Law:

Section:

Section 40(a)(i) of the Income-tax Act, 1961 - Business disallowance - Interest, etc., payable outside India - Assessment year 2003-04 - Assessee was liable to pay technical fee to a foreign entity from time-to-time - Said fee for all years was, however, charged to profit and loss account and paid during relevant assessment year and tax in respect of same was also paid during relevant assessment year - Assessing Officer disallowed said expenditure on ground that it was a prior period expenditure which should have been debited in years in which same had been incurred - Whether in view of provisions of section 40(a)(i) deduction can be claimed only in year in which tax is actually paid - Held, yes - Whether since tax in respect of technical fee paid to foreign entity was deducted and paid during relevant assessment year, expenditure would have to be allowed in relevant assessment year - Held, yes FACTS The assessee was liable to pay technical fee to a foreign entity from time-to-time. However, the same had not been shown as payable in the books of account of the assessee in the years prior to the assessment year 2003-04, because the parties had mutually agreed to defer the payments towards the liability. The assessee's stand was that the said fee for all the years had become payable and had been charged to the profit and loss account and paid during the assessment year 2003-04 and tax in respect of said payment was also paid in the relevant assessment year. The assessee claimed deduction of said expenditure as prior period expenses. The Assessing Officer disallowed the assessee's claim on the ground that the amounts should have been debited in the years in which the said expenditure had been incurred. On appeal, the Commissioner (Appeals) took the view that in view of the provisions of section 40(a)( i) the deduction could be claimed only in year in which tax was actually paid and, thus, even if the assessee would have debited the amount in the earlier years, same could not have been allowed in term of section 40(a)(i ), as the tax had not been deducted at source and paid to the Government's account. The Commissioner (Appeals), accordingly, held that since the…

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