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TMI Blog2012 (4) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... h was constituted and the aforesaid question was answered in favour of the assessee. According to the majority view, it was held that section 40a(ia) of the Act is applicable only to expenditure which is payable as on 31st March of every year and cannot be invoked to disallow the amounts which have already been paid during the year without deducting tax at source. 2. Issue involved in this appeal is with regard to the disallowance of payments of Rs. 38,75,000/- towards brokerage and Rs. 2,43,253/- towards commission on non-deduction of TDS by invoking the provisions of section 40a(ia) of the Act. The assessee's case was that the entire brokerage in commission payments were actually paid during the financial year excepting an amount of Rs. 1,78,025/- which remained payable as on 31.3.2005. The claim of the assessee was rejected by the revenue resulting in an appeal before us by the assessee. Following the majority view of the special bench, the provisions of section 40a(ia) cannot be invoked with respect to the aforesaid payments which were actually paid during the financial year but it can be invoked with respect to Rs. 1,78,025/- which remained payable as on 31.3.2005. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the mechanism of tax deduction at source. This provision was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head "Income from Business & Profession" in case the assessee does not deduct TDS on such expenses. The default in deduction of TDS would result in disallowance of expenditure on which such TDS was deductible. Let us see the provision as brought out in the Act, which is as under: "40 Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head ''Profits and gains of business or profession",- (a) in the case of any assessee- (i)** ** ** (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which such tax has been paid " From the above comparison between the proposed and enacted provision, I find that the Legislature has replaced the word "amounts credited or paid" with the word "payable" in the final enactment. As argued by ld. Counsel for assessee as well as for the Interveners, a question arises as to why the Legislature dropped the words "credited" and "paid" under section 40(a)(ia) as proposed in the Finance Bill, 2004. The ld. Counsel argued that the word "paid" was not incorporated because Legislature knew it that if amount is already paid, IDS cannot be deducted. According to ld. Counsel, as per Rule 30 of Income Tax Rules, 1962 (hereinafter referred to as 'the Rules'), which, inter alia, deals with time and mode of payment of Tax deducted at source, he pointed that Rule 30 of the Rules prior to its substitution by the Income-tax (Sixth Amendment) Rules, 2010 with retrospective effect from 1st April, 2010 allowed two months period of time for depositing of TDS, if the amount is deducted with reference to this Rule. According to the ld. Counsel, the words "paid" and "payable" have different connotations and accordingly, different time periods have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Further, the ld. Counsel relied on the decision of the Hon'ble Supreme Court in the case of Smt Tarulata Shyam & Ors. v CIT [1977] 108 ITR 345 (SC) wherein it is held that, "it is a fundamental rule of taxation that where there is no scope for importing into the statute words which are not there, such importation would be not to construe, but to amend, the statute. Even if there is any casus omisus the defect can be remedied by the legislation alone and not by judicial interpretation. Ld. Counsel also relied on the decision of Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC), wherein it is held that if the court finds that the language of the taxing provision is ambiguous or capable of more meanings than one, then the court has to adopt that interpretation which favours the assessee, more particularly so where the provision relates to imposition of a penalty. Ld. Counsel in this context here argued that the provisions of section 40(a)(ia) of the Act are penal in nature because it disallows even the genuine and admissible claims of expenses under the head "Income from Business & Profession" if the assessee does not deduct TDS on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, and we will not understand each other. If we say that a certain object is a book, then we mean it is a book If we say it is a book, but we mean it is a horse, table or an elephant, then we will not be able to communicate with each other. Life will become impossible. Hence, the meaning of the literal rule of interpretation is simply that we mean what we say and we say what we mean. " The provision of section 40(a)(ia) of the Act clearly uses the term "payable" and not "paid". Hence, if the literal construction of this word is taken, then no word can be substituted in place of the said word "payable" nor can any new word be supplied in the provision. The language of the provision has thrown open two terms "paid" and "payable" for judicial interpretation. We have gone through the meaning of terms "payable" and "paid" as defined in various judicial dictionaries and the definitions are reproduced above in para 3 of this order. 