COMMISSIONER OF INCOME TAX KOLKATA XIIV. M/S CALCUTTA EXPORT COMPANYversusM/S CALCUTTA EXPORT COMPANY

                          [2018] 5 S.C.R. 731                            731


      COMMISSIONER OF INCOME TAX KOLKATA XII                             A
                                  v.
              M/S CALCUTTA EXPORT COMPANY
               (Civil Appeal Nos. 4339-4340 of 2018)
                          APRIL 24, 2018                                 B
  [R. K. AGRAWAL AND ABHAY MANOHAR SAPRE, JJ.]
        Income Tax Act, 1961 – s.40(a)(ia) and ss.139(1), 200(1) –
Amendment in s.40(a)(ia) by Finance Act, 2010 – If retrospective –
Respondent-assessee, a partnership firm and a manufacturer and
                                                                         C
exporter of casting materials, filed its return of income for the
Assessment Year 2005-06 – Assessing Officer disallowed
respondent’s claim for deduction of export commission charges paid
by it stating that the tax deducted at source (TDS) on such commission
amount on 07.07.2004, 07.09.2004 and 07.10.2004 ought to have
been deposited by the respondent before the end of the previous          D
year i.e. 31.03.2005 to get the commission amount deducted from
the total income u/s.40(a)(ia), as it stood then – Respondent’s appeal
before CIT (Appeals), allowed – Order of CIT (Appeals) upheld by
Tribunal as also by High Court – Held: Finance Act, 2010 relaxed
the rigors of s.40(a(ia) to provide that all TDS made during the
                                                                         E
previous year can be deposited with the Government by the due
date of filing the return of income by allowing additional time to the
deductors to deposit the TDS so made – Purpose of s.40(a)(ia) is to
ensure tax compliance and not to punish the tax payer, thus, it should
not be allowed to be converted into an iron rod provision which
metes out stern punishment and results in malevolent results,            F
disproportionate to the offending act and aim of the legislation –
Purpose of the amendment made by the 2010 Act is to solve the
anomalies that the insertion of s.40(a)(ia) was causing to the bona
fide tax payer – Amendment made by the 2010 Act being curative in
nature is to be given retrospective operation i.e from the date of
                                                                         G
insertion of s.40(a)(ia), AY 2005-2006 – Tax paid by the respondent
on 01.08.2005 is in accordance with law and it is allowed to claim
deduction for the tax deducted and paid in the previous year in
which the tax was deducted – Finance Act, 2010 – Finance Act,
2008.
                                                                         H
                                  731
732            SUPREME COURT REPORTS                      [2018] 5 S.C.R.


A            Interpretation of Statutes – Curative amendments – Nature of
      operation – Held: A proviso inserted to remedy unintended
      consequences and make the provision workable, a proviso which
      supplies an obvious omission in the Section, is required to be read
      into the Section to give the Section a reasonable interpretation and
      requires to be treated as retrospective in operation so that a
B
      reasonable interpretation can be given to the Section as a whole.
            Disposing of the matters, the Court
             HELD: 1.1 The provisions of Section 40(a)(ia) of the Income
      Tax Act, 1961 came into force in the year 2005. The intention of
C     the legislature was not to punish the assessee is further reflected
      from a bare reading of the provisions of Section 40(a)(ia). It only
      results in shifting of the year in which the expenditure can be
      claimed as deduction. In a case where the tax deducted at source
      was duly deposited with the government within the prescribed
      time, the said amount can be claimed as a deduction from the
D     income in the previous year in which the TDS was deducted.
      However, when the amount deducted in the form of TDS was
      deposited with the government after the expiry of period allowed
      for such deposit then the deductions can be claimed for such
      deposited TDS amount only in the previous year in which such
E     payment was made to the government. However, it caused some
      genuine and apparent hardship to the assessees especially in
      respect of tax deducted at source in the last month of the previous
      year, the due date for payment of which as per the time specified
      in Section 200 (1) of IT Act was only on 7th of April in the next
      year. The assessee in such case, thus, had a period of only seven
F     days to pay the tax deducted at source from the expenditure
      incurred in the month of March so as to avoid disallowance of the
      said expenditure under Section 40(a)(ia) of IT Act. [Paras 14, 16,
      17] [740-B; 741-B-E]
            1.2 With a view to mitigate this hardship, Section 40(a)(ia)
G     was amended by the Finance Act, 2008. The amendments made
      by the Finance Act, 2008 provided that no disallowance under
      Section 40(a)(ia) of the IT Act shall be made in respect of the
      expenditure incurred in the month of March if the tax deducted
      at source on such expenditure has been paid before the due date
H
  COMMISSIONER OF I.T., KOLKATA XII v. M/S CALCUTTA                   733
                EXPORT COMPANY

