Short deduction of tax does not trigger section 40(a)(ia) where TDS was actually deducted, the Tribunal held.

Section 40(a)(ia) was held inapplicable where tax had been deducted at source, even though at a lower rate than the rate considered applicable, because the provision is triggered by non-deduction rather than short deduction. The Tribunal therefore upheld deletion of the disallowance. The alternative question whether the payment constituted royalty was not adjudicated, as it had become academic.

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Issues: Whether disallowance under section 40(a)(ia) could be sustained where tax was deducted at source, but at a lower rate than that considered applicable.

Analysis: The assessee had deducted tax on the carriage fees payment, though at 2% instead of 10%. The dispute, therefore, was one of short deduction and not complete non-deduction of tax. Following the coordinate bench decision relied upon by the Tribunal and the view taken in favour of the assessee in similar matters, the Tribunal held that section 40(a)(ia) was not attracted in a case of lesser deduction of tax. The alternative question whether the payment constituted royalty was not adjudicated, as it had become academic.

Conclusion: Disallowance under section 40(a)(ia) was not sustainable on the facts of the case, and the assessee succeeded on this issue.

Final Conclusion: The Tribunal upheld the deletion of the disallowance and dismissed the revenue's appeal.

Ratio Decidendi: Section 40(a)(ia) does not apply where tax has been deducted at source, albeit at a lesser rate, because the provision is triggered by non-deduction and not by short deduction.

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