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2016 (8) TMI 99 - HC - Income TaxApplicability of provision of Section 40(a)(ia) - whether, a sum paid by the assessee to a contractor, during the previous year ended on 31st March, 2005 is deductible ? - Held that:- Admittedly, the Finance Act, 2004 got presidential assent on 10th September, 2004. The assessee could not have foreseen prior to 10th September, 2004 that any amount paid to a contractor without deducting tax at source was likely to become not deductible under Section 40. It is difficult to assume that the legislature was not aware or did not foresee the aforesaid predicament. The legislature therefore provided that the act shall become operative on 1st April, 2005. Any other interpretation shall amount to “punishing the assessee for no fault of his” following the judgment in the case of Hindusthan Elector Graphites Ltd. [2000 (3) TMI 2 - SUPREME Court ]. On the top of that, Section 4 relied upon by Mr.Agarwal merely provides for an enactment as regards rate of tax to be charged in any particular assessment year which has no application to the case before us. Section 11 of the Finance Act by which Clause (ia) was added to Section 40 of the Income Tax Act does not provide that the same was to become effective from the assessment year 2005-06. It merely says it shall become effective on 1st April, 2005 which for reasons already discussed should mean to refer to the financial year. There is, as such, no scope for any ambiguity nor is there any scope for confusion. Tribunal erred in applying provision of section 40(a)(ia) in disallowing payment to a contractor without deducting TDS during the financial year 2004-05, corresponding to assessment year 2005-06. - Decided in favour of the assessee.
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