2005 (2) TMI 41 - HC - Income Tax

During the previous year the appellant debited royalty of Rs. 8, 84, 09, 109 in its books of account. This consists of (i) Rs. 6, 33, 27, 801 for which tax was deducted and paid during the previous year and (ii) Rs. 2, 50, 81, 308 for which tax was deducted during the previous year but was paid after the end of the previous year but within the time allowed under Chapter XVTI-B read with rule 30 of the Income-tax Rules except for an amount of Rs. 5, 81, 868. The Assessing Officer disallowed deduction of Rs. 2, 50, 81, 308 u/s 40(a)(i) on the ground that the said section tax should have been deducted and paid within the previous year - authorities had found it as a matter of fact that the payments of the tax deducted at source were made within the prescribed time. Another pertinent aspect of this case is that against the order of the Commissioner of Income-tax the assessee had preferred an appeal but the Department never came up with an appeal before the Tribunal. The scope of the appeal preferred by the assessee has no relation to the amount for which no tax has been deducted as such the scope of the appeal was itself limited which even was partly allowed. Revenue s appeal is dismissed as having no merit

Issues:
Interpretation of section 40(a)(i) of the Income-tax Act, 1961 regarding deduction of tax at source and payment within the same financial year.

Detailed Analysis:

The case involved a dispute regarding the deduction of a significant amount under section 40(a)(i) of the Income-tax Act, 1961. The Assessing Officer disallowed a deduction of Rs. 2,50,81,308 under this section, stating that tax should have been deducted and paid within the previous year. The Commissioner of Income-tax, however, set aside this order and directed that if tax was deducted and paid within the prescribed time, the deduction should be allowed. The Tribunal also allowed the deduction, emphasizing that the tax was deducted but paid within the specified time, which complied with the statutory provisions. The court noted that the language of section 40(a)(i) was clear and unambiguous, requiring the tax to be deducted at source and paid within the same financial year for the benefit of deduction to apply.

The court highlighted that the section specifies that if tax is deducted but not paid during the previous year, it can still be allowed as a deduction if paid in a subsequent year within the prescribed time. The court emphasized that the provision should be interpreted based on the plain and simple language without adding or subtracting any expressions. The court observed that the Tribunal's interpretation was in line with the statutory provisions and not perverse. The court further explained that the provision requires the satisfaction of three key elements: royalty payable to a non-resident, tax deductible at source, and payment within the specified period. Compliance with these elements exempts the amount from the disallowance under section 40(a)(i).

The court rejected the argument that the deduction should be allowed only in the year of actual tax deposit, emphasizing that the time of deposit specified in the statute must be adhered to. The court concluded that the payment within the specified time was the most crucial aspect of the provision. Additionally, the court noted that the Department did not appeal the Tribunal's decision, and the scope of the assessee's appeal was limited. Therefore, the court found no merit in the appeal, dismissing it as it did not raise a substantial question of law for consideration. The parties were directed to bear their own costs, and the appeal was disposed of accordingly.

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