S. 40(a)(ia) — If the assessee has paid the impugned amount and the amount is not payable at the end of the year on the date of balance sheet, then the provisions of S. 40(a)(ia) are not applicable.

Since the assessee was not maintaining proper books of
account and also failed to produce vouchers for verification, the Assessing
Officer rejected the books of account and estimated the income at certain
percentage of the gross receipts. Further, he disallowed certain payments made
to sub-contractors without deducting the TDS by invoking provisions of S.
40(a)(ia) of the Act.

It was held that the books of account of the assessee were
not relied, they were rejected by the Assessing Officer and the same was
confirmed. Now, based on the reliance on the same books, for the purpose of
invoking the provisions of S. 40(a)(ia) is improper. The estimation of income
takes care of the irregularities committed by the assessee. Further addition by
invoking S. 40(a)(ia) amounts to punishing the assessee for a same offence on
double occasions, which is not permitted by law.

Further, it was held that the bare provision of S. 40(a)(ia)
provides for non-deduction of amount which remains payable to a resident in
respect of fees for technical services, etc. It is not applicable where
expenditure is paid. It is applicable only in cases where the payments are due
and outstanding. S. 40(a)(ia) otherwise being a legal fiction needs to be
construed strictly in view of the decision of the Supreme Court in CIT v. Mother
India Refrigeration Industries (P) Ltd., (155 ITR 711). If the assessee has paid
the impugned amount and it is not payable at the end of the year on the date of
balance sheet, then the provisions of S. 40(a)(ia) are not applicable. It is
only applicable in respect of ‘payable amount’ shown in the balance sheet as
outstanding expenses on which TDS has not been made. There is a difference
between the words ‘paid’ and ‘payable’. The Legislature used the word very
carefully in S. 40(a)(ia) and in all its wisdom. The language used in the S.
40(a)(ia) is very simple, clear and unambiguous. Literal rule of interpretation
has to be applied.