Does Section 40(a)(ia) cover cases of short deduction of TDS?

[Ramanathan Seshan]

Dear Experts,

Since the proviso states that disallowance applies where 'an assessee fails to deduct the whole or any part of the tax' under Chapter XVII-B, can short deduction be considered a failure to deduct, thereby attracting disallowance under this section?

Regards,

S Ram

[Padmanathan KV]

It is a debatable issue. Calcutta High Court in 2012 (12) TMI 873 - CALCUTTA HIGH COURT and Delhi High Court in 2022 (7) TMI 748 - DELHI HIGH COURT has taken a view that disallowance under section 40(a)(ia) is not attracted on short-deduction. However, Kerala High Court in 2015 (8) TMI 277 - KERLA HIGH COURT has taken a view that "tax deductible at source under Chapter XVII-B" occurring in the Section 40(a)(ia) has to be understood as tax deductible at source under the appropriate provision of Chapter XVII-B and hence, disallowance is attracted for short-deduction also.

[Ramanathan Seshan]

Dear Padmanathan-sir,

Thank you for your detailed response.

My question stems from the second proviso to Section 40(a)(ia), which clearly appears to cover cases of short deduction. However, the courts have generally not examined the provisos in depth. Moreover, as a general rule, the main section typically prevails over the provisos, doesnt it?

Regards,

S Ram

AI Summary

Section 40(a)(ia) disallowance applies to short TDS deduction cases per Kerala High Court despite conflicting rulings A tax practitioner inquired whether Section 40(a)(ia) covers cases of short deduction of TDS, questioning if partial deduction failures attract disallowance under the provision's language about failing to deduct 'whole or any part' of tax under Chapter XVII-B. A respondent noted conflicting High Court decisions: Calcutta and Delhi High Courts ruled disallowance doesn't apply to short-deduction cases, while Kerala High Court held that disallowance applies to short-deduction since the section references tax deductible under appropriate Chapter XVII-B provisions. The original querist acknowledged the response but noted courts haven't thoroughly examined the provisos, suggesting the main section typically prevails over provisos in interpretation.