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business connection is not determined by nature of transaction, but it is determined by, amongst other factors, presence of the foreign entity, in india.
Now, if it happens that the foreign entity has business connection or place of business in india, and through that it carries out business in india, than situation will be tricky.
Because next question to be determined is, whether the profit arising to that foreign entity from the transaction of import of goods by your client, can be said to be "attributable" to indian location? if yes, than even in case of plain transaction of import - principal to principal basis, one will have to visit AO for determination of attribuatable profit to Biz connection / PE and accordingly determine appropriate rate of tax for Deduction.
so it will of vital importance to determine, whether the foreign entity has nay biz connection / PE in india or not. Taxability and Deductability can be looked at thereafter.

Now-a-days, TDS-CPC, through automation called TRACES, is showering notices on tax payers, calling them to pay interest and penalties for late deduction or payment of TDS and late filing of TDS quarterly statements.

This automation has yielded many benefits to department as well as the taxpayers, but what is unjustly pinching the taxpayers is "why to pay interest for 2 months for delay in payment for just 1 day (or a period less than 30 days) ?"

The software at TRACES is entrusted the task of computing interest payable by assessee u/s. 201(1A), and communicate it through automated notices. And this software, in many cases, computes interest for 2 months even in cases where delay of payment of tax or deduction of tax is just for less than 30 days (1 day in many cases)

On one hand we have plethora of decisions by almost every judicial forums including apex court saying, on and often, that "INTEREST IS COMPENSATORY IN NATURE" .... And therefore the question - when loss to the government is of interest for less than 30 days (ie. part of 'a' month), than why it should be COMPENSATED for 2 months ?, is very important

But, this incongruity has its roots in words "month or part of month" deployed in sec. 201(1A) as well as in Rule 119A, which directs method of computation of interest.

Before plunging into controversy, a look at bare provisions of sec 201(1A) and rule 119A would throw some light on the issue.


Consequences of failure to deduct or pay.
201. [(1) Where any person, including the principal officer of a company,—
    (a)   who is required to deduct any sum in accordance with the provisions of this Act; or
    (b)   referred to in sub-section (1A) of section 192, being an employer,
does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax:
Provided that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax.]
[(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct [the whole or any part of the tax] or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at [one per cent for every month or part of a month] on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid [and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3) of section 200].]
(2) Where the tax has not been paid as aforesaid after it is deducted, [the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A)] shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1).

Procedure to be followed in calculating interest.
[119A.  In calculating the interest payable by the assessee or the interest payable by the Central Government to the assessee under any provision of the Act,—
    (a)   where interest is to be calculated on annual basis, the period for which such interest is to be calculated shall be rounded off to a whole month or months and for this purpose any fraction of a month shall be ignored; and the period so rounded off shall be deemed to be the period in respect of which the interest is to be calculated;
  (b)  where the interest is to be calculated for every month or part of a month comprised in a period, any fraction of a month shall be deemed to be a full month and the interest shall be so calculated;
     (c)   the amount of tax, penalty or other sum in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of one hundred rupees and for this purpose any fraction of one hundred rupees shall be ignored and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated.]


Sec. 201(1A) r.w.s. Rule 119A, requires the tax payer to pay the interest for delayed period of a month or part of month, where any fraction of a month shall be deemed to be a FULL Month.

Considering a hypothetical situation, where period of delay is comprising of 9 days say 31st January to 8th February.

Now, if the word "month" be given meaning of a British calendar month than the period comprises of "Part of January month" + "Part of February month".  And under mandate of rule 119A, both parts shall be deemed as full and thus period of delay for the purpose of computation of interest shall be full 2 months.

And, if the word "month" be given meaning of  a period comprising 30 days, than the total 9 days being part of  30 days, to be deemed as full month, the interest shall be computed for 1 month only.

