The Bombay High Court has recently held that the amendment to the second proviso to section 40(a)(ia) of the Income Tax has retrospective effect. The two-judge bench, while dismissing a departmental appeal noted that the provision is beneficial to the assessee and is declaratory and curative in nature.
The Tribunal, on the second appeal, deleted the assessment order and held 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.
On appeal before the High Court, the Revenue pleaded that the amendment to the second proviso to Section 40(a)(ia) of the Income Tax Act, 1961 would have retrospective effect.
The bench comprising Justice B P Collabawala and Justice Akil Kureshi noted 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. The Court held that Section 40(a)(ia) is not a penalty and insertion of the second proviso is declaratory and curative in nature and would have retrospective effect from 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. CIT2 even in absence of the 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,” the bench said.To Read the full text of the Judgment CLICK HERE