5. In respect to this, Revenue argued that the interpretation of the word "payable", if restricted to payable, will throw up an anomalous situation. As per ld CIT-DR, if the disallowance under section 40(a)(ia) of the Act is restricted to amounts payable the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 320 ITR 561 (SC), wherein it is held "Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion". However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament reintroduced the said expression and deleted the word "opinion " on the ground that it would vest arbitrary powers in the AO. " And further Hon'ble Supreme Court quoted the relevant portion of circular no.549 dated October 31, 1989 (1990) 182 ITR (St.) 1, 29), which reads as under: "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression ^reason to believe' in section 147.- A number of representations were received against the omission of the words reason to believe' from section 147 and their substitution by the 'opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 748 at page 767; [1960] 1 All E.R. 505 (512) Lord Reid observed as under: "What we must look for is the intention of Parliament, and I also find it difficult to believe that Parliament ever really intended the consequences which flow from the appellant's contention. But we can only take the intention of Parliament from the words which they have used in the Act." Further, it was observed as under: "Moreover, the expression 'intention of the legislature' is ambiguous. Does it connote meaning or purpose; or, putting it in another way, does the present case fall within what the legislature 'meant' by these words, or does it fall within the purpose which they 'meant' to accomplish by the use of these words? But in the present case, the only word put in the provision of section 40(a)(ia) of the Act is "payable" and not "paid" or "credited", rather Legislature consciously replaced the word "amounts credited or paid" with the word "payable" in the final enactment and such change was done with a purpose. I am of the view that presumption that enactment brought in by the Legislature is well-thought off and properly worded in order to give meaning to its inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. However the word paid was subsequently dropped which shows that 40(a)(ia) was meant to be applicable only if the amounts covered therein was "payable" at the end of the year. Reference may be made, for the scope and effect of section 40(a)(ia) as clarified by CBDT in Circular No. 5 of 2005, date 15th July, 2005 to show that the intention to introduce this provision was brought to curb bogus payments by creating bogus liability. 9. I find that Hon'ble Supreme Court in the case of Vegetable Products Ltd. (supra) have interpreted the word payable as the amount "payable" after deducting the amount paid at the time of imposing penalty. Further, the Hon'ble Gujarat High Court in the case of CIT v Upnishad Investment (P) Ltd & Ors [2003] 260 ITR 532 (Guj.) may also be referred wherein the word payable has been interpreted by Hon'ble Gujarat High Court as the amount due or outstanding as under: "We are of the view that though the Legislature changed the expression from "receivable" to "due" in section 18 of the 1961 Act (corresponding to section 8 of the 1922 Act), we are unable to find any substantial difference between the expression "receivable" on the one hand and "du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w himself to be so carried away by a legal fiction so as to ignore the words of the very section which creates it or its context or setting in the statute which contains that section nor can one loose sight of the purpose for which the fiction is created. (iii) Outside the bounds of the legal fiction the difference between the reality and the fiction may still persist in the provisions of the same Act which creates the fiction and the difference may be ascertained by reference to the subject and context of those provisions. It means that legal fiction cannot be extended any further and has to be limited to the area for which it is created. Hon'ble Andhra Pradesh High Court in the case of Addl. CIT v. J Durgamma P. [1987] 167 ITR 776 (AP) held that it is not possible to extend the fiction beyond the field legitimately intended by the statute. The Hon'ble court was dealing with the provisions of sec. 171(1) of the IT Act in the context of which it was held that joint family shall be deemed to continue for the limited purpose of assessing cases of joint families which have been hitherto assessed as such. It is not possible to extend that fiction to other cases. Similar view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . No further legal fiction from elsewhere in the statute can be borrowed to extend the field of section 40(a)(ia) of the Act. This fiction cannot be extended any farther and, therefore, cannot be invoked by Assessing Officer to disallow the genuine and reasonable expenditure on the amounts of expenditure already paid. 11. As regards to argument of revenue regarding challenge to the constitution of this provision before Hon'ble Madras High Court in the case of Tube Investments of India v. ACIT [2009] 325 ITR 610 wherein the court rejected the said challenge and upheld the validity of section 40(a)(ia) of the Act and the competence of the Legislature in enacting such a provision on the ground that this provision has been introduced in order to augment tax through the mechanism of TDS and the provisions of section 40(a)(ia) of the Act is in furtherance to the said objective. Further, Hon'ble Allahabad High Court also declared the provisions of section 40(a)(ia) as constitutionally valid in the case of Dey's Medical (U.P.) (P) Ltd. v. Union of India & Ors. [2009] 316 ITR 445. It is not in doubt that Hon'ble Madras High Court and Hon'ble Allahabad High Court has hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The provisions of section 40(a)(ia) of the Act 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 which had been actually paid during the previous year, without deduction of TDS. ORDER S. V. Mehrotra, Accountant Member This appeal filed by the assessee is against the order of Id. Commissioner of Income-tax (Appeals)-I. Visakhapatnam dated 03.07.2008 for the assessment year 2005-06. 