The term "month" is not defined in the Income-tax Act, 1961, and hence one has to ordinarily resort to The General Clauses Act, 1897, where sec. 35 of section 3 defines the term "month" as –

(35) "month" shall mean a month reckoned according to the British calendar:

              But, the sec. 3 itself begins with following phraseology;

3 Definitions.- In this Act, and in all Central Acts and Regulations made after the commencement of this Act, unless there is anything repugnant in the subject or context,--:

Although sec. 3 of  The General Clauses Act, 1897 makes it mandatory to mean "month" as "month as per British Calender" for all Central Acts, but it also carves out a niche by words "unless there is anything repugnant in the subject or context,--:", so that no absurdity arises in interpretations.

Thus, the term "month" should be read in a manner which is in consonance with the purpose of its enactment u/s. 201(1A) which is COMPENSATING cost of time to the government. Any meaning which not only unjustly enriches the coffers of government but also acts as a penal provision would result into absurdity. And it would be more so, when we have multiple penal provisions already available at sec. 201(1) and sec. 40(a)(ia).

Even in absence of any penal provision, a compensatory interest provision can not be colored as a penal provision.

This controversy of interpreting term "month", anciently arose before, Hon'ble Allahabad HC in the case of Commissioner of IncomeTax, Kanpur v. Laxmi Rattan Cotton Mills Co. Ltd. [1974] 97 ITR 285, where in the context of sec. 271(1)(a), where similar phraseology for 'month or part of month' occurred, the Hon'ble HC opined that meaning of 'month' can not be given the meaning as assigned by sec. 3(35) of the General Clauses Act, 1897.

However, in 1977, Hon'ble Madras High Court in case of Commissioner of Income Tax, Madras (Central) v. Kadri Mills (Coimbatore) Ltd. [1977] 106 ITR 846 also had occasion to deal with same issue and in the context of same phraseology of sec. 271(1)(a). But, the Hon'ble Madras HC opined that the term 'month' would mean "month as per British Calendar" in view of Sec. 3(35) of General Clauses Act, 1897.

Not only the Hon'ble Madras HC, but also the Hon'ble Calcutta High Court in case of CIT v. Brijlal Lohia and Mahabir Prosad Khemka [1980] 124 ITR 485, took the same view that term 'month' in the said context would mean "month as per British Calendar".

Also, Hon'ble Karnataka HC, in 1985, in the case of B.V. Aswathaiah and Brothers vs. ITO [1985] 155 ITR 422, took the same view as taken by Hon'ble Madras HC & Hon'ble Calcutta HC.

In 2005, the Hon'ble Gujarat HC, in case of CIT v. S.L.M. Maneklal Industries Ltd. [2005] 274 ITR 485, asserted the view of 'month' as 'month as per British Calendar', in context of sec. 271(1)(a).

But, the noteworthy element in all above decisions rendering 'month' as 'month as per British Calendar', were in context of "penalty".

However, the same Hon'ble Gujarat High Court, while dealing with similar issue in case of CIT-I vs. ARVIND MILLS LIMITED [TAX APPEAL No. 2486 of 2009] in its decision dated 13/09/2011, brought out the distinction between interpreting the term in context of 'penalty' provisions and in context of 'interest' provisions, where emphasis is on words – "comprised in a period" and hence the term 'month' would not mean 'month as per British Calendar'

It is noteworthy that the words "comprised in a period" occurs in Rule 119A. And therefore also, the 'month' should be read to mean a period comprising of 30 days.

Another relief to the tax payers, comes from the decision of ITAT KOLKATA, in the case of DCIT vs I.O.L. Ltd. 1994 50 ITD 214 Kol, where the issue was of interest u/s. 139(8), the Tribunal has after considering the diverse views from different High courts, declared that in view of Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 wherein it was held that if the Court finds that the language of taxing provision is ambiguous or capable of more meanings than one, then the Court has to adopt that interpretation which favours the assessee, more particularly so where the provision relates to the imposition of penalty.

In view of the above one may reasonably conclude that term 'month' should mean a period of 30 days and meaning of 'part of month' should be interpreted accordingly.

[40(a)(ia) – "Payment w/o Deduction"]

 
40(a)(ia) – "Payment w/o Deduction"
B'lore ITAT gives a sigh of Relief.


