S. 40(a)(ia): Amendment by FA 2010 w.e.f 1.4.2010 is retrospective
For AY 2005-06, the AO made a disallowance of expenditure incurred by the assessee on the ground that the assessee had made the TDS payments u/s 194C after the end of the year. Before the Tribunal, the assessee claimed that as the TDS had been paid before the due date of filing the ROI, no disallowance could be made as per s. 40(a)(ia) amended by the FA 2010 w.e.f. 1.4.2010. The assessee relied on Virgin Creations and claimed that it had to be followed in preference to the contrary ruling of the Special Bench in Bharati Shipyard Ltd 132 ITD 53 (Mum). HELD by the Tribunal:
In Bharati Shipyard Ltd the Special Bench held that the amendment to s. 40(a)(ia) by the FA 2010 w.e.f. 1.4.2010 could not be held to be retrospective from AY 2005-2006 on the ground that the amendment was not remedial and curative in nature. However, the Kolkata Bench had taken a contrary view in Virgin Creations vs. ITO and held that amendment by the FA 2010 was retrospective w.e.f. 1.4.2005. The view of the Kolkata Bench has been approved by the Calcutta High Court in CIT vs. Virgin Creations. The question as to whether a verdict of the Special Bench should be followed or that of a non-jurisdictional High Court should be followed is answered in Tej International (P) Ltd 69 TTJ (Del) 650 wherein it was held that in the hierarchical judicial system that we have in India, the wisdom of the court below has to yield to the higher wisdom of the Court above, and therefore, once an authority higher than this Tribunal has expressed its esteemed views on a an issue, normally, the decision of the higher judicial authority is to be followed. It was also held that the fact that the judgment of the higher judicial forum is from a non-jurisdictional High court does not alter this position. Consequently, Virgin Creations is followed and it is held that the amendment to s. 40(a)(ia) is retrospective from 1.4.2005 and any payment of TDS on or before the due date for filing the ROI is sufficient.