RSM India

Newsflash: Supreme Court Judgement - Section 40(a) (ia) of the IT Act covers not only those cases where the amount is payable but also when it is paid for disallowance purposes

Section 40(a)(ia) of the Income-tax Act, 1961 provides that any specified payment (interest, commission, etc.) to a resident from which tax is deductible at source will not be allowable as a deduction if (a) the tax had not been deducted or (b) after deduction, had not been paid in time as provided therein.

However, in the recent past, there has been a considerable variance in the judicial opinion as to whether section 40(a)(ia) can be invoked to disallow the amount which had actually been paid during the previous year without deduction of tax at source. Some judicial authorities[1] have held that section 40(a)(ia) would cover not only the amounts which are payable at the end of the previous year but also which are payable at any time during the year. However, Honourable Allahabad High Court in CIT v. Vector Shipping Service (P.) Ltd[2]  has held that for disallowance under section 40(a)(ia), the amount should be payable and not which has been paid during the year[3].

The Hon’ble Supreme Court has finally resolved this uncertainty by holding that Section 40(a)(ia) covers not only those cases where the amount is payable but also when it is paid during the year.

In this newsflash, we have summarized the decision of the Supreme Court.

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