In a recent decision in the case of ACIT Vs. Smt. K. Jayalakshmi, [ITA No.1035 & 1036 /Bang/2012  (Assessment years: 2008-09 & 2009-10)]  (Dt. 13.06.2013), Hon'ble Banglore ITAT, has after referring and its own decision in the case of ACIT v. M.G. Vishwanath Reddy, held as under:

We have carefully considered the rival submissions, perused the relevant materials on record and also various case laws on which  the  learned  AR  as  well  as  the  Revenue  placed  strong reliance.

6.1.  The Assessing Officers have resorted to invoke the provisions of s. 40(a) (ia) of the Act, for the reason that the assessee had failed to comply with the provisions of s. 194C of the Act coming under Ch. XVII-B of the Act by not deducting TDS from the amounts paid/payable to the transporters in cash/cheque. However, on the same breath, the AOs have acknowledged that "..........The amount of  TDS  deducted  and  paid  by  the  assessee  to  the  Government account is Rs.3,03,211/- on the different dates during the year.  The copy of ledger account under the head TDS Transportation was filed. The same is verified from the challan details available in the name of the assessee in the system and the payments are found to be made on the following dates...." [Source: Page 2 of Asst. order for 2008 09].

As rightly argued by the learned AR, once the assessee (payer) has discharged the TDS compliance in accordance with the Ch. XVII read with s. 195 A of the Act, there cannot be any disallowance u/s 40(a)(ia) of the Act.

6.2.  At this juncture, we would like to refer to the findings of the Co-ordinate Bench of this Tribunal in the case of ACIT v. M.G. Vishwanath Reddy reported in (2012) 51 SOT 420/ (2012) 20 Taxmann.com 344 (Bang) in an identical issue.  After considering the rival submissions, the Hon'ble Bench had recorded its findings as under:

          "6.1. In the case before us, the assessee was liable to pay labour charges to various parties and made the payment without deducting tax at source.  However, at the end of the financial year, the assessee has made a provision for tax deductible at source and has remitted to the Government account before the due date of filing of return u/s 139(1) of the IT Act.  The question before us is whether the assessee has to deduct the tax from the payments made to contractors only or can be make a  provision  for  the  same  from  his  own  income. According  to  learned  counsel  for  the  assessee,  sec. 195A allows the assessee to make such a provision. For the purpose of clarity the provision of sec. 195A is re-produced here-under:


'Sec.   195A   where...............................under   such
agreement or arrangement.' 


6.2. From the literal reading of the above provision, it is clear that the provision for grossing up of the tax can be made  only  if  the  same  forms  part  of  the  income concerned, where there is an agreement or arrangement to pay the income-tax by the prayer itself.  In the case before us, the assessee has not stated anywhere that the labour charges to be paid are agreed to be paid tax free or that the assessee has to bear the taxes. Another aspect of the issue before us is where the assessee has pad the TDS amount into the account of the Government before the due date of filing of the return, whether the disallowance  u/s          40(a)  (ia) is  called  for.     In  the provisions of sec. 195A, there is reference to agreement or arrangement for the payment of  tax free income. However,  it  is  not  clear  as  to  whether  such  an agreement or arrangement has to be in writing.  In the absence of  specific provision for the  arrangement or agreement to be in writing, it can be presumed that the agreement or arrangement can be oral also.  From the fact that the assessee has failed to deduct the tax at source and has made the provision for such payment of tax at the end of the year, it is to be presumed that there is an arrangement for paying tax free income to the labourers.  The second aspect i.e., whether the tax deducted  at  source  at  the  end  of  the  year  can  be deposited before the due date of filing of the return of income,  we  find  that  this  issue  is  covered  by  the decision of the Co-ordinate Bench of the Tribunal at Mumbai in the case of Bapushaeb Nanasaheb Dhumal cited supra on which the CIT (A) has placed reliance for allowing  the  assessee's  appeal  and  deleting  the addition. As the learned CIT (A) followed the decision of the  co-ordinate  Bench  of  the  Tribunal  which  is  a precedent on the issue and the learned DR has not been able to rebut this finding of the Tribunal with any other contrary decision, we do not see any reason to take any other view.  In view of the same, the  appeal of  the revenue is dismissed."

6.3. Further, the  ruling of the Hon'ble Madras High Court in the case of Tube Investments of India Limited v. ACIT reported in (2010) 325 ITR 10 (Mad)/(2009) 226 CTR 313 (Mad) is also on a similar issue.

