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TMI Blog2009 (12) TMI 674X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of section 40( a )( ia ) as assessee has not deducted tax on the provisions of interest. (3) The appellant craves leave to add, to alter, or amend any grounds of the appeal raised above at the time of the hearing. 2. Accrued interest on debentures issued by the assessee-company was claimed as expenditure in the computation of income filed for the year under consideration. The details of such accrued interest are as under: GIC Mutual Fund 44,39,250 Asman Investments Ltd. 39,37,500 Taurus Mutual Fund 22,50,000 Lazard Investment Ltd. 18,50,000 1,24,76,750 3. It is an admitted position that the above interest was not covered by the provisions of section 43B. It is the case of the Assessing Officer that as the assessee did not accounted for such interest in its books of account, the liability was not ascertained liability and was contingent liability and it was claimed to avoid tax. The second reason given by the Assessing Officer is that such interest could not be allowed as per provisions of section 40( a )( ia ) as assessee has not deducted tax at source on such i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same does not arise at all. It was submitted that non-making of entries in the books of account cannot debar the assessee to claim the expenditure and, for this purpose, reliance was placed on the following decisions: ( i ) Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC) ( ii ) Dy. CIT v. Uttam Steel Ltd. [2005] 2 SOT 777 (Mum.) ( iii ) Addl. CIT. v. Buckau Wolf New India Engg. Works Ltd. [1986] 157 ITR 751 (Bom.). 8. Considering these submissions, the ld. CIT(A) has observed that the assessee is a sick company and has filed an application with BIFR. He observed that during the course of appellate proceedings, copy of debenture certificates were called and, according to those copies of debenture certificates, the debentures were in the nature of secured documents on which the interest had accrued every year. Although the payment of interest has not been made by the assessee because of its financial problems, the interest is quantified as per terms and conditions of the debentures issued to the subscribers of the company. The CIT (A) has observed that there is no provision in the Income-tax Act to stipulate that such interest expenses can be allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant financial year. It was submitted that if the payment of interest is liable for deduction at source, then, it will come within the purview of section 40( a )( ia ) and the assessee can get the deduction of that interest only when it makes payment of TDS. He submitted that unless assessee makes the payment of TDS, it is not entitled to get deduction in that respect. Thus, it was submitted that the CIT(A) was wrong in allowing the claim of the assessee on both the grounds, namely, ( i ) that the liability was ascertained liability and it has to be allowed as the assessee is maintaining its account on the basis of mercantile system of accounting; and ( ii ) that the provisions of section 40( a )( ia ) were not attracted. Thus, it was submitted by ld. DR that the order of the CIT(A) on this issue should be set aside and that of the Assessing Officer be restored. 11. On the other hand, it was submitted by the ld. AR that ld. CIT (A) has rightly observed that the liability of the assessee is ascertained liability. He submitted that a specific finding has been given by the CIT(A) that he has gone through the terms and conditions of the debenture and from that he found that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted or, after deduction, has not been paid, (A)in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139; or (B)in any other case, on or before the last day of the previous year : Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted (A)during the last month of the previous year but paid after the said due date; or (B)during any other month of the previous year but paid after the end of the said previous year; such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. The proviso originally inserted with clause ( ia ) was as under: Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid ." 13. The above proviso was subse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue leakages and the relevant portion of Memorandum Explaining the Provisions Relating to Direct Taxes is reproduced below: " Enforcing compliance of provisions of TDS Under the existing provisions of sub-clause ( i ) of clause ( a ) of section 40, failure to make deduction at source from payment of interest, royalty, fees for technical services or any other sum which is payable outside India, or in India to a non-resident or to a foreign company or failure to make payment to the account of the Central Government, attracts disallowance of such payments in the hands of the payer. Deduction of such sum is, however, allowed in the computation of income if tax is deducted, or after deduction, paid in any subsequent year in computing the income of that year. With a view to augment compliance of TDS provisions, it is proposed to extend the provisions of section 40( a )( i ) to payments of interest, commission or brokerage, fees for professional services or fees for technical services to residents, and payments to a resident contractor or sub-contractor for carrying out any work (including supply of labour for carrying out any work), on which tax has not been deducted or after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 40( a ) will be allowed only when tax deductible thereon is deducted and paid. 17. Here, the contention of ld. AR is that the word deductible referred to in section 40( a )( ia ) refers to the deductibility of tax in accordance with the provisions of section 193 as applicable to the present case. We do not find any force in such argument as the word deductible referred to in section 40( a )( ia ) refer to the nature of expenditure which, inter alia, include interest. If such argument of ld. AR is to be accepted, then, proviso to section 40( a )( ia ) will become redundant, which clearly states that in cases where the tax in respect of any such sum (the nature of expenditure which, inter alia include interest), has been deducted in subsequent year or has been deducted during the last month of previous year, but paid after the said due date or during any other month of previous year, but paid after the end of the said previous year, such sum shall be allowed as a deduction in computing the income of previous year in which such tax has been deducted. The proviso makes it clear that unless tax is deducted on such sum and the same is paid, no deduction is permissible t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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