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TMI Blog2017 (6) TMI 246X X X X Extracts X X X X X X X X Extracts X X X X ..... dication on the issue of disallowance u/s. 40(a)(ia). The assessee is a tour and travel operator and providing vehicles on hire. During the course of assessment proceedings the AO noted that the assessee paid hire charges exceeding Rs. 15,000/- in various cases. Since the assessee has not deducted tax at source from these payments the AO proposes to disallow the hire charges amounting to Rs. 1,03,59,106/- by invoking the provisions of section 40(a)(ia) of the Act. The assessee contented before the AO that these payments to the vehicle owners does not come under the purview of section 194C of the Act as it was not for hiring of the vehicle but it was sharing of revenue with the other owners of the vehicle. The AO did not accept the contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the respective clients at their own risk and spending their own expenses. In support of his contention he has relied upon the decision of Hon'ble Rajasthan High Court in case of CIT Vs Krishi Upaj Mandi Samiti (390 ITR 59) as well as the decision of coordinate benchs of Tribunal in case of Municipal Corporation Vs ITO [2013] 37 taxmann.com 258. The ld. AR has relied upon the following decision. 1.ITO Vs M/s. KCEL-MEIL(JV) dated 13.01.2014 in ITA Nos. 323 to 336/Hyd/2014 2.DCIT Vs Shri Ananda Marakala dated 13.09.2013 in ITA No. 1584/Bang/2012 and CO No. 58/Bang/2013. Thus the ld. AR has submitted that it is not an expenditure but sharing of the revenue at source itself and therefore it does not come under the purview of section 194C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted it is a direct expenditure and not sharing of revenue. 5. We have considered the rival submissions as well as relevant material on record. We find merits in the contention of the assessee regarding the applicability of second proviso to section 40(a)(ia) of the IT act and in case the recipients have already considered the amounts in question for computation of their income offered for tax in the return of income then no disallowance can be made u/s. 40(a)(ia). The only question arises is whether the second proviso is prospective or retrospective in nature. At the outset we note that the Hon'ble Delhi High Court while dealing with this question in case of CIT Vs Naresh Kumar (supra) held that the said proviso is explanatory and remedia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciate the object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a "fair, just and equitable" interpretation of law- as is the guidance from Hon'ble Delhi High Court on interpretation of this legal provision, in our humble understanding, it could not be an "intended consequence" to disallow the expenditure, due to non-deduction of tax at source, even in a situation in which corresponding income is brought to tax in the hands of the recipient. The scheme of Section 40(a)(ia), as we see it, is aimed at ensuring that an expenditure should not be allowed as deduction in the hands of an assessee in a situation in which income embedded in such expenditure has remained untaxed due to tax withholding lapses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004.' 14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a)(ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance." 6. Accordingly, in view of the decision of Hon'ble Delhi High Court the second proviso to secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a proper enquiry to verify this fact rather the evidence produced by the assessee was rejected at threshold. Even the decisions relied upon by the assessee before us were also not considered by the authorities below. Therefore in the facts and circumstances of the case and in the interest of justice when we have already set aside the issue of non-applicable of provisions of section 40(a)(ia) by virtue of second proviso to said section we deem fit and proper that this issue of nature of payment also requires a proper verification and examination at the level of the AO. Accordingly, we set aside this issue to the record of the Assessing Officer for proper examination of the facts by conducting a due enquiry and then deciding the same in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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