6.5.  Taking into account the facts and circumstances of the issue as discussed (supra) and also in conformity with the judicial views referred above, we are of the considered view that the CIT (A) was justified in deleting the additions made by the AOs u/s 40(a)(ia) of the Act. It is ordered accordingly.

[ emphasis supplied ]


The above decision has covered and answered all the aspects of recent controversy on 40(a)(ia), which sprung from a recent decision of ITAT, Rajkot, wherein a view was taken : That for saving one's self from rigors of sec. 40(a)(ia), one has to not only make payment of TDS before due date of filing of return u/s. 139(1), but also has to strictly ensure that such deducted tax was the 'deduction' out of payments made or amounts credited, and that too should be at the time payment or deduction whichever is earlier.

Hope that the genuine assessee would get reasonable relief from this 'consistent' view taken by Hon'ble ITAT, B'lore after drawing support from harmonious reading of sec. 194C r.w.s. 195A, and from Decisions in case of Tube Investment of India Ltd. (Madras HC) and FARASOL Ltd. (Raj. HC).

TA No/s. 905/2012, 709/2012, 710/2012, 333/2013, 832/2012, 894/2012, 928/2012, 12/2013, 51/2013, 218/2013: Guj. HC

Merilyn Shipping & Transports sunk also in Guj. HC today.

[Union of India & Ors. vs. Kamlakashi Finanace Corporation Ltd. – AIR (1992) 711 (SC)]

Dear Mr. Devang,

It is true that the Hon'ble SC has explained the law on what is the position in the state of suspension/stay, in the case law cited by you.

But, in case of Union of India & Ors. vs. Kamlakashi Finanace Corporation Ltd. – AIR (1992) 711 (SC)

Hon'ble Apex court has held that  :

"It cannot be too vehemently emphasized that it is of utmost importance that in disposing of the quasi-judicial issues before them, revenue officers are bound by the decision of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the department – in itself an objectionable phrase – and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessee and chaos in administration of tax laws."



The above wordings may lead a person to believe that there exists a cleavage of opinion on binding force of an order in suspension.


Other views are invited.

Dear Mr. Rajesh,

You have rightly pointed out that this controversial view would have far reaching effects on many day to day cases, which are otherwise settled under law.

But, in my humble view, taking up M.A. on the basis of non-consideration of Sp. Bench Decision in case of Meryline 136 ITD 23, would not be possible, because Hon'ble A.P.  HC has granted "interim suspension" on the decision.

Though there are verdicts affirming binding force of a decision under "suspension", But also there are adverse decisions of various HC (incl. jurisidiction HC of Guj.) which would make it debatable - whether such decision carries binding force or not ?

And this would sum up in the situation that it would not be "a mistake apparent on record" (being it debatable).

However, it would be better if this M.A. can be taken up, on the basis of 'non-consideration of Jurisidictional HC".

Dear Mr. Satyanveshi,

What you have expressed is very correct. I have come across 2 of Guj. HC decisions, which directly or indirectly affirms the view which is absolutely in negation of view taken by Rajkot ITAT.

I would request to give me some HC/SC Decisions, if there are any in your knowledge.

Thanks.

In a Recent Decision - Rajkot ITAT has taken a view that if tax is not deducted at the time of payment / credit, but deducted belatedly in the same year in March, such TDS can not be termed as tax deducted "at source" - and therefore disallowance u/s. 40(a)(ia) prevails, despite the fact that assessee paid the TDS before due date of filing ROI.

The Controversy revolving around sec. 40(a)(ia) carries itself to a step further with a renewed vigor, with a Recent Tribunal decision revolving around words "at source", and thereby again importing applicability of Ch. XVII-B for time-limits of deduction, which otherwise have been held by various tribunals & High Courts as being govern by sec. 40(a)(ia) itself.

