Amendment To Section 36(1)(va) Of Income Tax Act Is Prospective In Nature: Delhi High Court

The Bench, consisting of Justices Manmohan and Manmeet Pritam Singh Arora, reiterated that the 'due date', in case of delay by the assessee in depositing the employees' contribution to Provident Fund under Section 36(1) (va) of the Income Tax Act, 1961, is to be reckoned as the date for filing the return under Section 139 (1) and not the due date as prescribed under the relevant Labour statute. The Court added that the amendment to Section 36(1)(va), vide the Finance Act, 2021, is 'for removal of doubts' and hence, it cannot be presumed to be retrospective since it alters the law as it earlier stood.

The Assessing Officer (AO) passed an assessment order making certain additions to the assessee- TV Today Network Ltd.'s income, by disallowing certain expenses claimed by the assessee. The AO also made disallowances under Section 36(1)(va) of the Income Tax Act,1961 on the ground that the employees contribution towards the Provident Fund (PF) was deposited by assessee beyond the 'due date' as prescribed under the relevant Labour statute.

Against this, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) (CIT(A)), who partly allowed the appeal. The CIT(A) upheld the claim of the assessee seeking allowance of the expenses claimed under the head 'consumption debtors'. The CIT(A) also reversed the disallowance made by the AO under Section 14A of the Income Tax Act and the disallowance made under Section 36(1)(va) of the Income Tax Act on account of late deposit of employees' contribution to PF. Against the order of the CIT(A), the revenue department filed an appeal before the ITAT, which was dismissed. Against this, the revenue department filed an appeal before the Delhi High Court.

The assessee TV Today Network Ltd. submitted before the High Court that 'consumption incentive' is a discount offered by the assessee to its advertisers so that they book more advertisement space. The assessee added that the advertisers were given an offer that in case they consumed a certain amount of allotted time during the given period of broadcasting, they would be entitled to a 'consumption incentive'.

The asssessee submitted that the billing time space consumed by the advertisers is booked as an income in the relevant assessment year, and the 'consumption incentive' extended to the advertisers is booked as an expense of the said assessment year. The assessee added that the bill amount raised on the advertisers accordingly stood reduced by the 'consumption incentive' extended to the advertisers. Thus, the assessee contended that it was entitled to claim the 'consumption incentive' as a deduction.

The revenue department averred that the 'consumption incentive' is a provision for discount and there is no ascertained liability debited to the account of the advertisers and hence, it cannot be allowed as a deduction.

The Delhi High Court observed that the 'consumption incentive' was consistently allowed by the AO since the Assessment Year 2004-2005 to the assessee-TV Today Network. Observing the rule of "consistency", as enunciated by the Supreme Court in M/s Radhasaomi Satsang, Saomi Bagh, Agra versus Commissioner of Income Tax (1991), the Court upheld the decision of the CIT(A) deleting the disallowance on account of 'consumption debtors'.

With respect to the disallowance made under Section 14A of the Income Tax Act, the Court observed that the assessee had made investments in its subsidiary and associate company, and had earned exempt income of Rs. 2,34,585; however, the AO, by invoking the provisions of Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules, 1962, computed a disallowance of Rs. 38,94,755 and made certain additions to the assessee's income.

The Court further noted that the ITAT had upheld the finding of the CIT(A) reversing the disallowance made under Section 14A, on the ground that the disallowance under Section 14A cannot be more than the exempt income.

The revenue department submitted before the High Court that as per the CBDT circular 5/2014, disallowance under Section 14A would be attracted even if the corresponding exempt income is not earned during the financial year.

Section 14A of the Income Tax Act provides that no deduction shall be allowed in respect of the expenditure incurred by the assessee in relation to income which does not form part of its total income under the Income Tax Act.

The High Court ruled that, in view of the decision rendered by the Delhi High Court in PCIT versus IL & FS Energy Development Company Ltd. (2017), it is a settled law that disallowance under Section 14A cannot be in excess of the exempt income earned by the assessee. The Court added that the CBDT circular 5/2014 cannot be relied upon by the revenue department since its contrary to the law laid down by the Delhi High Court.

