Karnataka H.C : Whether the assessee by virtue of the amendment to Finance Act, 2008, is entitled to the benefit of the same

High Court Of Karnataka

ITO, Ward-I, Bijopur vs. Anil Kumar & Co.

Assessment Year : 2005-06

Section : 40(a)(ia)

N. Kumar And H.G. Ramesh, JJ.

IT Appeal No. 6001 Of 2011

February 1, 2013


N. Kumar, J. -The Revenue has preferred this appeal challenging the order passed by the Tribunal which has confirmed the order of the appellate authority and granted relief to the assessee.

2. The assessee is a firm which carries on the business of cotton. For the assessment year 2005-06, they filed the return of income, declaring the income at Rs. 42,480/-. The assessment was completed under Sec. 143(3) of the Income Tax Act (‘the Act’ for short) vide order dtd 17.12.2007, fixing the total income at Rs. 47,09,710/-. The assessing officer invoking the provisions of Sec.40(a)(ia) of the Act made additions in respect of ginning and pressing charges paid to the authorities on the ground that the tax deducted at source was not credited to Government’s account within the stipulated period. Aggrieved by the said assessment order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals). On the day the appeal was heard, there was an amendment to Sec. 40(a) (ia) of the Act by the Finance Act, 2008 which was given retrospective effect from 1.4.2005. Relying on the said amended provision, the appellate authority held that the disallowance made by the assessing authority is not in accordance with law and therefore, he directed the assessing authority to delete the disallowance of Rs. 41,14,270/- and Rs. 1,80,599/- made by him under Sec. 40(a)(ia) of the Act. Aggrieved by the said order, the Revenue preferred appeal to the Tribunal, contending that the appellate authority failed to see the provision contained in Sec. 194C(1) as per which the assessee was liable to deduct tax at source during every month of payment from April 2004 to February 2004 at the time of credit or actual payment, whichever is earlier.

3. The Tribunal after explaining the effect of amendment by Finance Act, 2008, held that the tax deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of Sec. 139, if they are credited within the time specified in sub-section (1) of Sec. 139, disallowance cannot be made. Therefore, it upheld the order by the appellate authority and granted relief to the assessee. Aggrieved by the said order, the present appeal is filed. At the time of admission, this Court has framed the following substantial question of law:

“(i) Whether the amendment to Section 40(a)(ia) as amended by the Finance Act, 2010, w.e.f. 01.04.2010 is retrospectively applicable to the assessment year 2005-06 as held by the I.T.A.T. in the present case?

(ii) Whether the Assessee who has credited the pressing and ginning charges to the contractors from 01.04.2004 to 28.02.2005 is entitled to the deductions under section 40(a)(ia) although the tax at source is not deducted as required under Section 194C and not paid within the stipulated time as required under Section 200(1) r/w Rule 30(b)(i)(2) of the Income Tax Act?”

4. Learned counsel appearing for the parties fairly submitted that the substantial questions of law requires to be modified and those questions do not arise for consideration.

5. The substantial question of law which arises for consideration is:

“Whether the assessee by virtue of the amendment to Finance Act, 2008, is entitled to the benefit of the same?”

6. It is not in dispute that on the date the assessee deducted the tax, he had to pay/remit the money within seven days from that date and if the amount is actually paid when the credit is given, then the tax is payable within two months. Admittedly, in the instant case, the assessee did not comply with the legal requirement. However, the assessing authority was justified in making the disallowance, but on the date the appeal was filed, the section came to be amended, giving retrospective benefit. Therefore, the appellate authority extended the benefit of the amended provision and held that the disallowance is paid and the order has been upheld by the Tribunal. Therefore, by Finance Act, 2008 which is given retrospective effect from 1.4.2005 the benefit of that provision had been extended to the assessee, though the assessment order passed initially cannot be found fault. With change of law, when the effect of the amendment is to give benefit to the assessee, the appellate authority and the Tribunal were justified in extending the said benefit. In that view of the matter, the order passed by the Tribunal is in accordance with law and does not call for interference. Therefore, the substantial question of law is answered in favour of the assessee and against the Revenue. The appeal is dismissed. Parties to bear their own costs.

[Citation : 354 ITR 170]

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