Hall Offshore Ltd. v. ACIT

Decision:    In assessee’s favour.

Landmark Judgment : Shortfall in deduction of TDS don’t attract disallowance u/s 40(a)(ia)

Facts:

AO alleged that assessee had deducted TDS at 4.22%, instead of 20%, hence, he made disallowance under section 40(a)(ia) for short deduction of TDS on foreign payments made by assessee.

Held:

Section 40(a)(ia) has two limbs; one is where assessee has to deduct tax and the second where after deducting tax, assessee has to pay into government account. There is nothing in the said section to treat assessee as a defaulter where there is shortfall in deduction of TDS. More so, where there is shortfall due to any difference of opinion as to taxability of any item or the nature of payment falling under various TDS provisions, the assessee can only be declared to be an assessee-in-default under section 201 and no disallowance could be made. Hence, AO was not justified in making disallowance under section 40(a)(ia) for short deduction of TDS on foreign payments made by assessee