S. 40(a)(ia): The second proviso to s. 40(a)(ia) is beneficial to the assessee and is declaratory and curative in nature. Accordingly, it must be given retrospective effect

1. This appeal is filed by the Revenue challenging the
judgment of the Income Tax Appellate Tribunal (“Tribunal” for
short) dated 27.3.2015. Following question is presented for
our consideration:-

“Whether on the facts and in the circumstances of the case and in
law, the Tribunal was justified in rejecting the disallowance of Rs.
1,44,78,000/- made by the AO u/S. 40(a)(ia) of the Act by holding
that the amendment to the proviso of the said section was
retrospective in nature without appreciating that the Act specifically
provides that the said proviso comes into operation w.e.f. 1.4.2013
and is prospective in nature and cannot be applied retrospectively?”

2. It is not necessary to record background facts since the
question of law raised by the Revenue is whether the second
proviso to Section 40(a)(ia) of the Income Tax Act, 1961 (“the
Act” for short) would have retrospective effect. We may
notice that the said proviso was inserted w.e.f 1.4.2013 and
in essence, it provides that where an assessee fails to deduct
whole or any part of the tax at source but is not deemed to
be an assessee in default under the first proviso to Section
201(1), then for the purpose of clause 40(a)(ia), 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 payee. The Revenue would content that the benefit of
this proviso would be available to the assessee only
prospectively w.e.f. 1.4.2013.

Various Courts, however, have
seen this proviso as beneficial to the assessee and curative
in nature. The leading judgment on this point was of the
Division Bench of Delhi Court in the case of CIT Vs. Ansal
Land Mark Township P Ltd [2015] 377 ITR 635 (Delhi). The Court held that Section
40(a)(ia) is not a penalty and insertion of second proviso is
declaratory and curative in nature and would have
retrospective effect form 1.4.2005 i.e the date from the main
proviso 40(a)(ia) itself was inserted. Several High Courts
have adopted the same lines.

We may also note that the
Supreme Court in the case of Hindustan Coca Cola
Beverages P Ltd Vs. CIT [2007] 293 ITR 226 (SC)
even in absence of second
proviso to Section 40(a)(ia) had noticed that the payee had
already paid the tax. Under such circumstances, the Court
held that the payer / deductor can at best be asked to pay
the interest on delay in depositing tax.

3. Under such circumstances, no question of law arises.
Tax appeal is dismissed.