INCOME TAX ACT, 1961

Section 40(a)(ia)

Business disallowance under section 40(a)(ia) - Non-deduction of tax at source - Payments made to tribal persons - Payments not chargeable to tax in hands of payee

AO observed that assessee-company made payment for hiring of loader and excavator without deduction of tax at source. Further, the AO observed that the assessee also paid land rent to limestone mine owners without deduction of tax at source. Accordingly, the AO made disallowance under section 40(a)(ia) in respect of both the payments made by the assessee. Assessee contended that the said payments were made to local tribals, who were exempt from income tax under section 10(26), thus, it was not required to deduct tax at source from the payments made to them. Held: Since amounts paid by assessee towards hiring of loader and excavator and land rent to tribal persons were not chargeable to tax, the assessee was not liable to deduct tax at source from the said payments and accordingly, the AO was not justified in disallowing such payments under section 40(a)(ia).

REFERRED : GE India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC): 2010 TaxPub(DT) 2241 (SC)

FAVOUR : In assessee's favour

A.Y. : 2013-14

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