The questions which stems from this renewed controversy are
-         Whether disallowance can be made u/s. 40(a)(ia), in cases when tax is not deducted "at source" ie. (at the time of payment/credit) – but has been deducted later in the same financial year, and especially in the month of March. (as applicable to AY 2005-06 & onwards) (after considering the amendment of Fin Act 2010 as retrospective)
-         Meaning thereby, whether a belated deduction can not bring the assessee a sigh of relief, even if it has paid the same before due date of filing return of income u/s. 139(1), in case the belated deduction was in the month of March.
-         Another probable controversy may arise, branching from above controversy that in cases where the assessee has already "paid' the amounts claimed as expenditure, "how can the assessee, later on, deduct a tax from it – so as to make the deduction "at source".
-         Therefore, in the situations where expenditure has been paid off to the payee without TDS and later on even if the assessee has deducted the TDS by way of debiting the amount of TDS to the account of payee in the month of MARCH (as if it will be recoverable in future form the payee, and as the result will be debit balance of payee's ledger), and thus paid it out of its own pocket; whether the disallowance of 40(a)(ia) would prevail ?

I have come across few decisions, which is against the above view taken by Rajkot ITAT, as placed by in this forum under : "40(a)(ia) - deduction "at source" - new controversy - Rajkot ITAT".

I request  Ld. Experts to give me HC/SC Decisions covering the above Issue, if there are any ..

["at source"]

The Controversy revolving around sec. 40(a)(ia) carries itself to a step further with a renewed vigor, with a Recent Tribunal decision revolving around words "at source", and thereby again importing applicability of Ch. XVII-B for time-limits of deduction, which otherwise have been held by various tribunals & High Courts as being govern by sec. 40(a)(ia) itself.

The question which stems from this renewed controversy is
-         Whether disallowance can be made u/s. 40(a)(ia), in cases when tax is not deducted "at source" ie. (at the time of payment/credit) – but has been deducted later in the same financial year, and especially in the month of March. (as applicable to AY 2005-06 & onwards) (after considering the amendment of Fin Act 2010 as retrospective)
-         Meaning thereby, whether a belated deduction can not bring the assessee a sigh of relief, even if it has paid the same before due date of filing return of income u/s. 139(1), in case the belated deduction was in the month of March.
-         Another probable controversy may arise, branching from above controversy that in cases where the assessee has already "paid' the amounts claimed as expenditure, "how can the assessee, later on, deduct a tax from it – so as to make the deduction "at source".
-         Therefore, in the situations where expenditure has been paid off to the payee without TDS and later on even if the assessee has deducted the TDS by way of debiting the amount of TDS to the account of payee in the month of MARCH (as if it will be recoverable in future form the payee, and as the result will be debit balance of payee's ledger), and thus paid it out of its own pocket; whether the disallowance of 40(a)(ia) would prevail ?

       I.      On the above issue the Hon'ble Gujarat High Court in the case of CIT-I V/s. PATEL RAMNIKLAL HIRJI (TA No. 605 & 606 of 2011) (DoJ – 23.08.2012), after noting following facts :
"the assessee had shown the amount of Rs.3,16,100/- as commission paid, which came to be disallowed by the Assessing Officer under section 40(a)(ia) of the Income Tax Act, 1961, on the ground that instead of deducting tax at source at the time of payment, the assessee deducted tax at source in the month of March only

Has upheld the view of ITAT Rajkot as well as CIT(A) whic deleted the addition, as the tax was paid before due date of filing return of income u/s. 139(1), considering the amendment of Fin Act 2010 as retrospective.

The Hon'ble Guj. High Court has dismissed the revenues' appeal after considering the views taken by the ITAT, stating "it is clear that the Tribunal recorded its confirming findings on the basis of relevant material, which were proper and reasonable. In the circumstances, none of the four questions raised any substantial question of law to be considered by this court"

     II.      The similar situation also arose before Hon'ble Gujarat High Court in the case of ITO, Wd 5(3), Baroda V/s. SUN ENTERPRISES (TA No. 1454 of 2011) (DoJ – 18.09.2012),  wherein
o        Hon'ble A'bad ITAT (ITA No. 451/Ahd/2009 dtd. 13.05.2011) in its order at para 7 noted as under:§         "To a query by the AO, the assessee submitted the following details of the cases in which TDS was not deducted on credit of the amount and also worked out the amount disallowable as per the provisions of sec. 40(a)(ia) of the Act :