2. When the matter came up before the ld. Members of the Visakhapatnam Bench on 08.03.2010, the assessee relied on the order of Tribunal dated 23.10.2009 of ITAT, Hyderabad 'A' Bench. Hyderabad in the case of M/s. Teja Constructions, Hyderabad in I.T.A. No. 308/Hyd./2009 relating to the assessment year 2005-06. After hearing ld. D.R., the Bench could not agree with the decision rendered by the ITAT Hyderabad 'A' Bench and, therefore, referred the matter to the Hon'ble President to constitute a Special Bench. Hon'ble President constituted the Special Bench to decide the following question:- "Whether Sec. 40(a)(ia) of the Income Tax Act can he invoked only to disallow expenditure of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission. Being aggrieved, the assessee is in appeal before us. As noted earlier, Hon'ble President has constituted this Special Bench to decide the question noted above in para 2. Following are the Interveners in the matter Intervener No. 1 - M/s. Blue Marine Logistics Pvt. Ltd., Chennai, for which Shri B. Ramakrishnan, C.A. appeared, Intervener No. 2 - Rajamahendri Shipping & Oil Field Services Ltd. for which Shri Gun Hari, C.A. appeared, and Intervener No. 3 - Srinivasa Rao for which Shri Y. Suryachandra Rao, C.A. appeared, C.A. 4. Ld. counsel for the assessee, Shri S. Subramanyam submitted that Finance (No. 2) Bill, 2004 sought to amend section 40 of the Income Tax Act by inserting sub-clause in clause (a) w.e.f. 1st April, 2005 as under :- (ia) Any interest, commission or brokerage, fees for professional services or fees for technical services payable to a resident, or amounts credited or paid to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour carrying out any work), on which tax has not been deducted or, after deduction, has not been paid before the expiry of the time prescribed under sub-section (1) of section 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid,- (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139; or (B) in any other case, on or before the last day of the previous year:] [Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted- (A) during the last month of the previous year but paid after the said due date; or (B) during any other month of the previous year but paid after the end of the said previous year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.] Explanation.-For the purposes of this sub-clause,- (i) "commission or brokerage" shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned in clause (a)- (i) in respect of sums deducted in accordance with the provisions of section 193, section 194A, section 194C, section 194D, section 194E, section 194G, section 194H, section 194I, section 194J, section 195, section 196A, section 196B, section 196C and section 196D-(1) where the income by way of interest on securities referred to in section 193 or the income by way of interest referred to in section 194A or the sum referred to in section 194C or the income by way of insurance commission referred to in section 194D or the payment to non-resident sportsmen or sports associations referred to in section 194E or the income by way of commission, remuneration or prize on sale of lottery tickets referred to in section 194G or the income by way of commission or brokerage referred to in section 194H or the income by way of rent referred to in section 1941 or the income by way of fees for professional or technical services referred to in section 194J or the interest or any other sum referred to in section 195 or the income of a foreign company referred to in sub-section (2) of section 196A or the income from units referred to in section 196B or the income from foreign c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary Paid: means pay. To discharge a debt. Payable : means justly or legally due (payable immediately}. Uncollected (outstanding debts). Unpaid, undischarged, unsatisfied, unsettled, mature, owed, ripe, collectable, in arrears, redeemable. 4.3 Ld. counsel referred to the decision of the Hon'ble Bombay High Court in the case of Abdul Gafar A. Nadiadwala v. ACIT & Others reported in 267 ITR 488, wherein the Hon'ble Bombay High Court at paid 511 has observed as under :- "With the aforesaid strongly canvassed rival views, one has to find the answer to the question raised under the provisions of the Income Tax Act. The provisions of the said Act do not define the word 'goods' or 'merchandise'. In the absence of any statutory guidelines under the Act, the dictionaries can be consulted to find out the meaning of the particular word or phrase. It is well settled that in the absence of there being anything contrary to the context, the language of a statute should be interpreted according to the plain dictionary meaning of the terms used therein. Though the dictionaries are not to be taken as authoritative exponents of the meaning of the statutory language, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India & Others v. Onkar S. Kanwar & Others reported in 258 ITR 761 (SC) and in the case of CIT v. Vegetable Products Limited reported in 88 ITR 192 (SC). He also submitted that section 40(a)(ia) did not cover rent, royalty and the same had been inserted by Taxation Laws (Amendment) Act, 2006 with retrospective effect from 1st April, 2006. He further submitted that if prior to amendment, rent and royalty amounts were paid or were credited to the account of payee, then no TDS was required to be made. He, therefore, submitted that TDS provisions are to be separately looked into and they cannot be examined along with section 40(a)(ia) of the Act. He submitted that in following decisions of Tribunal the word 'payable' has been interpreted and it has been held that amount paid without TDS does not cover within the ambit of section 40(a)(ia) of the Act :- (i) Jaipur Vidyut Vitaran Nigam Limited v. ACIT (Jaipur Bench) (ii) Teja Constructions v. ACIT (Hyderabad Bench); (iii) K. Srinivasa Naidu v. ACIT (Hyderabad Bench); (iv) Sanap Agroanimals Pvt. Ltd. v. ACITY (Nasik - Pune Bench); (v) SRS Real Estate Limited v. Addl. CIT (Fridabad); (vi) Shah Charulatha Milind v. ITO (Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that on careful scrutiny of Rule 30, it brings forth the distinct treatment given to nature of expenses belonging to either first category or second category as enumerated above. For the first category, extended time limit is given (however, Government deductors do not have this benefit of extended time limit) and for this two situations have been provided, i.e. credit at the time when annual accounts are made and credit at any other time of the previous year. For the second category, only one time limit is provided using the words "one week from the last day of the month in which the deduction is made", while the governing provision of this category refer to "before making payment' or 'at the time of payment thereof. Thus, for the second category of expense, Rule did not provide for a situation of payments made without deduction of tax at source. He submitted that all the expenses referred to in section 40(a)(ia) are the expenses of 1st category. The notable omission being section 1941 was rectified immediately within one year. He has made his arguments as under :- 11. To sum up, the provisions of Tax deduction at source do not contemplate a scenario of expenditure b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be made. Ld. counsel further submitted that income tax charges on income and not on expenditure, therefore, expenses cannot be denied if they have been incurred for the purposes of business. In this regard, he referred to the decision of the Hon'ble Supreme Court in the case of CIT v. C.P. Sarathy Mudaliar [1972] 83 ITR 170 (SC) and also the decision of the Hon'ble Supreme Court in the case of CIT v. Prem Bhai Parekh & Others [1970] 77 ITR 27 (SC) for the proposition that section 16(3) creating artificial income must be strictly construed. He, therefore, submitted that since on account of disallowance being made under section 40(a)(ia), expenditure actually incurred by assessee is converted into artificial income, therefore, this section should be strictly construed. 6. On behalf of second Intervener Rajamahendri Shipping & Oil Field Services Ltd., Shri Gun Hari, C.A. appeared and referred to the decision of the Hon'ble Madras High Court in the case of CIT v. TVS Lean Logistics Ltd. [2007] 293 ITR 432 (Mad.) contained at page 56 of the paper book, wherein Hon'ble Madras High Court has observed that where the words of a statute are absolutely clear and unambigu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the lay man in his ordinary life. To give an illustration, if a person says "this is a pencil", then he means that it is a pencil; and it is not that when he says that the object is a pencil, he means that it is a horse, donkey or an elephant. In other words, the literal rule of interpretation simply means that we mean what we say and we say what we mean. If we do not follow the literal rule of interpretation, social life will become impossible, and we will not understand each other. If we say that a certain object is a book, then we mean it is a book. If we say it is a book, but we mean it is a horse, table or an elephant, then we will not be able to communicate with each other. Life will become impossible. Hence, the meaning of the literal rule of interpretation is simply that we mean what we say and we say what we mean. He referred to section 191 of the Income Tax Act as per which where income-tax has not been deducted in accordance with the provisions of Chapter-XVII, then income-tax shall be payable by the assessee (payee) directly. He submitted that primary object of TDS, the power to recover the tax refer referred to in section 202 is that deduction is only one mode of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 40(a)(ia) of the Act. Ld. DR further submitted that liability for TDS is a continuous liability and, therefore, it cannot be segregated between 'paid' and 'payable' amounts. 9. In regard to arguments with reference to Rule 30, ld. DR submitted that the said Rule only prescribes the procedure for remittance of TDS amount and that cannot override the Act. Ld. DR further submitted that section 40(a)(ia) has been incorporated in the Act so that TDS provisions are strictly followed and, therefore, the word 'payable' used in section is to be assigned strict interpretation keeping in view the object of legislation. He further submitted that similar provisions contained in section 40(a)(i) relating to foreign payments are being implemented without any difficulty for the last forty years then why not the provisions of section 40(a)(ia) be also implemented effectively. 