Amendment to Section 40(a)(ia) (of Income Tax Act, 1961) Deemed Retrospective, High Court Rules

Case Name:

Commissioner of Income Tax Vs Harish Chand Ahuja (High Court of Rajasthan)

ITA No. 203/2013

Date: 26th November 2014

Key Takeaways:

1. The 2010 amendment to Section 40(a)(ia) (of Income Tax Act, 1961) is retrospective, applying from the date of the section's insertion.

2. The amendment is curative in nature, addressing unintended benefits and hardships caused by previous amendments.

3. The decision aligns with a previous Gujarat High Court ruling in a similar case.

Issue: 

Was the Income Tax Appellate Tribunal justified in deleting the addition of Rs.23,13,933/- by relying on the amendment made to Section 40(a)(ia) (of Income Tax Act, 1961) by the Finance Act, 2010, and giving it retrospective effect?

Facts:

1. The case revolves around an amendment made to Section 40(a)(ia) (of Income Tax Act, 1961) by the Finance Act, 2010.

2. The Income Tax Appellate Tribunal had deleted an addition of Rs. 23,13,933/- based on this amendment.

3. The amendment extended the time for payment of TDS deducted in March until the due date of filing the return under section 139(1) (of Income Tax Act, 1961).

4. Prior amendments had created an unintended benefit for assessees who deducted the entire year's TDS in March.

Arguments:

The main argument centered around whether the 2010 amendment should be applied retrospectively. The court considered:

1. The nature of the amendment as curative, addressing unintended consequences of previous amendments.

2. The apparent difference in treatment between assessees who deducted TDS in March versus those who deducted throughout the year.

3. The need to avoid unreasonable hardship for certain assessees.

Key Legal Precedents:

1. COMMISSIONER OF INCOME TAX VS HARISH CHAND AHUJA 

2. Commissioner of Income Tax, Ahmedabad Vs. Om Prakash Choudhary 

These cases were cited to support the retrospective application of the amendment.

Judgement:

The Gujarat High Court ruled that:

1. The amendment made to Section 40(a)(ia) (of Income Tax Act, 1961) by the Finance Act, 2010 is retrospective in operation, effective from the date of insertion of Section 40(a)(ia) (of Income Tax Act, 1961). 

2. The amendment is curative in nature, addressing unintended benefits and hardships caused by previous amendments. 

3. The court agreed with the reasoning given in the case of Commissioner of Income Tax, Ahmedabad Vs. Om Prakash Choudhary. 

4. The appeal was dismissed as no substantial question of law was found to be involved. 

FAQs:

1. Q: What was the main issue in this case?

  A: The main issue was whether the 2010 amendment to Section 40(a)(ia) (of Income Tax Act, 1961) should be applied retrospectively.

2. Q: Why did the court rule in favor of retrospective application?

  A: The court deemed the amendment curative in nature, addressing unintended consequences of previous amendments and avoiding unreasonable hardships for certain assessees.

3. Q: What practical effect does this ruling have?

  A: It means that the extended time for payment of TDS deducted in March applies from the original insertion of Section 40(a)(ia) (of Income Tax Act, 1961), not just from 2010 onwards.

4. Q: Did this ruling create new law?

  A: No, it reinforced a previous decision by the Gujarat High Court in a similar case.

5. Q: What changes were made to the interest rates for late TDS deposits?

  A: The interest rate for late deposits was increased from 12% to 18% per annum, and from 1% to 1.5% per month or part of a month. 

1. These four appeals seek to raise common issues and are directed against the common order passed by the Income Tax Appellate Tribunal, New Delhi, on 31.01.2012 in ITA Nos. 5304-5307/Del/2011 pertaining to the assessment years 2008-09 and 2009-10. Two appeals are in respect of the assessee Smt. Manju Bansal and the other two are in respect of the assessee Smt. Nirmal Bansal.

2. Mr Sabharwal, the learned counsel appearing on behalf of the appellant / revenue submitted that the Tribunal had misdirected itself in law in not considering the question as to whether the land was agricultural in nature or not. He submitted that the issue before the Tribunal was with regard to the addition of Rs. 2,34,70,697/- which had been made by the assessing officer on account of short term capital gain in respect of sale of different plots of land at village Hayatpur, district Gurgaon, by the respondent/assessee. The Commissioner of Income Tax (Appeals), had deleted the said addition. It may be pointed out that in the assessing officer’s order the only reason as to why the assessing officer had not granted the exemption to the respondents on account of the provisions of section 2(14)(iii) (of Income Tax Act, 1961), was because the assessing officer had taken the view that the possibility of there being some other ‘shortest distance’ between the area where the plots of land were situated and the municipal limits of Gurgaon so as to rule out the possibility that the lands were situated beyond 8 kms from the municipal limits. The assessing officer had arrived at the above conclusion in the following manner:-