Sr. No.	Name of the persons to whom payment made	Nature of Payment	Total amount Paid / credited	Amount disallowable	Remarks
XXX	XXX	XXX	XXX	XXX	No Deduction u/s. 194C was made at the time of credit / payment

... xxx xxx xxx ...
          ... However, the AO did not accept the submissions of the assessee on the ground that the assessee deducted the tax only on 31./03/2007 on payment of transportation/labour charges of Rs. 3126738 & paid to Govt. on 30/05/2005, thereby violating the provisions of sec. 200(1) & 40(a)(ia) of the Act. Accordingly AO disallowed.
§         The Tribunal affirmed the view of CIT(A) by upholding that
"in the instant case, tax deducted from payment of Rs.3127638 on 31.03.2005 ie. in the last month of the financial year has been paid on 23.06.2005 ie. before the due date specified in sec. 139(1) of the Act. In the light of these facts and in view of aforesaid prov. Of sec. 40(a)(ia) of the Act as amended by the Fin. Act 2008 w.e.f. 1.4.2005, we do not find any infirmity n the findings of the ld. CIT(A). In view thereof, especially when the Rev. have not place before any material so as to enable us to take a different view in the matter, we are not inclined to interfere."
§         
o        The Hon'ble Guj. HC, while deciding the above matter, carried before it by Revenue, after noting important facts of the above case in its decision, noted that:
"From the record thus it emerges that the assessee had made the deposit in the government account the TDS deducted before the due dat of filing return under sec. 139(1) of the Act. In that view of the matter, in view of the statutory amendment, the Tribunal committed no error. No question of law arises. Tax appeal is therefore dismissed."

  III.      For what is effect of summary dismissal of Tax Appeal on the basis of "no substantial question of law arises" – assessee may resort to Hon'ble Guj. HC decision in case of NIRMA IND. LTD. (2006) 283 ITR 402 (GUJ) – and its binding effect on Tax Tribunals.

   IV.      The issue has already been, long-back, considered by Hon'ble ITAT Mumbai in case of Bapusaheb Nanasaheb Dhumal, making categorical finding:
HELD allowing the appeal:
Failure to deduct or deposit tax as per s. 194C or Chapter-XVII makes the assessee liable to the consequences provided under the said Chapter-XVII. ...the conditions for allowability of deduction are prescribed u/s 40(a)(ia) itself and Chapter-XVII and s. 194C are not relevant. If the condition of deduction and payment prescribed u/s 194C / Chapter XVII are held applicable for disallowance of deduction u/s 40(a)(ia), then s. 40(a)(ia) will be rendered meaningless, absurd and otiose. Since the assessee had (belatedly) deducted tax in the last month of the previous year i.e. March 2005 and deposited the same before the due date of filing the return u/s 139(1), deduction had to be allowed u/s 40(a)(ia) (A).

