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2017 (4) TMI 1097 - AT - Income TaxDisallowance u/s 40(a)(ia) - whether the second proviso to section 40(a)(ia) inserted by Finance Act, 2012 w.e.f 01.04.2013 is applicable retrospectively and the assessee is eligible to claim benefit of same in assessment year 2010-11? - CIT-A allowed claim - Held that - The second proviso to section 40(a)(ia) was inserted by the Finance Act, 2012 w.e.f 01.04.2013. The amendment brought in by the Finance Act, 2012 by way of insertion of second proviso to section 40(a)(ia), whether effective retrospectively or from the date mentioned in the Finance Act, 2012, has been debated in several cases before Tribunal & various Hon ble High Courts. The Hon ble Kerala High Court in the case of Prudential Logistics And Transports V/s. ITO (2015 (2) TMI 847 - KERALA HIGH COURT) has held that second proviso to section 40(a)(ia) giving concession to assessee from deducting TDS in case recipient of amount has already paid taxes on such amount would be available with effect from 01.04.2013 only. Subsequently, the Hon ble Delhi High Court in the case of CIT V/s. Ansal Land Mark Township (P) Ltd 2015 (9) TMI 79 - DELHI HIGH COURT held that second proviso to section 40(a)(ia) is declaratory and curative and has retrospective effect from 1st April, 2005. Various benches of the Tribunal have been consistently holding that the second proviso to Section 40(a) (ia) is applicable retrospectively. Thus, in view of the facts of the case and the decisions discussed above, we find no error in the order of Commissioner of Income Tax (Appeals) in deleting disallowance made by the Assessing Officer u/s 40(a)(ia) of the Act. - Decided in favour of assessee.
Issues Involved:
1. Deletion of disallowance under Section 40(a)(ia) of the Income Tax Act, 1961. 2. Retrospective applicability of the second proviso to Section 40(a)(ia). Issue-wise Detailed Analysis: 1. Deletion of Disallowance under Section 40(a)(ia): The Department appealed against the Commissioner of Income Tax (Appeals), Aurangabad's order, which deleted the disallowance of ?59,55,685/- made under Section 40(a)(ia) of the Income Tax Act, 1961. The disallowance was initially made by the Assessing Officer due to the assessee's failure to deduct tax at source on interest payments to Srei Equipment Finance Ltd., an NBFC. The Commissioner of Income Tax (Appeals) had relied on prior Tribunal decisions, including ITO V/s M/s Gaurimal Mahajan & Sons and ACIT V/s. Poonawala Fashions Pvt. Ltd., which supported the deletion of such disallowances. 2. Retrospective Applicability of the Second Proviso to Section 40(a)(ia): The core issue debated was whether the second proviso to Section 40(a)(ia), introduced by the Finance Act, 2012 and effective from 01.04.2013, should be applied retrospectively. The Department cited the Kerala High Court's decision in Prudential Logistics And Transports V/s. ITO, which held that the proviso is effective from 01.04.2013. Conversely, the assessee's counsel referenced the Delhi High Court's ruling in CIT V/s. Ansal Land Mark Township (P) Ltd., which declared the proviso as declaratory and curative with retrospective effect from 01.04.2005. The Tribunal acknowledged that various benches and High Courts had differing views on this matter. The Pune bench of the Tribunal in Yamazaki Mazak India Pvt. Ltd V/s. Pr. CIT had also deliberated on this issue, considering the conflicting judgments of the Kerala and Delhi High Courts. The Tribunal noted that the second proviso aims to ensure that no disallowance under Section 40(a)(ia) is warranted if the recipient has paid taxes on the amount in question. Conclusion: The Tribunal concluded that the second proviso to Section 40(a)(ia) should be applied retrospectively, aligning with the Delhi High Court's judgment in CIT V/s. Ansal Land Mark Township (P) Ltd. This interpretation was supported by the Tribunal's consistent stance in similar cases, such as DCIT V/s. M/s Bhandari Associates and ITO V/s. Shri Balaji Tukaram Gaikwad. The Tribunal emphasized that the proviso is curative and meant to prevent undue hardship where the recipient has already paid taxes. Final Judgment: The Tribunal dismissed the Department's appeal, upholding the Commissioner of Income Tax (Appeals)'s order to delete the disallowance under Section 40(a)(ia). The Tribunal affirmed that the second proviso to Section 40(a)(ia) is applicable retrospectively from 01.04.2005, thereby supporting the assessee's position. Order Pronouncement: The order was pronounced on Friday, the 21st day of April, 2017.
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