2020 (9) TMI 976 - HC - Income Tax

Disallowance u/s 40(a)(ia) - Whether provision of section u/s.40(a)(ia) cover only amounts which are payable as on 31st March of a previous year relevant to the assessment year under consideration and not amounts which are payable at any time during the relevant previous year? - HELD THAT - Tax effect is said to be less than the monetary limit imposed and therefore, the Appeal filed by the Revenue is dismissed, as withdrawn, keeping open the substantial questions of law for determination in appropriate cases.

Summary

Issues:
1. Disallowance under section 40(a)(ia) of the Income Tax Act for Assessment Year 2005-2006.

Analysis:

The High Court of Madras heard a Tax Case Appeal filed by the Revenue challenging the order of the Income Tax Appellate Tribunal (ITAT) for the Assessment Year 2005-2006. The appeal raised substantial questions of law regarding the interpretation of section 40(a)(ia) of the Income Tax Act. The first issue questioned whether the term 'payable' in the context of the Act includes amounts paid during the previous year. The second issue raised was whether the provision of section 40(a)(ia) covers only amounts payable as of 31st March of the relevant previous year. The third issue highlighted the ITAT's alleged error in not considering a decision in Ryatar Sahakari Sakkare Karkhane Niyamit v. CIT, which stated that section 40(a)(ia) applies to amounts 'paid' and not just 'payable'. The fourth issue questioned the ITAT's failure to appreciate decisions in the cases of CIT vs. M/s. Crescent Export Syndicate and CIT vs. Sekander Khan N Tunvar, along with the Mumbai ITAT order in the case of ACIT, Cir.4(2) Mumbai vs. Rishti Stock & Shares, and whether the ITAT's decision had become perverse in light of the decision in Sudarshan Silk Sarees vs. CIT.

During the hearing, the Senior Standing Counsel for the Revenue referred to a Circular issued by the Central Board of Direct Taxes stating that appeals should not be pursued before the High Court if the tax effect does not exceed Rupees One Crore. As the tax effect in this case was below the specified limit, the High Court dismissed the appeal filed by the Revenue but kept the substantial questions of law open for determination in suitable cases. No costs were awarded in this matter.