of filing of the return. The amendment was given retrospective        A
operation from the date of 01.04.2005 i.e., from the very date of
substitution of the provision. Therefore, the assessees were, after
the said amendment in 2008, classified in two categories namely;
one; those who have deducted that tax during the last month of
the previous year and two; those who have deducted the tax in
                                                                      B
the remaining eleven months of the previous year. It was provided
that in case of assessees falling under the first category, no
disallowance under Section 40(a) (ia) of the IT Act shall be made
if the tax deducted by them during the last month of the previous
year has been paid on or before the last day of filing of return in
accordance with the provisions of Section 139(1) of the IT Act        C
for the said previous year. In case, the assessees are falling
under the second category, no disallowance under Section
40(a)(ia) of IT Act where the tax was deducted before the last
month of the previous year and the same was credited to the
government before the expiry of the previous year. The net effect
                                                                      D
was that the assessee could not claim deduction for the TDS
amount in the previous year in which the tax was deducted and
the benefit of such deductions can be claimed in the next year
only. [Paras 18-20] [741-F; 742-E-H; 743-A]
      1.3 The amendment though had addressed the concerns of
the assessees falling in the first category but with regard to the    E
case falling in the second category, it was still resulting into
unintended consequences and causing grave and genuine
hardships to the assessees who had substantially complied with
the relevant TDS provisions by deducting the tax at source and
by paying the same to the credit of the Government before the         F
due date of filing of their returns under Section 139(1) of the IT
Act. The disability to claim deductions on account of such lately
credited sum of TDS in assessment of the previous year in which
it was deducted, was detrimental to the small traders who may
not be in a position to bear the burden of such disallowance in
the present Assessment Year. In order to remedy this position         G
and to remove hardships which were being caused to the
assessees belonging to such second category, amendments were
made in the provisions of Section 40(a) (ia) by the Finance Act,
2010. [Paras 21, 22] [743-B-D]
                                                                      H
734           SUPREME COURT REPORTS                     [2018] 5 S.C.R.


A           1.4 Section 40(a)(ia), was amended by Finance Act, 2010,
      with effect from 01.04.2010. The Finance Act, 2010 further
      relaxed the rigors of Section 40(a)(ia) to provide that all TDS
      made during the previous year can be deposited with the
      Government by the due date of filing the return of income. The
      idea was to allow additional time to the deductors to deposit the
B
      TDS so made. However, the Memorandum explaining the
      provisions of the Finance Bill, 2010 expressly mentioned as
      follows: “This amendment is proposed to take effect
      retrospectively from 1st April, 2010 and will, accordingly, apply
      in relation to the Assessment Year 2010-2011 and subsequent
C     years.” [Paras 23-25] [743-E; 744-A-B]
            1.5 TDS results in collection of tax and the deductor
      discharges dual responsibility of collection of tax and its
      deposition to the government. Strict compliance of Section
      40(a)(ia) may be justified keeping in view the legislative object
D     and purpose behind the provision but a provision of such nature,
      the purpose of which is to ensure tax compliance and not to punish
      the tax payer, should not be allowed to be converted into an iron
      rod provision which metes out stern punishment and results in
      malevolent results, disproportionate to the offending act and aim
      of the legislation. Legislature can and do experiment and
E     intervene from time to time when they feel and notice that the
      existing provision is causing and creating unintended and
      excessive hardships to citizens and subject or have resulted in
      great inconvenience and uncomfortable results. Obedience to
      law is mandatory and has to be enforced but the magnitude of
F     punishment must not be disproportionate by what is required
      and necessary. The consequences and the injury caused, if
      disproportionate do and can result in amendments which have
      the effect of streamlining and correcting anomalies. The
      amendments made in 2008 and 2010 were steps in the said
      direction only. Legislative purpose and the object of the said
G     amendments were to ensure payment and deposit of TDS with
      the Government. A proviso which is inserted to remedy
      unintended consequences and to make the provision workable,
      a proviso which supplies an obvious omission in the Section, is
      required to be read into the Section to give the Section a
H
  COMMISSIONER OF I.T., KOLKATA XII v. M/S CALCUTTA                    735
                EXPORT COMPANY

