|QUERY:||During the year, the amounts have been paid to the contractors and shown as ‘advances for supply of labour’. However, at the end of the year, the same have been transferred to ‘labour charges’, on which no tax was deducted. The Assessing Officer has disallowed the said payments under section 40(a)(ia) of the Act, whether action of Assessing Officer is correct?|
|ANSWER:||Section 40(a)(ia) reads as under:
“any interest, commission or brokerage rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139.
The Special Bench, Visakhapatnam in M/s. Merilyn Shipping & Transporters vs. ACIT in ITA No. 477/Viz/2008 on March 29,2012 has held the word ‘payable’ used in section 40a(ia) of the Income tax Act, 1961 has to be given its natural meaning and, going by strict interpretation, we are of the firm view that section 40(a)(ia) of the Act is applicable only to expenditure which is payable as on 31st March of every year and cannot be invoked to disallow the amounts which have already been paid during the previous year, without deducting tax at source.
The Tribunal further observed that the only word put in the provision of section 40(a)(ia) of the Act is “payable” and not “paid” or “credited’, rather Legislature consciously replaced the word “amounts credited or paid” with the work “payable” in the final enactment and such change was done with a purpose. We are of the view that presumption that enactment brought in by the Legislature by consciously replacing the words from ”credited” or “paid” to “payable” the intent has been made clear that only the outstanding amount or the provision for expenses are liable for TDS are to be disallowed in the event there is default in not following the TDS provisions under chapter XVII-B of the Act, No doubt the object of section 40(a)(ia) of the Act is to ensure that the TDS provisions as provided in chapter XVII-B is implemented without any default. As per section 40(a)(ia) of the Act any interest, commission or brokerage, rent, royalty fees for professional services or fees for technical services “payable” on which tax is not deducted or the tax is deducted but the same is not paid within the time allowed such amount shall be disallowed while computing the income. The sub section speaks the amount ‘payable” on which the tax is not deducted and therefore it should apply only if the amount is ‘payable’, but if the amount is already paid the provision of this section should not apply.
Similar, view has been taken by the Allahabad High Court in CIT v. Vector Shipping Services (P) Ltd. (357 ITR 642). Against the said decision, the Department preferred an SLP to the Supreme Court, who vide its order dated 2/7/14 in CC no. 8068/2014 has dismissed the said SLP.
|EXPERT:||CA. H. N. Motiwalla|
|CATCH WORDS:||disallowance, tax deducted at source|
Opinion Of Eminent Legal Luminaries On Controversial Issues
Can Disallowance U/s. 40a(ia) Be Made, When Amount Was Paid In Advance And Adjusted At The Year End?
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