1.  Rajeev Kumar Agarwal Vs. ACIT, I.T.A. No. 337/Agra/2013, Date of Order: 29.05.2014, ITAT - Agra

Insertion of second proviso to section 40(a)(ia) by the Finance Act, 2012 is  “declaratory and curative in nature”, therefore it gives a retrospective effect from the date from which sub clause (ia) of section 40(a) inserted i.e. 01.04.2005.

Assessee an individual made certain payment of interest without deducting TDS u/s 194A of Income-tax Act, 1961. AO disallow the assessee’s claim of interest u/s 40(a)(ia) r.w.s. 194A of the act for the reason that  the scope of section 40(a)(ia) restricting deduction in respect of sums in respect of which tax withholding liability is not discharged. Assessee contended that that the recipients of the interest had already included the income embedded in these payments in their tax returns filed under section 139, disallowance under section 40(a)(ia) could not be invoked in this case. It also submit that even though this proviso is stated to be effective 1st April 2013, since the amendment in “declaratory and curative in nature, and, therefore, it should be given retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004”.

Hon’ble ITAT held that section 40(a)(ia) cannot be seen as intended to be a penal provision to punish the lapses of non deduction of tax at source from payments for expenditure- particularly when the recipients have taken into account income embedded in these payments, paid due taxes thereon and filed income tax returns in accordance with the law. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005.

(Please click here for judgment)

2.  DCIT Vs. Shri Harnamsingh Kulbirsingh Maker, I.T.A. No. 5170/Mum/2012, Date of Order: 10.10.2014, ITAT - Mumbai

Provision of section 194A of Income-tax Act, 1961 is not applicable on Hundi discount charges as the same are different from interest.

Assessee a proprietor filed his return of income for A.Y. 2009-10 and claim deduction of finance charges on account of discount on hundi. TDS on same was not deducted by assessee. During the course of the scrutiny the assessment proceedings the AO disallow the assessee’s claim u/s 40(a)(ia) on the basis that assessee failed to deduct TDS u/s 194A of the Act. In reply to above assessee submitted that provision of section 194A are not attracted as the said expenses are only discount and not interest and are covered by Circular No. 647 dated 22.03.1993 of the CBDT, and therefore, provisions of section 40(a)(ia) are also not applicable.

Hon’ble ITAT in view of Circular No. 647 held that the difference between the issue price and the face value of the Commercial Papers and the Certificates of Deposits is to be treated as 'discount allowed' and not as 'interest; paid'. Hence, the provisions of the Income-tax Act relating to deduction of tax at source are not applicable in the case of transactions in these two instruments.
In the result, the appeal filed by the Revenue is dismissed.

(Please click here for judgment)