Summary
Disallowance under Section 40(a)(ia) was not confined to sums outstanding at year end. It also covered contractor payments already made without the required tax deduction. Reading the provision with the TDS scheme, the Court rejected a distinction that would exempt completed payments from the statutory consequence and overruled the contrary Allahabad High Court view.
Issues
- Whether Section 40(a)(ia) applies to amounts already paid as well as amounts payable.
Provisions considered
- Sections 40(a)(ia), 194C and 200, Income-tax Act, 1961The TDS obligation at credit or payment, whichever is earlier, informs the disallowance for default. (¶ 8–15)
Held
- The scheme covers both payments and credits and does not exempt cash-system assessees. Payable cannot be read to allow an assessee to avoid disallowance merely by completing payment without TDS. (¶ 10–15)
- Dismissal of the earlier special leave petition in limine did not confirm the Allahabad view; Vector Shipping was overruled on this question. (¶ 17–18)
Result
Assessee’s appeal dismissed with costs; disallowance upheld.