ON PAYMENT OF ANY SUM BY WAY OF INTEREST COMMISSION OR BROKERAGE RENT ROYALTY FEES FOR PR OFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDEN T OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR BEING RE SIDENT RESULTS IN THE DISALLOWANCE OF THE SAID SUM IN THE COMPUTATIO N OF INCOME OF THE PAYER ON WHICH TAX IS REQUIRED TO BE DEDUCTED UNDE R CHAPTER XVII-B. IT IS PROPOSED TO AMEND SUB-CLAUSE (IA) OF CLAUSE ( A) OF THE AFORESAID SECTION TO PROVIDE THAT DISALLOWANCE UNDER THE SAID SUB-CLAUSE WILL BE ATTRACTED IF AFTER DEDUCTION OF TAX DURING THE PR EVIOUS YEAR THE SAME HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE OF FILI NG OF RETURN OF INCOME SPECIFIED IN SUB-SECTION (1) OF SECTION 139. THE PROVISO TO THE SAID SUB-CLAUSE PROVIDES THAT W HERE IN RESPECT OF ANY SUCH SUM TAX HAS BEEN DEDUCTED IN ANY SUBSEQUE NT YEAR OR HAS BEEN DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE OF FILING OF RETURN OR DEDUCTED DURING ANY OTHER MONTH OF THE PREVIOUS YEAR BUT PAID AFTER THE END O F THE SAID PREVIOUS YEAR SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN C OMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS B EEN PAID. THIS AMENDMENT WILL TAKE EFFECT RETROSPECTIVELY FROM 1 ST APRIL 2010 AND WILL ACCORDINGLY APPLY IN RELATION TO THE ASSESSMENT YEAR 2010-2011 AND SUBSEQUENT YEARS . (EMPHASIS SUPPLIED BY US) 23. MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL 2010 PROVIDES THE JUSTIFICATION OF THE AMENDMENT TO SECT ION 40(A)(IA) IN THE FOLLOWING WORDS :- M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 13 DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF NON-COMP LIANCE WITH TDS PROVISIONS A . THE EXISTING PROVISIONS OF SECTION 40(A)(IA) OF T HE INCOME-TAX ACT PROVIDE FOR THE DISALLOWANCE OF EXPENDITURE LIK E INTEREST COMMISSION BROKERAGE PROFESSIONAL FEES ETC. IF T AX ON SUCH EXPENDITURE WAS NOT DEDUCTED OR AFTER DEDUCTION WA S NOT PAID DURING THE PREVIOUS YEAR. HOWEVER IN CASE THE DEDUCTION O F TAX IS MADE DURING THE LAST MONTH OF THE PREVIOUS YEAR NO DISA LLOWANCE IS MADE IF THE TAX IS DEPOSITED ON OR BEFORE THE DUE DATE OF F ILING OF RETURN. IT IS PROPOSED TO AMEND THE SAID SECTION TO PROVID E THAT NO DISALLOWANCE WILL BE MADE IF AFTER DEDUCTION OF TAX DURING THE PREVIOUS YEAR THE SAME HAS BEEN PAID ON OR BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME SPECIFIED IN SUB-SECTION (1) OF SECTION 139. THIS AMENDMENT IS PROPOSED TO TAKE EFFECT RETROSPECTIVELY FROM 1 ST APRIL 2010 AND WILL ACCORDINGLY APPLY IN RELATION TO THE ASS ESSMENT YEAR 2010-11 AND SUBSEQUENT YEARS. B . UNDER THE EXISTING PROVISIONS OF SECTION 201(1A) OF THE ACT A PERSON IS LIABLE TO PAY SIMPLE INTEREST AT ONE PER CENT. FOREVERY MONTH OR PART OF MONTH IN CASE OF FAILURE TO DEDUCT TAX O R PAYMENT OF TAX AFTER DEDUCTION. WITH A VIEW TO DISCOURAGE THE PRACTICE OF DELAYING THE DEPOSIT OF TAX AFTER DEDUCTION IT IS PROPOSED TO INCREASE THE RAT E OF INTEREST FOR NON- PAYMENT OF TAX AFTER DEDUCTION FROM THE PRESENT ONE PER CENT. TO ONE AND ONE-HALF PER CENT. FOR EVERY MONTH OR PART OF M ONTH. THIS AMENDMENT IS PROPOSED TO TAKE EFFECT FROM 1 ST JULY 2010. (EMPHASIS SUPPLIED BY US) 24. THE FINANCE BILL PROPOSED TO AMEND THE S ECTION FOR PROVIDING THAT NO DISALLOWANCE WILL BE MADE IF AFTER DEDUCTION OF TAX DURING THE PREVIOUS YEAR THE SAME HAS BEEN PAID ON OR BEFORE THE DUE DATE OF FIL ING OF RETURN OF INCOME SPECIFIED IN SUB-SECTION (1) OF SECTION 139 OF THE ACT. M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 14 25. IT CAN THUS BE NOTICED THAT THE AMENDMENT TO SECTION 40(A)(IA) BY THE FINANCE ACT 2010 HAS BEEN SPECIFICALLY MADE RETROSPECTIVEL Y APPLICABLE FROM THE A.Y. 2010-11. IT HAS NO WHERE BEEN EXPRESSLY SET OUT THA T THE AMENDMENT IS CURATIVE OR MERELY DECLARATORY OF THE PREVIOUS LAW. THE INTENTI ON OF THE LEGISLATURE AS GATHERED FROM THE NOTES ON CLAUSES AND THE MEMORAND UM EXPLAINING THE PROVISIONS OF THE FINANCE BILL DOES NOT PARTICULARLY INDICATE ANY RELAXATION IN THE PROVISION RETROSPECTIVELY FROM A.Y. 2005-06 BY PROVIDING THAT THE EXPENDITURE ON WHICH DUE TAX WAS DEDUCTED UP TO FEBRUARY 2005 BUT PAID BEFO RE THE DUE DATE SPECIFIED IN SECTION 139(1) OF THE ACT SHALL NOT SUFFER ANY DISA LLOWANCE IN THE A.Y. 2005-06. 26. THERE CAN BE NO DENIAL TO THE FACT THAT MERELY BECAUSE A PROVISION HAS BEEN EXPRESSLY MADE PROSPECTIVE CAN STILL IN CERTAIN C IRCUMSTANCES BE RETROSPECTIVE. IN ORDER TO BUTTRESS HIS SUBMISSION THAT THIS AMENDMEN T BY THE FINANCE ACT 2010 IS RETROSPECTIVE FROM ASSESSMENT YEAR 2005-2006 THE L EARNED COUNSEL FOR THE ASSESSEE HAS ACCENTUATED ON THE SPEECH OF THE FINANCE MINIST ER WHILE INTRODUCING FINANCE BILL 2010 (REPRODUCED INFRA ) WHICH STARTS WITH : RELAXING THE CURRENT PROVIS IONS . THE LEARNED AR ARGUED THAT THE AMENDMENT WAS MADE WITH A VIEW TO REMOVE THE UNNECESSARY HARDSHIP CAUSED TO THE ASSES SEE BY THE EARLIER PROVISION. IT WAS STATED THAT THE TDS PROVISIONS CAUSED UNNECESSA RY BURDEN ON THE ASSESSES IN DEDUCTING TAX AT SOURCE FROM THE PAYMENTS MADE BY I T ON BEHALF OF THE GOVERNMENT AND THEN DEPOSITING THE SAME IN THE TREASURY WITHIN THE PRESCRIBED TIME. HE STATED THAT THE VICARIOUS LIABILITY CAST ON THE ASSESSEES COULD NOT BE MADE LIABLE TO PUNITIVE ACTION ON NON-COMPLIANCE. IT WAS SUBMITTED THAT NON -DEDUCTION OF TAX AT SOURCE FROM THE AMOUNTS GENUINELY SPENT BY THE ASSESSEE FO R ITS BUSINESS PURPOSE OR THE DUE DEDUCTION BUT THE LATE DEPOSIT OF SUCH TAX BEYO ND THE TIME PRESCRIBED U/S 200(1) RESULTING INTO DISALLOWANCE U/S 40(A)(IA) CA USED A LOT OF HARDSHIP TO THE ASSESSEES AND THUS THE AMENDMENT BY THE FINANCE ACT 2010 RELAXING THE VIGOR OF SUCH PROVISION SHOULD BE HELD TO BE RETROSPECTIVE F ROM ASSESSMENT YEAR 2005-2006 BEING THE TIME OF INSERTION OF THIS PROVISION. IT WAS ALSO PUT FORTH ON BEHALF OF THE M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 15 ASSESSEE THAT THERE WAS NO WARRANT FOR MAKING ANY D ISALLOWANCE U/S 40(A)(IA) ON NON-DEDUCTION OF TAX AT SOURCE FOR THE REASON THAT A SMALL DEFAULT IN NOT PAYING SAY 1% OF TDS TO THE GOVERNMENT U/S 194C CAUSES DISALLO WANCE UNDER THIS PROVISION OF 100% OF THE EXPENDITURE INCURRED AND THE ADDITIO NAL TAX LIABILITY RESULTS AT 33.99%. HE FURTHER STATED THAT IF THE EFFECT OF INT EREST U/SS 234B AND 234C WAS ALSO TAKEN INTO CONSIDERATION THEN LIABILITY FASTENED U PON THE ASSESSEE AS A CONSEQUENCE OF NON-DEDUCTION OF TAX AT SOURCE AT 1% WOULD COME TO AROUND 45% OF THE AMOUNT OF EXPENDITURE ITSELF. HE INVITED OUR ATTENTION TOW ARDS CERTAIN REPRESENTATIONS MADE TO THE HONBLE FINANCE MINISTER AS PRE-BUDGET MEMOR ANDUM URGING THE HONBLE MINISTER TO DELETE SECTION 40(A)(IA) OR TO BRING SO ME SUITABLE AMENDMENT TO HELP THE ASSESSEES IN LOSING GENUINE DEDUCTION ON THIS ACCOU NT. THE LEARNED A.R. STATED THAT THE HONBLE FINANCE MINISTER TAKING INTO CONSIDERA TION ALL SUCH PRE-BUDGET REPRESENTATIONS HAS GIVEN THE RELAXATION IN THE TE RMS INDICATED ABOVE. TO FURTHER STRENGTHEN HIS CASE THE LD. AR ALSO SUBMITTED THAT THE DUE DEDUCTION OF TAX AT SOURCE COUPLED WITH A LITTLE LATE DEPOSIT SHOULD BE VIEWED AS SUBSTANTIAL COMPLIANCE WITH THE TDS PROVISIONS INASMUCH AS THE GOVERNMENT S INTEREST WAS NOT AFFECTED IN ANY MANNER AS THE TAX WAS DEDUCTED AND PAID TO IT E VEN THOUGH A BIT BELATEDLY. HE RELIED ON CERTAIN JUDGMENTS IN SUPPORT OF THE CONTE NTION THAT THE AMENDMENT BY THE FINANCE ACT 2010 BE CONSIDERED AS RETROSPECTIVE FR OM THE DATE OF INSERTION OF SECTION 40(A)(IA) AS IT WAS AIMED AT MITIGATING HAR DSHIP TO THE ASSESSES. 27. IN THE OPPOSITION THE LEARNED DEPAR TMENTAL REPRESENTATIVE CONTENDED THAT THERE WAS NO NEED TO CONSIDER THE AMENDMENT MA DE BY THE FINANCE ACT 2010 AS RETROSPECTIVE FROM ASSESSMENT YEAR 2005-2006 FOR THE REASON THAT NOTES ON CLAUSES AND THE MEMORANDUM EXPLAINING THE PROVISION S IN FINANCE BILL 2010 CLEARLY INDICATE THAT THE AMENDMENT WILL TAKE EFFEC T RETROSPECTIVELY FROM 1 ST APRIL 2010 AND WILL ACCORDINGLY APPLY IN RELATION TO ASSE SSMENT YEAR 2010-2011 AND SUBSEQUENT YEARS. HE STATED THAT THE LEGISLATURE HAS IMPOSED BURDEN ON THE ASSESSES IN TERMS OF DEDUCTING TAX AT SOURCE ON THE SPECIFIED PAYMENTS AND M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 16 THEREAFTER DEPOSITING IT WITHIN THE STIPULATED TIME . DOING THIS WORK IS NOT CHARITABLE BUT DISCHARGE OF DUTY CAST UNDER THE STATUTE. BY N OT DEPOSITING THE TAX DEDUCTED AT SOURCE WITHIN THE PRESCRIBED PERIOD THE LD. DR STA TED THAT THE ASSESSEE DISOBEYED THE RELEVANT PROVISIONS AND THE VISITING OF THE MAN DATE OF SECTION 40(A)(IA) WAS A NATURAL CONSEQUENCE. IT WAS ARGUED THAT THE ADDITI ON WAS RIGHTLY SUSTAINED BY THE LD. FIRST APPELLATE AUTHORITY BY HOLDING THAT THE AMENDMENT BY THE FINANCE ACT 2010 WAS NOT RETROSPECTIVE FROM 01.04.2005. 