10. Ld. counsel for the assessee in rejoinder submitted that proviso becomes inoperable in case of paid amount. He further submitted that the decision of the Hon'ble Madras High Court in the case of Tube Investment of India Ltd. (supra) is not on this issue and, therefore, is not relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be that is incorporated in the bill presented before Parliament but the statute which is passed by Parliament. He observes that in the case of Inland Revenue Commissioner v. Hinchy [1960] A.C. 748 at page 767; [1960] 1 All. E.R. 505 (512) Lord Reid observed as under :- "What we must look for is the intention of Parliament, and I also find it difficult to believe that Parliament ever really intended the consequences which flow from the appellant's contention. But we can only take the intention of Parliament from the words which they have used in the Act". An Act is the product of compromise and the interplay of many factors, the result of all this being expressed in a set form of words. It is further observed as under:- "Moreover, the expression 'intention of the legislature' is ambiguous. Does it connote meaning or purpose; or, putting it in another way, does the present case fall within what the legislature 'meant' by these words, or does it fall within the purpose which they 'meant' to accomplish by the use of these words? Therefore, the intention of legislature is to be examined keeping in view the overall purpose for which a particular sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. In the provisions relating to TDS, the relevance of these terms was with reference to timing of deduction but while making disallowance under section 40(a)(ia), these terms had no relevance and, therefore, legislature dropped these two terms, viz. 'paid' or 'credited' before insertion of section 40(a)(ia) in the statute. 12.3. It is noticeable that section 40(a) is applicable irrespective of the method of accounting followed by an assessee. Therefore, by using the term 'payable' legislature included the entire accrued liability. If assessee was following mercantile system of accounting, then the moment amount was credited to the account of payee on accrual of liability, TDS was required to be made but if assessee was following cash system of accounting, then on making payment TDS was to be made as the liability was discharged by making payment The TDS provisions are applicable both in the situation of actual payment as well of the credit of the amount. It becomes very clear from the fact that the phrase, 'on which tax is deductible at source under Chapter XVII-B', was not there in the Bill but incorporated in the Act. This was not without any pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all have the same meaning as in clause (a) of the Explanation to section 194J; (iv) "work" shall have the same meaning as in Explanation III to section 194C; [(v) "rent" shall have the same meaning as in clause (i) to the Explanation to section 194-I; (vi) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;] Section 40 is contained in Chapter IV deals with computation of business income and lists out various amounts which are not deductible notwithstanding anything to the contrary in sections 30 to 38. This implies that even if a particular amount is allowable under sections 30 to 38 still, if it does not comply the provisions contained in section 40, then the same cannot be allowed. The basic ingredients of Section 40(a)(ia) are as under :- (i) It applies to interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services; (ii) The aforementioned amounts are payable to a resident, (iii) The amounts are payable to a contractor or sub-contractor being resident. (iv) Tax is deductible at source under Chapter XVII-B in respect of amounts payable in respect of aforemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndivided family, who is responsible for paying to [a resident] any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, [deduct income-tax thereon at the rate of- [(a) ten per cent for the use of any machinery or plant or equipment; (b) fifteen per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings where the payee is an individual or a Hindu undivided family; and (c) twenty per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings where the payee is a person other than an individual or a Hindu undivided family:]] Fees for professional or technical services Section 194-J :- (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of- (a) fees for professional services, or (b) fees for technical services, [or] [(c) royalty, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. When we examine section 40(a)(ia) in the backdrop of these sections, we find that it refers to the amount 'payable' 'on which tax was deductible at source under Chapter XVII-B'. Applying the principles of eujesdem generis, it can easily be inferred that term 'payable' in section 40(a)(ia) has to be interpreted in the light of sum referred to in various sections contained in Chapter XVII-B noted above, on which tax was deductible and, therefore, the term 'payable' in section 40(a)(ia) refers to entire amount on which tax was required to be deducted. Keeping in view the principles of harmonious construction, the term 'payable' in section 40(a)(ia) cannot be read separately from the provisions relating to TDS as pleaded on behalf of assessee. In our opinion, ld. CIT (Appeals) has rightly observed that taking the spirit of TDS provision into account and section 40(a)(ia) being directly related to such TDS provision, a harmonious construction of the word 'payable' leads to inevitable conclusion that the said word also includes the 'paid' amount. 