      V.      The similar view has been adopted by many other tribunals in identical facts, few of them are, as complied below

SR. NO	ASSESSEE	COURT	ITA No. & DT OF JUD	REMARK
1.	SUGAM CONSTRUCTION PVT LTD	A'BAD ITAT	ITA NO. 1828/AHD/2010 21-Dec-2012	HELD - "it is not the claim of AO that tax has not been deducted at all, but he has held that the appellant did not deduct any tax up to the month of Feb and deducted tax only in MARCH - Followed J K CONST. CO. GUJ HC - no disallowance
2.	ROYAL BUILDERS	A'BAD ITAT	ITA NO. 2744/AHD/2009 29-Dec-2011	various payments "on account" made through out the year – TDS made in the march only - BAPUSAHEB NANASAHEB DHUMAL - FOLLOWED - NO DISALLOWANCE
3.	RATNA DEVELOPERS	A'BAD ITAT	ITA NO. 1591/AHD/2011 18-Nov-2011	Payments made between Apr to Feb - TDS was made in MARCH - followed coordinate bench's decision in case of DIVYA DEVELOPERS - no disallowance
4.	ANSARA EJAZ AHMED	A'BAD ITAT	ITA. No. 2238/AHD/2008 1-Oct-2010	Violation of 194C - DR Argues TDS to be made 'at the time of payment' - Actual TDS in March - Matter remanded back with direction to consider "amended provision" of law.
5.	DELLOITE HSKINS & SELLS	A'BAD ITAT	ITA NO. 1546/AD/2008 13-Sep-2010	Various payments "on account" made through out the year – TDS made in the march only - BAPUSAHEB NANASAHEB DHUMAL - FOLLOWED - NO DISALLOWANCE
6.	M K GURUMURTHY	BANGLORE ITAT	ITA NO. 717/BANG/2011 10-May-2012	Specific ground of appeal take by revenue : "CIT(A) is not correct in deleting the addition of Rs.1730932 made by AO as the assessee had belatedly deducted tax from April  2007 TO FEB 2008 in the month of MARCH 2008 – followed BAPUSAHEB NANASAHEB DHUMAL – Also applied VIRGIN CREATION - Held No disallowance.
7.	AADI ASSOCIATES	CUTTACK ITAT	ITA NO. 262/CTK/2011 5-Aug-2011	DR argued - "Amount which the assessee claimed as exp. was to suffer deduction of tax at source at the threshold and therefore could not be postponed to the fact that law provided for deduction of tax at source in the month of march - H S MOHINDRA & BAPUSAHEB NANASAHEB DHUMAL followed - no disallowance
8.	HARISHANKAR PAPER PRODUCTS	HYDRABAD ITAT	ITA NO. 1179/HYD/2010 10-Dec-2010	various payments made through out the year - TDS made in the march only by way of PROVISION - BAPUSAHEB NANASAHEB DHUMAL & H S MOHINDRA - FOLLOWED - NO DISALLOWANCE
9.	VIKAS CONSTRUCTION	INDORE ITAT	ITA NO. 39/IND/2010 28-Mar-2011	follows NANASAHEB BAPUSAHEB DHUMAL – no disallowance.
10.	SUPER HARYANA ROADWAYS	PUNE ITAT	ITA NO. 193/PN/2009 7-Jan-2011	follows NANASAHEB BAPUSAHEB DHUMAL & H S MOHINDAR - DELHI ITAT
11.	DEEPAK VAISHWANATH BHAMARE	PUNE ITAT	ITA NO. 1237/PN/2009 30-Jun-2011	followed - BAPUSAHEB NANASAHEB DHUMAL and SUPER HARYANA ROADWAYS - no disallowance
12.	VIVEK KEDIA	KOLKATA ITAT	ITA NO. 1040/KOL/2011 25.11.2011	Payments were made on account of ... XXX ..., from the month of April to March, but he has deducted the Tax on entire payment under various heads in the month of March – followed H S Mohindra – no disallowance.

   VI.      The section 40(a)(i) – which is analogues to section 40(a)(ia) wherein identical phraseology occurs – " .... on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted ..." – Hon'ble Rajasthan High Court had an occasion to deal with an issue in the case of ACIT Vs. FARASOL LTD. (1987) (163 ITR 364 RAJ),
o        Wherein –
§         The assessee had paid interest to a foreign bank, without deduction of tax at source (as per sec. 40(a)(i).
§         AO disallowed the sum
§         However, later on assessee paid TDS amount towards its liability of TDS. (from its own pocket)
§         Appellate Asst. Commissioner deleted the addition, based on payment of TDS.
§         Tribunal upheld the order of AAC.
§         Hon'ble Rajasthan HC took the view that Payment of TDS, whether in consonance of Provisions of Act or otherwise, it is covered in the term "Paid" as occurring in the sec. 40(a)(i)
o        On the above ratio, it may be inferred that term "Paid" before due date of filing return of income u/s. 139(1), covers both – payment of tds deducted in accordance with chap. XVII-B and also the amount paid by assessee towards its liability under chap XVII-B, out of its own pocket.

VII.      Hon'ble Madras High Court, while testing the constitutional validity of sec. 40(a)(ia), the noted the following;

"41. As against the submissions of the petitioners that the provision is illusory, the learned counsel contended that though the words used in the proviso are deduct and pay, there is no prohibition for the assessee to make the payment without any deduction. In that context, the learned counsel relied upon Section 195A and stated that such a situation is envisaged therein. The learned standing counsel also relied upon 163 ITR 364 (Addl. CIT vs. Farasol Ltd.) where in the context of Section 40(a) it was held by the Rajasthan High Court that even where the amount is paid out of the assessee's pocket but not deducted, he would be eligible for the deduction."

