Section 40(a)(ia) disallowance limited to amounts payable at year-end, excluding sums already paid during the year.

Section 40(a)(ia) was construed on its plain language, with the term "payable" treated as decisive. The disallowance applies only to amounts remaining outstanding at year-end, and not to sums already paid during the previous year without tax deduction at source. Relying on the Special Bench view, the matter was directed to be recomputed by limiting the addition to unpaid liabilities as on 31 March. Amounts not remaining payable at the end of the year fall outside the scope of the provision.

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Issues: Whether disallowance under section 40(a)(ia) of the Income-tax Act, 1961 applies only to amounts remaining payable at the end of the year or also to amounts already paid during the year without deduction of tax at source.

Analysis: The provision was construed on its plain language, and the decisive word was held to be "payable". Relying on the Special Bench decision, it was held that the legislative choice of language confines the disallowance to outstanding liabilities as on 31 March. Amounts already paid during the previous year, which do not remain payable at year-end, are outside the mischief of the section. The matter was therefore required to be recomputed by restricting disallowance only to unpaid amounts remaining outstanding at the end of the year.

Conclusion: Disallowance under section 40(a)(ia) cannot be made in respect of sums already paid during the year and not remaining payable at year-end; the addition was restored for recomputation accordingly.

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