reasonable interpretation and requires to be treated as                A
retrospective in operation so that a reasonable interpretation can
be given to the Section as a whole. [Paras 26, 27] [744-D-H]
        1.6 The purpose of the amendment made by the Finance
Act, 2010 is to solve the anomalies that the insertion of Section
40(a)(ia) was causing to the bona fide tax payer. The amendment,       B
even if not given operation retrospectively, may not materially
be of consequence to the Revenue when the tax rates are stable
and uniform or in cases of big assessees having substantial
turnover and equally huge expenses and necessary cushion to
absorb the effect. However, marginal and medium taxpayers, who
work at low gross product rate and when expenditure which              C
becomes subject matter of an order under Section 40(a)(ia) is
substantial, can suffer severe adverse consequences if the
amendment made in 2010 is not given retrospective operation
i.e., from the date of substitution of the provision. Transferring
or shifting expenses to a subsequent year, in such cases, will not     D
wipe off the adverse effect and the financial stress. Such could
not be the intention of the legislature. Hence, the amendment
made by the Finance Act, 2010 being curative in nature required
to be given retrospective operation i.e., from the date of insertion
of the said provision. The amended provision of Sec 40(a)(ia) of
the IT Act should be interpreted liberally and equitable and           E
applies retrospectively from the date when Section 40(a)(ia) was
inserted i.e., with effect from the Assessment Year 2005-2006 so
that an assessee should not suffer unintended and deleterious
consequences beyond what the object and purpose of the
provision mandates. Since the assessee had filed its returns on        F
01.08.2005 i.e., in accordance with the due date under the
provisions of Section 139 IT Act, hence, is allowed to claim the
benefit of the amendment made by Finance Act, 2010 to the
provisions of Section 40(a)(ia) of the IT Act. [Paras 28 and 30]
[745-A-D, G-H; 746-A-B]
                                                                       G
      Allied Motors (P.) Ltd etc. v. CIT, Delhi (1997) 224 ITR
      677 (SC) – relied on.
      Bharati Shipyard Ltd. v. Deputy CIT (Decision dated
      09.09.2011 of ITAT in ITA No. 404/Mumb/2009); CIT
      v. Ansal Land Mark Township Pvt. Ltd. (Decision of               H
736            SUPREME COURT REPORTS                         [2018] 5 S.C.R.


A           Delhi High Court in ITA No. 160/2015) ; Whirlpool
            of India Ltd. v. CIT, New Delhi (2000) 245 ITR 3 ;
            CIT v. Amrit Banaspati (2002) 255 ITR 117 ; CIT v.
            Alom Enterprises Ltd. (2009) 319 ITR 306
            – referred to.
B                             Case Law Reference
            (1997) 224 ITR 677(SC)         relied on            Para 29
            (2000) 245 ITR 3               referred to          Para 29
            (2002) 255 ITR 117             referred to          Para 29
C           (2009) 319 ITR 306             referred to          Para 29
            CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 4339-
      4340 of 2018.
            From the Judgment and Order dated 03.09.2012 of the High Court
      of Calcutta at Kolkata in GA No. 2029 of 2012 and ITAT No. 175 of
D
      2012
                                        WITH
             Civil Appeal Nos. 4622, 4621, 4467, 4660, 4446, 4449, 4448, 4451,
      4468, 4623, 4469, 4453, 4454, 4459, 4457, 4456, 4471, 4624, 4460, 4462,
E     4463, 4466, 4465, 4470, 4386, 4625, 4387, 4388, 4389, 4390, 4473, 4481,
      4472, 4482, 4474, 4483, 4648, 4391, 4649, 4480, 4615, 4485, 4618, 4552,
      4650, 4486, 4651, 4488, 4490, 4489, 4491, 4492, 4497, 4498, 4501, 4515,
      4502, 4503, 4626, 4504, 4505, 4506, 4507, 4508, 4509, 4510, 4511, 4512,
      4513, 4514 of 2018

