When the assessee has made payments liable for TDS u/s 194J and the payee has fulfilled all conditions of the proviso then the assessee is not in default and the payments to be allowed as deduction
Second proviso to Section 40(a)(ia) of the Act is declaratory and curative and has retrospective effect from 1st April 2005
1. Assessee has made certain payments without deduction of tax at source to Ansal Properties and Infrastructure Ltd. ("APIL‟)
2. A.O. disallowed certain payments which were made without deduction of TDS u/s 194J of the Act
3. Assessee relied upon second proviso to Section 40(a) (ia) of Act and claimed that this has retrospective effect and thus disallowances are unjustified since all the conditions are fulfilled
4. Assessee also placed reliance on the decision of the Agra Bench of ITAT in ITA No. 337/Agra/2013 (Rajiv Kumar Agarwal v. ACIT)
5. Tribunal allowed appeal in favour of the assessee
6. Revenue moved to the High Court and the issue has been decided in favour of the assessee
7. High Court held that the assessee is not in default of deducting tax at source under certain contingencies
Relevant to the case in hand, what is common to both the provisos to Section 40 (a) (ia) and Section 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.
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.
In that view of the matter, the Court is unable to find any legal infirmity in the impugned order of the ITAT in adopting the ratio of the decision of the Agra Bench, ITAT in (Rajiv Kumar Agarwal v. ACIT).
Cases referred to
Rajiv Kumar Agarwal v. ACIT ITA No. 337/Agra/2013 Agra Bench