By TIOL News Service

NEW DELHI, MAY 04, 2017: THE issue before the Apex Court is - Whether as per Section 40(a)(ia) a person is required to deduct tax at source not only on amounts payable but also when the sums are actually paid. And, YES is the verdict.

Facts of the case

The question was raised in the context of an assessee who was engaged in the business of purchase and sale of LPG cylinders. The assessee had engaged three persons for getting the transportation of LPG cylinders and he made freight payment to them. However, since he had failed to deduct tax on source on the same, the said expenses were disallowed by the Assessing Officer. The assessee tried to take shelter in the language used in Section 40(a)(ia). He argued that since the word used in Section 40(a)(ia) is 'payable', therefore it would cover only those contingencies where the amount is due and still payable and not the situations where the amount is already paid but no advance tax was deducted thereupon. The Supreme Court observed that there are divergent views of the High Courts there upon.

On appeal, the SC held that,

++ Section 40(a)(ia) covers not only those cases where the amount is payable but also when it is paid. Once it is found that a person is required to deduct tax at source not only on the amounts payable but also when the sums are actually paid to the contractor, any person who does not adhere to this statutory obligation has to suffer the consequences. The Court also observed that if the provision is interpreted in the manner suggested by the appellant herein, then even when it is found that a person, like the appellant, has violated the aforesaid provisions, he would still go scot free, without suffering the consequences of such monetary default in spite of specific provisions laying down these consequences.

(See 2017-TIOL-207-SC-IT)