2015 (9) TMI 79 - HC - Income Tax

Retrospectivity of the second proviso to Section 40(a) (ia) - disallowance by the AO of the payment made by Assessee to Ansal Properties and Infrastructure Ltd. ( APIL ) which payment, according to the Revenue, ought to have been made only after deducting tax at source under Section 194J - Held that - The second proviso to Section 40(a) (ia) was inserted by the Finance Act 2012 with effect from 1st April 2013. The effect of the said proviso is to introduce a legal fiction where an Assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. Where such Assessee is deemed not to be an assessee in default in terms of the first proviso to sub-Section (1) of Section 201 of the Act, then, in such event, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso As relyng on Agra Bench of ITAT in Rajiv Kumar Agarwal v. ACIT (2014 (6) TMI 79 - ITAT AGRA) in which it was held that the second proviso to Section 40 (a) (ia) of the Act is declaratory and curative in nature and has retrospective effect from 1st April 2005, merits acceptance. No substantial question of law arises - Decided in favour of the Assessee

Issues:
- Appeal against common order dated 21st July 2014 passed by ITAT for AYs 2008-09 and 2009-10
- Disallowance of payment made by Assessee to APIL under Section 194J
- Retrospectivity of the second proviso to Section 40(a) (ia) of the Act

Analysis:
1. The appeals by the Revenue were against the ITAT's order for AYs 2008-09 and 2009-10. The questions raised by the Revenue concerning the deletion of certain additions were answered in favor of the Assessee in a previous order. Another issue raised was about the retrospectivity of the second proviso to Section 40(a) (ia) of the Act.

2. The main issue was the disallowance of payment made by the Assessee to APIL under Section 194J. The Assessee argued that due to the insertion of the second proviso to Section 40(a) (ia) of the Act, the payment could not have been disallowed. The Assessee relied on a decision by the Agra Bench of ITAT, which held that the second proviso is declaratory and curative in nature and should have retrospective effect from 1st April 2005.

3. The second proviso to Section 40(a) (ia) was inserted by the Finance Act 2012 with effect from 1st April 2013. It introduces a legal fiction where an Assessee failing to deduct tax is not deemed in default under certain conditions. The Court analyzed the provisions of Section 40(a) (ia) and Section 210 (1) of the Act, emphasizing that the intention was not to penalize the Assessee if the payee has filed returns and paid tax on the income.

4. The Agra Bench of ITAT's reasoning on the second proviso was accepted by the Court. It concluded that the proviso is declaratory and curative, with retrospective effect from 1st April 2005. Consequently, the Court found no legal infirmity in the ITAT's order and dismissed the appeal, stating that no substantial question of law arises in the present case.

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