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Amendment with respect to deductibility of certain payments under Section 40(a)(ia) is curative in nature and therefore will apply retrospectively inspite of its prospective application by the Parliament
Amendment with respect to deductibility of certain payments under Section 40(a)(ia) is curative in nature and therefore will apply retrospectively inspite of its prospective application by the Parliament
Amendment with respect to deductibility of certain payments under Section 40(a)(ia) is curative in nature and therefore will apply retrospectively inspite of its prospective application by the Parliament
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Amendment with respect to deductibility of certain payments under Section 40(a)(ia) is curative in nature and therefore will apply retrospectively inspite of its prospective application by the Parliament

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Recently, the Karnataka High Court in a batch of appeals held that the amendment with respect to deductibility of certain amounts made by the Finance Act, 2010 under Section 40(a)(ia) of the …

Recently, the Karnataka High Court in a batch of appeals held that the amendment with respect to deductibility of certain amounts made by the Finance Act, 2010 under Section 40(a)(ia) of the Income-tax Act, 1961 is retrospective in nature from Assessment Year 2005-06. Since the amendment is curative in nature and therefore, it should be given retrospective operation notwithstanding that the Parliament has stated that it comes into effect from 1 April 2010.

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  • 1. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG FLASH NEWS KPMG IN INDIA Amendment with respect to deductibility of certain payments under Section 40(a)(ia) is curative in nature and therefore will apply retrospectively inspite of its prospective application by the Parliament 4 August 2014 Recently, the Karnataka High Court (High Court) in a batch of appeals 1 held that the amendment with respect to deductibility of certain amounts made by the Finance Act, 2010 under Section 40(a)(ia) 2 of the Income-tax Act, 1961 (the Act) is retrospective in nature from Assessment Year (AY) 2005-06. Since the amendment is curative in nature and therefore, it should be given retrospective operation notwithstanding that the Parliament has stated that it comes into effect from 1 April 2010. Background  Section 40(a)(ia) of the Act disallows certain amounts, while computing the income under the head ‘Profits and gains of business and Profession’, on which tax is deductible and either tax has not been deducted or after deduction, such tax has not been paid to the Central Government. ______________ 1 CIT v. Sri Santosh Kumar Shetty (ITA No.590/2013) and C/W. (ITA No. 333/2012, 457/2013, 319/2009, 242/2012, 334/2012, 12/2013 and 595/2013) –Taxsutra.com 2 Deductibility of expenditure if tax is paid before the due date for filing return of income  The Finance Act, 2010 with effect from 1 April 2010 extended the time limit for depositing tax deducted at source (TDS) upto the due date for filing return of income under Section 139(1) of the Act for amounts paid not only in the last month but for payments made during the entire year. Prior to the amendment, the tax deducted in the last month was permitted to be paid to the Central Government till the date of filing the return under Section 139(1) of the Act whereas for the tax deducted during the rest of the months, period of limitation for payment of tax was only upto 31 March of the previous year. Facts of the case  In the present case, the taxpayer claimed that the amendment introduced by the Finance Act, 2010, would be applicable retrospectively with effect from 1 April 2005 instead of 1 April 2010. However, the tax department claimed that when the Finance Act, 2010, expressly states that the said provision would come into effect from 1 April 2010, it is not permissible for the Tribunals or the Courts to give it
  • 2. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. a retrospective effect prior to the date. It was contended that the order passed by the Income-tax Appellate Tribunal (the Tribunal), holding it as retrospective notwithstanding the fact that the parliament made its intention clear by declaring that it comes into effect from 1 April 2010, is liable to be set aside.  The question before the High Court is whether, the amendment made in Section 40(a)(ia) by the Finance Act, 2010, which is effective from 1 April 2010 could be applied retrospectively with effect from 1 April 2005. High Court’s ruling  The High Court relied on the decision of the Gujarat High Court in the case of Om Prakash R Chaudhari 3 which has observed as follows:  The object of bringing about the provisions of Section 40(a)(ia) of the Act was to augment the compliance of TDS provisions.  Thereafter by way of an amendment of Finance Act, 2008, further amendment was made whereby the TDS deductible and deducted in the last month of the previous year if was not paid till the due date of filing of return under Section 139(1) of the Act and in any other case, on or before the last day of the previous year, Section 40(a)(ia) of the Act provided for disallowance of expenses like interest, commission, brokerage, etc.  This had created anomaly, whereby tax deducted in the last month was permitted to be paid till filing of return under Section 139(1) whereas for the TDS deducted during the rest of the months, period was provided only till 31st March of the previous year.  To bring parity, to remedy unintended consequences and to make the provision workable, the Finance Act, 2010 proposed to amend the provisions and provided that no disallowance would 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 as specified under Section 139(1) of the Act. The Legislature has given the effect from a specified date and applied the same to AY 2010-11 and subsequent years, this provision being curative in nature, its effect needs to be read retrospectively in operation. _____________________ 3 CIT v. Om Prakash R Chaudhary (Tax Appeal No. 412/2013, dated 22 November 2013)  When the amendment introduced by the Finance Act, 2008 of relaxing the time for deposit of TDS was made retrospective from the year 2005 i.e. 1 April 2005, the amendment by the Finance Act, 2010 with regard to other limb of time limit for payment of TDS has to be held retrospective and not from 1 April 2010 only.  Similar is the view expressed by the Delhi High Court in the various cases 4 and Calcutta High Court in the case of Virgin Creations 5 .  Following the view expressed by the Gujarat High Court in the case of Om Prakash R Chaudhari, the High Court in the present case has held that the amendment has a retrospective operation notwithstanding that the parliament has expressly stated that it comes into effect from 1 April 2010. The amendment is curative in nature.  Accordingly, the High Court held the decision in favour of the taxpayer. Our comments The amendment with respect to deductibility of certain payments under Section 40(a)(ia) of the Act by the Finance Act, 2010 has been a matter of debate before the Courts/Tribunal. The issue is whether this amendment applies retrospectively from AY 2005-06 or from AY 2010-11 as stated by the Parliament. It is pertinent to refer to the Special Bench decision of the Mumbai Tribunal in the case of Bharati Shipyard Ltd. 6 , where it was held that the amendment to Section 40(a)(ia) of the Act made by the Finance Act, 2010 from AY 2010-11 cannot be held to be retrospective from AY 2005-06. This is a welcome ruling of the Karnataka High Court where it has been held that the amendment made in the Finance Act, 2010 under Section 40(a)(ia) of the Act with respect to deductibility of certain payments is curative in nature, therefore applies retrospectively from AY 2005-2006 and not from AY 2010-11. ____________ 4 CIT v. Oracle Software India Limited [2007] 293 ITR 253 (Del) H. S. Mohindra Traders v. ITO [2011] 44 SOT 43 (Del) 5 CIT v. Virgin Creations (ITAT No. 302 of 2011, dated 23 November 2011) 6 Bharati Shipyard Ltd v. DCIT (ITA No.2404/Mum/2009, AY 2005-2006)
  • 3. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity“ are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. www.kpmg.com/in Ahmedabad Commerce House V, 9th Floor, 902 & 903, Near Vodafone House, Corporate Road, Prahlad Nagar, Ahmedabad – 380 051 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Bengaluru Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Kochi Syama Business Center 3rd Floor, NH By Pass Road, Vytilla, Kochi – 682019 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Kolkata Unit No. 603 – 604, 6th Floor, Tower – 1, Godrej Waterside, Sector – V, Salt Lake, Kolkata 700 091 Tel: +91 33 44034000 Fax: +91 33 44034199 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3050 4000 Fax: +91 20 3050 4010

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