28. IT IS SETTLED RULE OF CONSTRUCTION THAT EVERY S TATUTE IS PRIMA FACIE PROSPECTIVE UNLESS IT IS EXPRESSLY OR BY NECESSARY IMPLICATION MADE TO HAVE RETROSPECTIVE OPERATION. ORDINARILY THE COURTS ARE REQUIRED TO GA THER THE INTENTION OF THE LEGISLATURE FROM THE OVERT LANGUAGE OF THE PROVI SION AS TO WHETHER IT HAS BEEN MADE PROSPECTIVE OR RETROSPECTIVE AND IF RETROSPEC TIVE THEN FROM WHICH DATE. WHAT HAPPENS SOMETIMES IS THAT THE SUBSTANTIVE PROVISION AS ORIGINALLY ENACTED OR LATER AMENDED FAILS TO CLARIFY THE INTENTION OF THE LEGI SLATURE . IN SUCH A SITUATION IF SUBSEQUENTLY SOME AMENDMENT IS CARRIED OUT TO CLARI FY THE REAL INTENT SUCH AMENDMENT HAPPENS TO BE RETROSPECTIVE FROM THE DATE THE EARLIER PROVISION WAS MADE EFFECTIVE. SUCH CLARIFICATORY OR EXPLANATORY A MENDMENT IS DECLARATORY. AS THE LATER AMENDMENT CLARIFIES THE REAL INTENT AND DECLA RES THE POSITION AS WAS ORIGINALLY INTENDED IT TAKES RETROACTIVE EFFECT FROM THE DATE THE ORIGINAL PROVISION WAS MADE EFFECTIVE. NORMALLY SUCH CLARIFICATORY AMENDMENT I S MADE RETROSPECTIVELY EFFECTIVE FROM THE EARLIER DATE. IT MAY SO HAPPEN THAT SOMETI MES THE CLARIFICATORY OR EXPLANATORY PROVISION INTRODUCED LATER TO DEPICT TH E REAL INTENTION OF THE LEGISLATURE IS NOT SPECIFICALLY MADE RETROSPECTIVE BY THE STATU TE. NOTWITHSTANDING THE FACT THAT SUCH AMENDMENT TO THE SUBSTANTIVE PROVISION HAS BEE N GIVEN PROSPECTIVE EFFECT NONETHELESS THE JUDICIAL OR QUASI JUDICIAL AUTHORIT IES ON A CHALLENGE MADE TO IT CAN JUSTIFIABLY HOLD SUCH AMENDMENT TO BE RETROSPECTIVE . THE JUSTIFICATION BEHIND GIVING RETROSPECTIVE EFFECT TO SUCH AMENDMENT IS TO APPLY THE REAL INTENTION OF THE LEGISLATURE FROM THE DATE SUCH PROVISION WAS INIT IALLY INTRODUCED. THE INTENTION OF M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 17 THE LEGISLATURE WHILE INTRODUCING THE PROVISION I S GATHERED INTER ALIA FROM THE FINANCE BILL MEMORANDUM EXPLAINING THE PROVISION O F THE FINANCE BILL . 29.A. NOW WE WILL ESPOUSE THE CASES RELIED ON BY BO TH THE SIDES TO BOLSTER THEIR RESPECTIVE POINTS OF VIEW ON THE RETROSPECTIVE OR P ROSPECTIVE OPERATION OF THE AMENDMENT MADE BY THE FINANCE ACT 2010 TO SECTION 40(A)(IA). THE FIRST CASE RELIED BY THE LEARNED A.R. IN SUPPORT OF HIS CONTEN TION ABOUT THE AMENDMENT HAVING RETROSPECTIVE EFFECT FROM A.Y. 2005-06 IS THE JUDG MENT OF THE HONBLE SUPREME COURT IN THE CASE OF ALLIED MOTORS (P.) LTD. ETC. VS. CIT [(1997) 224 IT R 677 (SC)]. SECTION 43B WAS INSERTED IN THE ACT WITH EFFECT FRO M 01.04.1984. AT THE TIME OF INSERTION IT PROVIDED THAT NOTWITHSTANDING ANYTHING CONTAINED IN ANY PROVISION OF THE ACT A DEDUCTION OTHERWISE ALLOWABLE UNDER THI S ACT IN RESPECT OF (A) ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX DUTY CESS O R FEE ETC. OR (B) ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTI ON TO ANY PROVIDENT FUND ETC. SHALL BE ALLOWED ONLY IN COMPUTING THE INCOME OF TH AT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY THE ASSESSEE IRRESPECTIVE O F THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED. OVER THE PE RIOD SCOPE OF SECTION 43B HAS BEEN EXPANDED BY INSERTING CLAUSES (C) (D) (E) AN D (F) GRANTING DEDUCTION IN RESPECT OF BONUS OR COMMISSION ETC. PAID TO EMPLOYE ES; ANY SUM PAYABLE AS INTEREST ON ANY LOAN OR BORROWING AND; ANY SUM PAYABLE BY TH E EMPLOYER IN LIEU OF ANY LEAVE AT THE CREDIT OF HIS EMPLOYEE ONLY IN COMPUT ING THE INCOME OF THAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID. THE OBJECT OF THE INSERTION OF SECTION 43B AS CAN BE SEEN FROM THE MEMORANDUM EXPLAINING THE P ROVISIONS IN THE FINANCE BILL OF 1983 (140 ITR ST. 160) IS TO CURB THE ACTIVITIE S OF THOSE TAX PAYERS WHO DID NOT DISCHARGE THEIR STATUTORY LIABILITY OF PAYMENT OF T AX OR DUTY OR EMPLOYEES CONTRIBUTION TO PROVIDENT FUND FOR LONG PERIOD BUT GOT DEDUCTION IN THAT REGARD BY CLAIMING THAT THE LIABILITY TO PAY SUCH AMOUNT WAS INCURRED. AIMED AT CURING THIS SITUATION SECTION 43B WAS INTRODUCED TO PROVIDE T HAT THE DEDUCTION SHOULD BE ALLOWED ONLY IN THE PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID. AS A RESULT OF M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 18 THE IMPLEMENTATION OF THIS PROVISION CERTAIN UNINTE NDED CONSEQUENCES FOLLOWED IN THE SENSE THAT THE AMOUNT OF SALES-TAX COLLECTED BY THE ASSESSES IN THE LAST QUARTER OF THE PREVIOUS YEAR CAME TO BE DISALLOWED WHEREAS THE LIABILITY TO PAY SUCH SUM DID NOT STATUTORILY ARISE BEFORE THE END OF THE YEAR. I T IS OBVIOUS THAT SALES-TAX FOR THE QUARTER ENDING 31 ST MARCH CAN BE DEPOSITED ONLY AFTER THE CLOSE OF THE YEAR. SECTION 43B LED TO DISALLOWANCE OF THE AMOUNT OF SUCH SALES -TAX DESPITE THE FACT THAT THE LIABILITY TO PAY SUCH SALES-TAX AROSE ONLY AFTER TH E CLOSE OF THE YEAR IN APRIL. IN ORDER TO REMEDY THIS UNINTENDED CONSEQUENCE THE FINANCE ACT 1987 INSERTED FIRST PROVISO TO SECTION 43B WITH EFFECT FROM 1 ST APRIL 1988 TO PROVIDE THAT NO DISALLOWANCE ON ACCOUNT OF SALES-TAX ETC. SHALL BE MADE IF IT IS ACTUALLY PAID ON OR BEFORE THE DUE DATE APPLICABLE FOR FURNISHING RETUR N U/S 139(1) OF THE ACT. THE QUESTION BEFORE THE HONBLE SUPREME COURT WAS WHETH ER SUCH PROVISO INSERTED BY THE FINANCE ACT 1987 WHICH CAME INTO EFFECT FROM 1 ST APRIL 1988 IS PROSPECTIVE OR RETROSPECTIVE FROM ASSESSMENT YEAR 1984-85 BEING T HE YEAR OF INSERTION OF SECTION 43B. THE HONBLE SUMMIT COURT OBSERVED THAT THE PRO VISO WAS INSERTED TO CURE UNINTENDED CONSEQUENCES AND MAKE THE SECTION WORKAB LE AND HENCE WAS RETROSPECTIVE. 29.B. IT CAN THEREFORE BE EASILY SEEN THAT THE AMENDMENT TO SECTION 43B BY THE FINANCE ACT 1987 HAS BEEN HELD TO BE RETROSPECTIVE ON THE GROUND THAT IT WAS MADE TO REMOVE UNINTENDED CONSEQUENCES OF THE SECTION AN D TO MAKE IT WORKABLE NOTWITHSTANDING THE FACT THAT SUCH PROVISO WAS INSE RTED WITH EFFECT FROM 1 ST APRIL 1988. 29.C. THE NEXT JUDGMENT RELIED BY THE LEARNED A.R . IS THAT OF THE HONBLE SUPREME COURT IN CIT VS. ALOM EXTRUSIONS LTD. [(2009) 319 ITR 306 (S C)] . THERE WAS SECOND PROVISO TO SECTION 43B WHICH PROVIDED THAT N O DEDUCTION SHALL BE ALLOWED IN RESPECT OF CLAUSE (B) NAMELY ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO PROVIDENT FUND ETC. UNLESS I T WAS ACTUALLY PAID ON OR BEFORE M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 19 THE DUE DATE AS DEFINED IN EXPLANATION BELOW CLAUSE (VA) OF SECTION 36(1). EXPLANATION TO SECTION 36(1)(VA) DEFINES THE DUE DATE TO MEAN THE DATE BY WHICH THE ASSESSEE IS REQUIRED AS AN EMPLOYER TO CREDIT A N EMPLOYEES CONTRIBUTION TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND UNDER ANY A CT RULE ORDER OR NOTIFICATION ISSUED THERE-UNDER OR UNDER ANY STANDING ORDER AWA RD CONTACT OF SERVICE OR OTHERWISE. THE RESULT OF CLAUSE (B) READ WITH SECON D PROVISO TO SECTION 43B WAS THAT FOR CLAIMING DEDUCTION IT BECAME IMPERATIVE TO DEP OSIT THE EMPLOYEES CONTRIBUTION TO PROVIDENT FUND ETC. BEFORE THE DUE DATE UNDER THE RELEVANT ACT ETC. IN OTHER WORDS IF THE EMPLOYEES CONTRIBUTION TO E PF FOR THE MONTH OF MARCH WAS NOT DEPOSITED UP TO 15 TH OF APRIL OR WITHIN THE GRACE PERIOD THE AMOUNT SU FFERED DISALLOWANCE. THE FIRST PROVISO BEFORE THE AMENDMEN T EXTENDING THE TIME FOR PAYMENT OF THE SUMS SPECIFIED IN VARIOUS CLAUSES OF SECTION 43B ON OR BEFORE THE DUE DATE U/S 139(1) AS A PRE-REQUISITE FOR GRANTING DEDUCTION DID NOT OPERATE TO CLAUSE (B) ONLY OF SECTION 43B DEALING WITH THE EMP LOYEES CONTRIBUTION TO THE PROVIDENT FUND ETC. ON READING FIRST PROVISO IN JU XTAPOSITION TO THE SECOND PROVISO IT MEANT THAT ANY SUM PAYABLE BY THE ASSESSEE BY WA Y OF TAX DUTY CESS OR INTEREST U/S 36(1)(II) OR PAYABLE TO SCHEDULED BANKS OR TO S TATE FINANCIAL CORPORATIONS ETC. [AS PER CLAUSES (C) TO (E)] OR THE AMOUNT PAYABLE I N LIEU OF LEAVE ENCASHMENT AT THE CREDIT OF THE EMPLOYEES WAS DEDUCTIBLE IF PAID ON OR BEFORE THE DUE DATE U/S 139(1) OF THE ACT. THE ONLY EXCEPTION WAS CLAUSE (B) DEA LING WITH EMPLOYEES CONTRIBUTION TO PROVIDENT FUND ETC. WHICH REQUIR ED THE DEPOSIT TO BE MADE ONLY AS PER THE TIME LIMIT PROVIDED IN EXPLANATION BELOW SECTION 36(1)(VA) FOR GAINING ELIGIBILITY TO DEDUCTION. THE FINANCE ACT 2003 REM OVED THIS ANOMALY BY OMITTING SECOND PROVISO AND ALSO CARRIED OUT AMENDMENT TO TH E FIRST PROVISO BY MAKING IT APPLICABLE TO ALL THE CLAUSES (A) TO (F) OF SECTION 43B INCLUDING CLAUSE (B). THE AMENDMENT SO MADE BY THE FINANCE ACT 2003 WITH EFF ECT FROM 01.04.2004 BROUGHT THE EMPLOYEES CONTRIBUTION TO EPF ETC. ON THE SAME PEDESTAL ON WHICH THE OTHER SUMS ARE GIVEN UNDER CLAUSES (A) (C) TO (F) OF SEC TION 43B FOR THE PURPOSE OF GRANTING DEDUCTION. IT WAS CLAIMED THAT THE AMENDME NT SO MADE BY OMITTING SECOND M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 20 PROVISO SHOULD BE GIVEN RETROSPECTIVE EFFECT. THE H ONBLE SUPREME COURT IN THIS CASE CONSIDERED ALL THE ASPECTS OF THIS AMENDMENT A ND OBSERVED THAT : THE SECOND PROVISO RESULTED INTO IMPLEMENTATION PROBLEMS WHIC H HAVE BEEN MENTIONED HEREINABOVE AND WHICH RESULTED INTO ENACTMENT OF F INANCE ACT 2003 DELETING THE SECOND PROVISO AND BRINGING ABOUT UNIFORMITY IN THE FIRST PROVISO BY EQUATING TAX DUTY CESS AND FEE WITH CONTRIBUTIONS TO WELFARE F UNDS. ONCE THIS UNIFORMITY IS BROUGHT ABOUT IN THE FIRST PROVISO THEN IN OUR VI EW THE FINANCE ACT 2003 WHICH IS MADE APPLICABLE BY PARLIAMENT ONLY WITH EFFECT F ROM APRIL 1 2004 WOULD BECOME CURATIVE IN NATURE HENCE IT WOULD APPLY R ETROSPECTIVELY WITH EFFECT FROM APRIL 1 1988 . ON PAGE 315 OF THE REPORT THE HONBLE SUPREME C OURT FURTHER NOTED THAT IF THE DEPARTMENTAL CONTENTION ABOUT GIV ING PROSPECTIVE EFFECT TO THE AMENDMENT WAS GIVEN EFFECT TO IT WOULD RESULT INTO HARDSHIP AND INVIDIOUS DISCRIMINATION ` AS CERTAIN ASSESSEES WILL BE DENIED DEDUCTION FOR A LL TIMES AND THEY WOULD LOSE THE BENEFIT OF DEDUCTION EVEN IN THE YEA R IN WHICH THEY PAY THE CONTRIBUTIONS TO THE WELFARE FUNDS. IT WAS THEREFORE HELD THAT THIS AMENDMENT BEING CURATIVE WAS RETROSPECTIVE. 