Brief of the case:
The Hon’ble Kerala HC in the case of Thomas George Muthoot vs. CIT held that the second proviso to sec 40(a)(ia) is not curative by nature , the same is an additional remedy to provide non-disallowance in certain tax deduction default cases. Thus, being not curative the second proviso does not have retrospective effect.
Facts of the case:
- The assessee is a partner in a firm who paid interest on funds withdrawn from firm. The said payment was made to firm without deducting tax at source. As such the AO disallowed the same u/s 40(a)(ia) of the Act. Thus, AO made an addition to the tune of Rs. 6,28,28,000/- to the total returned income.
- The order of AO was upheld by CIT(A) as well as tribunal on the ground since there was failure to deduct tax the fact that income has been offered to tax by payee cannot cure assessee’s failure in the absence of any such compensatory provision for the relevant assessment year.
- Against such order of tribunal the assessee is in appeal before High Court.
Contention of Assessee:
- The failure to deduct tax has been cured by payee’s including the interest in its total income and the same has been provided by second proviso to Sec 40(a)(ia) inserted by Finance Act , 2012.
- Such a provision is curative in nature and therefore, would have retrospective effect. In this regard the assessee relied on Apex Court’s Hindustan Coca Cola Beverages Pvt. Ltd. [(2007) 293 ITR 226].
- Further, relying on the decision of Allahabad HC in the case of Vector Shipping Services (P) [(2013) 357 ITR 642] , it was contended that assessee had already paid the amount and therefore, the provisions of Section 40(a)(ia), applicable only in respect of the amount which remains to be payable on the last day of the financial year, is not attracted.
Contention of Revenue:
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