TMI Blog2017 (4) TMI 1097X X X X Extracts X X X X X X X X Extracts X X X X ..... ip (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. - ITA No. 14/PUN/2015 - - - Dated:- 21-4-2017 - Shri Anil Chaturvedi, AM And Shri Vikas Awasthy, JM Revenue by : Shri Hitendra Ninawe Assessee by : Mrs. Deepa Khare ORDER Per Vikas Awasthy, JM This appeal by the Department is directed against the order of the Commissioner of Income Tax (Appeals), Aurangabad dated 20.10.2014 for the assessment year 2011-12. In appeal, the Department has raised solitary issue, assailing the findings of Commissioner of Income Tax(Appeals) in deleting disallowance of ₹ 59,55,685/-made u/s 40(a)(ia) of the Income Tax Act, 1961(hereinafter referred to as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatives of rival sides and have perused the orders of authorities below. The only issue raised by the Department in appeal is deleting of disallowance made by the Assessing Officer u/s 40(a)(ia) of the Act. 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 (supra) 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payee referred to in the said proviso. With the introduction of second proviso it would be imperative that before disallowing any amount for non-deduction of tax at source it would be necessary to ascertain whether the recipient of the amount in question had paid taxes on such amount. If the answer is in affirmative no disallowance u/s. 40(a)(ia) is warranted on such payment. The Memorandum explaining the insertion of new proviso reads as under : A related issue to the above is the disallowance under section 40(a)(ia) of certain business expenditure like interest, commission, brokerage, professional fee, etc. due to non-deduction of tax. It has been provided that in case the tax is deducted in subsequent previous year, the expenditure shall be allowed in that subsequent previous year of deduction. In order to rationalise the provisions of disallowance on account of nondeduction of tax from the payments made to a resident payee, it is proposed to amend section 40(a)(ia) to provide that where an assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uced as under : 12. Relevant to the case in hand, what is common to both the provisos to Section 40 (a) (ia) andSection 210 (1) of the Act is that the as long as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the Assessee would not be treated as a person in default. As far as the present case is concerned, it is not disputed by the Revenue that the payee has filed returns and offered the sum received to tax. 13. Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar Agarwal v. ACIT (supra ) , the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40 (a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under: On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into account in computation of taxable income in the hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cally, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an intended consequence to punish the assessees for non deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going 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. 15. In that view of the matter, the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going 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. 10. In view of the above discussions, we deem it fit and proper to remit the matter to the file of the Assessing Officer for fresh adjudication in the light of our above observations and after carrying out necessary verifications regarding related payments having been taken into account by the recipients in computation of their income, regarding payment of taxes in respect of such income and regarding filing of the related income tax returns by the recipients. While giving effect to these directions, the Assessing Officer shall give due and fair opportunity of hearing to the assessee, decide the matter in accordance with the law and by way of a speaking order. We order so 5. In effect thus, Their Lordships have approved t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ystem. We have to, with our highest respect of both the Hon ble High Courts, adopt an objective criterion for deciding as to which of the Hon ble High Court should be followed by us. We find guidance from the judgment of Hon ble Supreme Court in the matter of CIT vs. Vegetable Products Ltd. [(1972) 88 ITR 192 (SC)]. Hon ble Supreme Court has laid down a principle that if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted . This principle has been consistently followed by the various authorities as also by the Hon ble Supreme Court itself. In another Supreme Court judgment, Petron Engg. Construction (P) Ltd. Anr. vs. CBDT Ors. (1988) 75 CTR (SC) 20 : (1989) 175 ITR 523 (SC), it has been reiterated that the above principle of law is well established and there is no doubt about that. Hon ble Supreme Court had, however, some occasions to deviate from this general principle of interpretation of taxing statute which can be construed as exceptions to this general rule. It has been held that the rule of resolving ambiguities in favour of taxpayer does not apply to deductions, exemptions and exceptions which ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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