29.D. ON GOING THROUGH THIS CASE ALSO IT BECOMES A BUNDANTLY CLEAR THAT THE SECOND PROVISO RESULTED IN IMPLEMENTATION PROBLEMS AND THE EFFECT OF CONSIDERING THE AMENDMENT AS PROSPECTIVE WOULD HAVE LED TO DENIAL O F DEDUCTION IN CERTAIN CASES FOR ALL TIMES DESPITE THE PAYMENT HAVING BEEN MADE SUBSEQUENTLY. IT WAS UNDER SUCH CIRCUMSTANCES THAT THE OMISSION OF THE SECOND PROVISO AND THE CONSEQUENTIAL AMENDMENT TO THE FIRST PROVISO HAS BEEN HELD TO BE RETROSPECTIVE. 29.E. THE NEXT CASE ON WHICH A GREAT DEAL OF EMPHA SIS HAS BEEN PLACED BY THE LEARNED A.R. IS THAT OF THE HONBLE SUPREME COURT I N CIT VS. GOLD COIN HEALTH FOOD (P.) LTD. [(2008) 304 ITR 308 (SC)] . THE FINANCE ACT 2002 AMENDED EXPLANATION 4 TO SECTION 271(1)(C) WITH EFFECT FROM 01.04.2003 P ROVIDING THAT THE PENALTY WOULD BE IMPOSED EVEN IF THE RETURNED INCOM E IS LOSS. IN THE CASE OF VIRTUAL M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 21 SOFT SYSTEMS LTD. VS. CIT [(2007) 289 ITR 83 (SC)] (A BENCH COMPRISING OF TWO HONBLE JUDGES) IT WAS HELD THAT PRIOR TO THE AMEND MENT WITH EFFECT FROM 1 ST APRIL 2003 PENALTY FOR CONCEALMENT OF INCOME COULD NOT BE LEVIED IN THE ABSENCE OF ANY POSITIVE INCOME. DOUBT WAS EXPRESSED OVER THE CORRE CTNESS OF THIS VIEW BY A SUBSEQUENT BENCH. THEREAFTER IN THE CASE OF GOLD COIN HEALTH FOOD P. LTD. (SUPRA) (A BENCH OF THREE HONBLE JUDGES) OVERRULED THE JUD GMENT IN THE CASE OF VIRTUAL SOFT SYSTEMS LTD. (SUPRA) BY HOLDING THAT EXPLANATION 4 TO SECTION 271(1)(C)(III) REGARDING THE IMPOSITION OF PENALTY EVEN IF THERE IS A LOSS IS CLARIFICATORY AND NOT SUBSTANTIVE. IT WAS HELD TO BE APPLYING EVEN TO THE ASSESSMENT YEARS PRIOR TO 1 ST APRIL 2003 BEING THE DATE FROM WHICH IT WAS BROU GHT INTO FORCE. 29.F. FROM THIS CASE IT CAN BE EASILY SEEN THAT THE RETROSPECTIVE EFFECT TO THE AMENDMENT TO EXPLANATION 4 BY THE FINANCE ACT 2002 HAS BEEN GIVEN BY HOLDING THAT THE POSITION EVEN ANTERIOR TO SUCH AMENDMENT W AS THE SAME IN AS MUCH AS THE PENALTY WAS IMPOSABLE EVEN IN THE CASE OF LOSS. THE INTENTION OF THE LEGISLATURE WAS FOUND TO BE IMPOSING PENALTY IN ALL SUCH CASES EVEN PRIOR TO THE AMENDMENT AND THAT IS HOW THIS AMENDMENT WAS HELD TO BE CLARI FICATORY AND THEREFORE RETROSPECTIVE. 29.G. SIMILAR IS THE POSITION IN THE CASE OF CIT VS. KANJI SHIVJI AND CO. [(2000) 242 ITR 124 (SC)] . EXPLANATION 2 TO SECTION 40(B) WAS INTRODUCED WITH EFFECT FROM 1 ST APRIL 1985 PROVIDING THAT WHERE AN INDIVIDUAL IS A PARTNER IN A FIRM OTHERWISE THAN AS PARTNER IN REPRESENTATIVE CAPACITY INTERES T PAID BY THE FIRM TO SUCH INDIVIDUAL SHALL NOT BE TAKEN INTO ACCOUNT FOR THE PURPOSES OF CLAUSE (B) TO SECTION 40. THE HONBLE SUPREME COURT IN THE CASE OF BRIJ MOHAN DAS LAXMAN DAS VS. CIT [(1997) 223 ITR 825 (SC)] HELD THIS INSERTION TO BE DECLARATORY IN NATURE AN D HENCE RETROSPECTIVE. IN THIS CASE IT WAS HELD THAT THE INTEREST PAID BY THE FIRM TO A PARTNER ON HIS INDIVIDUAL DEPOSITS IS NOT HIT BY SE CTION 40(B) IF THE PERSON IS A PARTNER NOT IN HIS INDIVIDUAL CAPACITY BUT AS REPRE SENTING HUF. THE SAME VIEW WAS M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 22 TAKEN IN SUWALAL ANANDILAL JAIN VS. CIT [(1997) 224 ITR 753 (SC)]. HOWEVER IN RASHIK LAL AND CO. VS. CIT [(1998) 229 ITR 458 (SC) ] SOMEWHAT CONTRARY VIEW WAS EXPRESSED. THAT IS HOW THE MATTER CAME UP BEFOR E THE LARGER BENCH OF THE HONBLE SUPREME COURT IN KANJI SHIVJI AND CO. (SUPRA) . IN THIS CASE IT HAS BEEN HELD THAT EXPLANATION 2 TO SECTION 40(B) IS DECLARATORY AND RETROSPECTIVE IN OPERATION BY AFFIRMING THE JUDGMENTS IN THE CASES O F BRIJ MOHAN DAS LAXMAN DAS (SUPRA) AND SUWALAL ANANDILAL JAIN (SUPRA) . 29.H. THE REASONING FOR HOLDING THE AMENDMENT TO BE RETROSPECTIVE IN THIS CASE IS THE LEGISLATIVE RECOGNITION OF DIFFERENT CAPACITIES AN INDIVIDUAL MAY HOLD. WHEN A PERSON IS PARTNER REPRESENTING HIS HUF ANY TRANSAC TIONS WITH THAT PERSON IN INDIVIDUAL CAPACITY ARE TO BE TREATED AS DISTINCT F ROM THE TRANSACTIONS WITH HUF. IT IS THIS RECOGNITION OF THE THEORY OF DIFFERENT CAPA CITIES OF AN INDIVIDUAL AB INITIO THAT THE HONBLE SUPREME COURT HELD THAT EXPLANATION 2 ONLY CLARIFIED THE INTENT OF THE LEGISLATURE AND DID NOT GRANT A NEW RELIEF BY WAY OF INSERTION OF EXPLANATION 2. 30. WE ARE REMINDED OF THE `MISCHIEF RULE WHI CH IS COMMONLY CALLED HEYDONS RULE. THIS RULE DEALS WITH ASCERTAINING THE CORRECT INTENTION OF THE LEGISLATURE BY LOOKING INTO THE MISCHIEF THAT WAS SOUGHT TO BE REMEDIED BY THE LEGISLATION. IT BASICALLY COMPRISES FOUR THINGS TO BE CONSIDERED:- (A) WHAT WAS THE COMMON LAW BEFORE THE MAKING OF T HE ACT; (B) WHAT WAS THE MISCHIEF AND DEFECT FOR WHICH THE COMMON LAW DID NOT PROVIDE; (C) WHAT REMEDY THE PARLIAMENT HAS APPOINTED TO CU RE THE DEFECT; AND (D) THE TRUE REASONS FOR THE REMEDY. ANY AMENDMENT PASSING THE HEYDONS RULE IS RETROSPE CTIVE. M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 23 31. A SURVEY OF THE ABOVE JUDGMENTS IN PARA 29 SUPRA MAKES IT PATENT THAT ANY AMENDMENT TO THE SUBSTANTIVE PROVISION WHICH IS AIM ED AT CLARIFYING THE EXISTING POSITION OR REMOVING UNINTENDED CONSEQUENCES TO MAK E THE PROVISION WORKABLE HAS TO BE TREATED AS RETROSPECTIVE NOTWITHSTANDING THE FACT THAT THE AMENDMENT HAS BEEN GIVEN EFFECT PROSPECTIVELY. 32.A. NOW WE WILL CONSIDER THE CASES ON THE O THER SIDE OF THE LINE IN WHICH THE AMENDMENT TO THE SUBSTANTIVE PROVISION HAS BEEN HEL D TO BE PROSPECTIVE. A BENCH OF THE FIVE HONBLE JUDGES IN PADMASUNDARA RAO (DECD.) AND OTHERS VS. STATE OF TAMIL NADU AND OTHERS [(2002) 255 ITR 147 (SC)] HAS LAID DOWN THAT THE LANGUAGE EMPLOYED IN A STATUTE IS DETERMINATIVE FACTOR OF LE GISLATIVE INTENT. THE FIRST AND PRIMARY RULE OF CONSTRUCTION IS THAT THE INTENTION OF THE LEGISLATION MUST BE FOUND IN THE WORDS USED BY THE LEGISLATURE ITSELF. 32.B. IN RELIANCE JUTE AND INDUSTRIES LTD. VS. CIT [(1979) 1 20 ITR 921 (SC)] THE ITO SET OFF THE UNABSORBED BUSINESS LOSS FOR AS SESSMENT YEARS 1949-50 AND 1950-51 AGAINST THE BUSINESS INCOME AND HELD THAT T HE REMAINING AMOUNT OF UNABSORBED LOSS SHOULD BE CARRIED FORWARD. IN THE A SSESSMENT OF LATER YEAR I.E. 1960-61 THE ASSESSEE CLAIMED THAT THE UNABSORBED LO SS SHOULD BE BROUGHT FORWARD AND SET OFF AGAINST THE BUSINESS INCOME OF THE CURR ENT YEAR. IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT BY VIRTUE OF SECTION 24 (2)(III) OF THE INDIAN INCOME TAX ACT 1922 AS IT STOOD BEFORE ITS AMENDMENT WITH EFF ECT FROM 1 ST APRIL 1957 THE ASSESSEE HAD ACQUIRED A VESTED RIGHT TO HAVE THE UN ABSORBED LOSS CARRIED FORWARD FROM YEAR TO YEAR UNTIL IT WAS COMPLETELY SET OFF A ND THE SUBSEQUENT AMENDMENT LIMITING THE PERIOD OF CARRYING FORWARD THE LOSS TO EIGHT YEARS COULD NOT DIVEST THE ASSESSEE OF THE VESTED RIGHT WHICH HAD ACCRUED TO H IM. IN OTHER WORDS IT WAS SUBMITTED THAT THE AMENDMENT EFFECTED IN 1957 WAS N OT RETROSPECTIVE IN OPERATION. WHEN THE MATTER FINALLY CAME UP BEFORE THE HONBLE SUPREME COURT THE ASSESSEES CONTENTION WAS REPELLED BY HOLDING THAT THE LOSS IN CURRED IN ASSESSMENT YEAR 1950- M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 24 51 COULD NOT BE SET OFF AGAINST THE INCOME OF ASSES SMENT YEAR 1960-61 AS THE LAW TO BE APPLIED IS THAT IN FORCE IN THE RELEVANT ASSESSM ENT YEAR AND THE LAW AS EXISTING IN ASSESSMENT YEAR 1960-61 HAS RESTRICTED THE CARRY FO RWARD UP TO EIGHT YEARS ONLY. 32.C. FROM THIS JUDGMENT IT CAN BE SEEN THAT THE CONTENTION OF THE ASSESSEE ABOUT THE RETROSPECTIVE OPERATION OF THE AMENDMENT CARRIE D OUT BY THE FINANCE ACT 1957 WAS REJECTED ON THE GROUND THAT IT WAS NEITHER EXPR ESSLY NOR BY NECESSARY IMPLICATION PROVIDED THAT THE AMENDMENT WILL HAVE R ETROSPECTIVE EFFECT. 