“3. During the year the assessee has sold land at village Harsaru / Hayatpur, Distt Gurgaon for a sum of Rs.2,97,94,502/-. The assessee has claimed that the capital gain from the sale proceeds of the land is exempt because the land is situated at a distance of more than 08 kms from the outer municipal limits of Gurgaon. In support of his contention the assessee has furnished from Revenue authorities which is Tehsildar of Gurgaon wherein he has certified that the land whose particulars are given in the sale deed of the assessee is at a distance of 09 kms. Further inquiries in this regard was made from the District Town Planner of Gurgaon wherein he was asked to specify the distance of the land from the outer limits of Gurgaon Municipal Committee. The District Town Planner, Gurgaon vide letter memo no.70954 dated 21-12-2010 has intimated this office that the distance of the land from the outer limits of the Municipal Committee of Gurgaon was 8.5 kms on the date of sale. The distance given by District Town Planner, Gurgaon is very narrow as compared to the distance mentioned in the Act. In these circumstances the possibility of any other shortest distance cannot be ruled out and the land sold by the assessee during the year is taken as “Capital Asset” within the meaning of 2(14) of Income Tax Act, 1961 and the profit thereof is treated as short term capital gain. Addition of Rs.2,97,94,502/- is hereby made as short term capital gain.”

3. The Commissioner of Income Tax (Appeals), after considering the assessment orders and the submissions of the respondent’s / assessee’s observed that the assessees, during the course of assessment proceedings had submitted a certificate issued by the Tehsildar, Gurgaon to the effect that the plots of land were situated at a distance of about 9 kms from the outer municipal limits of Gurgaon. The district town planner, Gurgaon by a letter dated 21.12.2010 had also indicated that the distance of the said plots of the land was about 8.5 kms from the outer municipal limits of Gurgaon. The Commissioner of Income Tax (Appeals), thus held that two competent authorities, namely, the Tehsildar, Gurgaon and the District and Town Planner, Gurgaon had both, independently certified that the lands in question were situated beyond 8 kms of the municipal limits of Gurgaon. Consequently, the Commissioner of Income Tax (Appeals) held that the observation of the assessing officer that there was a possibility of some other shorter distance was not based on any hard evidence. It was also concluded by him that such an apprehension on the part of the assessing officer could not form the basis of denial of the assessees’ claims. Consequently, the Commissioner of Income Tax (Appeals) deleted the addition of Rs. 2,97,94,502/-.

4. The Income Tax Appellate Tribunal dismissed the appeals filed by the revenue and upheld the deletion made by the Commissioner of Income Tax (Appeals). The Tribunal held that the view taken by the CIT (Appeals) that the lands in question were situated beyond 8 kms from the outer limits of the municipal corporation of Gurgaon, could not be faulted.

5. The learned counsel for the revenue contended before us that the departmental representative had also raised the issue that the lands in question were not agricultural lands at all and that aspect of the matter had not been gone into by the Tribunal. He submitted that in order that the profits from sale of land are not subjected to capital gains tax, it has to be established that the lands in question were agricultural lands and that such lands were not situated within 8 kms of the municipal limits. He submitted that question of ascertaining whether the land was situated within 8 kms or beyond 8 kms was only the second condition. The first condition being that the land should have been agricultural. Mr Sabharwal submitted that while the departmental representative had raised the issue with regard to the lands not being agricultural in nature, the Tribunal had not gone into this aspect of the matter at all and, therefore, to that extent the twin conditions stipulated in section 2(14)(iii) (of Income Tax Act, 1961) had not been satisfied.

6. We have examined the decision of the Tribunal and we find that while Mr Sabharwal is right that the departmental representatives had raised the issue about the nature of the land in question, the Tribunal has correctly dealt with this aspect of the matter. The Tribunal noted that the assessing officer had made the disallowance merely on the ground that there was the possibility of a shorter distance, which would be less than 8 kms from the outer limits of the municipal corporation. The Tribunal noted that the assessing officer had not doubted the nature of the land being for agriculture. It is in these circumstances that the Tribunal rejected the plea of the departmental representative that the matter be restored to the file of the CIT (Appeals) for verification of the fact as to whether the lands were agricultural in nature or not.

7. Mr Sabharwal had also placed reliance on the Supreme Court decision in the case of National Thermal Power Corporation Limited v. CIT: 229 ITR 383 (SC). He had relied on the said decision to canvas the proposition that the Tribunal could very well have examined the question of nature of the lands even though it had not been in issue before the lower authority. However, we find that the decision in NTPC Ltd. (supra) would be of no assistance to the revenue. In the said decision it has been clearly noted that the Tribunal had jurisdiction to examine a question of law which “arose from the facts as found by the Income Tax Authorities” and which had a bearing on the tax liability of the assessee. The point to be noted is that the question of law which could be raised before the Tribunal would have to arise from the facts as found by the income-tax authorities. In other words, there must be some factual basis on which the question of law is raised before the Tribunal. The relevant facts must be on record. In the present case the assessing officer had not doubted the fact that the lands in question were agricultural in nature. There is no foundational fact that the lands were not agricultural in nature. As such the plea raised by the departmental representative before the Tribunal could not be gone into by the Tribunal as there was no foundational basis for the same. Clearly, the decision in NTPC Ltd. (supra) would be of no avail to the revenue in the facts of the present case.

8. In view of the foregoing, no interference is called for with the impugned order of the Tribunal. In any event no substantial question of law arises for the consideration of this court.

9. The appeals are dismissed.

BADAR DURREZ AHMED, J

VIBHU BAKHRU, J

April 30, 2013