F           T. C. (C) No.102 of 2015.
            K. Radhakrishnan, R. P. Bhat, Sr. Advs., S. Wasim A. Qadri,
      D.L. Chidanand, H. R. Rao, Ms. Sadhna Sandhu, Mrs. Anil Katiyar,
      Ms. Pritha Srikumar, Ms. Arunima Kedia, Ms. Anushree Prashit Kapadia,
      Ms. Priyanka Rathi, Santosh Paul, Joseph Aristotle, Ms. Priya Aristotle,
G     Ashish Yadav, Sreenath S., Rajeev Saxena, Ashwani Kumar Dubey,
      Ajay Choudhary, Hiren Dasan, Harish Dasan, Rahul Arya, Chand
      Qureshi, Trideep Pais, N.K. Verma, Gautam Narayan, Puneet Jain,
      Ms. Christi Jain, Abhinav Gupta, Harsh Jain, Salil Kapoor, Ms. Sanai
      Kapoor, Ms. Soumya Singh, Ms. Ananya Kapoor, Sumit Lalchandani,
      Praveen Swarup, Dr. Rakesh Gupta, Ms. Monika Ghai, Ms. Shyamalima
H     Borah, Ambhoj Kumar Sinha, Ms. Manisha T. Karia, Ms. Nidhi Nagpal,
  COMMISSIONER OF I.T., KOLKATA XII v. M/S CALCUTTA                           737
                EXPORT COMPANY

Ms. Saumya, S. Mangal, Jay Savla, Ms. Renuka Sahu, Prabhat Chaurasia,         A
Ms. Manju Jetley, Nikilesh Ramachandran, Jai Wadhwa, Kashyap Kumar
Dwivedi, Abhishek Anand Rai, Dr. Sushil Balwada, Lakshmeesh S.
Kamakhi, Soheb Rahman, Ajit Sharma, K. V. Mohan, R.K. Raghavan,
K.V. Balakrishnan, Advs. for the appearing parties.
      The Judgment of the Court was delivered by                              B
      R. K. AGRAWAL, J. 1. Leave granted.
      2. The present appeal has been filed against the impugned final
judgment and order dated 03.09.2012 passed by the High Court at Calcutta
in GA No. 2029 of 2012 ITAT No. 175 of 2012 whereby a Division
Bench of the High Court dismissed the appeal filed by the Appellant           C
against the order dated 29.02.2012 passed by the Income Tax Appellate
Tribunal (in short “the Tribunal”) in ITA No. 1487/Kol/2011.
      3. Brief facts:-
        (a) M/s. Calcutta Export Company - the Respondent is a                D
partnership firm and is a manufacturer and exporter of casting materials
having its principal place of business at Kolkata. The Respondent filed
its return of income for the Assessment Year 2005-06 for Rs. 4,18,17,910/-.
The case was selected for scrutiny and the assessment under Section
143(3) of the Income Tax Act, 1961 (in short ‘the IT Act’) was completed
on 28.12.2007. The Assessing Officer, vide order dated 12.10.2009,            E
disallowed the export commission charges paid by the assessee to
M/s. Steel Crackers Pvt. Ltd. amounting to Rs. 40,82,089/- while stating
that the tax deducted at source (TDS) on such commission amount on
07.07.2004, 07.09.2004 and 07.10.2004 ought to have been deposited by
the Respondent before the end of the previous year i.e. 31.03.2005 to         F
get the commission amount deducted from the total income in terms of
the provisions of Section 40(a)(ia) of the IT Act as it stood then. But the
same was deposited on 01.08.2005, hence, the Respondent cannot be
allowed to claim deduction of the commission amount from the total
income. The Assessing Officer revised the total income to
Rs. 4,58,99,999/- with the requirement to pay the additional tax amount       G
of Rs. 23,88,832/- by the Respondent.
      (b) Being aggrieved by the order dated 12.10.2009, the Respondent
preferred an appeal before the Commissioner of Income tax (Appeals).
Learned CIT (Appeals), vide order dated 01.08.2011, allowed the appeal
                                                                              H
738            SUPREME COURT REPORTS                          [2018] 5 S.C.R.


