07 July, 2014

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Section 40(a)(ia) disallowance applies only to amounts “payable” as of 31st March and not to amounts already “paid” during the year dismissed

Dept’s SLP against High Court’s verdict that s. 40(a)(ia) disallowance applies only to amounts “payable” as of 31st March and not to amounts already “paid” during the year dismissed
In CIT vs. Vector Shipping Services (P) Ltd 357 ITR 642, the Allahabad High Court held that disallowance u/s 40(a)(ia) applies only to amounts “payable” as of 31st March and not to amounts already “paid” during the year. The majority judgement in Merilyn Shipping 136 ITD 23 (SB) was approved. The department filed a Special Leave Petition (SLP) in the Supreme Court. The said SLP has been dismissed by the Supreme Court in limine.
Unfortunately, though the Dept has issued a detailed Circular No. 10/DV/2013 dated 15.12.2013 on the point, it appears to have omitted to draw the Supreme Court’s attention to the Circular and the judgements in Crescent Export Syndicate 216 TM 258 (Cal)/ Md. Jakir Hossain Mondal 33 TM.com 123 (Cal) and Sikandarkhan Tunvar 357 ITR 312 (Guj) which have taken a view contrary to that of the Allahabad High Court.

Related Judgements
  • CIT vs. Vector Shipping Services (P) Ltd (Allahabad High Court) 
S. 40(a)(ia) disallowance applies only to amounts “payable” as of 31st March and not to amounts already “paid” during the year. Merilyn Shipping (SB) approved
The revenue cannot take any benefit from the observations made by the Special Bench of the Tribunal in Merilyn Shipping and Transport Ltd 136 ITD…
  • ITO vs. M/s.Theekathir Press (ITAT Chennai) 
S. 40(a)(ia) TDS Disallowance: View in favour of the assessee should be followed
There is a judicial controversy on whether s. 40(a)(ia) applies to amounts that have already been “paid” or it is confined to amounts that are “payable” as at the end of the year. The Special Bench…
  • Rajamahendri Shipping & Oil Field Services Ltd vs. ACIT (ITAT Vizag) 
In Virgin Creations the Calcutta High Court has passed a reasoned order and held that the amendment to s. 40(a)(ia) is retrospective in nature. The binding nature of the decision of the Special Bench when a lone decision of non-jurisdictional High Court is available on the very same issue…
Note:- With this effect all the expenses that are paid during the year on which TDS is not deducted shall not be disallowed pursuant to section 40(a)(ia) unless upcoming budgets alter this law with retrospective effect.

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