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

The Delhi High Court has allowed the assessee- TV Today Network Ltd.'s claims for deduction of expenses in nature of 'consumption incentive' offered to the advertisers for booking more advertisement space. 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...

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

Parina Katyal

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