Salary tax withholding depends on post-deduction taxable income and available rebate, preventing disallowance where no tax is deductible.

Salary payments did not require tax deduction at source because, after the standard deduction, all but one employee had taxable income below the basic exemption threshold. For the remaining employee, the available rebate fully offset the tax liability. As no tax was deductible from the salary payments, disallowance under Section 40(a)(ia) was deleted in favour of the assessee.

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Issues: Whether disallowance under Section 40(a)(ia) for non-deduction of tax at source from salary payments was sustainable.

Analysis: After allowing the standard deduction to each employee, the taxable salary of all but one employee fell below the basic exemption threshold. In respect of the remaining employee, the resulting tax liability was fully offset by the rebate available under Section 87A. Consequently, no tax was deductible at source from the salary payments.

Conclusion: The disallowance under Section 40(a)(ia) was deleted; the issue was decided in favour of the assessee.

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