32.D. IN J.K. SYNTHETICS LTD. VS. CTO [(1994) 119 CTR (SC) 2 22] THE QUESTION WAS ABOUT THE CHARGING OF INTEREST ON DELAYED PAYME NTS UNDER THE RAJASTHAN SALES- TAX ACT. THE HONBLE SUPREME COURT HELD THAT ORDINA RILY THE CHARGING SECTION WHICH FIXES THE LIABILITY IS STRICTLY CONSTRUED B UT THAT RULE OF STRICT CONSTRUCTION IS NOT EXTENDED TO THE MACHINERY PROVISIONS WHICH ARE CONSTRUED LIKE ANY OTHER STATUTE. THE PROVISION FOR CHARGING OF INTEREST EV EN THOUGH FORMING PART OF THE MACHINERY PROVISIONS WAS HELD TO BE SUBSTANTIVE LA W. IT WAS THEREFORE HELD THAT ANY PROVISION IN THE STATUTE LEVYING INTEREST ON DE LAYED PAYMENT OF TAX MUST BE CONSTRUED AS A SUBSTANTIVE LAW AND HENCE PROSPECTIV E. 32.E. IN THE CASE OF CWT VS. VARADHARAJA THEATRE (P.) LTD. [(2001) 250 I TR 523 (MAD.)] THE ISSUE FOR CONSIDERATION WAS THE AMENDMENT MADE TO SECTION 40(3)(VI) OF THE FINANCE ACT 1983 BY THE FINANCE ACT 1988 I NCLUDING CINEMA BUILDING IN THE EXEMPTION LIST FOR THE PURPOSES OF THE WEALTH-TAX A CT. IT WAS CLAIMED THAT THE AMENDMENT MADE BY THE FINANCE ACT 1988 WAS DECLARA TORY AND HENCE SHOULD APPLY TO ASSESSMENT YEARS 1985-86 TO 1986-87. REJEC TING THIS CONTENTION THE HONBLE MADRAS HIGH COURT HELD THAT WHEN PARLIAMENT ENACTS A LAW IT MUST BE UNDERSTOOD WITH REFERENCE TO THE LANGUAGE USED IN T HE PROVISION CONSTRUED IN THE LIGHT OF THE SCHEME OF THE ACT AND THE OBJECT OF TH E STATUTE AND THE PROVISIONS THEREIN. ` EVERY CASE OF REMOVAL OF HARDSHIP BY PARLIAMENT DID NOT INDICATE A M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 25 PARLIAMENTARY INTENTION TO REMOVE THAT HARDSHIP FRO M AN ANTERIOR DATE UNLESS THE SCHEME OF THE ACT THE CONTEXT IN WHICH THE AMENDME NT WAS MADE AND THE LANGUAGE OF THE AMENDMENT WARRANTS SUCH A VIEW. WHEN THE THING WHICH WAS SPECIFICALLY EXCLUDED IS SUBSEQUENTLY INCLUDED SUCH INCLUSION C ANNOT BE REGARDED AS INDICATIVE OF INTENTION ON THE PART OF THE LEGISLATURE TO HA VE TREATED WHAT IS NOW INCLUDED AS HAVING BEEN INCLUDED AT ALL TIMES. A TEST AS BEEN LAID DOWN BY THE HONBLE HIGH COURT TO CONSIDER WHETHER THE AMENDMENT IS PROSPECT IVE OR RESPECTIVE IS TO EXAMINE THE AMENDED PROVISION WITH A VIEW TO ASCERT AIN AS TO WHETHER THAT PROVISION WITHOUT THE AID OF AMENDMENT IS CAPABLE O F TAKING WITHIN IT WHAT WAS SUBSEQUENTLY INCLUDED AFTER THE AMENDMENT. APPLYING THIS TEST THE HONBLE COURT HELD THAT CINEMA HOUSES COULD NOT BE CONSTRUED AS E XEMPT FROM WEALTH-TAX AS PER EARLIER PROVISION. 33. THE PRINCIPLE WHICH CAN BE DEDUCED FROM THESE CASES DISCUSSED IN PARAS 29 TO 32 IS THAT ANY AMENDMENT TO THE SUBSTANTIVE PROV ISION IS ORDINARILY PROSPECTIVE EXCEPT EXPRESSLY STATED OTHERWISE OR IT COMES OUT S O BY NECESSARY IMPLICATION. UNLESS THE AMENDMENT IS MADE APPLICABLE WITH RETROS PECTIVE EFFECT SUCH AMENDMENT TO THE SUBSTANTIVE PROVISION IS TO BE REG ARDED AS PROSPECTIVE BARRING OUT CASES IN WHICH IT IS EXPLANATORY OR CLARIFICATORY O N ONE HAND OR IT AIMS AT REMOVING THE UNINTENDED CONSEQUENCES. 34. IT IS THE SOLE PREROGATIVE OF THE LEGISLATU RE TO ENACT MODIFY AND REPEAL ANY LAW AND ALSO TO INTRODUCE ANY AMENDMENT AS RETROSPE CTIVE OR PROSPECTIVE. ALL PROVISIONS OF THE ACT ARE BROUGHT OUT WITH A PARTIC ULAR OBJECT IN MIND. SOFT PROVISIONS IN THE SHAPE OF INCENTIVES ETC. ARE US UALLY AIMED AT SPECIFIC GROWTH LIKE THAT OF A PARTICULAR INDUSTRY OR PARTICULAR AREA. O N THE OTHER HAND THE SO-CALLED HARSH PROVISIONS ARE AIMED AT MOBILIZING RESOURCES FOR UTILIZING THEM IN WELFARE MEASURES AND FOR GENERAL GROWTH OF THE NATION SUCH AS THAT OF HEALTH AND EDUCATION OF ITS CITIZENS AND MAKING AVAILABLE BETTER INFRAST RUCTURE ETC. ANY PROVISION IN A M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 26 FISCAL STATUTE MAY BE DESCRIBED AS HARSH FROM THE A NGLE OF THE TAX PAYERS WHEN IT EITHER CAUSES SOME ADDITIONAL BURDEN ON THE POCKET S OF TAX PAYERS IN TERMS OF MORE OUTFLOW OF MONEY IN THE SHAPE OF TAX INTEREST AND PENALTY OR IT CASTS AN OBLIGATION FULFILLMENT OF WHICH IS NOT FEASIBLE. IN THE PRESEN T APPEAL THE HARDSHIP OF THE FORMER TYPE HAS BEEN ARGUED. IT IS AUSTERE THAT EVERY FRE SH LEVY OR WITHDRAWAL OF EXISTING ALLOWANCE MAY BE DESCRIBED AS HARSH FROM THE PERSPE CTIVE OF TAX PAYERS BUT BENEFICIAL FROM THE POINT OF VIEW OF NATION AS A WH OLE. THE LEGISLATURE IS EMPOWERED TO IMPOSE CERTAIN LEVY EVEN IF IT IS HAR SH PROVIDED IT FALLS WITHIN THE OVERALL FRAMEWORK OF THE CONSTITUTION OF INDIA. SO LONG AS A PROVISION IS CONSTITUTIONALLY VALID THE JUDICIARY CANNOT INTERV ENE EVEN IF IT IS HARSH. THE ROLE OF THE COURTS IS TO INTERPRET A PROVISION IN SUCH A MA NNER THAT THE INTENTION OF THE LEGISLATURE IS CLEARLY BROUGHT OUT AND IMPLEMENTE D. IF THE LANGUAGE OF A PROVISION IS UNAMBIGUOUS AND DOES NOT REQUIRE ANY FURTHER ELA BORATION THEN THERE IS NOTHING FOR THE COURTS TO DO IN THIS REGARD. IF DESPITE CL EAR LANGUAGE OF A PROVISION THE COURTS INTERPRET IT IN A WAY SO AS TO GIVE UNINTEND ED CONSEQUENCES FROM THE ANGLE OF PARLIAMENT THE LEGISLATURE CAN PULL OUT PLUG AND A GAIN INTRODUCE THE AMENDMENT IN CONSONANCE WITH ITS ORIGINAL INTENTION. IN SUCH A S CENARIO THE EARLIER INTERPRETATION GIVEN BY THE COURTS IS OVERRULED BY THE LEGISLATIVE PROCESS. IN BHARAT EARTH MOVERS VS. CIT [(2000) 245 ITR 428 (SC)] IT WAS HELD THAT IF LIABILITY ON ACCOUNT OF LEAVE ENCASHMENT ARISES IN THE YEAR THEN DEDUCTI ON IS TO BE ALLOWED EVEN IF THE LIABILITY HAS TO BE QUANTIFIED AND DISCHARGED AT A LATER DATE. THIS SUPREME COURT JUDGMENT HAS BEEN NULLIFIED W.E.F. A.Y. 2002-03 BY INSERTION OF SECTION 43B(F). SIMILARLY THE FINANCE ACT 2008 INSERTED SEC. 271(1 B) W.R.E.F. 1.4.1989 TO NULLIFY VARIOUS JUDGMENTS HOLDING THAT WHERE `SATISFACTION' WAS NOT RECORDED IN ASSESSMENT ORDER IT WOULD AMOUNT TO ABSENCE OF SATISFACTION AND HENCE PENALTY U/S 271(1)(C) SHALL NOT BE LIABLE. THERE ARE SEVERAL SUCH INSTA NCES IN WHICH THE LEGISLATURE HAS REINFORCED ITS INTENTION BY WAY OF AMENDMENT SETTIN G ASIDE THE CONTRARY JUDICIAL INTERPRETATION. M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 27 35. FROM THE ABOVE DISCUSSION IT IS CRYSTAL CL EAR THAT RETROSPECTIVE EFFECT TO A PROVISION CANNOT BE ORDINARILY GIVEN BY JUDICIAL O R QUASI JUDICIAL AUTHORITIES UNLESS IT IS EXPRESSLY GIVEN BY THE LEGISLATURE. THERE M AY BE CERTAIN SITUATIONS REQUIRING THE GIVING OF RETROSPECTIVE EFFECT. THE SCOPE FOR THE COURTS TO VALIDLY GIVE RETROSPECTIVE EFFECT TO A PROVISION DESPITE NOT BE ING CLEARLY GIVEN SO BY THE LEGISLATURE IS LIMITED. IT EXTENDS TO CASES WHERE THE LEGISLATIVE INTENT HAS LATER BEEN MADE EXPLICIT WHICH WAS EARLIER IMPLICIT IN THE PRO VISION OR THE EXISTING PROVISION LED TO THE UNINTENDED CONSEQUENCES AND MADE THE INT ENTION OF THE LEGISLATURE UNWORKABLE. ANY AMENDMENT WHICH HAS NOT BEEN GIVEN RETROSPECTIVE EFFECT BY THE LEGISLATURE CANT BE CONSTRUED AS RETROSPECTIVE ON THE SOLITARY GROUND THAT THE ORIGINAL PROVISION CAUSED SOME HARDSHIP TO THE ASSE SSEES. THE RELEVANT CRITERIA TO BE TAKEN INTO CONSIDERATION FOR ARRIVING AT THE DECISI ON ABOUT THE RETROSPECTIVE OR PROSPECTIVE EFFECT OF A LATER PROVISION IS TO UNE ARTH THE INTENTION OF THE LEGISLATURE AT THE TIME OF INTRODUCING THE ORIGINAL PROVISION A ND NOT WHETHER IT CAUSED HARDSHIP TO THE TAXPAYERS. IF IT WAS VERY WELL KNOWN AT TH E TIME OF INSERTING THE ORIGINAL PROVISION THAT IT IS GOING TO BE HARSH THEN ANY SU BSEQUENT RELAXATION IN IT WILL NOT BE RETROSPECTIVE UNLESS EXPRESSLY STATED. THE REASO N FOR NOT HOLDING SUCH LATER AMENDMENT AS RETROSPECTIVE IS MANIFEST THAT THE LEG ISLATURE IN ITS WISDOM INTENDED TO IMPOSE A HARSH LEVY. IN SUCH A CASE THE JUDICIA L OR QUASI JUDICIAL AUTHORITIES CANNOT HELP THE SITUATION BY GRABBING THE LEGISLATI VE POWER IN HOLDING SUCH LATER RELAXATION AS RETROSPECTIVE WHEN THE LEGISLATURE HAS ITSELF MADE IT PROSPECTIVE. 36. IN OUR CONSIDERED OPINION THE BORDER LINE BETWEEN A SUBSTANTIVE PROVISION HAVING RETROSPECTIVE OR PROSPECTIVE EFFECT IS QUIT E PROMINENT. ONE NEEDS TO APPRECIATE THE NATURE OF THE ORIGINAL PROVISION IN CONJUNCTION WITH THE AMENDMENT. ONCE A PROVISION HAS BEEN GIVEN RETROSPECTIVE EFFEC T BY THE LEGISLATURE IT SHALL CONTINUE TO BE RETROSPECTIVE. IF ON THE OTHER HAND IF THE STATUTE DOES NOT AMEND RETROSPECTIVELY THEN ONE HAS TO DIG OUT THE INTEN TION OF THE PARLIAMENT AT THE TIME WHEN THE ORIGINAL PROVISION WAS INCORPORATED AND AL SO THE NEW AMENDMENT. IF THE M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 28 LATER AMENDMENT SIMPLY CLARIFIES ITS INTENTION OF T HE ORIGINAL PROVISION IT WILL ALWAYS BE CONSIDERED AS RETROSPECTIVE. LIKE THE CAS E OF GOLD COIN HEALTH FOOD P. LTD. (SUPRA) IN WHICH THE HONBLE SUPREME COURT HELD THAT THE A MENDMENT TO EXPLANATION 4 TO SECTION 271(1)(C)(III) SIMPLY CLARIFIED THE POSI TION WHICH WAS EXISTING SINCE INCEPTION OF THE PROVISION THAT THE PENALTY IS LEVIABLE ON CONCEALMENT IRRESPECTIVE OF THE FACT WHETHER ULTIMATELY ASSESSE D INCOME IS POSITIVE OR NEGATIVE. SIMILARLY IN THE CASE OF KANJI SHIVJI AND CO. (SUPRA) THE HONBLE SUPREME COURT HELD THAT THE PURPOSE OF EXPLANATION 2 TO SECTION 40(B) WAS SIMPLY TO CLARIFY THAT THE INCOME-TAX ACT RECOGNIZES INDIVIDUAL STATUES OF A PERSON AS DIFFERENT FROM HIS REPRESENTATIVE CAPACITY. THIS EXPLANATION DID NOT BRING IN A NEW PROVISION BUT CLARIFIED THAT THE POSITION WAS SO SINCE THE INTROD UCTION OF THE PROVISION ITSELF. IN THIS CATEGORY OF CLARIFICATORY OR EXPLANATORY AMEND MENTS TO THE SUBSTANTIVE PROVISIONS THE OBJECT IS ALWAYS TO CLARIFY THE INT ENTION OF THE LEGISLATURE AS IT WAS THERE AT THE TIME OF INSERTION OF THE ORIGINAL PROV ISION. THAT IS THE REASON FOR WHICH THE CLARIFICATORY AMENDMENTS ARE ALWAYS RETROSPECTI VE IRRESPECTIVE OF THE DATE FROM WHICH EFFECT HAS BEEN GIVEN TO THEM BY THE LEGISLAT URE . 37. THE SECOND CATEGORY INCLUDES THE CASES IN WHICH THERE WAS NO AMBIGUITY IN THE LANGUAGE OF THE PROVISION AT THE TIME OF ITS IN TRODUCTION AND THE OBJECT SOUGHT WAS FULLY ATTAINABLE. BUT WHILE MAKING THE PROVISIO N WORKABLE BESIDES THE DESIRED RESULTS CERTAIN UNINTENDED CONSEQUENCES ALSO CROP UP. IN OTHER WORDS THE SECTION WAS INTRODUCED ORIGINALLY WITH A PARTICULAR PURPOSE BUT WHILE GIVING EFFECT TO THE PROVISION IN THE ATTAINMENT OF THAT PURPOSE CERTA IN OUTCOMES WHICH WERE NEVER DESIRED OR INTENDED BY THE LEGISLATURE ALSO FOLLOW . ANY AMENDMENT TO REMOVE SUCH UNINTENDED EFFECTS IS ALSO ALWAYS CONSIDERED TO BE RETROSPECTIVE FROM THE DATE OF THE INSERTION OF THE MAIN PROVISION. 