A     while holding that the commission amount is eligible for deduction under
      the said Assessment Year.
            (c) Being aggrieved, the Revenue preferred an appeal being ITA
      No. 1487/Kol/2011 before the Tribunal which came to be dismissed on
      29.02.2012.
B            (d) Being aggrieved by the order dated 29.02.2012, the Revenue
      preferred an appeal before the High Court. The High Court, vide judgment
      and order dated 03.09.2012, had dismissed the appeal.
           (e) Aggrieved by the judgment and order dated 03.09.2012, the
      Revenue has preferred this appeal before this Court.
C
            4. Heard learned senior counsel for the parties and perused the
      factual matrix of the case.
            Point(s) for consideration:-
            5. Whether the amendment made by the Finance Act, 2010 in
D     Section 40(a)(ia) of the IT Act is retrospective in nature to apply to the
      present facts and circumstances of the case.
            Rival contentions:-
            6. Learned senior counsel appearing on behalf of the Revenue
      contended that the impugned judgment passed by the High Court is bad
E
      in law and is liable to be set aside by this Court.
             7. Learned senior counsel further contended that the courts below
      have erred in extending the meaning of the amendment made in Section
      40(a) (ia) and in not accepting the plain meaning of the Section as being
      prohibitory in nature which makes the Respondent to deduct the TDS
F     and remit it in government account within the time limit prescribed under
      the Section. He further contended that the amendment made under
      Section 40 (a) (ia) by the Finance Act, 2010, clearly states that the
      amendment has the retrospective effect from the Assessment Year
      2010-11 and it cannot be held to be retrospective from the Assessment
G     Year 2005-2006.
             8. Learned senior counsel further contended that the High Court
      erred in relying on the decision given by the jurisdictional High Court in
      ITAT No. 302/2011 (G.A. No. 3200/2011) considering the fact that no
      appeal was preferred against the said judgment considering the low tax
H     effect in the said matter.
  COMMISSIONER OF I.T., KOLKATA XII v. M/S CALCUTTA                            739
        EXPORT COMPANY [R. K. AGRAWAL, J.]

       9. Learned senior counsel finally contended that though the tax         A
effect is low in the present case also and the High Court has decided the
issue in favour of the tax payer but in similar situation in the case of
Bharati Shipyard Ltd. vs. Deputy CIT(ITA No. 404/Mumb/2009) the
Special Bench of the ITAT has decided the issue in favour of the Revenue
on 09.09.2011. Learned senior counsel finally contended that in view of
                                                                               B
the conflicting opinions by the coordinate Benches, correct interpretation
of law is required by this Court.
       10. Per contra, learned senior counsel appearing on behalf of the
Respondent submitted that the purpose of insertion of provisions of
Section 40(a)(ia) of the IT Act was to ensure the compliance of TDS
provisions and not to punish those assessees who have deducted and             C
paid the TDS to the government sooner or later. The said purpose is also
very much clear from the amendment made in 2008 and further by the
amendment in 2010 to the existing provisions of Section 40(a)(ia). In
support of this argument, learned senior counsel placed reliance on a
decision of the Division Bench of the Delhi High Court in CIT v. Ansal         D
Land Mark Township Pvt Ltd.in ITA No. 160/2015.
      11. Learned senior counsel further submitted that the amendments
of curative nature have to be applied retrospectively and hence the
amendment made in 2010 to the existing provisions of Section 40(a)(ia)
should be given retrospective effect from the date of insertion and in         E
support of this contention learned senior counsel relied on a decision of
this Court in Allied Motors (P.) Ltd etc. vs. CIT, Delhi- (1997) 224 ITR
677(SC).
      12. Learned counsel for the Respondent finally submitted that the
decision of the High Court is well within the parameters of law and            F
requires no interference.
      Discussion:-
       13. The dispute in the present case revolves around the fact that
whether the amendment made by the Finance Act, 2010 to the provisions
of Section 40 (a) (ia) of the IT Act is retrospective in nature so as to       G
apply to the present case or not. If it is so, then the tax duly paid by the
assessee on 01.08.2005 is well in accordance with law and the assessee
is allowed to claim deduction for the tax deducted and paid to the
government, in the previous year in which the tax was deducted.
                                                                               H
740            SUPREME COURT REPORTS                           [2018] 5 S.C.R.


