S. 40(a)(ia) – CBDT issues circular providing “Departmental View” contradicting Merylin Shipping ruling


The CBDT has issued Circular (No: 10/DV/2013) dated 16/12/2013 providing ‘Departmental View‘ on the controversial issue surrounding section 40(a)(ia) of the Income-tax Act, 1961.  

In case of Merilyn Shipping & Transports v Addln CIT /[2012] 136 ITD 23 (VISAKHAPATNAM), it was held that: 

“The word ‘payable’ used in section 40(a)( ia) is to be assigned strict interpretation, in view of the object of Legislation, which is intended from the replacement of the words in the proposed and enacted provision from the words ‘amount credited or paid’ to ‘payable’. Hence, it has to be concluded that provisions of section 40(a )(ia) are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow expenditure which has been actually paid during the previous year, without deduction of TDS.” 

The above ruling was dissented by Calcutta High Court in the case of CIT v Crescent Export Syndicate [2013] 216 Taxman 258 (Cal) and by Gujarat High Court in the case of CIT v Odedara Construction [2013] 34 taxmann.com 133 (Guj). 

CBDT has given its considered view (‘Departmental View’) that”

Provisions of section 40(a)(ia) would cover not only the amounts which are payable as on 31st March of the previous year but also amounts which are payable at any time during the previous year. The statutory provisions are amply clear and in the context of section 40(a)(ia), the term ‘payable’ would include ‘amounts which are paid during the previous year’.

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