38. THE SECOND CATEGORY OF CASES ARE TO BE DIFFE RENTIATED FROM THE FIRST CATEGORY. IN BOTH THESE CATEGORIES THERE IS NO DIFFICULTY IN IMPLEMENTING THE PROVISION AS M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 29 SUCH. WHEREAS THE FIRST CATEGORY REFERS TO THE CAS ES IN WHICH THE INTENTION OF THE LEGISLATURE BEHIND THE PROVISION WAS NOT PROPERLY UNDERSTOOD THE SECOND REFERS TO THE CASES IN WHICH WHILE GIVING EFFECT TO SUCH PROV ISION CERTAIN UNINTENDED CONSEQUENCES FOLLOW. THE CASES OF ALLIED MOTORS (P.) LTD. (SUPRA) AND ALOM EXTRUSIONS LTD. (SUPRA) FIT INTO THIS SECOND CATEGORY OF CASES. IN ALLIED MOTORS (P.) LTD. (SUPRA) THE AMENDMENT WAS HELD TO BE RETROSPECTIVE ON THE GROUND THAT IT WAS IMPOSSIBLE TO PAY SALES-TAX FOR THE LAST QUARTER BE FORE THE CLOSE OF THE YEAR AS THE LIABILITY TO PAY WOULD ARISE ONLY ON OR AFTER 1 ST APRIL. AS IT COULD NEVER HAVE BEEN THE INTENTION OF THE LEGISLATURE TO REQUIRE THE ASS ESSEE TO DO IMPOSSIBLE THE AMENDMENT MADE TO SECTION 43B WAS HELD TO HAVE RETR OSPECTIVE EFFECT FROM THE DATE OF INSERTION OF THE PROVISION. SIMILARLY IN ALOM EXTRUSIONS LTD. (SUPRA) THE IMPLEMENTATION OF THE PROVISION LED TO THE DENIAL O F DEDUCTION FOR ALL TIMES NOTWITHSTANDING THE INTENTION THE LEGISLATURE TO ALLOW DEDUCTION ON PAYMENT BASIS. 39. HERE IT IS IMPORTANT TO NOTE THAT THE CASES O F ALLIED MOTORS (P.) LTD. (SUPRA) AND ALOM EXTRUSIONS LTD. (SUPRA) ARE BASED ON THE PROPOSITION THAT THE IMPLEMENTATION OF THE EARLIER PROVISIONS LED TO THE CONSEQUENCES WHICH WERE NEVER ENVISAGED. THE EMPHASIS IS ON THE REMOVAL OF UNINTE NDED CONSEQUENCES AND NOT INTENDED CONSEQUENCES EVEN IF HARSH. IT IS SETTLED LEGAL POSITION THAT THERE CANNOT BE ANY EQUITY ABOUT THE TAX. IT IS FOR THE PARLIAMENT TO DECIDE AS TO IN WHAT MANNER THE TAX IS TO BE LEVIED AND COLLECTED. IF A PROVISION I S MADE WHICH IS HARSH BUT OTHERWISE CONSTITUTIONAL AND PRACTICAL OF IMPLEMENTATION THE RE CANNOT BE ANY QUESTION OF READING DOWN SUCH PROVISION ON THE GROUND OF EQUITY OR HARDSHIP. INTERVENTION BECOMES NECESSARY WHEN AS A RESULT OF IMPLEMENTATIO N OF A PROVISION CERTAIN SUCH CONSEQUENCES FOLLOW WHICH WERE NEVER INTENDED. IF S UBSEQUENTLY THE RIGOR OF THE PROVISION IS TONED DOWN FOR ADDRESSING TO SUCH UNIN TENDED HARDSHIP TO THE ASSESSEES IT WOULD BE CONSIDERED AS RETROSPECTIVE. ON THE OTHER HAND IF IT WAS CLEAR AT THE TIME OF THE INSERTION OF THE PROVISION THAT SOME HARDSHIP FROM THE ASSESSEES PERSPECTIVE IS GOING TO BE CAUSED THEN A SUBSEQUEN T AMENDMENT TO REDUCE SUCH M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 30 HARDSHIP FROM A HIGHER LEVEL TO LOWER LEVEL CANNOT BE CONSIDERED AS RETROSPECTIVE UNLESS EXPRESSLY STATED. THE REASON IS OBVIOUS THAT IN SUCH CASES THE HARDSHIP WHICH WAS FACED BY THE ASSESSEES AT THE TIME OF INTRODUCT ION OF THE PROVISION WAS VERY MUCH INTENDED AND FORESEEN AND THE SUBSEQUENT AMEND MENT IS REDUCTION IN THE INTENDED HARDSHIP AND NOT THE REMOVAL OF UNINTENDED HARDSHIP. 40. ON THE CONTRARY WHERE THE AMENDMENT IS CARRIE D OUT TO THE PROVISION WITH THE PURPOSE OF ADDING SOME ADDITIONAL BURDEN OR REDUCI NG THE EXISTING BURDEN OF THE ASSESSES IT IS ALWAYS PROSPECTIVE UNLESS EXPRESSL Y STATED TO BE RETROSPECTIVE OR FALLING WITHIN THE EXCEPTIONS DISCUSSED ABOVE SUCH AS CLARIFICATORY OR TO REMOVE THE UNINTENDED HARDSHIP. THE CASE OF RELIANCE JUTE AND INDUSTRIES LTD. (SUPRA) DEALS WITH A SITUATION IN WHICH THE AMENDMENT WAS CARRIED OUT TO THE SUBSTANTIVE PROVISION TAKING AWAY CERTAIN BENEFIT TO THE ASSESS EES IN TERMS OF EXTENDED PERIOD FOR SETTING OFF OF THE BROUGHT FORWARD LOSSES. THE CASE OF VARADARAJA THEATRE PVT. LTD. (SUPRA) IS BASED ON FACTS IN WHICH THE SUBSEQUENT AMENDMEN T GRANTED A BENEFIT TO THE ASSESSEE WHICH WAS NOT AVAILABLE AS PER THE EARLIER PROVISIONS. THUS WE HAVE NOTICED THAT IN BOTH TYPES OF CASES IN WHICH THE LA TER PROVISION HAS TAKEN AWAY SOME RIGHT WHICH WAS EARLIER AVAILABLE OR GRANTED SOME B ENEFIT WHICH WAS NOT EARLIER AVAILABLE SUCH AMENDMENTS HAVE BEEN HELD TO BE PRO SPECTIVE FROM THE DATES OF INSERTION AS THESE WERE NEITHER CLARIFICATORY NOR I NTENDED TO REMOVE ANY UNINTENDED HARDSHIPS. 41. FROM THE ABOVE DISCUSSION IT CLEARLY EMERGES T HAT THERE IS A CLEAR DISTINCTION BETWEEN THE CASES IN WHICH THE LATER AMENDMENT IS I MPLIEDLY RETROSPECTIVE OR PROSPECTIVE. THAT IS PROBABLY THE REASON THAT A QUE STION WAS RAISED BEFORE THE HONBLE SUPREME COURT IN CIT & ORS. VS. VARAS INTERNATIONAL (P.) LTD. (2006) 283 ITR 484 (SC) FOR DECIDING AS TO WHETHER : FOR THE AMENDMENT OF A STATUTE TO BE CONSTRUED AS BEING RETROSPECTIVE SHOULD NOT THE A MENDED PROVISION ITSELF INDICATE EITHER IN TERMS OR BY NECESSARY IMPLICATION THAT I T IS TO OPERATE RETROSPECTIVELY? M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 31 IN THE LIGHT OF THIS QUESTION THE HONBLE SUPREME COURT WAS CALLED UPON TO RECONSIDER ITS EARLIER JUDGMENTS IN ALLIED MOTORS (P.) LTD. (SUPRA) SUWALAL ANANDILAL JAIN (SUPRA) BRIJ MOHAN DAS LAXMAN DAS AND PODAR CEMENT. THE BENCH OF FIVE HONBLE JUDGES IN THIS CASE NOTED THA T THERE IS NO CONFLICT BETWEEN THE JUDGMENTS WHICH REQUIRES RESOLUTION BY WAY OF R EFERENCE. FROM THIS JUDGMENT IT IS APPARENT THAT THOSE EARLIER CASES BEFORE THE HON BLE SUPREME COURT FOR A DECISION AS TO WHETHER THE AMENDMENTS CONSIDERED THEREIN WER E RETROSPECTIVE OR PROSPECTIVE WERE DECIDED ON THE BASIS OF THE NATURE OF AMENDMEN T AND THE CONCERNED BENCHES RENDERED APPROPRIATE JUDGMENTS AFTER TAKING INTO C ONSIDERATION ALL THE RELEVANT CRITERIA. 42. IN THE LIGHT OF THE ABOVE DISCUSSION WE WILL N OW EXAMINE AS TO WHETHER THE AMENDMENT MADE BY THE FINANCE ACT 2010 TO SECTION 40(A)(IA) INSERTED WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL 2010 CAN BE CONSIDERED AS RETROSPECTIVE FRO M THE DATE OF INSERTION OF THE PROVISION I.E. 1 ST APRIL 2005 ? WE HAVE NOTED ABOVE THAT SECTION 40(A)(IA) WAS INSERTED BY THE FINANCE (NO.2 ) ACT 2004 WITH EFFECT FROM 1 ST APRIL 2005 DEBARRING DEDUCTIONS OTHERWISE ALLOWABL E U/S 30 TO 38 IN RESPECT OF THE ITEMS SET OUT IN THIS PROVISION IF THE ASSESSEE FAI LED TO DEDUCT TAX AT SOURCE OR AFTER DEDUCTION FAILED TO PAY THE SAME DURING THE PREVI OUS YEAR OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED U/S 2 00(1). THE POSITION ANTERIOR TO THE INSERTION OF SUB-SECTION (IA) OF SECTION 40(A) WHI CH IS CONTINUING TODAY ALSO IS THAT THE ASSESSEES ARE OBLIGED TO DEDUCT TAX AT SOURCE U NDER CHAPTER XVII-B. THE FAILURE TO DEDUCT OR PAY TAX AS PER THE REQUISITE PROVISION S ENTAILS CONSEQUENCES U/S 201 AND 271C ETC. BY WHICH THE ASSESSEE IS TREATED AS I N DEFAULT BECOMES LIABLE TO PAY INTEREST AND ALSO SUFFERS PENALTY. THESE PROVISIONS WERE ALSO APPLICABLE PRIOR TO INSERTION OF SECTION 40(A)(IA). IT SHOWS THAT THE D UTY OF THE PAYER TO DEDUCT TAX AT SOURCE WAS ALWAYS THERE IN THE ACT. WITH THE INSERT ION OF SECTION 40(A)(IA) BY THE FINANCE (NO.2) ACT 2004 NON-DEDUCTION OF TAX AT SO URCE FROM THE ITEMS OF EXPENSES SPECIFIED OR FAILURE TO PAY SUCH TAX AFTER DEDUCTION RESULTS INTO ONE MORE M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 32 ADVERSE CONSEQUENCE IN THE SHAPE OF DISALLOWANCE OF THE AMOUNT OF EXPENDITURE IN THE YEAR OF INCURRING IT. SIMULTANEOUS WITH THE DI SALLOWANCE PROVISO PROVIDES THAT THE DEDUCTION OF THE EXPENDITURE SHALL BE ALLOWED I N THE SUBSEQUENT YEAR WHEN THE DEDUCTED TAX IS PAID. TO PUT IT SIMPLY IF THERE IS NO DEDUCTION OF TAX AT SOURCE OR AFTER DEDUCTION IT IS PAID BEYOND THE PREVIOUS YEAR OR WITHIN THE TIME SPECIFIED U/S 200(1) THE INCOME OF THE FIRST YEAR INCREASES BUT AT THE SAME TIME THE INCOME OF THE SUBSEQUENT YEAR IS REDUCED ON THE PAYMENT OF TAX. I T IS WELL-KNOWN THAT EACH YEAR IS A SEPARATE AND INDEPENDENT UNIT OF ASSESSMENT. THE POTENTIAL DEDUCTION IN A LATER YEAR CANNOT BE ALLOWED TO REDUCE THE INCOME FOR THE EARLIER YEAR AND VICE VERSA . TOTAL INCOME OF AN ASSESSEE FOR EACH YEAR HAS TO BE COMPUTED AS PER THE PROVISIONS OF THE ACT IN SO FAR AS THEY APPLY. IT IS NEITHER D ESIRABLE NOR PERMISSIBLE TO MIX UP THE ASSESSMENT OF TWO YEARS BY CLAIMING THAT SINCE THE DEDUCTION SHALL BECOME PERMISSIBLE IN SECOND YEAR THE AO SHOULD GRANT THE DEDUCTION IN THE FIRST YEAR AND IGNORE IT IN THE SECOND YEAR. IF THIS VIEW POINT IS ACCEPTED THEN MANY PROVISIONS OF THE ACT SHALL BECOME OTIOSE. IT IS INCUMBENT UPON T HE AO TO SEPARATELY COMPUTE TOTAL INCOME OF EACH YEAR UNMINDFUL OF THE POSSIBLE DEDUCTION OR ADDITION IN THE NEXT YEAR. THUS IT CAN BE SEEN THAT FROM ASSESSME NT YEAR 2005-2006 THE ASSESSEES FAILURE TO COMPLY WITH THE RELEVANT PROVISIONS HAS THE EFFECT OF ENHANCING INCOME BY WAY OF NON-GRANTING OF THE RELEVANT DEDUCTION IN THE YEAR OF INCURRING SUCH EXPENDITURE. IT IS AN ALTOGETHER DIFFERENT MATTER THAT IN THE SUBSEQUENT YEAR THE ASSESSEE BECOMES ELIGIBLE