Section 40a(ia) provides that
if 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,
then such expenses shall not be deducted in computing the income chargeable
under the head “Profits and gains of business or profession.
The prevailing perception is that while conducting Tax Audit u/s
44AB, all those expenses of the above nature , if paid at any point of time
during the previous year without deduction of TDS, are to be disallowed as per
sec 40a(ia).
In the above context the ITAT Chandighar has given a ruling in
the case Income-tax Officer Versus Smt. Vandana Goel (A.Y. 2007-08, order dated
28-05-2012) as under:
The provisions of section 40(a)(ia) of the Act
are applicable only to the amounts of expenditure which are payable as on the
date 31st March of every year and it cannot be invoked to disallow which had
been actually paid during the previous year, without deduction of TDS.
The IT Act 2012 also uses the same word “Payable” and not
“amount credited or paid”
Though logically it follows that the intent of the sec 40a(ia)
is to cover all expenses, whether paid or payable, but the ITAT ruled that
while interpreting the word “payable” in this provision, the word of a statute
must be understood in its natural, ordinary or popular sense and construed
according to its grammatical meaning. It is a cardinal principle of interpretation
that the words of a statute must be prima facie given their ordinary meaning,
when the words of the statute are clear, plain and unambiguous then the courts
are bound to give effect to that meaning. The literal rule of interpretation
really means that there should be no interpretation of the statute, rather in
other words, we should read the statute as it is without doing any violence to
the language. In the present dispute before us, the word “payable” used in
section 40(a)(ia) of the Act is to be assigned strict interpretation, in view
of the object of Legislation, which is intended from the replacement of the
words in the proposed and enacted provision from the words “amount credited or
paid” to “payable”.
Now
extending the logic of the ITAT further, the word “Payable” may also mean
payable on any date and not necessarily payable only on 31st March of any particular year. For
example the TDS liability accrues month-on-month basis in many cases like
payment to a contractor, Salary, professional service etc when they are
provided continuously throughout the year under terms of a contract. In such
cases the TDS liability accrues at the end of every month, being co-terminus
with the accrual of the liability of the principal sum. In such cases, the
moment you book a bill for such services, the liability to TDS is also
attracted simultaneously, though allowed to be paid in the next month. The moot
point in such cases is that the TDS liability has accrued and became payable
immediately and following the prescribed accounting principles, the same will
be recorded in the books of accounts simultaneously with the recording of the
liability of the principal sum. In such a case one can argue that the liability
for TDS was “Payable” on the last date of the month in which one received the
services. Once it becomes so “Payable” , it is squarely covered by the
section 40a(ia). What is paid in the next month is in discharge of an already
accrued liability and, if paid, without TDS, then , as per the ratio of this ruling
of the ITAT, TDS must have been paid in respect of such expenses and when not
paid before the prescribed date the same would be covered by the mischief of
section 40a(ia). To this extent the ruling given that it should be payable only
on 31st March may be disputed by many Ld.
academicians.
In any case, even if the ratio of the ruling is accepted then
also an assessee may not have a sigh of relief because the section may soon be
amended by the Parliament retrospectively in which cases past completed
assessment may be reopened to give effect to the retrospective amendment. Now
it all depends upon the wisdom of the Parliament.
While following the above ruling, readers are advised to check
if there is any amendment to the above provision which is enacted somewhere
else in the ACT by an indirect reference to section 40a(ia).
The above write up is the absolute personal opinion of the
writer and does not amount to an expert legal opinion. It may or may not depict
the legal position sought to be conveyed by the statute. Readers are cautioned
to evaluate the actual legal position before acting on this write up.
Further, this write up is meant only for an academic interest and not for any
other purpose.
