Section 40(a)(ia) cannot be limited to year-end dues; clear statutory text governs disallowance of TDS-default payments.

Section 40(a)(ia) is read as applying to any amount payable to a resident on which tax was deductible at source but was not deducted or not paid within the prescribed time; the provision does not insert an unstated limitation to liabilities outstanding on 31 March. The words "payable" and "paid" are not interchangeable for this purpose, and year-end closing entries do not control the disallowance. The text also rejects the Special Bench view in Merilyn Shipping, holding that clear statutory language cannot be narrowed by relying on draft Bill materials or legislative debates. The stated ratio is that a court must apply the provision as enacted, without adding a temporal condition not found in the text.

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Issues: (i) Whether disallowance under section 40(a)(ia) of the Income-tax Act, 1961 is confined only to amounts payable as on 31 March of the relevant year; (ii) whether the Special Bench ruling in Merilyn Shipping correctly states the law.

Issue (i): Whether disallowance under section 40(a)(ia) of the Income-tax Act, 1961 is confined only to amounts payable as on 31 March of the relevant year.

Analysis: The provision was read in the context of the scheme for deduction and recovery of tax at source. The words used in the section require an amount payable to a resident, on which tax is deductible at source, and where such tax has not been deducted or, after deduction, not paid within the prescribed time. The language does not state that the amount must remain outstanding on the last day of the accounting year. The terms "payable" and "paid" were held not to be synonymous for this purpose, and no additional qualification as to continued outstanding balance could be read into the section. The Court also rejected the argument that the closing of accounts on 31 March governs the condition for disallowance.

Conclusion: The disallowance is not confined to amounts outstanding on 31 March; it extends to amounts payable at any time during the year if the statutory conditions are met.

Issue (ii): Whether the Special Bench ruling in Merilyn Shipping correctly states the law.

Analysis: The Court held that the Special Bench erred in treating the difference between the draft Bill and the enacted text as a conscious legislative omission warranting a narrow construction. Parliamentary drafts and debates were held to be unsafe aids where the statutory language is clear. The Court found the provision unambiguous and concluded that the interpretation adopted by the Special Bench would produce an artificial distinction not supported by the text.

Conclusion: The Special Bench decision in Merilyn Shipping does not lay down the correct law.

Final Conclusion: The Revenue succeeded on the substantial questions of law, but the matters were sent back to the Tribunal for consideration of the remaining issues relating to disallowance.

Ratio Decidendi: Where the language of a tax provision is clear, courts must apply it as written and cannot read in an unstated temporal limitation that disallows only year-end outstanding liabilities.

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