FOR DEDUCTION ON PAYMENT OF TAX. HENCE APART FROM THE CONSEQUENCES ALREADY FACED BY THE ASSESSEE FOR FAIL URE TO DEDUCT TAX AT SOURCE OR PAY LATE AS PER THE PRESCRIBED TIME IN TERMS OF THE APPLICABILITY OF SECTIONS 201 AND 271C ETC. IT CAME TO BE ADDITIONALLY HIT BY SECTIO N 40(A)(IA) IN TERMS OF LOSING DEDUCTION OF EXPENDITURE IN THE CONCERNED YEAR FOR ITS FAILURE TO DEDUCT OR PAY AFTER DEDUCTION OF TAX AT SOURCE WITHIN THE PRESCRIBED TI ME WHICH WAS OTHERWISE AVAILABLE TO IT BECAUSE OF HAVING GENUINELY INCURRE D THE EXPENDITURE FROM ASSESSMENT YEARS 2005-2006. IT IS SEEN THAT THE CON STITUTIONAL VALIDITY OF SECTION 40(A)(IA) WAS CHALLENGED BEFORE VARIOUS COURTS INCL UDING THE HONBLE MADRAS HIGH M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 33 COURT IN TUBE INVESTMENTS OF INDIA LTD. AND ANR. VS. ASST. C IT (TDS) AND ANR. [(2010) 325 ITR 610 (MAD.)] . THE HONBLE HIGH COURT OBSERVED THAT THE SUBSTANTIVE PROVISION OF SECTION 40(A)(IA) WHEN SEE N ALONG WITH ITS PROVISO IS WITHIN LEGISLATIVE COMPETENCE OF PARLIAMENT. IN THE COURSE OF JUDGMENT THE HONBLE COURT NOTED THAT THE INTENTION OF THE LEGIS LATURE IS NOT TO TAX THE PAYER FOR ITS FAILURE TO DEDUCT THE TAX AT SOURCE. OBJECT OF INTRODUCTION OF SECTION 40(A)(IA) HAS BEEN FOUND TO ENSURE THAT ONE OF THE MODES OF RECOV ERY AS PROVIDED UNDER CHAPTER XVII-B IS SCRUPULOUSLY IMPLEMENTED WITHOUT ANY DEFA ULT IN ORDER TO AUGMENT THE SAID MODE OF RECOVERY. THUS THE PROVISION OF SECTIO N 40(A)(IA) AS INSERTED BY THE FINANCE ACT 2004 HAS BEEN HELD TO BE CONSTITUTIONA LLY VALID. 43. THE VIEW CANVASSED ON BEHALF OF THE ASSESSEE IN FAVOUR OF RETROSPECTIVITY OF THE AMENDMENT BY THE FINANCE ACT 2010 WAS THAT THE UNAMENDED PROVISION CAUSED UNDUE HARDSHIP TO THE ASSESSES WHICH HAS BEEN REM OVED. OUR ATTENTION WAS INVITED TOWARDS VARIOUS PRE-BUDGET REPRESENTATIONS MADE TO THE HONBLE FINANCE MINISTER IMPRESSING UPON HIM EITHER TO DELETE THIS PROVISION OR MAKE IT WORKABLE. THE SUM AND SUBSTANCE OF THE SUBMISSION OF THE LD. AR WAS T HAT THE RELAXATION GIVEN BY THE FINANCE ACT 2010 HAS MITIGATED THE UNINTENDED HARDS HIP WHICH WAS EARLIER CAUSED TO THE ASSESSEE AND HENCE IT SHOULD BE GIVEN RETROS PECTIVE EFFECT FROM THE DATE OF INSERTION OF THE PROVISION. 44. WE DO NOT FIND ANY FORCE IN THIS CONTENTION. THE REASON IS THAT THERE IS NO DOUBT THAT SOME INTENDED DIFFICULTY HAS BEEN CAUSED BY THE FINANCE ACT 2004 ON THE INTRODUCTION OF SECTION 40(A)(IA). WE ARE CALLI NG IT HARDSHIP TO THE ASSESSEE FROM A DIFFERENT ANGLE AS WITH THE INSERTION OF THIS PRO VISION THE EXPENDITURE OTHERWISE DEDUCTIBLE HAS BECOME NON-DEDUCTIBLE IN THE YEAR OF INCURRING ON ITS FAILURE TO DEDUCT TAX AT SOURCE OR PAY SUCH TAX AFTER DEDUCTIO N WITHIN THE STIPULATED PERIOD. AT THE SAME TIME WE ARE CALLING IT AS INTENDED FOR T HE REASON THAT THE LEGISLATURE IN ITS WISDOM BROUGHT OUT THIS PROVISION WITH A VIEW T O AUGMENT COMPLIANCE OF THE M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 34 TDS PROVISIONS. THE OBJECTIVE SOUGHT TO BE ACHIEVED BY BRINGING OUT SECTION 40(A)(IA) IS THE AUGMENTATION OF THE TDS PROVISION. IF IN ATTAINING THIS MAIN OBJECTIVE OF AUGMENTATION OF SUCH PROVISION THE AS SESSEE SUFFERS DISALLOWANCE OF ANY AMOUNT IN THE YEAR OF DEFAULT WHICH IS OTHERWI SE DEDUCTIBLE THE LEGISLATURE ALLOWED IT TO CONTINUE. THIS IS THE COST WHICH THE PARLIAMENT HAS AWARDED TO THOSE ASSESSES WHO FAIL TO COMPLY WITH THE RELEVANT PROVI SIONS BY CONSIDERING THE OVERALL OBJECTIVE OF BOOSTING TDS COMPLIANCE. APART FROM O THER CONSEQUENCES OF FAILURE TO DEDUCT TAX AT SOURCE AS DISCUSSED ABOVE ONE MOR E ADVERSE CONSEQUENCE HAS BEEN ADDED. THE FACT THAT THIS PROVISION IS STILL CONTIN UING IN THE ACT PROVES THAT THE PARLIAMENT DID NOT CONSIDER IT EXPEDIENT TO REMOVE SECTION 40(A)(IA) PROJECTING SO CALLED HARDSHIP WHICH IS ONLY THE SIDE EFFECT IN T HE ATTAINMENT OF THE LARGER GOAL OF AUGMENTATION OF COMPLIANCE OF TDS PROVISION. THE FI NANCE ACT 2008 BROUGHT OUT CERTAIN AMENDMENTS BY RELAXING THE RIGOR OF THE PRO VISION BY MAKING TWO CATEGORIES OF DEFAULTS CAUSING DISALLOWANCE ON THE BASIS OF THE PERIOD OF THE PREVIOUS YEAR IN WHICH TAX WAS DEDUCTIBLE. IT IS IM PORTANT TO NOTE THAT THE AMENDMENT BY THE FINANCE ACT 2008 WAS MADE WITH RE TROSPECTIVE EFFECT FROM 01.04.2005. THUS IT CAN BE SEEN THAT FROM THE ASSES SMENT YEAR 2005-2006 UP TO ASSESSMENT YEAR 2009-2010 POST THE RETROSPECTIVE A MENDMENT CARRIED OUT BY THE FINANCE ACT 2008 THE FIRST CATEGORY OF DISALLOWAN CES INCLUDED THE CASES IN WHICH TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE L AST MONTH OF THE PREVIOUS YEAR BUT THERE WAS FAILURE ON THE PART OF THE ASSESSEE T O PAY SUCH TAX ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139; A ND THE SECOND CATEGORY INCLUDED CASES IN WHICH TAX WAS DEDUCTIBLE AND WAS SO DEDUCT ED DURING THE FIRST ELEVEN MONTHS OF THE PREVIOUS YEAR BUT THERE WAS FAILURE T O PAY IT BEFORE THE LAST DAY OF THE PREVIOUS YEAR. THE FINANCE ACT 2010 HAS MADE PARTI AL CHANGE IN THE SPECIFIED TIME FOR PAYMENT OF TAX ONLY IN THE ABOVE REFERRED SECON D CATEGORY BY EXTENDING IT FROM THE LAST DAY OF THE PREVIOUS YEAR TO THE TIME SPECI FIED U/S 139(1) OF THE ACT IN PARITY WITH THE SPECIFIED TIME OF THE FIRST CATEGOR Y. EXCEPT FOR THAT THERE IS NO CHANGE IN THE OVERALL STRUCTURE OF THE PROVISION. N ON-DEDUCTION OF TAX AT SOURCE M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 35 FROM THE SPECIFIED PAYMENTS STILL WARRANTS DISALLOW ANCE U/S 40(A)(IA) AS WAS THERE UNDER THE FINANCE (NO. 2) ACT 2004 AND THE FINANCE ACT 2008. FURTHER THE DISALLOWANCE PER SE HAS ALSO BEEN MAINTAINED IN THE PROVISION IN ITS CU RRENT FORM WHERE THE ASSESSEE AFTER DEDUCTION OF TAX AT SOURC E FAILS TO PAY IT WITHIN THE SPECIFIED TIME. STILL FURTHER THE PRESCRIPTION O F THE PROVISO PROVIDING FOR THE REMEDIAL RELIEF IN THE SUBSEQUENT YEAR IN WHICH TAX HAS BEEN PAID ALSO EXISTS. 45. WE ARE UNABLE TO APPRECIATE THE CONTENTION RA ISED ON BEHALF OF THE ASSESSEE THAT THE UNDUE HARDSHIP CAUSED TO THE ASSESSEE HAS BEEN RELAXED BY THE LEGISLATURE WITH THE AMENDMENT CARRIED OUT BY THE FINANCE ACT 2010. THE SO CALLED HARDSHIP AS CAUSED WITH THE INSERTION OF SECTION 40(A)(IA) W ITH EFFECT FROM 1 ST APRIL 2005 IS STILL CONTINUING AS SUCH. THE EFFECT OF AMENDMENT B Y THE FINANCE ACT 2010 IS LIMITED ONLY TO EXTENDING THE TIME AVAILABLE FOR DE POSIT OF TAX IN THE SECOND CATEGORY OF CASES FROM THE LAST DAY OF THE PREVIOUS YEAR TO THE TIME SPECIFIED U/S 139(1) OF THE ACT. THUS IT IS VIVID THAT THE AMEND MENT BY THE FINANCE ACT 2010 IS NOT AIMED AT REMOVING ANY UNINTENDED HARDSHIP TO TH E ASSESSEE BUT TO RELAX THE INTENDED HARDSHIP TO SOME EXTENT BY INCREASING THE TIME AVAILABLE FOR DEPOSIT OF TAX IN ONE CATEGORY OF CASES. WHEN THE AMENDMENT DOES N OT REMOVE THE UNINTENDED HARDSHIP OR IS NOT EXPLANATORY THE SAME CANNOT BE HELD TO BE RETROSPECTIVE UNLESS IT IS SPECIFICALLY PROVIDED. WE AGAIN REVERT TO THE CASE OF VARADHARAJA THEATRE (P.) LTD. (SUPRA) LAYING DOWN THE TEST FOR DECIDING WHETHER THE AMEND MENT IS PROSPECTIVE OR RETROSPECTIVE. IN THE WORDS OF THE H ONBLE COURT : ` WHEN THE THING WHICH WAS SPECIFICALLY EXCLUDED IS SUBSEQUENTLY INC LUDED SUCH INCLUSION CANNOT BE REGARDED AS INDICATIVE OF INTENTION ON THE PART OF THE LEGISLATURE TO HAVE TREATED WHAT IS NOW INCLUDED AS HAVING BEEN INCLUDED AT ALL TIMES. IT IS ABUNDANTLY CLEAR THAT THE TIME LIMIT TO DEPOSIT OF TAX DEDUCTED AT S OURCE FOR ONE CATEGORY OF CASES HAS NOW BEEN EXTENDED BY THE FINANCE ACT 2010 TO THE D UE DATE U/S 139(1) OF THE ACT. SUCH A BENEFIT WAS EARLIER SPECIFICALLY EXCLUDED AS IT WAS AVAILABLE ONLY IN RESPECT OF THE OTHER CATEGORY OF CASES. AS SUCH IT CAN NO T BE INFERRED THAT THE LATER M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 36 EXTENSION OF TIME IS INDICATIVE OF THE INTENTION OF THE LEGISLATURE TO HAVE MADE IT AVAILABLE EVEN IN THE EARLIER YEARS. 46. IN VIEW OF THE FACT THAT SECTION 40(A)(IA) H AS BEEN AMENDED BY THE FINANCE ACT 2010 WITH RETROSPECTIVE EFFECT FROM 01.04.2010 WE REFUSE TO DECLARE IT AS HAVING RETROSPECTIVE EFFECT FROM THE DATE OF INSERT ION OF THE PROVISION I.E. 01.04.2005. 