2018 (7) TMI 1850 - HC - Income Tax

Disallowance u/s 40(1)(ia) - non deduction of TDS on payment made for job works - retrospectivity of the second proviso to Section 40(a)(ia) - whether the second proviso to Section 40(a)(ia) has a retrospective effect and is applicable to the applicant for the relevant assessment year whereas the said provisions of Section 40(a)(i)? - default u/s 201 - Held that - From legal analysis of first Proviso to Section 201(1) and second Proviso to Section 40(a)(ia) of the Act, it is discernible that according to both the provisos, where the payee/resident has filed its return of income disclosing the payment received by it or receivable by it, and has also paid tax on such income, the assessee would not be treated to be a person in default and presumption would arise in his favour as noted. Whether the insertion of Second Proviso to Section 40(a)(ia) of the Act with effect from Ist April 2013 will apply to assessment year 2012-13 being retrospective? - Held that - We are in agreement with the view of the Delhi High Court in Ansal Land Mark Township Pvt. Limited s case 2015 (9) TMI 79 - DELHI HIGH COURT holding the rationale behind the insertion of the second Proviso to Section 40(a)(ia) of the Act and that it is merely declaratory and curative and thus, applicable retrospectively with effect from 1st April, 2005. CIT(A) after considering the submissions of the assessee and going through the evidence on record found that the assessee had filed confirmation from the party that the payment made by him to M/s Jhandu Construction Company had been reflected in its return of income. Thus, the CIT(A) rightly decided the issue in favour of the assessee which has been upheld by the Tribunal. - Decided against revenue

Summary

Issues:
1. Interpretation of the second proviso to Section 40(a)(ia) of the Income Tax Act, 1961 regarding retrospective or prospective effect.
2. Application of legal fiction in favor of the assessee for non-deduction of TDS on payment made for job works.

Analysis:

1. The appellant-revenue challenged an order regarding the addition of ?95,31,276 under Section 40(a)(ia) for non-deduction of TDS on job work payments for the assessment year 2012-13. The issue revolved around the retrospective or prospective application of the second proviso to Section 40(a)(ia) inserted by the Finance Act, 2012. The High Court analyzed the legal provisions and held that the proviso benefits the assessee by creating a legal fiction, deeming tax deduction on the date of the payee's income tax return filing. The Court referred to the first proviso to Section 201(1) introduced in 2012, emphasizing the legislative intent not to penalize the assessee under certain conditions.

2. The Court considered the decision of the Delhi High Court in CIT vs. Ansal Land Mark Township Pvt. Limited, where it was held that the second proviso to Section 40(a)(ia) is declaratory and curative, with retrospective effect from April 1, 2005. The judgment highlighted that the proviso aims to prevent undue hardships for the assessee and compensates for untaxed income due to TDS lapses. In the present case, the assessee's non-deduction of TDS on job work payments was allowed based on the legal fiction created by the proviso, as the payee had reflected the income in their return. The Court disagreed with the Kerala High Court's view that the proviso was prospective, emphasizing the retrospective application of the provision.

3. Ultimately, the High Court dismissed the appeal by the revenue, ruling in favor of the assessee based on the legal analysis and precedents. The judgment clarified the legislative intent behind the proviso, emphasizing its curative nature and retrospective effect to avoid unintended consequences. The decision highlighted the importance of fulfilling conditions under the proviso to benefit from the legal fiction regarding TDS deductions, ultimately protecting the assessee from being treated as a defaulter.

This detailed analysis of the judgment provides a comprehensive understanding of the legal issues involved and the Court's reasoning in interpreting the relevant provisions of the Income Tax Act, 1961.