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Section 40(a)(ia)

Started by mohiticai, June 01, 2012, 07:57:16 PM

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View of the respected members regarding the applicability of section 40(a)(ia) in case tax is not deducted in making payments of direct costs being contractual payments. Direct costs being claimed under section 28 and section 40(a)(ia) overriding only the provision under section 30 to 43.

sai prasad

it's true. there is decision of the ITAT Hyderabad in Teja Constructions Vs. Asst.CIT (2010)129 TTJ 157. It is discussed in detail the effect of non-obstante provision excluding application of sec.30 to 38  and also other issues.


The provisions of section 29, clearly states that the income referred to in section 28 shall be computed in accordance with the provisions contained in section 30 to 43D,
and as such all the exepnses are covered for the purpose of section 40(a)(1a)

sai prasad

an all important judgment of the Special Bench of ITAT Vizag Bench in Merylin Shipping  Transport Corporation appeared in 2012- 16 ITR (Trib)1,wherein held that disallowance applies only in respect of outstanding payments appearing in balance sheet and not for payments already made. I think this mitigates the problem to a great extent


The Vizag Vench judgement is yet to be tested by any high court.It cannot be taken for granted till  final decision is taken especially for transactions to be entered into in future


Fact is quite right when entity does not deduct TDS on incurred expenditure it mean your are going against bare act Sr. No. 40(a) (ia) of income tax act 1961 

sai prasad

i feel the rationale behind the words " payable" is  the payee having not received money  could get  credit for tax  by way of TDS deducted at source by the payee. Similarly  payer in respect of payments in full should not be bridled with liablity to TDS ,as funds have already passed over by him to the payee.


This implies that the disallowance is only for th e amount which remains outstanding as on 31.3   and not for any default during the year.......which is hard to understand,

sai prasad

the illustrative judgment of the Spll.Bench in Merylin Shipping Trasnport Corporation must be read  and  painstakingly the bench elaborated the view,that was upheld.