Wrong TDS section alone does not trigger disallowance where tax was deducted on stock exchange transaction charges.

Section 40(a)(ia) disallowance cannot be sustained merely because tax was deducted at source under section 194C instead of section 194J on stock exchange transaction charges. The operative condition for disallowance is failure to deduct tax at source, or failure to pay tax after deduction within the prescribed time; a wrong TDS classification or short deduction by itself does not attract the provision. As tax was in fact deducted on the transaction charges, the disallowance was held unsustainable and the issue was decided in favour of the assessee.

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Issues: Whether disallowance under section 40(a)(ia) of the Income-tax Act, 1961 could be sustained where tax was deducted at source under section 194C instead of section 194J on transaction charges payable to a stock exchange.

Analysis: The statutory condition for disallowance under section 40(a)(ia) is attracted only when tax deductible at source has not been deducted or, after deduction, has not been paid within the prescribed time. The provision does not create a disallowance merely because tax was deducted under a wrong provision or because there was a short deduction. The transaction charges were subjected to TDS by the assessee, though under section 194C. The prevailing legal position, as applied by the Tribunal, was that such short deduction does not by itself justify disallowance under section 40(a)(ia).

Conclusion: Disallowance under section 40(a)(ia) was not sustainable merely because TDS was deducted under section 194C instead of section 194J; the issue was decided in favour of the assessee.

Ratio Decidendi: Section 40(a)(ia) applies only where tax deductible at source is not deducted or, after deduction, is not paid, and it does not authorize disallowance solely for deduction under a wrong TDS provision or for short deduction.

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