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The Finance Act (No.2), 2004 has inserted a new sub-clause (ia) to clause (a) in section 40 of the Income Tax Act, 1961 which provides that no deduction shall be allowed in computing income under the head 'Profits and Gains of Business or Profession' in respect of any interest, commission, brokerage, fee for professional services or fee for technical services payable to a resident, or amounts credited or paid to a contractor or a sub-contractor, being residents, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or after deduction it has not been paid during the previous year or in the subsequent year before the expiry of the time prescribed under section 200(1). It has been further provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under section 200(1), such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.

This amendment is effective from 1st April, 2005, i.e. A.Y. 2005-06 (not from 1st April, 2004 i.e. A.Y. 2004-05 as has been erroneously reported in some of the Journal / Books) as per the Finance (No.2) Act, 2004 notified in the Gazette of India.

Since this amendment is effective from A.Y. 2005-06, there is no requirement of providing information in respect of such payments to residents under clause 17(f) of Form 3CD of Tax Audit for A.Y. 2004-05.

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