In the light of the Supreme Court’s decision, the Madras High Court reaffirmed that amendment relaxing the disallowance under Section 40(a)(ia) of the Income Tax Act is retrospective and curative in nature.
The revenue filed an appeal under Section Section 260A of the Income Tax Act, 1961 against the order passed by the Income Tax Appellate Tribunal (ITAT), Chennai Bench wherein it was held that amendment made to Section 40(a)(ia) by Finance Act, 2010 would apply retrospectively through the amendment is made with effect from April 01, 2010.
The purpose of the amendment made by the Finance Act, 2010 is to solve the anomalies that the insertion of section 40(a)(ia) was causing to the bona fide taxpayer. The amendment, even if not given operation retrospectively, may not materially be of consequence to the Revenue when the tax rates are stable and uniform or in cases of big assessees having substantial turnover and equally huge expenses and necessary cushion to absorb the effect.
The High court took into account the decision of the Supreme Court in the case of CIT Vs. Calcutta Export Company, wherein it was observed that if the marginal and medium taxpayers, who work at low gross product rate and when expenditure which becomes the subject matter of an order under Section 40(a)(ia) is substantial, can suffer severe adverse consequences if the amendment made in 2010 is not given retrospective operation i.e., from the date of substitution of the provision.
The two-judge bench of Justice T.S.Sivagnanam and V.Bhavani Subbaroyan in the light of the Supreme Court’s decision dismissed the appeal by the revenue and affirmed that the amendment was curative in nature, it should be given retrospective operation as if the amended provision existed even at the time of its insertion.
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