A           14. For deciding as to the retrospective effect of the amendment
      made by Finance Act, 2010, it is required to see the Section as it stands
      before and after the amendment made through the Finance Act, 2010
      and the purpose of such insertion or amendment to the said provisions.
      The provisions of Section 40(a)(ia) came into force in the year 2005
      which stood as under:-
B
            “40. Amounts not deductible- 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 business or profession,- (a) in the case of
            any assessee-
C
            (i)……
            (ia) any interest, commission or brokerage, rent, royalty, fees for
            professional services or fees for technical services payable to a
            resident, or amounts payable to a contractor or sub contractor,
D           being resident, for carrying out any work (including supply of labour
            for carrying out any work), on which tax is deductible at source
            under Chapter XVIIB and such tax has not been deducted or,
            after deduction, has not been paid during the previous year, or in
            the subsequent year before the expiry of the time prescribed under
            sub-section(1) of section 200;
E
            Provided that where in respect of any such sum, tax has been
            deducted in any subsequent year or, has been deducted during the
            previous year but paid in any subsequent year after the expiry of
            the time prescribed under sub-section (1) of section 200, such
            sum shall be allowed as a deduction in computing the income of
F           the previous year in which such tax has been paid.”
             15. The purpose of bringing the said amendment to the existing
      provision of Section has been highlighted in the memorandum explaining
      the provision which reads as under:-
            “With a view to augment compliance of TDS provisions, it is
G
            proposed to extend the provisions of the section 40(a)(ia) to
            payments of interest, commission or brokerage, fee for professional
            services or fee for technical services to the residents and payments
            to a residential contractor or sub-contractor for carrying out any
            work (including supply of labour for carrying out any work), on
H
  COMMISSIONER OF I.T., KOLKATA XII v. M/S CALCUTTA                             741
        EXPORT COMPANY [R. K. AGRAWAL, J.]

      which tax has not been deducted or after deduction, has not been          A
      paid before the expiry of the time prescribed under sub-section(1)
      of section 200 and in accordance with the provisions of other
      provisions of Chapter XVII-B.”
       16. The purpose is very much clear from the above referred
explanation by the memorandum that it came with a purpose to ensure             B
tax compliance. The fact that the intention of the legislature was not to
punish the assessee is further reflected from a bare reading of the
provisions of Section 40(a)(ia) of the IT Act. It only results in shifting of
the year in which the expenditure can be claimed as deduction. In a
case where the tax deducted at source was duly deposited with the
government within the prescribed time, the said amount can be claimed           C
as a deduction from the income in the previous year in which the TDS
was deducted. However, when the amount deducted in the form of TDS
was deposited with the government after the expiry of period allowed
for such deposit then the deductions can be claimed for such deposited
TDS amount only in the previous year in which such payment was made             D
to the government.
       17. However, it has caused some genuine and apparent hardship
to the assesses especially in respect of tax deducted at source in the last
month of the previous year, the due date for payment of which as per
the time specified in Section 200 (1) of IT Act was only on 7th of April in     E
the next year. The assessee in such case, thus, had a period of only
seven days to pay the tax deducted at source from the expenditure
incurred in the month of March so as to avoid disallowance of the said
expenditure under Section 40(a)(ia) of IT Act.
      18. With a view to mitigate this hardship, Section 40(a)(ia) was          F
amended by the Finance Act, 2008 and the provision so amended read
as under:-
       “40. 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 “profit and gains of business            G
      or profession
      (ia) any interest, commission or brokerage, rent, royalty, fees for
      professional services or fees for technical services payable to a
      resi-dent, or amounts payable to a contactor or sub-contractor,
                                                                                H
742             SUPREME COURT REPORTS                           [2018] 5 S.C.R.


