The relief where the payee has paid the tax came in from 2013. Can I use it for an earlier year?
Yes. The Punjab & Haryana High Court held the second proviso to s.40(a)(ia) declaratory and curative, and therefore retrospective from 1 April 2005, so where the resident payee has offered the income in its return and paid tax, no disallowance can be made.
Decided by the High Court (Punjab & Haryana High Court — the judges are not established; the judgment itself has not been retrieved, and the later decision of the same Court that records it does not name the bench) on 2018-07-05, reported as (2018) 409 ITR 87 (P&H)(HC); ITA No. 558 of 2017, decided 5 July 2018. It bears on section 40(a)(ia), section 201, section 37(1) of the Income Tax Act 1961, in TDS Defaults and Deductions & Disallowances matters.
This closes out non-deduction disallowances in old years without arguing about whether tax was deductible at all. The mechanism matters when you draft: the proviso creates a fiction that the payer deducted and paid on the date the payee furnished its return, and it is read with the first proviso to s.201(1), which takes such a payer outside assessee-in-default status. The underlying rationale — that the revenue has suffered no loss — is what makes it worth pleading even where the deduction default is admitted.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee had made payments on which tax was not deducted at source and the Assessing Officer disallowed the expenditure under s.40(a)(ia). The resident payees had, however, taken the amounts into their own returns of income and paid tax on them. The assessment year was 2012-13. The assessee relied on the second proviso to s.40(a)(ia), inserted by the Finance Act, 2012 with effect from 1 April 2013, which relieves the payer where the payee has been assessed and has paid the tax. The question before the High Court was whether that proviso applied to an earlier year.
The second proviso to s.40(a)(ia) is declaratory and curative and operates retrospectively from 1 April 2005. Where the resident payee has offered the income to tax in its return, 'no disallowance can be made' under s.40(a)(ia).
The source records that the Court treated the second proviso, though expressed to take effect from 1 April 2013, as declaratory and curative and therefore retrospective from 1 April 2005. The proviso creates a legal fiction by which the payer is deemed to have deducted and paid the tax on the date the resident payee furnishes its return of income. The Court read the second proviso along with the first proviso to s.201(1), which carves out from 'assessee in default' status a payer whose resident payee has filed a return, taken the sum into account and paid the tax. That legislative scheme shows an intention to relieve the payer of a disallowance where the revenue has suffered no loss. Since the payee had returned the income, the disallowance could not stand.
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Handle my notice → Ask a CA on WhatsAppYes. The Punjab & Haryana High Court held the second proviso to s.40(a)(ia) declaratory and curative, and therefore retrospective from 1 April 2005, so where the resident payee has offered the income in its return and paid tax, no disallowance can be made. This was decided by the High Court (Punjab & Haryana High Court — the judges are not established; the judgment itself has not been retrieved, and the later decision of the same Court that records it does not name the bench) and bears on section 40(a)(ia), section 201, section 37(1) of the Income Tax Act 1961. It is reported as (2018) 409 ITR 87 (P&H)(HC); ITA No. 558 of 2017, decided 5 July 2018. This closes out non-deduction disallowances in old years without arguing about whether tax was deductible at all. The mechanism matters when you draft: the proviso creates a fiction that the payer deducted and paid on the date the payee furnished its return, and it is read with the first proviso to s.201(1), which takes such a payer outside assessee-in-default status. The underlying rationale — that the revenue has suffered no loss — is what makes it worth pleading even where the deduction default is admitted. If it applies to you, the first step is this: Obtain the payee's return of income and evidence that the specific sum was taken into account and tax paid on it, since the proviso is satisfied by that and nothing less.
The assessee had made payments on which tax was not deducted at source and the Assessing Officer disallowed the expenditure under s.40(a)(ia). The resident payees had, however, taken the amounts into their own returns of income and paid tax on them. The assessment year was 2012-13. The assessee relied on the second proviso to s.40(a)(ia), inserted by the Finance Act, 2012 with effect from 1 April 2013, which relieves the payer where the payee has been assessed and has paid the tax. The question before the High Court was whether that proviso applied to an earlier year. The matter was decided on 2018-07-05 by the High Court (Punjab & Haryana High Court — the judges are not established; the judgment itself has not been retrieved, and the later decision of the same Court that records it does not name the bench). On those facts the High Court held as follows. The second proviso to s.40(a)(ia) is declaratory and curative and operates retrospectively from 1 April 2005. Where the resident payee has offered the income to tax in its return, 'no disallowance can be made' under s.40(a)(ia).
