Rakesh Tak vs. ITO (ITAT Jaipur)

(i) The second proviso to s. 40(a)(ia) inserted by the Finance Act, 2012 is curative in nature intended to supply an obvious omission, take care of an unintended consequence and make the section workable. Section 40(a)(ia) without the second proviso resulted in the unintended consequence of disallowance of legitimate business expenditure even in a case where the payee in receipt of the income had paid tax, and, therefore, the second proviso although inserted with effect from 1st April, 2013 is curative in nature and has retrospective effect.

(ii) Where in any subsequent year in which the tax has been deducted and deposited, the intention of the legislature clearly is not to disallow the legitimate business expenditure. The allowance of such expenditure is sought to be made subject to deduction and payment of tax at source. However, in a case where the deductee/payee has paid tax and as such the person responsible for paying is no longer required to deduct or pay any tax, legitimate business expenditure would stand disallowed since the section contemplated by the first proviso viz. deduction and payment of tax in a subsequent year would never come about. Such unintended consequence has been sought to be taken care of by the second proviso inserted in section 40(a)(ia) by the Finance Act, 2012. The Memorandum explaining the second proviso as introduced in Finance Bill, 2012, reported in 342 ITR (Statutes) 234 at pages 260 & 261 even though state that the amendment will take effect from 1st April, 2013 but this amendment, in my opinion, is retrospective in operation.

(CIT vs. Virgin Creations (Kol), Ansal Land Mark Township (P) Ltd. vs. CIT [CM Appl. No. 3774 of 2015 in ITA No. 160 of 2015] and Ballabh Das Agarwal vs. ITO (ITAT Kolkata) followed)