A           being resident, for carrying out any work (including supply 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-
            (A) in a case where the tax was deductible and was so deducted
B           during the last month of the previous year, on or before 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
C           deducted in any subsequent year, or has been deducted
            (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
D           end of the said previous year,
            such sum shall be allowed as a deduction in computing the income
            of the previous year in which such tax has been paid.”
             19. The above amendments made by the Finance Act, 2008 thus
      provided that no disallowance under Section 40 (a) (ia) of the IT Act
E     shall be made in respect of the expenditure incurred in the month of
      March if the tax deducted at source on such expenditure has been paid
      before the due date of filing of the return. It is important to mention here
      that the amendment was given retrospective operation from the date of
      01.04.2005 i.e., from the very date of substitution of the provision.
F            20. Therefore, the assesses were, after the said amendment in
      2008, classified in two categories namely; one; those who have deducted
      that tax during the last month of the previous year and two; those who
      have deducted the tax in the remaining eleven months of the previous
      year. It was provided that in case of assessees falling under the first
      category, no disallowance under Section 40(a) (ia) of the IT Act shall be
G     made if the tax deducted by them during the last month of the previous
      year has been paid on or before the last day of filing of return in
      accordance with the provisions of Section 139(1) of the IT Act for the
      said previous year. In case, the assessees are falling under the second
      category, no disallowance under Section 40(a)(ia) of IT Act where the
H     tax was deducted before the last month of the previous year and the
  COMMISSIONER OF I.T., KOLKATA XII v. M/S CALCUTTA                             743
        EXPORT COMPANY [R. K. AGRAWAL, J.]

same was credited to the government before the expiry of the previous           A
year. The net effect is that the assessee could not claim deduction for
the TDS amount in the previous year in which the tax was deducted and
the benefit of such deductions can be claimed in the next year only.
       21. The amendment though has addressed the concerns of the
assesses falling in the first category but with regard to the case falling in   B
the second category, it was still resulting into unintended consequences
and causing grave and genuine hardships to the assesses who had
substantially complied with the relevant TDS provisions by deducting
the tax at source and by paying the same to the credit of the Government
before the due date of filing of their returns under Section 139(1) of the
IT Act. The disability to claim deductions on account of such lately            C
credited sum of TDS in assessment of the previous year in which it was
deducted, was detrimental to the small traders who may not be in a
position to bear the burden of such disallowance in the present Assessment
Year.
      22. In order to remedy this position and to remove hardships which        D
were being caused to the assessees belonging to such second category,
amendments have been made in the provisions of Section 40(a) (ia) by
the Finance Act, 2010.
       23. Section 40(a)(ia), as amended by Finance Act, 2010, with
effect from 01.04.2010 and now reads as under:                                  E

      “4(a)(ia) any interest, commission or brokerage, rent, royalty, fees
      for 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
      for carrying out any work), on which tax is deductible at source          F
      under Chapter XVII-B and such tax has not been deducted or;
      after deduction, has not paid on or before the due date specified
      in sub-section (1) of Section 139:
      Provided that where in respect of any such sum, tax has been
      deducted in any subsequent year, or has been deducted during the          G
      previous year but paid after the due date specified in sub-section
      (1) of section 139, such sum shall be allowed as a deducted in
      computing the income of the previous year in which such tax has
      been paid.”
                                                                                H
744             SUPREME COURT REPORTS                            [2018] 5 S.C.R.


A            24. Thus, the Finance Act, 2010 further relaxed the rigors of Section
      40(a)(ia) of the IT Act to provide that all TDS made during the previous
      year can be deposited with the Government by the due date of filing the
      return of income. The idea was to allow additional time to the deductors
      to deposit the TDS so made. However, the Memorandum explaining the
      provisions of the Finance Bill, 2010 expressly mentioned as follows: “This
B
      amendment is proposed to take effect retrospectively from 1st April,
      2010 and will, accordingly, apply in relation to the Assessment Year 2010-11
      and subsequent years.”
             25. The controversy surrounding the above amendment was
      whether the amendment being curative in nature should be applied
C     retrospectively i.e., from the date of insertion of the provisions of Section
      40(a)(ia) or to be applicable from the date of enforcement.
             26. TDS results in collection of tax and the deductor discharges
      dual responsibility of collection of tax and its deposition to the government.
      Strict compliance of Section 40(a)(ia) may be justified keeping in view
D     the legislative object and purpose behind the provision but a provision of
      such nature, the purpose of which is to ensure tax compliance and not to
      punish the tax payer, should not be allowed to be converted into an iron
      rod provision which metes out stern punishment and results in malevolent
      results, disproportionate to the offending act and aim of the legislation.
      Legislature can and do experiment and intervene from time to time when
E
      they feel and notice that the existing provision is causing and creating
      unintended and excessive hardships to citizens and subject or have
      resulted in great inconvenience and uncomfortable results. Obedience
      to law is mandatory and has to be enforced but the magnitude of
      punishment must not be disproportionate by what is required and
F     necessary. The consequences and the injury caused, if disproportionate
      do and can result in amendments which have the effect of streamlining
      and correcting anomalies. As discussed above, the amendments made
      in 2008 and 2010 were steps in the said direction only. Legislative purpose
      and the object of the said amendments were to ensure payment and
      deposit of TDS with the Government.
G
             27. A proviso which is inserted to remedy unintended consequences
      and to make the provision workable, a proviso which supplies an obvious
      omission in the Section, is required to be read into the Section to give the
      Section a reasonable interpretation and requires to be treated as
      retrospective in operation so that a reasonable interpretation can be given
H     to the Section as a whole.
  COMMISSIONER OF I.T., KOLKATA XII v. M/S CALCUTTA                            745
        EXPORT COMPANY [R. K. AGRAWAL, J.]