...  xxx xxx xxx ...

...When we consider the said submission, as rightly pointed out by the learned standing counsel for the revenue, proviso to Section 40(a)(ia) will have to be read along with the main provision. Under the proviso to Section 40(a)(ia), the assessee is entitled for claiming the deduction in the event of a defaulted payment is made good in any subsequent year. The provision however makes it clear that such deduction are allowed in computing the income of the previous year in which such tax has been paid. If the proviso is read along with Section 40(a)(ia) there can be no dispute that the assessee who committed any default in complying with Chapter XVII-B of the Act is not left high and dry. The proviso provides a remedial measure and thereby enable the assessee to claim for deduction either in the immediate subsequent year or in any other subsequent year to the relevant year in which the default came to be committed. The learned counsel attempted to point out that proviso cannot be said to cover all the situations of default, in as much as, the TDS has to be made at the point of payment either by way of credit or by way of direct payment and there is no specific provision contained in the proviso to cover such situation. In other words, the contention is that while under Chapter XVII-B the deduction can be made only at the point of payment and in the event of default being committed, there would be no scope for the payer to make any deduction at any later point of time, the proviso will be really unworkable.

71. While meeting the said argument, the learned standing counsel pointed out that such a contention is far fetched in as much as a reading of Section 201 makes it clear that the default in respect of TDS would not only cover failure to deduct or after deduction failure to pay, but even failure to pay on its own thus covering default in all situations. The learned standing counsel for the Revenue therefore contended that the proviso will not only come to the rescue for those who failed to pay after deduction but to also those who though not made any deduction were prepared to make the payment on their own and thereby rectify the defect who can validly take umbrage under the proviso and consequently claim the benefit of allowance in the subsequent year. The submission of the learned standing counsel is in consonance with what is stipulated in the proviso and therefore there is every justification in accepting the said submission. When the said submission can be validly accepted, it will have to be held that the effect or the rigor of restriction of disallowance made under Section 40(a)(ia) can be rectified by the assessee himself by resorting to the benefits contained in the proviso to that Section. Therefore, when Section 40(a)(ia) is read along with its proviso, there is no scope to hold that the said provision is so very harsh or creates any insurmountable situation for the assessee to claim the deduction of expenditure actually made. We therefore hold that Section 40(a)(ia) cannot be read in isolation but must be read along with its proviso and when it is read in that manner, there would be no scope to hold that there will be any harsh treatment meted out to any assessee in the matter of disallowance of any expenditure validly made by them."

The above decision was rendered prior to Finance Act 2010.
Reading the above decision in light of 40(a)(ia) as amended by Fin. Act 2010, would mean that words "deducted" as does not mean ONLY deducted "at source", But it would encompass in itself – any deduction, be it at source or otherwise, or out of its pocket.

The above decision also, indirectly grants sanctity to the ratio in case of FARASOL LTD. (supra).


May one conclude form the above that word "deduction" would encompass in itself – any deduction, be it "at source", or otherwise, including belated deductions ?

I request ld. readers to enrich the discussion with their views.

in my humble opinion the claim of prime cost u/s. 28 itself instead of u/s. 37 or other, in order to save from rigours of sec.40(a)(ia) wouldn't not sustain in view of numerous decision covering like points : Commissioner Of Income-Tax vs Ram Chand Gobind Prasad (Patna HC)and many other high courts have taken the similar view that word "Expenditure" would be vider import and would include in its ambit, even "Purchaes" and other price costs.
In such a situation, term "expenditure" would embrace even "Purchases" & "other prime costs" also.

Thanks.

Correct me if i m wrong

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The recent finance bill, proposed by Shri Mukherjee, seeks to amed sec. 56, so as to include word "Capital Asset", in the definition of "Property".
Here, my doubt is, whether it should born status of "Capital Asset", with the transferor or in the hands of transferee, or both ?