Thus, the Court held that the ITAT was correct in upholding the order of the CIT (A) deleting the disallowance under Section 14A.

The High Court further observed that with respect to the disallowance made by the AO under Section 36(1)(va) of the Income Tax Act, the CIT (A) had deleted the said disallowance on the ground that the 'due date' for depositing the employee's contribution to the PF is the date of filing the return of income under Section 139 (1) of the Act. Since, the employees' contribution to PF was paid by the assessee before filing the income tax return, therefore, the ITAT ruled that the CIT (A) had rightly deleted the disallowance made by the AO.

The Bench noted that the Delhi High Court in CIT versus AIMIL Ltd. (2009) had ruled that if the employees' contribution towards the provident fund is deposited by the assessee before the due date for filing the return, the assessee shall be entitled to the disallowance.

"It is therefore evident that the enunciation of law by this court on the issue of 'due date' in case of delay by the assessee in depositing the employee contribution under section 36(1)(va) of the Act is to be reckoned as the date for filing the return under Section 139 (1) of the Act and not the due date of the relevant Labour statute.", the Court said.

The revenue department contended that the Finance Act, 2021 has inserted Explanation 2 to Section 36(1) (va) and Explanation 5 to Section 43B of the Income Tax Act, w.e.f. 1^st April, 2021. The revenue department submitted that in view of the said amendment, the 'due date' for the purpose of deposit under Section 36(1)(va) is the 'due date' on which the employees' contribution was required to be deposited under the relevant labour statute and hence, the 'due date' referred to under Section 43B would have no application.

Section 43B of the Income Tax Act provides that notwithstanding anything contained in any other provision of the Income Tax Act, a deduction allowable in respect of any sum referred to in Section 36 (1)(ii) shall be allowed only in computing the income of the previous year in which such sum was actually paid by the assessee, irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him.

The Court, rejecting the contention of the revenue department, observed that the Memorandum of the Finance Bill, 2021 acknowledges that the courts have taken a view that the 'due date' to be considered for the purposes of Section 36(1)(va) of the Income Tax Act is under Section 43B, and to alter this position the said Explanation, which is in the nature of 'removal of doubts', has been inserted. Also, the Court noted that the Memorandum explicitly stipulates that the said amendment will take effect from 1^st April, 2021.

"The legislature is therefore conscious that the Explanation seeks to change the law as it stands on date and is therefore intended to apply to subsequent assessment years. The contention of the revenue therefore that the said amendment is retrospective cannot be accepted.", the Court said.

Noting that the Supreme Court in Sedco Forex International Drill. Inc. versus CIT (2005) has held that a provision in a Tax Act which is "for the removal of doubts" cannot be presumed to be retrospective, even where such a language is used, if it alters or changes the law as it earlier stood; the Court held that the amendment to Section 36(1)(va), which is 'for removal of doubts', cannot be presumed to be retrospective since it alters the law as it earlier stood.

"It is also noted that in the facts of the case, the due date for depositing the Employees' contribution to the Provident Fund was 20th April, 2012 and the assessee had deposited the same on 25th April, 2012. There is no dispute that the amount stands deposited before the filing of the return. We, therefore, find that there is no ground for taking a view different from the view consistently held by this court since AIMIL Ltd.(supra).", the Court ruled.

The Court, thus dismissed the appeal of the revenue department.

Case Title: Pr. Commissioner of Income Tax -7 versus TV Today Network Ltd.

Citation: 2022 LiveLaw (Del) 769

Dated: 27.07.2022 (Delhi High Court)

Counsel for the Appellant: Mr. Puneet Rai, Senior Standing Counsel for Revenue along with Ms. Adeeba Mujahid, Junior Standing Counsel for Revenue and Mr. Karan Pandey, Advocate.

Counsel for the Respondent: Mr. Salil Aggarwal, Senior Advocate along with Mr. Madhur Aggarwal and Mr. Uma Shankar, Advocates.

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