47. THE LEARNED A.R. SUPPORTED HIS ARGUMENT OF RETR OSPECTIVE EFFECT FROM ONE MORE ANGLE. HE INVITED OUR ATTENTION TOWARDS PROVIS O TO SECTION 40(A)(IA) SUBSTITUTED BY THE FINANCE ACT 2010 WITH EFFECT FR OM 01.04.2010. IT WAS CONTENDED THAT AS PER THIS PROVISO WHERE IN RESPECT OF ANY S UCH SUM TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR OR HAS BEEN DEDUCTED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SECTION 139(1) SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHI CH SUCH TAX HAS BEEN PAID. HE ARGUED THAT IF THE AMENDMENT BY THE FINANCE ACT 20 10 IS CONSIDERED AS PROSPECTIVE THEN UNINTENDED CONSEQUENCES WOULD FOL LOW. TO ELABORATE HIS POINT OF VIEW HE CITED AN EXAMPLE IN WHICH TAX IS DEDUCTED IN FEBRUARY 2009 BUT IS PAID IN JULY 2009. IT WAS ARGUED THAT ADDITION WILL BE MADE IN ASSESSMENT YEAR 2009-2010 BY CONSIDERING THE EARLIER PROVISION AS PER WHICH TAX DEDUCTED AT SOURCE IS NOT PAID ON OR BEFORE THE LAST DATE OF THE PREVIOUS YEA R I.E. 31 ST MARCH 2009. AS PER HIS CONTENTION THE DEDUCTION SHOULD HAVE BEEN ALLOWED IN ASSESSMENT YEAR 2010-2011 ON ACCOUNT OF PAYMENT MADE BY THE ASSESSEE IN JULY 2009 AS PER THE MANDATE OF THE PROVISO BEFORE AMENDMENT. HE STATED THAT WITH THE AMENDMENT BY THE FINANCE ACT 2010 WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL 2010 THE DEDUCTION OF EXPENDITURE CAN BE ALLOWED ONLY IN THE YEAR OF ITS INCURRING IF THE TAX HAS BEEN DEDUCTED AND PAID ON OR BEFORE THE DUE DATE U/S 139(1) AND FURTH ER THE PROVISO APPLIES TO CASES IN WHICH THE SAME IS PAID BEYOND THE DUE DATE U/S 139( 1) SO AS TO ALLOW DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. HE M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 37 SUBMITTED THAT THE ASSESSEES CASE WILL FALL OUTSID E THE PRESCRIPTION OF THE PROVISO TO SECTION 40(A)(IA) AS AMENDED BY THE FINANCE ACT 20 10 AS THE AMOUNT IS ACTUALLY PAID IN JULY 2009 WHICH IS NOT BEYOND BUT BEFORE T HE DUE DATE U/S 139(1). IT WAS THUS SUBMITTED THAT THE ASSESSEE WILL NEITHER GET D EDUCTION IN ASSESSMENT YEAR 2009- 2010 NOR IN ASSESSMENT YEAR 2010-2011. 48. THIS SUBMISSION IS DEVOID OF ANY FORCE. T HE LEGISLATURE HAS EMPLOYED THE WORDS `SUCH SUM IN THE LANGUAGE OF THE PROVISO AN D NOT `ANY SUM. THESE WORDS IN THE PROVISO TALK OF THE SUM REFERRED TO IN THE M AIN PROVISION OF SUB-CLAUSE (IA) OF SECTION 40(A). THE WORDS `SUCH SUM HAVE TIGHTLY T IED THE PROVISO WITH THE MAIN PROVISION. IT IS IMPERATIVE TO NOTE THE PROVISO TO SUB-CLAUSE (IA) ALWAYS CONTAINED THE WORDS `SUCH SUM WHETHER IT IS THE INSERTION OF SECTION 40(A)(IA) BY THE FINANCE (NO. 2) ACT 2004 OR AMENDMENT BY THE FINANCE ACT 2008 OR BY THE FINANCE ACT 2010. WE NEED TO CONSIDER THE NON-OBSTANTE CLAUSE I N THE BEGINNING OF SECTION 40 WHICH PROVIDES THAT : NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38 THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD `PROFITS AND GAINS OF BUS INESS OR PROFESSION. TO PUT IT SIMPLY IN ORDER TO FALL WITHIN THE TRAP OF SUB-C LAUSE (IA) OF SECTION 40(A) CAUSING DISALLOWANCE IT IS SINE QUA NON THAT THE EXPENDITURE SHOULD BE OTHERWISE DEDUCTIBL E IN THE YEAR AS PER SECTIONS 30 TO 38. PROVISO OBTAI NS ITS SCOPE FROM THE MAIN PROVISION OF SUB-CLAUSE (IA) WHICH IN TURN REFE RS TO THE AMOUNTS OTHERWISE DEDUCTIBLE IN THE YEAR OF INCURRING SUCH EXPENDITUR E UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. ONLY WHEN THE ASS ESSEE IS OTHERWISE ELIGIBLE FOR DEDUCTION IN RESPECT OF INTEREST COMMISSION BROKE RAGE ETC. IN THE YEAR OF ITS INCURRING THAT THE QUESTION OF MAKING DISALLOWANCE U/S 40(A)(IA) ARISES. THUS THE PROVISO IS CONTROLLED BY THE MAIN PROVISION OF SUB- CLAUSE (IA) OF SECTION 40(A) AND CANNOT BE LOOKED UPON AS DE HORS THE MAIN PROVISION. FOLLOWING THE MEANING OF THE WORDS `SUCH SUM IN THE PROVISO IT BECOMES MANIFE ST THAT THE SUM DEDUCTIBLE AS EXPENDITURE IN THE YEAR OF PAYMENT OF TAX IS THE ON E WHICH WAS NOT ALLOWED AS M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 38 DEDUCTION DUE TO DISABLING PROVISION OF SECTION 40 (A) IN THE YEAR OF INCURRING SUCH EXPENDITURE. IT CANNOT REFER TO THE EXPENDITURE NE ITHER CLAIMED NOR DISALLOWED AS PER THE MAIN PROVISION IN THE EARLIER YEAR. THE PRO VISO ALLOWS DEDUCTION OF THE AMOUNT OF SUCH EXPENDITURE IN COMPUTING THE INCOME OF THE SUBSEQUENT YEAR WHEN TAX IS PAID. TO PUT IT SIMPLY THE PROVISO IS ONLY AN ENABLING PROVISION IN THE SUBSEQUENT YEAR OF THE DISABLING PROVISION OF THE MAIN PART OF THE SECTION 40(A)(IA) IN AN EARLIER YEAR OF INCURRING SUCH EXPENDITURE. W HEN A PARTICULAR AMOUNT OF EXPENDITURE IS DISALLOWED IN THE FIRST YEAR FOR FAI LURE TO DEDUCT TAX AT SOURCE OR TO PAY TAX THEREON AFTER SUCH DEDUCTION AS PER THE MAI N PROVISION OF SUB-CLAUSE (IA) THEN SUCH AMOUNT OF EXPENDITURE WINS DEDUCTION ON T HE PAYMENT OF TAX IN THE LATER YEAR. 49. IT IS THE COMPLETE PROVISION OF SECTION 40 (A)(IA) TOGETHER WITH ITS PROVISO AS PREVAILING IN A PARTICULAR YEAR WHICH GOVERNS THE N ON-DEDUCTIBILITY OF EXPENDITURE IN ONE YEAR AND THEN ITS DEDUCTIBILITY IN THE LATER YEAR. BECAUSE OF THE THREAD OF `SUCH SUM IN THE LANGUAGE OF PROVISO IT BECOMES I MPERMISSIBLE TO LOOK AT THE MAIN PROVISION AS AMENDED BY THE FINANCE ACT 2008 FOR MAKING DISALLOWANCE OF EXPENDITURE AND THEN AT THE PROVISO AS AMENDED BY T HE FINANCE ACT 2010 FOR ALLOWING EXPENDITURE IN THE SUBSEQUENT YEAR OF PAYM ENT. THE SITUATION WOULD HAVE BEEN OTHERWISE IF THE EXPRESSION `ANY SUM HAD BE EN USED IN THE LANGUAGE OF THE PROVISO INSTEAD OF `SUCH SUM. IN THAT CASE ANY A MOUNT OF EXPENDITURE ON WHICH TAX DEDUCTED HAD BEEN PAID IN A PARTICULAR YEAR I RRESPECTIVE OF THE YEAR OF INCURRING EXPENDITURE WOULD HAVE GOT DEDUCTION I N SUCH YEAR OF PAYMENT OF TAX. IT IS ONLY IN THAT CASE THAT PAYMENT OF TAX MADE I N JULY 2009 WOULD HAVE SUFFERED COMPLETE DISALLOWANCE BOTH IN THE A.Y.S 2009-10 AND 2010-11. BUT FORTUNATELY POSITION IS NOT SO AS THE DEDUCTION WILL BE PERMIS SIBLE TO THE ASSESSEE IN A.Y. 2010-11 GOING BY THE PROVISION AS AMENDED BY THE FI NANCE ACT 2008. M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 39 50. NOW WE WILL EXAMINE THE EXAMPLE CITED BY T HE LD. AR IN THE LIGHT OF THE ABOVE DISCUSSION. IN THAT CASE THE ASSESSEE CLAIMIN G DEDUCTION IN ASSESSMENT YEAR 2009-2010 WILL NOT BE GRANTED DEDUCTION IN THAT YEA R BECAUSE OF ITS FAILURE TO PAY TAX WITHIN THE TIME STIPULATED AS PER THE PROVISION STANDING AMENDED BY THE FINANCE ACT 2008 BUT WHEN SUCH TAX IS PAID AFTER 31 ST MARCH BUT BEFORE THE DUE DATE U/S 139(1) SAY JULY 2009 THE DEDUCTION WOULD BE ALLOW ED IN ASSESSMENT YEAR 2010- 2011 AS PER PROVISO TO THE SAME PROVISION. AS PER THE PROVISION AS AMENDED BY THE FINANCE ACT 2010 NO DEDUCTION OF EXPENDITURE CL AIMED IN A.Y. 2010-11 WILL BE ALLOWED IF THERE IS FAILURE ON THE PART OF THE ASSE SSEE TO PAY TAX DEDUCTED AT SOURCE ON OR BEFORE THE DUE DATE SPECIFIED U/S 139(1). THE AMENDED PROVISO WILL COME TO THE RESCUE OF THE ASSESSEE IN GRANTING SUCH DEDUCTI ON IN THE LATER YEAR OF PAYMENT OF TAX WHICH HAD SUFFERED DISALLOWANCE IN A.Y. 20 10-11. THE AMENDED PROVISO BY THE FINANCE ACT 2010 SHALL APPLY ONLY IN RESPECT O F INTEREST COMMISSION OR BROKERAGE ETC. WHICH HAVE BEEN DISALLOWED IN ASSESS MENT YEAR 2010-2011 FOR THE FAILURE TO DEPOSIT TAX DUTY CESS OR FEE ETC. U/S 139(1) AND NOT ANY EXPENDITURE WHICH WAS CLAIMED AND DISALLOWED IN A.Y. 2009-10 OR ANY EARLIER YEAR. 51. IT IS THUS CLEAR THAT THERE IS NO ANOMALY IN THE AMENDMENT CARRIED OUT BY THE FINANCE ACT 2010 AS PROJECTED BY THE LD. AR. SECTI ON 40(A)(IA) BEFORE AND AFTER AMENDMENT IS WORKABLE AS INDEPENDENT UNIT DISTINCTL Y. AS THE LANGUAGE OF PROVISO IS CLEAR AND USES THE EXPRESSION `SUCH SUM THE VI EW POINT CANVASSED BY THE LD. AR THAT THE EXPENDITURE SHALL LOSE DEDUCTION IN EITHER OF THE YEARS IS SANS MERITS. 52. FROM THE ABOVE PARA IT CAN BE SEEN THAT THER E IS NO HINT IN THE PROVISO TO SECTION 40(A)(IA) AS CONTENDED BY THE LD. AR THA T THE AMENDMENT IS RETROSPECTIVE FROM 01.04.2005. ON THE OTHER HAND THE FINANCE MINI STERS SPEECH IS ONE MORE ADDITIONAL REASON FOR HOLDING AMENDMENT OF THE FINA NCE ACT 2010 AS NOT RETROSPECTIVE FROM ASSESSMENT YEAR 2005-2006. THE R ELEVANT PARA OF THE SPEECH IS AS UNDER:- M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 40 137. RELAXING THE CURRENT PROVISIONS ON DISALLOWAN CE OF EXPENDITURE I PROPOSE TO ALLOW DEDUCTION OF SUCH EXPENDITURE I F TAX HAS BEEN DEDUCTED AT ANY TIME DURING THE FINANCIAL YEAR AND PAID BEFORE THE DUE DATE OF FILING THE RETURN. THIS WILL ALLOW MOST DED UCTORS ADDITIONAL TIME UP TO SEPTEMBER OF THE NEXT FINANCIAL YEAR. AT THE SAME TIME I PROPOSE TO INCREASE THE INTEREST CHARGED ON TAX DED UCTED BUT NOT DEPOSITED BY THE SPECIFIED DATE FROM 12 PER CENT. TO 18 PER CENT. PER ANNUM. (EMPHASI S SUPPLIED BY US) 52. A CAREFUL PERUSAL OF THE ABOVE PARA OF THE SPEECH INDICATES THAT IT HAS TWO COMPONENTS. FIRST IS THE PARTIAL RELAXATION IN THE TIME LIMIT FOR DEPOSIT OF TAX AS DISCUSSED ABOVE IN THIS ORDER AND THE SECOND IS THE SIMULTANEOUS INCREASE IN THE INTEREST RATE. USE OF THE WORDS `AT THE SAME TIME AFTER THE RELAXATION OF THE TIME LIMIT FOR DEPOSITING THE TAX AND BEFORE THE MENTION OF INCREASE IN THE INTEREST RATE ON TAX DEDUCTED BUT NOT DEPOSITED BY THE SPECIFIED DAT E FAIRLY INDICATES THAT BOTH HAVE BEEN LINKED WITH EACH OTHER. SAME THING APPEARS FR OM THE MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL REPR ODUCED ABOVE IN PARA 23 OF THIS ORDER WHICH IS IN TWO PARAS. WHEREAS PARA A. EXP LAINS ABOUT THE PARTIAL RELAXATION IN THE TIME LIMIT FOR DEPOSIT OF TAX SO AS TO ESCA PE DISALLOWANCE PARA B. PROVIDES FOR THE INCREASE IN THE INTEREST RATE ON TAX DEDUCT ED BUT NOT DEPOSITED BY THE SPECIFIED DATE. IT IS THUS EVIDENT THAT SIMULTANEOU S WITH PARTIAL RELAXING OF THE TIME LIMIT FOR DEPOSITING THE TAX DEDUCTED AT SOURCE TH E INTEREST RATE CHARGEABLE ON TAX DEDUCTED BUT NOT DEPOSITED BEFORE THE SPECIFIED TIM E HAS ALSO BEEN INCREASED FROM 12% TO 18% PER ANNUM AS PER SECTION 201(1). IT IS A TRITE LAW THAT EVERY STATUTE WHICH IMPAIRS VESTED RIGHTS ACQUIRED UNDER THE EXIS