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TMI Blog2013 (5) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... section as contended by the assessee. The terms “payable” and “paid” are not synonymous. Word “paid” has been defined in Section 43(2) of the Act to mean actually paid or incurred according to the method of accounting, upon the basis of which profits and gains are computed under the head “Profits and Gains of Business or Profession”. In contrast, term “payable” has not been defined. The word “payable” has been described in Webster’s Third New International Unabridged Dictionary as requiring to be paid: capable of being paid: specifying payment to a particular payee at a specified time or occasion or any specified manner. In the context of section 40(a)(ia), the word “payable” would not include “paid”. The provisions of section 40(a)(ia) are applicable not only to the amount which is shown as payable on the date of balance-sheet, but it is applicable to such expenditure, which become payable at any time during the relevant previous year and was actually paid within the previous year. In the result the question is decided in favour of revenue and against the assessee. On examining the correctness of the majority views in the case of Merilyn Shipping it can be concluded that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical services or to a contractor or sub-contractor shall not be deducted in computing the income of an assessee in case he has not deduced, or after deduction has not paid within the specified time. The language used by the legislature in the finally enacted law is clear and unambiguous whereas the language used in the bill was ambiguous. For the reasons discussed above, the majority views expressed in the case of Merilyn Shipping & Transports are not acceptable. The appeal is, thus, allowed in favour of the revenue. - ITAT Nos. 20 & 30 of 2013 - - - Dated:- 3-4-2013 - GIRISH CHANDRA GUPTA AND TARUN KUMAR DAS, JJ. For the Appellant : Ms. S. Chatterjee, R.N. Dutta, M. Nizamuddin and S. Bagchi. For the Respondent : Ms. S. Roy Chowdhury. ORDER:- Dictated on 28th March 2013 - The Court : The subject matter of challenge in ITAT No.30 of 2013 is a judgment and order dated July 18, 2012, by which the learned Tribunal, relying on the decision of a Special bench in the case of Merilyn Shipping Transports (ITA 477/viz/2008, dated March 29, 2012) held as follows: "If all the amounts have been paid, then obviously following the principles laid down by the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r carrying out any work (including supply of labour for 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 and in accordance with the other provision of Chapter XVII-B: Provided that where in respect of any Such sum, tax has been deducted under Chapter XVII-B or paid in any Subsequent year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid." (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a contractor 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-section (1) of section 139,- Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .-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 give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe' in place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same." "From the above, I am of the view that similar is the situation here that after receiving representations from professional bodies (copy of which is filed before us also), the Legislature in this provision replaced the word from "credited" or "paid" to "payable". I am of the view that where the language is clear, the intention of the Legislature is to be gathered from the language used. What is to be borne in mind is as to what h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s covered by aforesaid sections whether paid or credited, tax has to be deducted. Sections 194 L and 194 LA may also be looked into which says that tax has to be deducted only at the time of payment. The language in these sections therefore shows that the Legislature has used different language in different sections. It is trite law that each and every word of the section has its own meaning and while drafting section 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." "In the present case, Section 40(a)(ia) of the Act creates a legal fiction for the amounts outstanding or remains payable i.e. at the end of every year as on 31st March and it cannot be extended for taxing the amounts already paid. In fact, Section 201 of the Act itself take care of tax to be collected in the hands of the payee and other TDS provisions under Chapter XVIIB of the Act. No further legal fict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already paid in the subsequent year and thus the relief contemplated by the proviso can never be availed by them. Ms. Roy Chowdhury, learned Advocate appearing for the assessee-respondent in ITAT No.20 of 2013 reiterated the reasons advanced by the Special Bench in the case of Merilyn Shipping Transports which we have already noticed. She added that if the proviso is taken into account, it would lead to the only conclusion that the main provision contained in Clause (ia) relates to a case where the payment is outstanding. She submitted that there is a possibility of double jeopardy in the event it is held that Clause (ia) is also applicable to those cases where the money has already been paid. She developed her submission by citing an example. Take for instance that a sum of Rs.100 was paid on account of professional fees without deducting TDS. The aforesaid expenditure shall not in that case be allowed to be deducted. The recipient of the aforesaid sum of Rs.100 may have offered the same for taxation. Therefore, the income in the hands of the recipient has been taxed but the payer did not get the benefit thereof. She concluded by submitting that a second proviso to Clause (ia) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purpose. 