Case Law Details
Provisions of sec. 40(a)(ia) do not provide for absolute dis allowance as in the case of say, sec. 40A(3) of the Act. The amount disallowed u/s 40(a)(ia) in one year can be claimed as deduction in the year in which the TDS provisions are complied with. Thus, in our view, the provisions of sec. 40(a)(ia) provide only for deferment of the allowance and it does not provide for absolute dis allowance. The objective of sec. 40(a)(ia) appears to be to compel the assessee to deduct tax at source in order to claim the relevant expenditure as deduction.
Section 201 provides for treating an assessee who has failed to deduct or pay the TDS amount as an assessee in default, so that the Government is empowered to collect the said amount from him. However, it is a well settled proposition that the Government shall not be entitled to recover the said amount, if the recipient has declared the said amount as his income in the income tax return filed by him and paid the tax due thereon. Thus, it is seen that the objective of provisions of sec. 201 is only to compensate the Government for the failure of an assessee to deduct or pay the TDS amount.
Thus, it can be seen that the provisions of sec. 40(a)(ia) and sec. 201 operate on different objectives. We have already noticed that the provisions of sec. 40(a)(ia) do not override the provisions of sec. 201 of the Act. Accordingly, in our view, the assessee is liable to deduct tax at source on interest payments, even if it has not claimed the same as deduction while computing its total income, in which case the revenue is entitled to initiate proceedings u/s 201 of the Act for such failure.
INCOME TAX APPELLATE TRIBUNAL, COCHIN
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