ACIT, CC - 1 (2), CHENNAI vs. M/S. STUDIO GREEN, CHENNAI

O R D E R

PER V. DURGA RAO, JUDICIAL MEMBER:

C.O. No. 99/Chny/2019 5. On the other hand, the ld. Counsel for the assessee strongly supported the order passed by the ld. CIT(A).

C.O. No. 99/Chny/2019 proviso to section 40(a)(ia) of the Act is retrospective in nature and relevant portions are extracted as under: “8. So far as invoking section 40a(ia) of the Act is concerned, the ld. CIT(A) has held that the applicability of second proviso introduced through Finance Act, 2012 is only prospective in nature and has no retrospective effect by following the judgement of Hon’ble Kerala High Court in the case of Thomas George Muthoot v. CIT 287 CTR 101. The ld. Counsel for the assessee has relied on the judgement in the case of CIT v. Calcutta Export Company [2018] 93 taxmann.com 51 (SC), wherein the Hon’ble Supreme Court has held that the amendment made by the Finance Act, 2010 to provisions of section 40(a)(ia) is curative in nature and it should be given retrospective operation from date of insertion of said provision i.e., with effect from assessment year 2005-06 and submitted that the above judgement of the Hon’ble Supreme Court has to be followed in the present case also. The ld. Counsel for the assessee has further relied on judgement of the Hon’ble Delhi High Court in the case of CIT v. Ansal Land Mark Township (P.) Ltd. [2015] 61 taxmann.com 45 (Delhi) and submitted that the Hon’ble Delhi High Court has held that the second proviso to section 40(a)(ia) was inserted by the Finance Act, 2012 with effect from 01.04.2013 is declaratory and curative and it operates retrospectively and submitted that the same may be followed. 8.1 We have heard both the sides, perused the materials available on record and gone through the orders of authorities below and also the judgements relied on by the assessee. The issue involved in this appeal is whether the assessee is in default under section 201 of the Act on account of failure to deduct TDS under section 194J of the Act warranting invocation of section 40a(ia) of the Act. In this case, the assessee has made payment of professional fees to her husband without deducting TDS. However, the assessee’s spouse filed return of income and disclosed the professional fee receipt of ₹.1,62,99,951/- from the Hitech Diagnostic Centre from the financial year 2007-08 relevant to the assessment year 2008-09. The Assessing Officer has disallowed the entire payment made to assessee’s husband on the ground that the assessee has not deducted TDS under section 194J of the Act and for not deducting the same, section 40a(ia) of the Act applies. On appeal, the ld. CIT(A) confirmed the same. The first point for our consideration is whether the operation of second proviso to section 40a(ia) of the Act introduced through Finance Act. 2012 with effect from 01.04.2013 is prospective or retrospective. The ld. CIT(A) has relied on the decision of Hon’ble Kerala High Court in the case of Thomas George Muthoot v. CIT (supra) for the preposition that the above provision applies only prospective. However, the Hon’ble Delhi High Court in the case of CIT v. Ansal Land Mark Township (P.) Ltd.(supra) has held that the second proviso to section 40(a)(ia) of the Act is declaratory and curative and it has retrospective effect

C.O. No. 99/Chny/2019 from 01.04.2005 [para 14 of the judgement of Delhi High Court]. The Hon’ble Delhi High Court has held that the second proviso to section 40(a)(ia) was inserted by the Finance Act, 2012 with effect from 01.04.2013. The effect of the said proviso is to introduce a legal fiction where an assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. Where such assessee is deemed not to be an assessee in default in terms of the first proviso to sub-section (1) of section 201 of the Act, then, in such event, it shall be deemed that the assessee has deducted and paid the tax on such sum on the same of furnishing of return of income by the resident payee referred to in the said proviso. In the present case, the assessee’s spouse filed return of income offering the professional fee receipt for taxation. Thus, the assessee cannot be considered as an assessee in default under section 201 of the Act. Therefore, we are of the considered opinion that no disallowance can be made under section 40(a)(ia) of the Act. 8.2 We find that the ld. CIT(A) relied on the decision in the case of Thomas George Muthoot v. CIT (supra), wherein, the Hon’ble Kerala High Court has held that the second proviso operates prospectively. Whereas, in the case of CIT v. Ansal Land Mark Township (P.) Ltd.(supra), the Hon’ble Delhi High Court has held that it operates retrospectively. The Hon’ble Supreme Court also in the case of CIT v. Calcutta Export Company (supra) has considered similar amendment made by Finance Act, 2010 to provisions of section 40(a)(ia), which is curative in nature and should be given retrospective operation from the date of insertion of said provision. Keeping in view of the above judgements of Hon’ble Supreme Court as well as Hon’ble Delhi High Court and also by following the judgement of the Hon’ble Supreme Court in the case of CIT v. Vegetable Products Ltd. 88 ITR 192, wherein, the Hon’ble Supreme Court has held that where two views are possible, the view which is favourable to the assessee has to be followed, we are of the considered opinion that the issue has to be decided in favour of the assessee. In view of the above facts and circumstances of the case, the disallowance made by the Assessing Officer and confirmed by the ld. CIT(A) stands reversed and the ground raised by the assessee is allowed. The above decision for the assessment year 2008-09 mutatis mutandis applies to all the assessment years under appeal and no separate adjudication is required”. 6.1 Respectfully following earlier decisions of the Tribunal, decision of Hon’ble Delhi High Court as well as the decision of Hon’ble Supreme Court, the ld. CIT(A) has rightly held that the application of second proviso to section 40(a)(ia) of the Act is retrospective in nature and directed the Assessing Officer to provide an opportunity to the assessee to furnish Form

C.O. No. 99/Chny/2019 26A from the recipients of the payments made without TDS and to delete the addition to the extent the recipients have offered the above payments in their respective returns of income. Further, the assessee is directed to file all the details in respect of the payments made to various parties and offering the same by all the recipients in their returns of income before the Assessing Officer and the Assessing Officer shall decide the issue in view of our findings stated hereinabove. Thus, we find no reason to interfere with the order of the ld. CIT(A). Accordingly, the ground raised by the Revenue stands dismissed.

6.2 Since we have sustained the order of the ld. CIT(A) on this issue, the Cross Objection filed by the assessee became infructuous and accordingly dismissed.