Royalty deduction under section 40(a)(i) upheld where TDS was paid within the statutory time limit.

Royalty expenditure remained deductible under section 40(a)(i) because tax was deducted at source and paid within the time prescribed by section 200(1), even though payment was made in the next financial year. Applying the plain meaning of the provision, the HC held that disallowance arises only where tax is not deducted or, after deduction, is not paid within the statutory period. The Tribunal's view was a permissible interpretation, so no substantial question of law arose and the revenue's appeal failed.

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Issues: Whether royalty expenditure was deductible where tax was deducted at source within the previous year but deposited within the time allowed by the statute, and whether the revenue's appeal raised a substantial question of law.

Analysis: The relevant provision of section 40(a)(i) was held to be clear and unambiguous. The section disallows certain payments only where tax deductible at source has not been deducted, or, after deduction, has not been paid during the previous year or within the time prescribed under section 200(1). The Court applied the plain meaning rule and held that the statute contemplates compliance if tax is deducted and paid within the prescribed time, even if payment occurs in the next financial year. It further held that a different interpretation would defeat the statutory relief and that no substantial question of law arose because the Tribunal had adopted a permissible view.

Conclusion: The royalty deduction was allowable, the Tribunal's view was upheld, and the revenue's appeal failed.

Final Conclusion: The statutory condition under section 40(a)(i) was satisfied by deduction and payment within the prescribed time, so the disallowance could not stand and the appeal was dismissed at the threshold for want of a substantial question of law.

Ratio Decidendi: Where tax deductible at source is deducted and paid within the period prescribed by the Act, the corresponding expenditure is not disallowable under section 40(a)(i) despite payment spilling into the next financial year.

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