The source records that the Court treated the second proviso, though expressed to take effect from 1 April 2013, as declaratory and curative and therefore retrospective from 1 April 2005. The proviso creates a legal fiction by which the payer is deemed to have deducted and paid the tax on the date the resident payee furnishes its return of income. The Court read the second proviso along with the first proviso to s.201(1), which carves out from 'assessee in default' status a payer whose resident payee has filed a return, taken the sum into account and paid the tax. That legislative scheme shows an intention to relieve the payer of a disallowance where the revenue has suffered no loss. Since the payee had returned the income, the disallowance could not stand.
It was decided by the High Court on 2018-07-05 and is reported as (2018) 409 ITR 87 (P&H)(HC); ITA No. 558 of 2017, decided 5 July 2018. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 40(a)(ia), section 201, section 37(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The second proviso to s.40(a)(ia) is declaratory and curative and operates retrospectively from 1 April 2005. Where the resident payee has offered the income to tax in its return, 'no disallowance can be made' under s.40(a)(ia). It arises in TDS Defaults and Deductions & Disallowances matters, on section 40(a)(ia), section 201, section 37(1) of the Income Tax Act 1961, and was decided by Punjab & Haryana High Court — the judges are not established; the judgment itself has not been retrieved, and the later decision of the same Court that records it does not name the bench. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Plead the second proviso together with the first proviso to s.201(1), because the Court read them as one scheme rather than as separate reliefs. Raise the point for assessment years before 2013-14 as well, and meet the objection that the proviso takes effect only from 1 April 2013 with the declaratory-and-curative reasoning.
The judgment itself could not be reached, so no check was possible. The judgment itself could not be found in a subscription database on five searches, and no citator entry for it could be checked; a search on the party name returns two documents in the whole database and neither is this decision. The Karnataka decision previously recorded as following it does not do so. In CIT, Belagaum v. S.M. Anand [2020] 120 taxmann.com 357 / [2020] 422 ITR 209 (Kar.), IT Appeal No. 100056 of 2014, decided 23 August 2019 by Mrs. S. Sujatha and N. K. Sudhindrarao, JJ., the judgment was read in full: 'CIT v. Shivpal Singh Chaudhary [2018] 409 ITR 87 (Punj. & Har.)' appears only in the list of authorities the assessee's senior counsel relied on at para 5, and the Court never discusses it. What the Karnataka Court followed, on the report's own case review, is Pr. CIT v. Perfect Circle India (P.) Ltd. (IT Appeal No. 707 of 2016, 7 January 2019), Hindustan Coca Cola Beverages (P.) Ltd. v. CIT [2007] 293 ITR 226 (SC), CIT v. Vatika Township (P.) Ltd. [2014] 367 ITR 466 (SC) and CIT v. Ansal Land Mark Township (P.) Ltd. [2015] 377 ITR 635 (Delhi); it distinguished the Kerala line in Prudential Logistics and Transports v. ITO [2014] 364 ITR 689 and Thomas George Muthoot v. CIT [2015] 235 Taxman 246. And the Karnataka Court answered the question in favour of the assessee expressly subject to the result of the appeal pending in the Supreme Court in the case of Tide Water Marine Intl. Inc. (Civil Appeal No. 1248 of 2016), so even that support is conditional. That appeal has now been traced to its source: the decision under challenge is CIT, Meerut v. Tide Water Marine Intl. Inc. [2009] 177 Taxman 150 (Uttaranchal), decided 28 July 2008 in favour of the assessee. Its citator records one thing only - that it was approved in [2011] 198 Taxman 518 (Uttaranchal) - and no Supreme Court decision against it. On that record the Supreme Court appeal is still undecided. Two things have since been established from a primary source, and they change this note. First, the decision has been identified: it is Pr. Commissioner of Income Tax-2, Chandigarh v. Shivpal Singh Chaudhary, ITA No. 558 of 2017, Punjab and Haryana High Court, decided 5 July 2018. Second, a later Division Bench of the same Court does apply it. In Pr. CIT-2, Chandigarh v. M/s Mobisoft Telesolutions Pvt Ltd, ITA No. 495 of 2017 (O&M), decided 3 October 2018 by Ajay Kumar Mittal and Avneesh Jhingan, JJ., the