I think the discussion took so many interesting twists and Sri Rama Samy had argued in a way and I took another argument in a different way. Let us examine the evalution of sec. 40(a)(ia) from the beginning. Initially the section was incorporated as under according to which the TDS not deducted or if deducted but not paid during the previous year or within the time allowed under the provisions of sec. 200(1), then expenditure pertaining to such TDS is not allowable as deduction. The sec originally enacted is reproduced hereunder for ready reference……………….
“(ia) any interest, commission or brokerage, fees for profes¬sional 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 during the previous year, or in the subsequent year before the expiry of the time pre¬scribed under sub-section (1) of section 200 :
Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deduct¬ed in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
Explanation.—For the purposes of this sub-clause,—
(i) “commission or brokerage” shall have the same meaning as in clause (i) of the Explanation to section 194H;
(ii) “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;
(iii) “professional services” shall have the same mean¬ing as in clause (a) of the Explanation to section 194J;
(iv) “work” shall have the same meaning as in Explanation III to section 194C;”
As per my understanding, the TDS which is deducted and which is to be paid on 7th of the immediately following month should be paid during the previous year itself and the amount deducted during the last day of the financial year should be paid on or before 31st day of May of the following year in order to get the allowance of the said expenditure. If the expenses of the nature specified in the section are not paid as per the dates mentioned above, then such expenditure is not allowable under the provisions sec. 40(a)(ia). It was further provided that if the TDS is paid after the dates specified, then relevant expenditure is allowable in the F.Y. in which the TDS is paid.
However, by the Finance Act 2008 an amendment has been brought into the section and as per the amended provisions, TDS deductable during the previous year other than for the month of March ( first 11 months of the financial year upto Feb) should be paid before the end of the financial year and TDS deductable for the month of March should be paid before the due date of filing return of income u/s 139(1) to get the relevant expenditure allowed during the year itself . Needless to say that it was also provided that if the TDS is paid after the dates specified above, then such expenditure is allowable in the F.Y. in which the relevant TDS is paid.
For the sake of clarity the amendment brought into the sec is reproduced hereunder-
“(a) in sub-clause (ia), with effect from the 1st day of April, 2005,—
(i) for the words, brackets and figures “has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200”, the following words, brackets and figures shall be substituted and shall be deemed to have been substituted, namely:—
“has not been paid,—
(A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139; or
(B) in any other case, on or before the last day of the previous year”;
(ii) for the proviso, the following proviso shall be substituted and shall be deemed to have been substituted, namely:—
“Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted—
(A) during the last month of the previous year but paid after the said due date; or
(B) during any other month of the previous year but paid after the end of the said previous year,
such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.”;”
However, another amendment is brought into the sec. by the Finance Act 2010 as per which if the entire TDS of the previous year is paid before filing return of income u/s 139(1) then the relevant expenses are allowed (cannot be disallowed) in that previous year itself. If the TDS of the previous year is paid after the due date of filing return of income, then the relevant expenses are allowable during the year in which the relevant TDS has been paid. The amendment brought is reproduced as it is for better understanding.
“Amendment of section 40.
12. In section 40 of the Income-tax Act, in clause (a), in sub-clause (ia),—
(a) for the portion beginning with the words “has not been paid,—” and ending with the words “the last day of the previous year”, the words, brackets and figures “has not been paid on or before the due date specified in sub-section (1) of section 139” shall be substituted;
(b) for the proviso, the following proviso shall be substituted, namely:—
“Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.”.”
Finally to rationalize the provisions an amendment is carried out in sec. 40a(ia) in the Fiinance Act 2012 as per which if the deductee had filed return of income duly paying the taxes on the income received from the deductor and the deductor is able to fulfill the conditions specified therein then it is deemed that the deductor has deducted and paid the TDS on the date of filing return of income by the deductee. The exact amendment is as under-
“Amendment of section 40.
11. In section 40 of the Income-tax Act, in clause (a), in sub-clause (ia), after the proviso and before the Explanation, the following proviso shall be inserted with effect from the 1st day of April, 2013, namely:—
"Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.".”
If we analyse the amendments brought into the sec. chronologically, then it is clearly evident
that the rigours of the provision are toned down and ultimately have been brought down
substantially. If the arguments of Sri Rama Samy are analysed, then the amendment brought by F. Act 2012 will lose its relevance. By the amendment brought by F.Y. 2010 the deductor got time to deposit the entire TDS (either deducted or not deducted) upto the due date of filing return of income u/s 139(1). Governments ultimate goal is to collect the tax due from the income embedded in the amount exchanged between deductor and deductee. It can be in the form of TDS from the deductor or in the form of regular taxes from deductee. When the section already says that the payment of TDS can be made upto the date of filing return of income by the deductor to get the allowance and the amendment is only to rationalize (make the provisions more logical and reasonable) the said provisions, can we say that even if the tax is paid by the deductee, disallowance is required for the previous year and the same can be allowed during the subsequent year. As stated earlier the provisions of sec. 40(a)(ia) are enacted to ensure that due taxes are collected on the income from the receipt that changed hands between deductor and deductee. By the amendment brought through F. Act 2012, the legislation cannot go back and say that even if the deductee files return before the due date duly paying taxes on the income received from the deductor then the expenses for the previous year should be disallowed in the hands of deductor and the same should be allowed in subsequent year. In my opinion, the provisions should be read harmoniously and cannot be permitted to pick out a part of sentence from one proviso and attach that part to another part of the sentence of other proviso to attribute different meaning to the section which even the legislation can not visualise ( Please refer to SC decisions reported in 198 ITR 297 and 287 ITR 242).
Accorignly, I still feel that if the deductee files return of income duly paying taxes, then the
expenditure of deductor should not be disallowed during the previous year. Please correct me if I am wrong.
