Word ‘Payable’ In Section 40(A) (Ia) Of Income Tax Act Also Covers Amount Actually ‘Paid’: SC [Read Judgment]

It would also cover the situations where the amount is already paid but no advance tax was deducted thereupon, the bench said.

The Supreme Court, in Palam Gas Service vs Commissioner of Income Tax, has held that though the word used in Section 40(a) (ia) of the Income Tax Act, is 'payable',   it would also cover the situations where the amount is already paid, but no advance tax was deducted thereupon.

A bench comprising Justice AK Sikri and Justice Ashok Bhushan extensively quoted the judgments of high courts of Punjab & Haryana, Madras and Calcutta in this regard and affirmed the same.

The court also overruled the Allahabad High Court judgment, which had held that Section 40(a) (ia) would apply only when the amount is 'payable'.

Section 40 of the Act enumerates certain situations wherein expenditure incurred by the assessee, in the course of his business, will not be allowed to be deducted in computing the income chargeable under the head 'Profits and Gains from Business or Profession'.

Section 40(a) (ia) states that certain payments made, which includes amounts payable to a contractor or sub-contractor, would not be allowed as expenditure in case the tax is deductible at source on the said payment under Chapter XVIIB of the Act and such tax has not been deducted or, after deduction, has not been paid during the previous year or in the subsequent year before the expiry of the time prescribed under sub-section (1) of Section 200 of the Act.

In the instant case, an assessee, who made freight payment without deducting tax at source, was not allowed by the assessing officer to deduct the said expenditure in view of Section 40 (a) (ia). The assessing officer’s view was affirmed by the ITAT and thereafter, by the Himachal Pradesh High Court. The sole contention of the assesse was that this Section would cover only those contingencies where the amount is due and still payable.

On an appeal to apex court, the bench, referring to Section 194C and 200 of the I-T Act, observed that not only a person, who is paying to the contractor, is supposed to deduct tax at source on the said payment whether credited in the account or actual payment made, but also deposit that amount to the credit of the Central government within the stipulated time.

The court said it cannot be held that the word 'payable' occurring in Section 40(a)(ia) refers to only those cases where the amount is yet to be paid and does not cover the cases where the amount is actually paid.

“If the provision is interpreted in the manner suggested by the appellant herein, then even when it is found that a person, like the appellant, has violated the provisions of Chapter XVIIB (or specifically Sections 194C and 200 in the instant case), he would still go scot free, without suffering the consequences of such monetary default in spite of specific provisions laying down these consequences,” the bench held.

Overruling the Allahabad High Court view in this regard, it observed: “No doubt, the Special Leave Petition there against was dismissed by this Court in limine. However, that would not amount to confirming the view of the Allahabad High Court.”

Read the Judgment here.