Court records at para 14: 'This Court in Pr. Commissioner of Income Tax-2, Chandigarh Vs. Shivpal Singh Chaudhary (ITA No. 558 of 2017) on 05.07.2018, agreeing with the view of Delhi High Court in CIT vs. Ansal Land Mark Township Private Limited, (2015) 377 ITR 635 (Delhi) held that the second proviso to Section 40(a)(ia) and first proviso to Section 201(1) of the Act though inserted by Finance Act, 2012, would be applicable retrospectively w.e.f. 01.04.2005.' That is a decision of the same High Court stating what this one held, and it is the first positive treatment traced. Note that the holding so recorded covers the first proviso to s.201(1) as well as the second proviso to s.40(a)(ia), and rests on agreement with Ansal Land Mark Township. The status is left at 'unverified' only because the judgment's own text has still not been read. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The text of this judgment has not been traced, on the party name, on the surname or on the citation 409 ITR 87. The only decision that surfaces is the Karnataka High Court in CIT, Belagaum v. S.M. Anand [2020] 120 taxmann.com 357 / [2020] 422 ITR 209, which cites it in a list of authorities. The judges and the nature of the payments are therefore still unknown, and the holding recorded here comes from a digest rather than from the judgment. The quote previously carried was a digest fragment and has been removed. Three further corrections. The Karnataka High Court did not follow this decision: it followed Ansal Land Mark Township, Vatika Township, Hindustan Coca Cola Beverages and Perfect Circle India, and this decision appears only in counsel's citations at para 5. That Court answered the question in favour of the assessee subject to the outcome of the Supreme Court appeal in Tide Water Marine Intl. Inc., Civil Appeal No. 1248 of 2016; the decision under appeal there is now identified as CIT, Meerut v. Tide Water Marine Intl. Inc. [2009] 177 Taxman 150 (Uttaranchal), 28 July 2008, and no Supreme Court decision on that appeal has been traced, so it appears to be undecided still. And the cause title has now been settled from a primary source, correcting what was recorded here before. The Punjab and Haryana High Court itself, in Pr. CIT-2, Chandigarh v. M/s Mobisoft Telesolutions Pvt Ltd, ITA No. 495 of 2017 (O&M), decided 3 October 2018 by Ajay Kumar Mittal and Avneesh Jhingan, JJ., refers at para 14 to 'Pr. Commissioner of Income Tax-2, Chandigarh Vs. Shivpal Singh Chaudhary (ITA No. 558 of 2017) on 05.07.2018'. So the appellant is the Principal Commissioner, the case number is ITA No. 558 of 2017 and the date is 5 July 2018; the earlier 'correction' to 'CIT' was made off a digest and has been reversed. The ITR report is indexed as 'CIT v. Shivpal Singh Chaudhary', so a reader may find it under either name. The judgment text remains unread. Searching on the party name, on the case number and on the party name restricted to that Court turns up only the Mobisoft judgment, so the Bench that decided it is still unknown, and the s.37(1) tag carried below has not been checked against the judgment itself. One trap to avoid when arguing this point: the Finance Act 2010 amendment held curative in CIT v. Calcutta Export Co. concerns how long a deductor has to deposit the tax, and is not authority on the second proviso inserted by the Finance Act 2012. The two amendments are often run together and they are not the same question. The judgment is not in the subscription database consulted; the judges, date, appeal number and the nature of the payments remain unknown and the holding is second-hand. The appeal in the Supreme Court on the retrospectivity point, Civil Appeal No. 1248 of 2016 against CIT v. Tide Water Marine Intl. Inc. [2009] 177 Taxman 150 (Uttaranchal), has been identified but no decision on it is recorded in that database, so its outcome remains unknown. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The second proviso to s.40(a)(ia) is declaratory and curative and operates retrospectively from 1 April 2005. Where the resident payee has offered the income to tax in its return, 'no disallowance can be made' under s.40(a)(ia).
TaxSphere, “Pr. CIT v Shivpal Singh Chaudhary”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-shivpal-singh-chaudhary-second-proviso/ (validity last checked 2026-08-23)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
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