Re: Dedcution at source- Consequential effect of settlement under the VSVS-S.40(a)(ia), 201 , 234A, 234B, 234C .

If 201 order is settled under VSV and taxes are paid by the deductor, then while computing disputed tax liability for 143(3) order, no disallowance u/s 40(a)(ia) is to be taken into account. As clarified, benefit of payment under VSV will be available to the deductor in the same year in which section 40(a)(ia) additions are made. However, as per clarifications issued, deductee will get credit of taxes paid by deductor on the date of settlement of dispute and consequentially interest u/s 234A/B/C will be applicable i.e. where 201 order for FY 2015-16 is settled by in FY 2019-20 by the deductor, then deductee will be required to pay interest u/s 234A/B/C till FY 19-20. Is this not a hardship caused to deductee, without being at fault?

Payers case

 

Where payer makes a payment to the payee without deduction of TDS, then he will be liable to payment along with interest u/s 201(1)/201(1A).  Further, payer will be liable to disallowance under section 40(a)(i)/ 40(a)(ia).

 

If the payer pays the TDS liability later on, he pays the same along with interest.  

 

Payees case

 

After amendment in Finance Act 2012 in section 209, the payee will get credit of TDS only when the same is paid by the payer only in that year and not in prior years.

 

In case payee pays on his own (since no TDS has been deducted), then payer is absolved from the liability and need to pay only interest on delayed payments.

 

Anamoly

 

As per the proviso to section 40(a)(i)/ section 40(a)(ia), payer will get deduction in the Financial year in which TDS has been paid.  The VSV scheme allows deduction in the year to which the addition pertains ie as per VSV scheme, where TDS pertaining to FY 2015-16 is paid in 2020 by the deductor, then deductor will get allowance in FY 2015-16 instead of 2020. Accordingly, the VSV scheme is overriding the Act and is beneficial for the payer.

 

In contrast, the payee will get credit of TDS only in the year in which deductor has made payment, without any fault of the payee.  This is genuine hardship to the deductee. In our view, the FAQ should be amended to give credit to the deductee in the FY in which the deductor gets the 40(a)(ia) disallowance deletion – maintaining the equity between deductee and deductor.

 

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