Retrospective second proviso to section 40(a)(ia) applied to require fresh assessment under the curative tax-default principle.

The Tribunal modified its earlier appellate order because it had not expressly considered the assessee's reliance on later authority treating the second proviso to section 40(a)(ia) as declaratory, retrospective and curative. It held that this omission justified recalling the order to that extent and directed fresh adjudication by the Assessing Officer in light of the retrospective operation of the proviso. The Tribunal also noted the related section 201(1) principle that no default survives where the resident payee has filed a return and paid tax on the income embedded in the payment.

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Issues: Whether the miscellaneous applications were liable to be allowed by modifying the earlier appellate order so as to apply the second proviso to section 40(a)(ia) of the Income-tax Act, 1961, in the light of the decision holding it to be retrospective and curative.

Analysis: The earlier order had restored the disallowance issues to the Assessing Officer for fresh decision, but did not expressly take note of the assessee's reliance on the later High Court ruling that the second proviso to section 40(a)(ia) is declaratory and curative. The Tribunal treated this omission as material and concluded that the order required modification. It directed the Assessing Officer to reconsider the disallowance while applying the legal position emerging from the retrospective operation of the proviso and the related principle under section 201(1) that no default survives where the resident payee has filed return and paid tax on the income embedded in the payment.

Conclusion: The miscellaneous applications were allowed to the extent of modification of the earlier order, and the Assessing Officer was directed to decide the matter afresh in accordance with the retrospective curative interpretation of the second proviso to section 40(a)(ia).

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