The
CBDT has issued a circular on Section 40(a)(ia) of the Income Tax Act,
1961 clarification regarding payable include amount paid during the
year. The detailed circulars is as follows:
CIRCULAR No 10/DV/2013 (Departmental View)
F. No. 279/Misc./M-61/2012-ITJ (Vol.-II)
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
New Delhi, the December 16th 2013
Subject: Circular on Section 40(a)(ia) of the Income Tax Act, 1961-reg.
It
has been brought to the notice of the Board that there are conflicting
interpretations by judicial authorities regarding the applicability of
the provisions of section 40(a)(ia) of the Income-tax Act, 1961 (`the
Act’) with regard to the amount not deductible in computing the income
chargeable under the head ‘Profits and gains of business or profession”.
2. Section 40(a)(ia) of the Act 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…”.
3.
In the case of Merilyn Shipping & Transports v. Addl. CIT, it was
held by Special Bench of ITAT, Vishakhapatnam, that the provisions of
section 40(a)(ia) of the Act would apply only to the amount which
remained payable at the end of the relevant financial year and could not
be invoked to disallow the amount which had actually been paid during
the previous year without deduction of tax at source. The order of the
Special Bench has since been put under interim suspension by the Andhra
Pradesh High Court.
3.1
The Hon’ble Calcutta High Court and Hon’ble Gujarat High Court in the
case of Commissioner of Income-tax, Kolkata-XI v. Crescent Exports
Syndicate and Commissioner of Income-tax-IV v. Sikandarkhan N Tunvar
respectively, have held that section 40(a)(ia) of the Act would cover
not only the amounts which are payable at the end of the previous year
but also which are payable at any time during the year.
3.2
The Hon’ble High Courts have further held that the intention of the
legislation was to disallow certain types of expense, subject to
provisions of Chapter XVII-B, which are payable at any time during the
year but no tax was deducted at source or if deducted was not paid
within the stipulated time. There is no such condition that amount
should remain payable at the end of the year.
3.3
The Hon’ble Allahabad High Court in CIT v. Vector Shipping Service (P)
Ltd. has affirmed the decision of the Special Bench in Merilyn Shipping
that for disallowance under section 40(a) (ia) of the Act, the amount
should be payable and not which has been paid during the year. However,
the decisions of the Hon’ble Gujarat and Calcutta High Courts (supra)
were not brought to the attention of the Hon’ble Allahabad High Court.
3.4
In the case of ACIT, Circle 4(2), Mumbai v. Rishti Stock and Shares
Pvt. Ltd. in ITA No. 112/Mum/2012, Hon’ble ITAT, Mumbai in its order
dated 02-08-2013 has examined the decision of the Hon’ble Allahabad High
Court (supra) as regards to section 40(a)(ia) of the Act and concluded
that the same was an ‘orbiter dicta’ while the decisions of the Hon’ble
Gujarat and Calcutta High Court (supra) were ‘ratio decidendi’. The ITAT
accordingly applied the view taken by the Hon’ble Gujarat and Calcutta
High Court as ratio decidendi prevails over an orbiter dicta.
4.
After careful examination of the issue, the Board is of the considered
view that the provision of section 40(a) (ia) of the Act would cover not
only the amounts which arc payable as on 31st March of a previous year
but also amounts which are payable at any time during the year. The
statutory provisions are amply clear and in the context of section 40(a)
(ia) of the Act the term “payable” would include “amounts which are
paid during the previous year”.
5.
Where any High Court decides an issue contrary to the ‘Departmental
View’, the `Departmental View’ thereon shall not be operative in the
area falling in the jurisdiction of the relevant High Court. However,
the CCIT concerned should immediately bring the judgement to the notice
of the CTC. The CTC shall examine the said judgement on priority to
decide as to whether filing of SLP to the Supreme Court will be adequate
response for the time being or some legislative amendment is called
for.
6. The above clarification may be brought to the notice of all officers.
(Priyanka Singh)
Dy. Commissioner of Income Tax (OSD) (ITJ)
