Section 40(a)(ia) disallowance on interest payments deleted where the assessee's interpretation and actual payment facts prevailed.

Disallowance under section 40(a)(ia) for alleged non-deduction of tax at source on interest payments was examined in light of a co-ordinate Bench ruling, which applied the principle that where two views on the scope of the provision are possible, the interpretation favourable to the assessee should prevail. The matter also turned on the factual position that the payments had been actually made during the year and were not outstanding as payable at year-end. On that basis, the disallowance was deleted and the issue was decided in favour of the assessee.

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Issues: Whether the disallowance under section 40(a)(ia) for non-deduction of tax at source on interest paid was sustainable.

Analysis: The issue was covered by the co-ordinate Bench decision relied upon in the proceedings, which followed the principle that where two views are possible on the scope of section 40(a)(ia), the view favourable to the assessee must be adopted. The decision also proceeded on the basis that the payments had been actually made during the year and were not outstanding as payable at year-end.

Conclusion: The disallowance under section 40(a)(ia) was deleted and the issue was decided in favour of the assessee.

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