2014 (5) TMI 894 - HC - Income Tax

Deletion of disallowance u/s 40(1)(ia) of the Act Held that - In CIT vs. Crescent Export Syndicate 2013 (5) TMI 510 - CALCUTTA HIGH COURT it has been held that the majority views expressed in the case of Merilyn Shipping and Transport were not acceptable - the second proviso to Section 40(a)(ia) is certainly intended to lessen the rigour of Section 40(a)(ia) in a case where the assessee is not deemed to be an assessee in default - There is no factual background on the basis of which it can be said that it was ever the contention of the assessee that he could not in the case be considered as an assessee in default - there was no occasion to consider as to whether the proviso is retrospective or can be held to be retrospective - The orders of the Tribunal and CIT(A), is patently contrary to the views expressed by the Court Decided in favour of Revenue.

Summary

Issues:
1. Interpretation of Section 40(a)(ia) regarding disallowance of payment without tax deduction.
2. Applicability of a judgment of the Special Bench of the Income Tax Appellate Tribunal.
3. Consideration of retrospective effect of the second proviso to Section 40(a)(ia).

Analysis:
1. The primary issue in this case was the interpretation of Section 40(a)(ia) concerning the disallowance of payment made without tax deduction. The assessing officer disallowed a payment made by the assessee to a party without deducting tax at source. The CIT(A) reversed this decision based on a judgment of the Special Bench of the Income Tax Appellate Tribunal in another case. The revenue, aggrieved by this decision, appealed the matter.

2. The revenue contended that the judgment of the Special Bench was no longer valid, citing a previous judgment of the Court that rejected the majority views expressed in the earlier case. The appellant argued that the order of the Tribunal should be set aside as it was based on an outdated judgment. However, the Court found that the Tribunal's decision was in line with the CIT(A)'s reasoning, which was supported by the Special Bench's decision.

3. Another aspect raised was the applicability of the second proviso to Section 40(a)(ia) with regards to retrospective effect. The respondent argued that the payment made was to an entity exempt from tax, hence no deduction was necessary. Additionally, they contended that the proviso should be considered retrospective based on previous judgments. However, the Court found these arguments lacking merit as the case did not fall within the scope of the proviso introduced later.

In conclusion, the Court set aside the orders of the Tribunal and CIT(A) as they were contrary to the Court's views. The appeal by the revenue was allowed based on the above analysis, emphasizing the correct interpretation and application of tax laws in the given scenario.