Hon’ble High Court of Punjab and Haryana,
P.M.S Diesels Vs. CIT [ITA No. 716 of 2009]
Question of Law:
Whether the disallowance contemplated by Section 40(a)(ia) can be applied when payments in respect of which tax is deductible at source has already been made by the assessee to the payee at the time of computing the income chargeable under the head “profits and gains of business or profession” i.e. at the close of the year.
The appellant did not deduct TDS on expenses such as freight, wages, advertisement and publicity. The appellant’s accountant admitted that TDS had not been deducted in respect of the payments made/deemed to have been made by the appellant, who follows the mercantile system. The assessing officer, in view of Section 40(a)(ia) disallowed the expenses in respect whereof TDS was liable to be deducted and paid.
The appellant filed appeal before Ld. CIT(A) and Ld. CIT(A) held that amount ‘payable’ under Section 40(a)(ia) does not refer to amount payable from the beginning of the year but the amount payable at the close of the year. Accordingly, the disallowance was restricted to amount payable at the close of the year out of total amount disallowed.
The Hon’ble Tribunal accepted the case of the revenue and reversed the order of the Ld. CIT(A). The assessee approached the Hon’ble Court against the decision of the Tribunal.
The Hon’ble High Court of Punjab and Haryana held that:
- The requirement to deduct tax at source is mandatory and that the provisions of section 40(a)(ia) apply to assessees who follow the cash system as well as assessees who follow the mercantile system.
The argument that section 40(a)(ia) applies only to amounts which are “payable” and not to amounts that are already “paid” is also not acceptable. The error in the submission on behalf of the appellant is in reading the term “payable” in isolation. The entire provision must be read as a whole. In Section 40, the term “payable” is used to denote the nature of the default and the consequence thereof. (Commissioner of Income Tax vs. Crescent Export Syndicate (2013) 216 Taxman 258 (Cal) andCommissioner of Income Tax vs. Sikandar Khan N. Tunwar (2013) 357 ITR 312 (Guj) followed in which it was held that the decision of the Special Bench of the Tribunal in the case of M/s Merilyn Shipping & Transports Vs. ACIT 136 ITD 23 (SB), does not lay down correct law.)