Second proviso relief under section 40(a)(ia) applies only from the assessment year tied to the payee's return filing date.

The second proviso to section 40(a)(ia) grants deemed deduction and payment of tax at source only from the assessment year corresponding to the date on which the resident payee furnishes its return of income, where the assessee is not treated as an assessee in default under section 201. On the facts noted, the payee filed its return in the financial year relevant to assessment year 2014-15, so the relief was not available for assessment year 2013-14. The later amendment relied upon did not change this result, and the disallowance was sustained.

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Issues: Whether the assessee was entitled to claim the benefit of the second proviso to section 40(a)(ia) of the Income-tax Act, 1961 in the assessment year under appeal, where the payee had filed its return of income only in the subsequent assessment year.

Analysis: The payment of finance charges was made without deduction of tax at source and the assessee sought relief under the second proviso to section 40(a)(ia). That proviso deems tax to have been deducted and paid on the date the resident payee furnishes its return of income, provided the assessee is not treated as an assessee in default under section 201. On the facts found, the recipient filed its return of income on 28.11.2013, which fell in the financial year relevant to assessment year 2014-15. The statutory benefit therefore accrued only from that subsequent assessment year and not for assessment year 2013-14. The later amendment relied upon by the assessee related to a different provision and did not alter this result.

Conclusion: The assessee was not entitled to the deduction in assessment year 2013-14 and the disallowance under section 40(a)(ia) was sustained.

Ratio Decidendi: The deeming relief under the second proviso to section 40(a)(ia) becomes available only from the assessment year corresponding to the date on which the resident payee furnishes its return of income.

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