Commissioner of Incometax v. Crescent Export Syndicate

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The Tax PublishersITAT Nos. 20 & 30 of 2013 GA Nos. 190 & 319 of 2013 2013 TaxPub(DT) 2124 (Cal-HC) : (2014) 055 (I) ITCL 0068 : (2013) 262 CTR 0525 : (2013) 216 TAXMAN 0258 : (2013) 094 DTR 0081 Business disallowance under section 40(a)(ia)--Interest, etc. payable to resident without deduction of tax at source--Applicability of provisions Assessee failed to deduct tax at source from interest, etc. paid to resident. The assessing officer disallowed the entire expenditure. The Commissioner (Appeals) confirmed the disallowance. The Tribunal held that in case of omission to deduct tax at source, even the genuine and admissible expenses are to be disallowed. However, the Tribunal sought to remove the rigors of law by holding that disallowance shall be restricted to the money which is yet to be paid. *Held* : The supply of casus omissus is not permissible and this could only have been done by Supreme Court in an appropriate case. Only those expenses on which tax is deductible at source can be disallowed. As assessee was liable to deduct tax at source from the payment of expenditure by way interest, etc. made to resident and he had not done so, therefore, such payment could be disallowed by invoking the provisions of section 40(a)(ia). Income Tax Act, 1961 --Business disallowance under section 40(a)(ia)--Amount paid vis-a-vis payable--The case of assessee was that section 40(a)(ia) creates a legal fiction for the amounts outstanding or remain payable, i.e., at the end of every year as on 31st March and it could not be extended for taxing the amounts already paid. The case of revenue was that the provisions of section 40(a)(ia) are applicable not only to the amount which is shown as payable on the date of balance sheet, but it is applicable to such expenditure, which become payable at any time during the relevant previous year and was actually paid within the previous year. *Held :* The key words used in section 40(a)(ia), are 'on which tax is deductible at source under Chapter XVII-B'. If the question is 'which expenses are sought to be disallowed ?' The answer is bound to be 'those expenses on which tax is deductible at source under Chapter XVII-B. Once this is realized nothing turns on the basis of the fact that the legislature used the word 'payable' and not 'paid or credited'. Unless any amount was payable, it could neither be paid nor credited. If an amount has neither been paid nor credited, there could be no occasion for claiming any deduction. The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It was not the case of an inadvertent error. SUBSCRIBE FOR FULL CONTENT

The Tax PublishersITAT Nos. 20 & 30 of 2013 GA Nos. 190 & 319 of 2013
2013 TaxPub(DT) 2124 (Cal-HC) : (2014) 055 (I) ITCL 0068 : (2013) 262 CTR 0525 : (2013) 216 TAXMAN 0258 : (2013) 094 DTR 0081

Business disallowance under section 40(a)(ia)--Interest, etc. payable to resident without deduction of tax at source--Applicability of provisions

Assessee failed to deduct tax at source from interest, etc. paid to resident. The assessing officer disallowed the entire expenditure. The Commissioner (Appeals) confirmed the disallowance. The Tribunal held that in case of omission to deduct tax at source, even the genuine and admissible expenses are to be disallowed. However, the Tribunal sought to remove the rigors of law by holding that disallowance shall be restricted to the money which is yet to be paid.

Held : The supply of casus omissus is not permissible and this could only have been done by Supreme Court in an appropriate case. Only those expenses on which tax is deductible at source can be disallowed. As assessee was liable to deduct tax at source from the payment of expenditure by way interest, etc. made to resident and he had not done so, therefore, such payment could be disallowed by invoking the provisions of section 40(a)(ia).

Income Tax Act, 1961

--Business disallowance under section 40(a)(ia)--Amount paid vis-a-vis payable--The case of assessee was that section 40(a)(ia) creates a legal fiction for the amounts outstanding or remain payable, i.e., at the end of every year as on 31st March and it could not be extended for taxing the amounts already paid. The case of revenue was that the provisions of section 40(a)(ia) are applicable not only to the amount which is shown as payable on the date of balance sheet, but it is applicable to such expenditure, which become payable at any time during the relevant previous year and was actually paid within the previous year. Held : The key words used in section 40(a)(ia), are 'on which tax is deductible at source under Chapter XVII-B'. If the question is 'which expenses are sought to be disallowed ?' The answer is bound to be 'those expenses on which tax is deductible at source under Chapter XVII-B. Once this is realized nothing turns on the basis of the fact that the legislature used the word 'payable' and not 'paid or credited'. Unless any amount was payable, it could neither be paid nor credited. If an amount has neither been paid nor credited, there could be no occasion for claiming any deduction. The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It was not the case of an inadvertent error.