TING LAWS OR GETS A NEW OBLIGATION OR ATTACHES A NEW DISABILITY IN RESPECT OF TRANSACTIONS ALREADY PASSED MUST BE PRESUMED TO BE PROSPECTIVE. THIS VIEW HAS B EEN REITERATED SEVERAL TIMES BY THE HONBLE SUPREME COURT INCLUDING IN THE CASE OF R RAJAGOPAL REDDY & OTHERS VS. PADMINI CHANDRASEKHARAN [(1995) 213 ITR 340 (SC )] . THE SPECIAL BENCH OF THE TRIBUNAL IN ITO VS. EKTA PROMOTERS (P.) LTD. [(2008) 113 ITD 7 19 (DEL) (SB)] M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 41 HAS ALSO HELD TO THE SAME EFFECT THAT THE PROVISION FOR LEVY OF INTEREST ON EXCESS REFUND U/S 234D IS PROSPECTIVE AND APPLIES ONLY FRO M ASSESSMENT YEAR 2004-2005. THIS SPECIAL BENCH ORDER HAS BEEN APPROVED BY THE H ONBLE DELHI HIGH COURT IN DIRECTOR OF INCOME TAX VS JACABS CIVIL INCORPORATED [(2011) 330 ITR 578 (DEL.)] . FROM THESE PRECEDENTS IT IS ABUNDANTLY CLEAR THAT THE LEVY OF INTEREST UNDER THE ACT IS ALWAYS PROSPECTIVE UNLESS EXPRESSLY STAT ED OTHERWISE. IT IS NOTICED THAT SECTION 201(1) HAS BEEN AMENDED BY THE FINANCE ACT 2010 WITH EFFECT FROM 01.07.2010 PROVIDING FOR INCREASE IN THE INTEREST R ATE FROM 12% TO 18%. IF WE HOLD THAT SECTION 40(A)(IA) HAS BEEN AMENDED BY THE FINA NCE ACT 2010 WITH RETROSPECTIVE EFFECT FROM A.Y. 2005-2006 THEN TH E CONSEQUENTIAL AMENDMENT TO SECTION 201(1) WOULD ALSO REQUIRE THE SAME TREATME NT. AS THE AMENDMENT TO SECTION 201(1) HAS NOT BEEN MADE RETROSPECTIVE FROM ASSESSMENT YEAR 2005-2006 AND IT BEING SUBSTANTIVE PROVISION IMPAIRING THE VE STED RIGHT ACQUIRED UNDER THE EXISTING PROVISION CANNOT BE GIVEN RETROSPECTIVE EFFECT IN OUR CONSIDERED OPINION THE AMENDMENT TO SECTION 40(A)(IA) ALSO CANNOT BE H ELD RETROSPECTIVE FROM A.Y. 2005-06. 53. THE LEARNED A.R. EMPHATICALLY FOCUSED ON THE CONTENTION THAT THE EXPENDITURE SO INCURRED BY THE ASSESSEE WAS GENUINE AND BY DEPO SITING THE TAX DEDUCTED AT SOURCE A LITTLE LATE IT SUBSTANTIALLY COMPLIED WIT H THE PROVISIONS OF SECTION 40(A)(IA). IT WAS FURTHER SUBMITTED THAT THERE WAS NO LOGIC IN DISALLOWING EXPENDITURE AND CAUSING LOSS AT AROUND 45% OF THE EXPENDITURE IN TH E SHAPE OF TAX AND INTEREST ETC. FOR A MERE NON-DEDUCTION OF TAX AT THE RATE OF 1% O F THE CONTRACT PAYMENTS. THE LD. AR FURTHER PUT FORTH THAT THE LOSS CAUSED TO THE AS SESSEE BY MAKING DISALLOWANCE IN THE CURRENT YEAR COULD NOT BE MADE GOOD BY ALLOWING DEDUCTION IN THE SUBSEQUENT YEAR ON PAYMENT OF SUCH TAX AS IN CERTAIN CASES IT MAY TAKE SEVERAL YEARS TO ABSORB THE LOSS CAUSED BY THE HEAVY DEDUCTION GRANT ED IN THE SUBSEQUENT YEAR WITHOUT THERE BEING CORRESPONDING INCOME. IN THE BA CKDROP OF THESE SUBMISSIONS IT WAS VIGOROUSLY ARGUED THAT THE RETROSPECTIVE EFFECT TO THE AMENDMENT MADE BY THE M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 42 FINANCE ACT 2010 FROM THE DATE OF INSERTION OF SEC TION 40A)(IA) THAT IS A.Y. 2005- 06 WAS THE NEED OF THE HOUR. 54. WE ARE NOT IMPRESSED WITH THESE SUBMISSION FOR RULING THE LATEST AMENDMENT TO SECTION 40(A)(IA) AS HAVING RETROSPECTIVE OPERATI ON FROM 1.4.2005. PRIMARILY WE FIND THAT NONE OF THESE SUBMISSIONS REALLY DEAL WIT H THE RETROSPECTIVE OR PROSPECTIVE EFFECT OF THE AMENDMENT MADE BY THE FINANCE ACT 20 10. RATHER THESE DEPICT THE HARDSHIPS CAUSED TO THE ASSESSEE BY THE VERY INSERT ION OF SECTION 40(A)(IA). ALL THESE HARDSHIPS SUCH AS GENUINE EXPENDITURE SUFFERING DI SALLOWANCE TAX EFFECT OF AROUND 45% AS AGAINST NON-DEDUCTION OF TAX AT SOURCE AT TH E RATE OF 1% OF THE EXPENDITURE AND THE DIFFICULTY IN ABSORBING THE DEDUCTION IN TH E SUBSEQUENT YEARS DUE TO INADEQUACY OF PROFITS ETC. CONTINUE EVEN AFTER THE AMENDMENT TO THE PROVISION BY THE FINANCE ACT 2010. IT CAN BE SEEN THAT THE FI NANCE ACT 2010 HAS NOT REPEALED THE PROVISION OF SEC. 40(A)(IA) THAT IT COULD BE CL AIMED THAT THE HARDSHIPS ENUMERATED ABOVE WHICH WERE CAUSED BY THE FINANCE (NO. 2) ACT 2004 HAVE BEEN DONE AWAY WITH. THE LATEST AMENDMENT HAS SIMPLY EX TENDED THE TIME LIMIT FOR DEPOSIT OF TAX DEDUCTED AT SOURCE IN CERTAIN CASES. WE HAVE NOTED ABOVE THAT THE OTHER CONSEQUENCES OF SECTION 40(A)(IA) ARE STILL P RESENT IN THE PROVISION. THAT APART IT IS SIMPLE AND PLAIN THAT IF THE EXPENDITURE IS N OT GENUINE OR NOT INCURRED FOR THE PURPOSE OF BUSINESS IT WOULD NOT AT ALL QUALIFY F OR DEDUCTION AT THE VERY THRESHOLD AND THE RESULTANT APPLICATION OF SECTION 40(A)(IA) WOULD BE AUTOMATICALLY RULED OUT. WE ARE EQUALLY UNCONVINCED WITH THE CONTENTION OF S UBSTANTIAL COMPLIANCE OF THE PROVISIONS ON LATE DEPOSIT OF TAX DEDUCTED AT SOURC E. THERE CAN BE EITHER COMPLIANCE OR NON-COMPLIANCE OF A PARTICULAR PROVIS ION. GIVEN THE TIME LIMIT FOR THE DEPOSIT OF TAX DEDUCTED AT SOURCE IF IT IS DE POSITED BY THE TIME PRESCRIBED IT IS A CASE OF COMPLIANCE OF THE PROVISION AND IF IT IS LA TE DEPOSIT EVEN BY A SINGLE DAY IT IS NON-COMPLIANCE. WE CANNOT SAY THAT BY DEPOSITING SUCH TAX BELATEDLY THE ASSESSEE SUBSTANTIALLY COMPLIED WITH THE PROVISIONS OF SECTION 40(A)(IA). IF WE STRETCH THIS ARGUMENT A LITTLE FURTHER AND SUPPOSE THAT INSTEAD OF DEPOSITING THE TAX M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 43 DEDUCTED AT SOURCE IN JULY 2005 IN THE ABOVE EXAMPL E THE ASSESSEE DEPOSITS A DAY AFTER THE DUE DATE U/S 139(1) OF THE ACT WOULD IT STILL MEAN THAT THE ASSESSEE HAS SUBSTANTIALLY COMPLIED WITH THE PROVISION SO AS TO ESCAPE THE MISCHIEF OF SECTION 40(A)(IA)? THE ANSWER IS IN NEGATIVE. THE FINANCE ACT 2010 HAS EXTENDED THE TIME LIMIT FOR DEPOSITING TAX DEDUCTED AT SOURCE BY THE DUE DATE U/S 139(1) OF THE ACT FROM THE EARLIER LESSER TIME AVAILABLE FOR COMPLIAN CE. IF THE TAX IS DEPOSITED BY THE DUE DATE IT WOULD MEAN ESCAPE FROM THE CLUTCHES OF SECTION 40(A)(IA) FOR ASSESSMENT YEAR 2010-2011 BUT IF IT IS DEPOSITED EVEN THE NEXT DAY BEYOND THE DUE DATE NATURAL CONSEQUENCES WOULD FOLLOW AND IT WOUL D CALL FOR DISALLOWANCE U/S 40(A)(IA) IN THE YEAR OF INCURRING THE EXPENDITURE. IN THE LIKE MANNER IN THE YEAR UNDER APPEAL IF THE TAX DEDUCTED AT SOURCE UP TO FEBRUARY 2005 HAD BEEN DEPOSITED UP TO 31 ST MARCH IT WOULD HAVE AMOUNTED TO COMPLIANCE OF TH E PROVISION BUT THE LATE DEPOSIT EVEN ON 1 ST APRIL 2005 WOULD AMOUNT TO NON- COMPLIANCE WARRANTING INTERFERENCE BY SECTION 40(A) (IA) ENTAILING DISALLOWANCE OF EXPENDITURE IN THE ASSESSMENT YEAR 2005-06. HOWEVE R THE FACT THAT THE ASSESSEE DEPOSITED IT BEYOND THE PRESCRIBED PERIOD WOULD AM OUNT TO COMPLIANCE OF THE PRESCRIPTION OF THE PROVISO ENTITLING THE ASSESSE E TO DEDUCTION IN THE A.Y. 2006-07. 55. FURTHER IF WE PROCEED WITH THE HYPOTHESIS OF S UBSTANTIAL COMPLIANCE EVEN ON LATE DEPOSIT NOT CAUSING ANY DISALLOWANCE U/S 40( A)(IA) IN THE YEAR OF INCURRING THE EXPENDITURE IT WILL MAKE THE PROVISO REDUNDANT. WHEN WE CONSIDER THE MANDATE OF SECTION 40(A)(IA) IN ENTIRETY IT BECOMES APPARE NT THAT IT HAS TWO INGREDIENTS VIZ. FIRST THE DISALLOWANCE OF EXPENDITURE DUE T O NON-DEDUCTION OR NON-DEPOSIT OF TAX DEDUCTED AT SOURCE IN TIME AND SECOND THE A LLOWING OF EXPENDITURE IN THE LATER YEAR IN WHICH THE AMOUNT OF TAX DEDUCTED AT SOURCE IS DEPOSITED. IT IS ONE COMPOSITE PROVISION. BOTH THESE LIMBS THAT IS THE DISALLOWA NCE OF EXPENDITURE IN THE YEAR OF INCURRING EXPENDITURE AND ALLOWING IT IN THE YEAR O F PAYMENT ARE INTEGRAL PART OF THE PROVISION. AS PER THE PROVISO THE ASSESSEE GETS DE DUCTION OF EXPENDITURE IN THE YEAR OF PAYMENT OF TAX DEDUCED AT SOURCE. BUT IF WE ALL OW DEDUCTION OF THE EXPENDITURE M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 44 IN THE YEAR OF ITS INCURRING ON SOME EQUITABLE GROU ND OR ON THE THEORY OF SUBSTANTIAL COMPLIANCE DESPITE THE FACT THE TAX WAS DEPOSITED B EYOND THE PRESCRIBED TIME THEN IT WOULD MEAN THE OBLITERATION THE PROVISO FROM T HE PROVISION WHICH IS OBVIOUSLY IMPOSSIBLE. 56. IN VIEW OF THE FOREGOING REASONS WE ARE SATIS FIED THAT THE AMENDMENT CARRIED OUT BY THE FINANCE ACT 2010 WITH RETROSPECTIVE EFF ECT FROM ASSESSMENT YEAR 2010- 2011 CANNOT BE HELD TO BE RETROSPECTIVE FROM ASSESS MENT YEAR 2005-2006. TWO DIAMETRICALLY OPPOSITE VIEWS ON THIS ISSUE EXPRESS ED INTER ALIA BY THE MUMBAI BENCHES OF THE TRIBUNAL WERE PLACED BEFORE US. WIT H UTMOST RESPECT TO THE OTHER WE ARE INCLINED TO ACCEPT THE ONE IN FAVOUR OF THE REVENUE. WE THEREFORE HOLD THAT THE AUTHORITIES BELOW WERE FULLY JUSTIFIED IN SUSTAINING DISALLOWANCE OF RS.50.12 LAKHS U/S 40(A)(IA) IN THE YEAR UNDER CONS IDERATION. THE QUESTION POSTED BEFORE THE SPECIAL BENCH IS THEREFORE ANSWERED IN NEGATIVE IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY HOLDING THAT TH E AMENDMENT BROUGHT OUT BY THE FINANCE ACT 2010 TO SECTION 40(A)(IA) W.E.F. 0 1.04.2010 IS NOT REMEDIAL AND CURATIVE IN NATURE. 57. GROUND NO.3 DEALING WITH THIS ISSUE IS TH EREFORE REJECTED. 58. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 09 TH DAY OF SEPTEMBER 2011 . SD/- SD/- SD/- (D.K.AGARWAL) (RAJENDRA SINGH) (R.S.SYA L) JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUN TANT MEMBER MUMBAI : 09 TH SEPTEMBER 2011 . DEVDAS* M/S.BHARTI SHIPYARD LIMITED. ITA NO.2404/MUM/2009 (SB) 45 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A)- XXVII MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI.