TDS on year-end provisions applies when payee and amount are identifiable; salary tax follows actual payment

Year-end provisions for ascertained expenses can fall within TDS obligations when the payee, nature of payment and amount are identifiable, even if the credit is routed to an expenses payable account and later reversed. Relief from being treated as an assessee in default may still be available if the recipient has already offered the income and the statutory verification requirements under the first proviso to section 201 are met. Salary or incentive payments are governed by deduction at the time of actual payment, so where tax is deducted on payment and forms are issued accordingly, no salary-related TDS default or consequential interest survives.

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Issues: (i) Whether tax was deductible at source on year-end provisions credited in the books when the payee, nature of expense and amount were ascertainable and the amounts were later reversed in subsequent periods; (ii) Whether short deduction of tax on salary or incentive payments attracted liability under the TDS provisions governing salary income.

Issue (i): Whether tax was deductible at source on year-end provisions credited in the books when the payee, nature of expense and amount were ascertainable and the amounts were later reversed in subsequent periods.

Analysis: The provisions were made at year end on an accrual basis and the recipients, PAN, nature of expenditure and amount were identified. The amounts were credited to an expenses payable account, which did not take the case out of the TDS net. The applicable TDS provisions for contractual and professional payments operate when the amount is credited or paid, whichever is earlier, and credit to a different account does not avoid the obligation. At the same time, the assessee was entitled to seek the benefit of the first proviso to section 201 if the recipients had already offered the income and the requisite certificates were produced for verification.

Conclusion: Tax was deductible at source on the year-end provisions, and the assessee was liable to be treated as an assessee in default subject to verification of relief under the first proviso to section 201.

Issue (ii): Whether short deduction of tax on salary or incentive payments attracted liability under the TDS provisions governing salary income.

Analysis: The salary or incentive amounts were not actually paid during the relevant year. Under the salary TDS provision, deduction is required at the time of payment, and the record showed that tax was deducted in the year of actual payment and the corresponding forms were issued. On those facts, the salary-related default and consequential interest did not survive.

Conclusion: No TDS default survived in respect of the salary or incentive payments, and the addition of interest on that count was deleted.

Final Conclusion: The assessee succeeded on the salary-related ground and obtained conditional relief on the year-end provision issue, resulting in a partly allowed appeal with verification left to the assessing authority for the statutory proviso-based relief.

Ratio Decidendi: Where a year-end provision represents an ascertained liability and the payee is identifiable, TDS may be attracted even if the amount is routed through a provision or payable account, while salary tax deduction is governed by the time of actual payment; relief from being treated as an assessee in default may still be available if the recipient has already discharged tax and the statutory conditions are verified.

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