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Issues: Whether freight payments incurred by an on-board courier agency constituted direct business expenditure falling within the computation of business profits under section 28 of the Income-tax Act, 1961, and therefore outside the scope of disallowance under section 40(a)(ia) for non-deduction of tax at source.
Analysis: The petitioner was engaged not as a courier agency but as an on-board courier handling transportation of parcels for other courier companies. The freight charges were only the direct cost of carrying the parcels, either through air cargo freight or by purchase of tickets and baggage charges, while the commission element was separately offered to tax. On the same facts in a later assessment year, the appellate authority had held that such freight expenditure represented direct expenditure relatable to business receipts and that section 40(a)(ia) applies only to items deductible under sections 30 to 38, not to direct costs computed under section 28. The earlier appellate order had attained finality and had been accepted by the Revenue.
Conclusion: The freight payments were direct business es outside the ambit of section 40(a)(ia), and the disallowance for non-deduction of tax at source was unsustainable.
Ratio Decidendi: Expenditure that constitutes direct business cost in computing real profits under section 28 of the Income-tax Act, 1961 is not subject to disallowance under section 40(a)(ia), which applies only to deductions governed by sections 30 to 38.
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