       28. The purpose of the amendment made by the Finance Act,               A
2010 is to solve the anomalies that the insertion of section 40(a)(ia) was
causing to the bona fide tax payer. The amendment, even if not given
operation retrospectively, may not materially be of consequence to the
Revenue when the tax rates are stable and uniform or in cases of big
assessees having substantial turnover and equally huge expenses and
                                                                               B
necessary cushion to absorb the effect. However, marginal and medium
taxpayers, who work at low gross product rate and when expenditure
which becomes subject matter of an order under Section 40(a)(ia) is
substantial, can suffer severe adverse consequences if the amendment
made in 2010 is not given retrospective operation i.e., from the date of
substitution of the provision. Transferring or shifting expenses to a          C
subsequent year, in such cases, will not wipe off the adverse effect and
the financial stress. Such could not be the intention of the legislature.
Hence, the amendment made by the Finance Act, 2010 being curative in
nature required to be given retrospective operation i.e., from the date of
insertion of the said provision.
                                                                               D
       29. Further, in Allied Motors (P) Limited (supra),this Court while
dealing with a similar question with regard to the retrospective effect of
the amendment made in section 43-B of the Income Tax Act,1961 has
held that the new proviso to Section 43B should be given retrospective
effect from the inception on the ground that the proviso was added to
remedy unintended consequences and supply an obvious omission. The             E
proviso ensured reasonable interpretation and retrospective effect would
serve the object behind the enactment. The aforesaid view has
consistently been followed by this Court in the following cases, viz.,
Whirlpool of India Ltd., vs. CIT, New Delhi (2000) 245 ITR 3, CIT
vs. Amrit Banaspati (2002) 255 ITR 117 and CIT vs. Alom Enterprises            F
Ltd. (2009) 319 ITR 306.
       30. Hence, in light of the forgoing discussion and the binding effect
of the judgment given in Allied Moters (supra), we are of the view that
the amended provision of Sec 40(a)(ia) of the IT Act should be interpreted
liberally and equitable and applies retrospectively from the date when         G
Section 40(a)(ia) was inserted i.e., with effect from the Assessment
Year 2005-2006 so that an assessee should not suffer unintended and
deleterious consequences beyond what the object and purpose of the
provision mandates. As the developments with regard to the Section
recorded above shows that the amendment was curative in nature, it
                                                                               H
746            SUPREME COURT REPORTS                           [2018] 5 S.C.R.


A     should be given retrospective operation as if the amended provision
      existed even at the time of its insertion. Since the assessee has filed its
      returns on 01.08.2005 i.e., in accordance with the due date under the
      provisions of Section 139 IT Act, hence, is allowed to claim the benefit
      of the amendment made by Finance Act, 2010 to the provisions of Section
      40(a)(ia) of the IT Act.
B
            31. In light of the forgoing discussion, we are of the view that
      judgment of the High Court does not call for any interference and, hence,
      the appeals are accordingly dismissed. In view of the above, all the
      connecting appeals, interlocutory applications, if any, transferred cases
      as well as diary numbers are disposed off accordingly. Parties to bear
C     cost on their own.


      Divya Pandey                                              Matters disposed of.


D




E




F




G




H