Disallowance under section 40(1)(ia) concerns amounts payable, not limited to outstanding balance; appeal allowed for revenue

The issue concerns whether the term payable in section 40(1)(ia) limits disallowance to amounts shown as payable on the balance-sheet or covers expenditures that became payable during the previous year and were paid within that year. The court held that payable is not restricted to outstanding items at yearend; payable and paid are distinct, and the provision applies to amounts becoming payable during the year even if subsequently paid, resulting in disallowance. The majority view in Merilyn Shipping was rejected for importing a casus omissus; the appeal was allowed in favour of the revenue.

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Issues: Whether clause (ia) of section 40(a) of the Income-tax Act, 1961 applies only to amounts shown as payable on the date of the balance sheet (outstanding at year end) or also applies to amounts which became payable during the relevant previous year and were actually paid within that previous year.

Analysis: The statutory text of section 40(a)(ia) must be read in the context of Chapter XVII-B which prescribes the timing and obligation of TDS (sections 193, 194C, 194H, 194-I, 194-J). The term "payable" in section 40(a)(ia) is to be construed with reference to the TDS regime and the method of accounting employed by the assessee; it therefore covers amounts on which tax was required to be deducted under Chapter XVII-B when they became payable or were required to be credited or paid in accordance with those provisions. Comparative references to draft provisions are not permissible to alter the meaning of the enacted text and courts must avoid supplying omissions that the legislature deliberately chose not to include. The proviso to section 40(a)(ia) and related TDS machinery confirm that the provision operates to secure compliance with TDS obligations and applies to the whole expenditure on which TDS was required.

Conclusion: Clause (ia) of section 40(a) is applicable not only to amounts shown as payable on the balance-sheet date but also to expenditures which became payable at any time during the relevant previous year and were actually paid within that previous year; decision is in favour of the Revenue and against the assessee.

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