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Issues: Whether tax was deductible at source on a year-end provision for legal and professional charges when the payees were not identified and the provision was reversed at the start of the next year.
Analysis: The provision made at the end of the accounting year was reversed in the beginning of the next year, and neither the exact amount payable nor the identity of the payees had been ascertained at the time of making the entry. On the facts, the existence of a book entry alone was not decisive. The governing principle applied was that tax deduction at source depends on income being attributable to an identifiable payee, and where no income has accrued to a known recipient, the liability to deduct tax does not arise. The decision distinguished the authority relied on by the Revenue because that case involved identified payees. The earlier Karnataka decisions on identical year-end provisions were followed.
Conclusion: The question was answered in favour of the assessee and against the Revenue; no TDS was required on the impugned year-end provision.
Final Conclusion: The disallowance based on failure to deduct tax at source on an unascertained, reversed year-end provision could not stand, and the assessee succeeded in the appeal.
Ratio Decidendi: Tax deduction at source is not attracted on a year-end provision where the payee is not identified and no income is shown to have accrued to a definite recipient.
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