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2020 (7) TMI 253 - HC - Income TaxDisallowance u/s 40(a)(ia) - Scope of amendment brought about in the Finance Act 2010 in Section 40(a)(ia) - retrospectively or prospectively effect of amendment - HELD THAT - The issue whether the aforesaid amendment being curative in nature has retrospective operation was considered by the Supreme Court in the case of CALCUTTA EXPORT COMPANY 2018 (5) TMI 356 - SUPREME COURT and it was held that the purpose of amendment made by Finance Act 2010 is to solve the anomalies and proviso was inserted to remedy unintended consequences and to make the provision workable. A proviso which supplies an obvious omission in the Section is required to be read into the Section to give the Section a reasonable interpretation and requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the Section as a whole. Thus it was held that amendment made by Finance Act 2010 in Section 40(a)(ia) being curative in nature is required to be given retrospective operation. The aforesaid decision was followed by a division bench of this Court in the case of SANTOSH KUMAR SHETTY 2015 (8) TMI 232 - KARNATAKA HIGH COURT . The issue with regard to retrospectivity of Section 40(a)(ia) is no longer res integra and is answered by SC in favour of assessee
Issues:
1. Retrospective operation of the amendment in Section 40(a)(ia) of the Income Tax Act, 1961. 2. Validity of the order of the Commissioner of Income Tax (Appeals). 3. Applicability of tax deduction at source provisions under Section 40(a)(i) and 40(a)(ia). 4. Requirement of proceedings under chapter XVII-B for invoking provisions of Section 40(a)(i) and 40(a)(ia). 5. Rectification under section 254(2) of the Act. 6. Levying of interest under Section 234B and 234C of the Act. Analysis: Issue 1: The main issue revolved around the retrospective application of the amendment in Section 40(a)(ia) of the Income Tax Act, 1961. The Supreme Court's decision in CIT VS. CALCUTTA EXPORT COMPANY clarified that the amendment brought about by the Finance Act, 2010 was curative in nature, aiming to rectify anomalies and unintended consequences. The Court held that the amendment should be given retrospective operation to ensure a reasonable interpretation of the Section as a whole. This decision was supported by a division bench of the Karnataka High Court in CIT VS. SANTOSH KUMAR SHETTY. Issue 2: The order of the Commissioner of Income Tax (Appeals) was challenged by the revenue, leading to an appeal before the Income Tax Appellate Tribunal. The Tribunal, relying on a special bench decision, held that the provisions of Section 40(a)(ia) as amended by the Finance Act, 2010 were not retrospective. However, the High Court, following the Supreme Court's decision, overturned the Tribunal's order, stating that the amendment should be given retrospective effect, thereby ruling in favor of the assessee. Issue 3: The matter of tax deduction at source under Section 40(a)(i) and 40(a)(ia) was also addressed. The Court emphasized the importance of complying with tax deduction requirements and clarified that the amendment's retrospective operation was crucial for maintaining the integrity and effectiveness of the provisions. Issue 4: Regarding the requirement of proceedings under chapter XVII-B for invoking the provisions of Section 40(a)(i) and 40(a)(ia), the Court reiterated that the retrospective application of the amendment was essential to ensure a reasonable and coherent interpretation of the Section, as established by the Supreme Court's decision. Issue 5: The question of rectification under section 254(2) of the Act was raised, with the assessee filing a Miscellaneous petition before the Tribunal. However, the Tribunal dismissed the petition, leading the assessee to approach the High Court for redress. The High Court, in light of the retrospective application of the amendment, ruled in favor of the assessee, thereby quashing the Tribunal's order. Issue 6: Lastly, the imposition of interest under Section 234B and 234C of the Act was contested. The Court did not delve into this issue extensively, as the retrospective application of the amendment in Section 40(a)(ia) was deemed pivotal and led to the allowance of the appeal. In conclusion, the High Court's judgment in this case underscored the significance of the retrospective application of the amendment in Section 40(a)(ia) of the Income Tax Act, 1961, as clarified by the Supreme Court, thereby favoring the assessee and setting aside the Tribunal's order.
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