I am following your blog very much ,and running a blog site simple tax India.I would like to know about section 40(a)(ia) amendment in recent finance act .Whether the relief has been given only for the month of march ? I have written a post about it but after receiving so much queries on it in various yahoo groups I am losing some bit confidence on my interpretation ,please help.link to my blog post is http://simpletaxindia.blogspot.com/2008/05/disallowance-us-40aia-tds-default.html Rajan Gupta ,CA , Bhatinda
First of all I would say that the answer you have given is correct interpretation of the newly introduced provision u/s 40(i)(ia). However , as you have asked my opinion , here is the answer:
The law regarding deduction of tax at source fix the point of deduction at the time of payment or credit of amount to the account of deductor , which ever is earlier.
Amended section 40(i)(ia) of the I T Act provides as under
any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid,—
- (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139; or
- (B) in any other case, on or before the last day of the previous year:
Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted—
- (A) during the last month of the previous year but paid after the said due date; or
- (B) during any other month of the previous year but paid after the end of the paid previous year,
such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
The aforesaid provision was introduced by Finance Act 2008. with retrospective effect from Asst Year 2005-06 . Confusion has generated on the issue whether the benefit given vide the amendment to section 40(i)(ia) is only for the amounts related to March or any payment. Although the wording of the provision in Clause A is very clear to state that the amount on which tax was deductible in March and on which tax was deducted , can be deposited till the due date of filing of return.
Who can the better person than the Hon’able Finance Minister -the law maker himself- to clear the confusion ? Read below his speech in Parliament on the issue of amendment in section 40(i)(ia) while replying on debate on Finance Bill 2008
9. Under the law as it was amended by Finance Act, 2004, if a person liable to deduct tax at source on specified expenditure fails to do so or fails to pay the tax within the time allowed to him, the expenditure is disallowed, besides subjecting any delayed payment to interest and penalty. Several representations have been received from Honourable Members pointing out the hardship that arose in the first assessment year after the amendment, namely, during Assessment Year 2005-06. Apparently, mistakes were made in complying with the amended Section 40(a)(ia), particularly in respect of deductions that ought to have been made in respect of payments made in the month of March.
With a view to mitigating this hardship, I propose to insert a new clause 8 in the Finance Bill, 2008 to provide that no disallowance under section 40(a)(ia) of the Income-tax Act shall be made in the case of a deductor, in respect of the expenditure incurred in the month of March, if the tax deducted at source on such expenditure had been paid before the due date of the filing of the return. The taxpayers will now get a time period of six months for depositing such tax deducted at source, relatable to payments in the month of March, to escape the disallowance of the expense under this section. Naturally, the proposed amendment has to be given retrospective effect from assessment year 2005-06 [full text of Finance Minister's speech here ]
Do we still need clarification regarding the meaning of the amendment in section 40(i)(ia) vide Finance Act 2008?It is clear that
- The relief is regarding deposit of tax .
- Which was deducted by March
- On expenditure incurred in March on which tax is to be deducted at source
For all other kinds of TDS liability, the last date is within previous year. Therefore , A.O can disallow expense u/s 40(i)(ia) in following cases
- Which were incurred before March and tax was either not deducted or after being deducted not deposited within the same previous year.
- Which were incurred in the month of March , tax was deducted on the payment or credit of the expenditure but was not deposited by the due date for filing of return
I recommend my readers the blog simpletaxindia.blogspot.com
About taxworry
It is interesting to note this amendment. More important on the impact in Previous Assessment years including Ay 2005-2006.
It is worth to note that assessment for the AY 2005-2006, All the scrutiny assessments / self assessments would have been completed by 31-12-2007.
In all such cases, The AO would have disallowed based on earlier provision.
What ought to have been claimed because of the amendement could not be claimed because the assessment itself is completed.
Now the question is
1) In case of scrutiny assessment, Is there a possibility for the AO to rectify his assessment on his own or if a petition has been made, would the AO will look into? What is thelegal way out?
2) In cases where self assessment is made.The assessee themselves would have dissalowed such expenses. In such cases what is the remedy?
Regards
sathya
vyakul@gmail.com
An application under section 154 could be filed for the assessment year 2005-06,seeking the rectification/modification of assessment where the additions were made by the I T O or dis allowances were offered by the assessee in the computation of income.
In the light of the amendments to Finance Act 2008, the department is obliged to pass the rectification/modification orders. Since the time limit for the rectification is still available one can file the petition at the earliest. Most of the assessments must have been completed during October 2005 to December 2007. So hurry up.
Why the TDS refund is delayed for a very long period ? Can anybody explain why? is there any way to get the pending refund from IT dept.