Retrospective tax-compliance provisos require fresh verification before disallowing payments to resident payees under section 40(a)(ia).

Disallowance under section 40(a)(ia) could not be sustained on the earlier Merilyn Shipping view alone, as that view had lost efficacy. The provisos to section 40(a)(ia) and the corresponding proviso to section 201(1) were treated as curative and retrospective, so disallowance must be re-examined where the resident payee has filed a return, included the sum in income, and paid the tax due, and the payer is not an assessee in default. As the factual truth of the Form 26A and return-filing claims required verification, the matter was restored for fresh examination by the Assessing Officer.

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Issues: Whether disallowance under section 40(a)(ia) was sustainable and whether the matter required verification of the recipients' returns and tax compliance in light of the provisos to section 40(a)(ia) and section 201(1).

Analysis: The earlier deletion based on the Special Bench view in Merilyn Shipping could not be sustained because that view had lost efficacy. At the same time, the provisos inserted in section 40(a)(ia) and the corresponding proviso to section 201(1) were treated as curative in nature and therefore retrospective. The legal effect of those provisos is that where the resident payee has furnished a return, taken the sum into account, and paid tax due thereon, and the assessee is not treated as an assessee in default, the disallowance requires fresh examination. The assessee claimed that the recipients had filed returns and that Form 26A was available, but the factual veracity of those claims had to be verified.

Conclusion: The matter was set aside to the Assessing Officer for fresh verification and decision in accordance with law.

Final Conclusion: The disallowance issue was not finally adjudicated on merits and was restored for reconsideration after examining the payees' returns, tax payment status, and the assessee's default position.

Ratio Decidendi: The provisos to section 40(a)(ia) and section 201(1) are curative and retrospective, and disallowance cannot be sustained without verifying whether the resident payee has discharged the tax liability and the assessee is not an assessee in default.

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