INCOME TAX ACT, 1961

Section 40(a)(ia)

Disallowance under section 40(a)(ia) - Validity of - Statutary liability on account of tax deduction at source payable -

Assessee-firm had shown statutory liability on account of tax deduction at source payable. As assessee was following cash system of accounting, whereby only payments which have been made during the year can be claimed as deductible expenditure, therefore, AO was of the view that above tax deduction at source, which was not paid by assessee, out of the various expenditure could not be allowed as a deduction of expenses. CIT(A) upheld the order of AO. Held: According to provisions of section 198, tax deducted in accordance with the provisions of the income tax act was deemed to be the income received by recipient of the income. Thus, it could not be said that assessee had not paid the amount of tax deducted at source to the recipient of the income from whose payments the tax have been deducted. In fact the moment assessee deducts the tax at source from the sums paid to the other person it becomes the liability of assessee who can be held to be an assessee in default. Amount of tax deducted at source is always considered as the sum paid by assessee on behalf of recipient of income. Therefore, it cannot be said that the said sum was not paid by assessee even while following the cash system of accounting. Accordingly, appeal of assessee on issue of the disallowance made by AO was allowed.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2013-14

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