The Delhi High Court held that Section 40(a)(ia) of the Income Tax Act, 1961 is declaratory and retrospective and closed the petition in the absence of substantial question of law.
The appellant/revenue challenged the order dated 27.04.2023 passed by the Income Tax Appellate Tribunal [“Tribunal”] passed in favour of the respondent/assessee, M/S Shivaai Industries Pvt Ltd emanated out of a second round of litigation before it.
In the first round, the Tribunal remanded the matter to the Assessing Officer (AO) via an order dated 16.03.2018. The AO was directed by the Tribunal to verify whether the conditions provided in the proviso appended to Section 201(1) of the Income-tax Act, 1961 [ “the Act”] were fulfilled.
No adverse finding was returned by the AO on whether the conditions prescribed in the first proviso to Section 201(1) of the Act stood fulfilled.
The record revealed that the AO, in the second round, on merits, in the AY in issue i.e., AY 2008-09, had made an addition amounting to Rs.17,67,16,747/- under Section 40(a)(ia) of the Act via the assessment order that was framed on 14.12.2018.In an appeal preferred by the respondent/assessee. The Commissioner of Income Tax (Appeals) [“CIT(A)”] deleted the addition made by the AO following the decision of the court in Commissioner of Income Tax v. Ansal Land Mark Township Pvt. Ltd.
The amount that was added to the income of the respondent/assessee, i.e., Rs.17,67,16,747/-, were site rent payments made to the Delhi Transport Corporation (DTC) concerning advertisement space made available on bus shelters and timekeeper booths. The respondent/assessee had succeeded in earlier years as, on the addition, made in a similar circumstance, was deleted by the Tribunal.
It is required to be noted that the second proviso was inserted in the statute via the Finance Act, 2012, albeit with effect from 01.04.2013. The purpose of Section 40(a)(ia) of the Act is to disincentivize the non-deduction of tax at source by disallowing, as a deduction, the amount paid to the resident/payee. The second proviso appended to it, however, relaxes the rigour of the said provision by making its application dependent on the assessee being declared as „assessee in default‟ under Section 201(1) of the Act.
In the above-said case, it was held 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.”
Since the appeal does not bear any substantial question of law, the division bench of Justice Rajiv Shakdher and Justice Girish Kathpalia closed the appeal on relying on the decision that the Supreme Court may take in the respondent‟s/assessee‟s case for AY 2007-08.
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