Section 40(a)(ia) covers amounts paid as well as payable when tax is not deducted at source.

Section 40(a)(ia) was interpreted to apply not only to sums outstanding as payable at year-end but also to amounts already paid during the year where tax was deductible at source and was not deducted or paid. The Tribunal preferred the reasoning of the Calcutta and Gujarat High Courts and rejected the narrower view that the word "payable" limits disallowance to year-end liabilities. It also held that a bare dismissal of an SLP does not declare law under Article 141.

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

Analysis: The assessee had admittedly not deducted tax at source on the relevant payments and contended that section 40(a)(ia) was confined to sums remaining payable on the last date of the financial year. The Tribunal considered the conflicting views expressed in Merilyn Shipping and Transports and the later High Court decisions. It preferred the more elaborate reasoning of the Calcutta High Court and the Gujarat High Court, both of which held that the provision covers amounts paid as well as amounts payable during the year and that the word "payable" cannot be read to exclude sums already paid. The Tribunal also held that a bare dismissal of an SLP does not amount to declaration of law under Article 141 of the Constitution of India.

Conclusion: Disallowance under section 40(a)(ia) is not confined to amounts remaining payable at year-end and extends to amounts already paid without deduction of tax at source. The issue was decided against the assessee and in favour of the Revenue.

Ratio Decidendi: Section 40(a)(ia) applies to payments on which tax is deductible at source when such tax has not been deducted or paid, irrespective of whether the amount is outstanding or already paid during the year.

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