INCOME TAX ACT, 1961

Section 40(a)(i)

Business disallowance under section 40(a)(i) - Scope of amendment brought in section 40(a)(i) - Application of amendment property -

During assessment proceedings, it transpired that the assessee trust purchased a vacant land from a non-resident. However, the assessee did not deduct tax at source as required under section 195 and accordingly, the assessee was held to be assessee-in-default in an order passed by AO under section 201(1)/201(1A). The assessee submitted that the provisions of section 194-IA were applicable only with effect from 1-6-2013. However, this plea was rejected since the seller was non-resident and accordingly, the provisions of section 195, and not the provisions of section 194-IA, would apply. It was noted that the capital gains were assessed to tax in the hands of the seller on 30-3-2015 and the vendor had not paid the taxes demanded by the revenue. Therefore, a demand was raised against the assessee for interest under section 201(1A). However, AO did not raise a demand being the amount of tax default @ 20% under section 201(1). Held: Second proviso to section 40(a)(via) and section 40(a)(i) are evenly worded and pari-materia to each other. Both the provisions were introduced by the legislature in order to remove the anomaly/hardship and therefore, could be held to be curative in nature. In the case of section 40(a)(via), High Court in the case of Pr. CIT v. Perfect Circle India (P) Ltd. (ITA No. 707 of 2016; 7-1-2019) : 2019 TaxPub(DT) 1226 (Bom-HC) have already held that these provisions are applicable retrospectively with effect from 1-4-2005. Since the amendment to section 40(a)(via) was carried out in order to remove the anomalies, similar amendment brought in section 40(a)(i) is also to remove the anomaly and therefore, this amendment was to be considered as curative in nature having retrospective application. Thus, assessee was directed to furnish requisite details/documents in support of its claim under second proviso to section 40(a)(i) read with proviso to section 201(1). AO might compute interest, as applicable, in accordance with law.

Followed:Pr. CIT -5 v. Perfect Circle India (P) Ltd. [(ITA No. 707 of 2016; 7-1-2019)] : 2019 TaxPub(DT) 1226 (Bom-HC) and CIT-1 v. Ansal Land Mark Township (P) Ltd. (2015) 377 ITR 635 (Del) : 2015 TaxPub(DT) 3482 (Del-HC)

REFERRED :

FAVOUR : Partly In assessee's favour

A.Y. :

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