SC: Disallowance under Section 40(a)(ia) of the Income Tax Act also relates to amount already paid

The Hon’ble Supreme Court, on 29th July 2020, in the matter of Shree Choudhary Transport Company vs. Income Tax Officer held that disallowance under Section 40(a)(ia) of the Income Tax Act, 1961  is not confined/limited to the amount “payable” and also relates to the amount “already paid”.

Whether disallowance under Section 40(a)(ia) of the Income Tax Act, 1961  is confined/limited to the amount “payable” and not to the amount “already paid” ?

In the overall scheme of the provisions relating to collection and recovery of tax, it is evident that the object of legislature in introduction of the provisions like sub-clause (ia) of clause (a) of Section 40 had been to ensure strict and punctual compliance of the requirement of deducting tax at source. In other words, the consequences, as provided therein, had the underlying objective of ensuring compliance of the requirements of TDS. It is also noteworthy that in the proviso added to clause (ia) of Section 40(a) of the Act, it was provided that where in respect of the sum referable to TDS requirement, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid in any subsequent year after the expiry of the time prescribed in Section 200(1), such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. (Para 16.2)

It is ex facie evident that the term “payable” has been used in Section 40(a)(ia) of the Act only to indicate the type or nature of the payments by the assessees to the payees referred therein. In other words, the expression “payable” is descriptive of the payments which attract the liability for deducting tax at source and it has not been used in the provision in question to specify any particular class of default on the basis as to whether payment has been made or not. (Para 16.7)

The contention that disallowance under Section 40(a)(ia) does not relate to the amount already paid stands rejected. (Para 16.9)

It needs hardly any detailed discussion that in income tax matters, the law to be applied is that in force in the assessment year in question, unless stated otherwise by express intendment or by necessary implication. (Para 17.4)

Copy of judgement: Judgement_29-Jul-2020

-Adv. Tushar Kaushik

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