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Section 40(a)(ia), read with section 194J, of the Income-tax Act, 1961 - Business disallowance - Interest etc. paid to a resident without deduction of tax at source (Second proviso) - Assessment years 2008-09 and 2009-10 - Whether second proviso to section 40(a)(ia) is declaratory and curative and it has retrospective effect from 1-4-2005 - Held, yes - Whether, therefore, where assessee made payments without deducting tax at source under section 194J, since payee had filed return and offered sum received from assessee to tax, impugned disallowance made under section 40(a)(ia) deserved to be deleted - Held, yes [Paras 13 and 14] [In favour of assessee] FACTS â–  During relevant year, assessee made payment to 'A' Ltd. The Assessing Officer took a view that said payment should have been made only after deducting tax at source under section 194J. â–  In view of assessee's failure to deduct tax at source, the Assessing Officer disallowed payment in question under section 40(a)(ia). â–  The assessee filed appeal contending that in view of the insertion of the second proviso to section 40(a)(ia), the payment made could not have been disallowed. â–  The Tribunal accepted assessee's plea and deleted the impugned disallowance. â–  The question came up for consideration in instant appeal was whether second proviso to sec. 40(a)(ia) was declaratory in nature and it was to be given retrospective effect from 1-4-2005. â–  On revenue's appeal: HELD â–  It is seen that the second proviso to section 40(a)(ia) was inserted by the Finance Act, 2012 with effect from 1st April 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 date of furnishing of return of income by the resident payee referred to in the said proviso'. [Para 9] â–  The first proviso to section 201 (1) of the Act has been…

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