Retrospective TDS relief under section 40(a)(ia) protects payers when resident payees have already returned and paid tax.

The second proviso to section 40(a)(ia) of the Income-tax Act, inserted from 1 April 2013, is treated as retrospective and curative because it follows the same principle as the proviso to section 201(1): where the resident payee has filed its return, included the amount in income, and paid tax, the payer should not suffer disallowance for non-deduction of tax at source. The amendment is described as remedial and intended to remove undue hardship where the revenue has suffered no loss. Accordingly, the disallowance for job-work payments could not be sustained once the recipient had already paid tax on the amount.

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Issues: Whether the second proviso to section 40(a)(ia) of the Income-tax Act, 1961, inserted with effect from 1 April 2013, is retrospective so as to apply to assessment year 2012-13 and protect the assessee from disallowance for non-deduction of tax at source where the payee had accounted for the income and paid tax.

Analysis: The proviso to section 201(1) and the second proviso to section 40(a)(ia) operate on the same principle: where the resident payee has furnished its return, included the amount in income, and paid tax, the payer is not to be treated as in default. The amendment was held to be remedial in nature, intended to remove undue hardship and avoid a disallowance where the revenue has suffered no loss. The Court preferred the view that such a curative provision must be applied retrospectively from the date section 40(a)(ia) was introduced.

Conclusion: The second proviso to section 40(a)(ia) is retrospective and applies to the assessment year in question. The deletion of the disallowance was in law and the issue is decided in favour of the assessee.

Final Conclusion: The addition made for non-deduction of tax at source on job-work payments could not be sustained once the payee had already reflected the receipt in its return and paid tax, and the revenue's appeal therefore failed.

Ratio Decidendi: A proviso enacted to cure unintended hardship and to prevent disallowance where the corresponding income has already been taxed in the hands of the recipient is declaratory and operates retrospectively.

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