14. Ld. Counsel has relied on the dictionary meaning of term 'payable' wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, these procedural sections cannot override the substantive provision of the Act. Tribunal in the case of Jaipur Vidyut Vitaran Nigam Limited (supra) has also observed that section 40(a)(ia) being a legal fiction needs to be construed strictly. There is no quarrel with this proposition but at the same time we have to take into consideration the context in which a particular word is used and the overall purpose sought to be achieved by inserting a section in the Act. 18. One more argument of assessee is that if the amount has already paid, then the assessee will not be able to in a position to deduct and pay tax, because, under such circumstances, as per the provisions of section 191, the liability for payment of tax is to be discharged by payee. In the first place, the argument seems to be quite convincing because the assessee would be deprived of genuine expenditure and the payee will pay the tax on its income. Further, the proviso to section 40(a)(ia) does not make any provision in regard to this contingency. This may be a case of casus omisus but the Court cannot fill this gap. Hon'ble Allahabad High Court in the case of Dey's Medicals (UP) (P) Ltd. v. Union of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decisions of the Honble Supreme Court in the case of Coca Cola and Eli Lily, the learned senior counsel contended that when the Hon'ble Supreme Court has held that the liability of an assessee under s. 201 on failure to deduct or pay tax disappears once the recipient has paid the fix and even penalty cannot be levied if there was a reasonable cause for non-deduction, it should be held that s. 40(a)(ia) cannot be invoked in the case were the recipient had paid the tax. Absence of such a relief under s. 40(a)(ia) makes the provision arbitrary. At para 18 of judgment : According to the learned counsel when the object of introduction of s. 40(a)(ia) is to enforce TDS provision, in the light of the fact that very many provisions by way of imposition of penalty, interest and prosecution have been provided under the recovery chapter viz., Chapter XVII, the addition of s. 40(a)(ia) disallowing the whole of the actual expenditure is highly onerous and thereby it becomes arbitrary, unreasonable warranting declaration of the provision as ultra vires of the Constitution. At para 20 of judgment : According to the learned counsel, the proviso to s. 40(a)(ia) does not in any way mitiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the context of s. 40(a) it was held by the Rajasthan High Court that even where the amount is paid out of the assessee's pocket but not deducted, he would be eligible for the deduction. At para 46 of judgment : Mr. K. Subramaniam, learned standing counsel for the IT Department brought to our notice the CBDT circulars published in [2009] 310 ITR (St) 55, wherein it was stated that the introduction of s. 40(a)(ia) allows additional time (till due date of filing return of income) for deposit of TDS pursuant to the deduction made for the month of March so that the disallowance under the sub-clause is not attracted. The learned standing counsel submitted a statement containing the TDS collections for the financial year 2008-09, which was Rs. 1,30,470.8 crores as compared to other forms of tax collections which shows that out of the net collection, at least 1/3 is by way of TDS. The learned standing counsel therefore contended that the object for introducing s. 40(a)(ia) has really worked viz., augmentation of the TDS provision and therefore the provision should be upheld. In the backdrop of these submissions, Hon'ble Madras High Court upheld the constitutional validity of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... menting the very TDS provisions themselves. It is not merely related to the collection of TDS only. (vi) The intention of the legislature is not to tax the payer for its failure to deduct the tax at source. The object of introduction of section 40(a)(i) as well as section 40(a)(ia) is to ensure that one of the modes of recovery as provided in Chapter XVII-B is scrupulously implemented without any default, in order to augment the said mode of recovery. Hon'ble Madras High Court, inter alia, observed at para 69 of its judgment as under :- "With the proviso to section 40(a)(ia) the deduction in the subsequent year by rectifying the default committed in the matter of TDS in the previous year, a defaulting assessee cannot be heard to say that irrespective of the deliberate default committed by it in implementing the provision relating to TDS, it should be held that a higher tax liability is mulcted on it". Hon'ble Madras High Court, inter alia, observed in para 83 of its judgment as under :- "After all the proviso has been inserted in order to ensure that even a defaulter is not put to serious prejudice, in as much as, by operation of the substantive provision, the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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