Section 40(a)(ia) covers paid amounts too; joint title documents sustained one-third capital gains taxation with verification of relief.

Section 40(a)(ia) was held applicable to payments made during the year as well as amounts remaining payable at year-end, because the provision extends to both categories where tax deduction obligations under Chapter XVII-B are not met, so the disallowance was sustained. On the capital gains issue, recorded title documents showing joint purchase and sale of the residential flat supported treatment of the assessee as a one-third co-owner, and the assessee failed to rebut that presumption with cogent evidence, so capital gains were taxable to that extent; proportionate cost of acquisition and indexation relief were to be examined on verification.

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Issues: (i) Whether disallowance under section 40(a)(ia) was sustainable in respect of payments made during the year though nothing remained payable at year-end. (ii) Whether the assessee was taxable on one-third share of long-term capital gain arising from sale of the residential flat, and whether the cost of acquisition and indexation benefit were to be allowed.

Issue (i): Whether disallowance under section 40(a)(ia) was sustainable in respect of payments made during the year though nothing remained payable at year-end.

Analysis: The binding view of the Supreme Court in Palam Gas Service held that the expression used in section 40(a)(ia) covers not only amounts outstanding as payable at the end of the year but also sums actually paid during the year. The provision operates as a consequence of failure to comply with the tax deduction obligations under Chapter XVII-B and is not confined to unpaid liabilities at year-end.

Conclusion: The disallowance was sustained and the issue was decided against the assessee.

Issue (ii): Whether the assessee was taxable on one-third share of long-term capital gain arising from sale of the residential flat, and whether the cost of acquisition and indexation benefit were to be allowed.

Analysis: The sale deed and purchase agreement showed that the flat had been jointly purchased and sold by three family members, including the assessee. The assessee failed to produce cogent material to establish exclusive ownership in the father alone or to displace the presumption arising from the recorded title documents. On the evidence available, the assessee was treated as a co-owner to the extent of one-third share. At the same time, once capital gain was brought to tax in the assessee's hands, deduction of the proportionate cost of acquisition and indexation under the capital gains computation provisions had to be examined on verification.

Conclusion: The addition of capital gains was upheld to the extent of the assessee's one-third share, but the assessee was entitled to consideration of proportionate cost of acquisition and indexation benefit on verification.

Final Conclusion: The appeal succeeded only in part, with the TDS disallowance sustained and the capital gains addition maintained subject to allowance of eligible cost and indexation relief after verification.

Ratio Decidendi: Section 40(a)(ia) applies to both amounts payable and amounts actually paid, and where title documents show joint ownership, the assessee must rebut that presumption with cogent evidence before denying taxable capital gains in his hands.

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