The Special Bench of the Vishakhapatnam Income Tax Appellate Tribunal in the case of M/s. Merilyn Shipping & Transports vs. ACIT, Range – 1, Vishakhapatnam (ITA No. 477/Viz/2008) had held that the provisions of Section 40(a)(ia) of the Income Tax Act, 1961 (ITA) are applicable only with respect to the amount ‘payable’ at the end of the year and would not apply to the amount actually ‘paid’ during the year. Section 40(a)(ia) of the ITA provides for the disallowance of expenditure on which tax is deductible at source (TDS) and has not been deducted or after deduction has not been deposited with the government treasury. Also, in this decision of the Tribunal, there were dissenting views between the Accountant Member and the Judicial Member, wherein the Accountant Member was of the view that the provisions of Section 40(a)(ia) would apply not only to the amount remaining outstanding at the end of the year but even to the amount paid during the year, whereas the Judicial Member was of the view that they would apply only to the amount remaining outstanding at the end of the year. Due to the difference in opinion between the two members of the Tribunal, the matter was referred to the Vice President of the Tribunal who concurred with the view of the Judicial Member to hold that the provisions of Section 40(a)(ia) would apply only to the amount remaining outstanding at the end of the year. This decision was also discussed in our Tax Alert “Disallowance of expense due to non deduction of tax at source” dated 24 April 2012. Thereafter, the Andhra Pradesh High Court had issued an interim suspension order on this order of the Tribunal. This tax alert discusses the decision on a similar issue that came up recently before the Kolkata High Court in the case of CIT vs. Crescent Export Syndicate (ITAT 20 of 2013).
Issue before the High Court
Whether the provisions of Section 40(a)(ia) are applicable to the amount ‘paid’ during the year and not only to the amount ‘payable’ at the end of the year.
Contentions of the Revenue
The Revenue mainly relied on the following observations made by the Accountant Member in the case of Merilyn Shipping & Transports:
- The terms ‘credited’ or ‘paid’ come within the ambit of the term ‘payable’ and therefore, the two terms ‘credited or paid’ were superfluous and were accordingly dropped while inserting the final provisions of Section 40(a)(ia).
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