12.4 In our considered opinion, there is no ambiguity in the Section and term 'payable' cannot be ascribed narrow interpretation as contended by assessee. Had the intentions of the legislature were to disallow only items outstanding as on 31st March, then the term 'payable' would have been qualified by the phrase as outstanding on 31st March. However, no such qualification is there in the section and, therefore, the same cannot be read into the section as contended by the assessee. 13. Section 40(a)(ia) is to be interpreted harmoniously with the TDS provision as its op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 a aforementioned items. (v) Tax has not been deducted as per requirement of Chapter XVII-B. (vi) After deduction of tax, amount has not been paid. Therefore, if aforementioned conditions are not fulfilled then deduction would not be allowed. However, proviso to this Section further gives leverage to assessee to deduct tax in subsequent year or pay tax deducted during the previous year after the due date specified in Section 139(1). In such a situation, deduction would be allowed in the year in which such tax has been deducted. The explanation to this Section defines various amounts contemplated in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, (c) royalty, or (d) any sum referred to in Clause (va) of Section 28, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income tax on income comprised therein: ** ** ** Explanation. - For the purposes of this section,- (a) "professional services" means services rendered by a person in the course of carrying on legal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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' which, in our opinion, cannot be resorted to in view of discussion in foregoing paras. The context in which term 'payable' has been used in Section 40(a)(ia) is to be taken into consideration. The context is various sections of Chapter XVII-B. 15. The next argument of ld. Counsel is based on the definition of term 'paid' as contemplated under Section 43(2) which reads as under:- "43(2) : 'paid' means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head 'profits and gains of business or pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances, 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.' case (supra) observed as under:- "Once a deduction of a particular amount is not allowable under the Act, it is liable to be taxed and merely because some other person may also be liable to tax after receiving the said amount in one or the other manner, it cannot be said that former assessee is entitled for exemption and cannot be taxed. No authority is shown providing that such taxation is not permissible in law and is bad even otherwise." 19. Ld. CIT, DR has strongly relied on the decision of the Hon'ble Madras High Court in the case of Tube Investments of India Ltd.'s case (supra). The contention of Ld. Counsel for the assessee is that this decision was rende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that very many provisions by way of imposition of penalty, interest and prsecution have been providved 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 mitigate the damage caused under the main provision. It was also contended that under s. 195(5) of the Act relating to non-residents, where on production of a certificate as per the IT Rules, the requirement of TDS is exempted, such a safety valve measure not being available in respect of a resident recipient, s. 40(a)(ia) is unreasonable and unjustifiable. At para 24 of judgment: According to the learned counsel a comparative reading of s.40(a)(ia) and s. 198 would show that while under s. 198, the non-deduction of TDS would result in deemed income in the hands of the assessee, there is no such expression in s. 40(a)(ia) and consequently the non-income viz., the expenditure cannot be treated as deemed income in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 the provisions of section 40(a)(ia) and made various observations:- (i) Hon'ble Madras High Court, inter alia, noted the observations of Hon'ble Supreme Court in the case of A.S. Krishna v. State of Madras AIR 1957 SC 297 which are as under:- 'It would be quite an erroneous approach to the question to view such a statute not as an organic whole, but as a mere collection of sections then disintegrate it into parts, examine under what heads of legislation those parts would severally fall, and by that process determine what portions thereof are inter vires and what are not. Thus, section 40(a)(ia) could not be viewed independently and had to be considered along with other provisions. (ii) The provisions of section 40(a)(ia) were compared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 expenditure which is otherwise allowable as a deduction is denied on the ground that the obligation of TDS provisions is violated. The law makes while imposing such a stringent restriction wanted to simultaneously provide scope for the defaulter to gain the deduction by complying with the TDS provision at a later pint of time". Thus, impliedly Hon'ble Madras High Court, has, inter alia, held that the provisions of section 40(a)(ia) will be applicable with respect to entire expenditure. It is true that specific issue regarding 'paid', 'credited' and 'payable' has not been considered but from the judgment it is evident that if assessee's contention is accepted then the very object of incorporation of section 40(a)(ia) would be frustrated. 21. In view of above discussi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, therefore, cannot be invoked by Assessing Officer to disallow the genuine and reasonable expenditure on the amounts of expenditure already paid"? Does this not amount to deliberately reading something in the law which is not there? We, as such, have no doubt in our mind that the Learned Tribunal realized the meaning and purport of Section 40(a)(ia) correctly when it held that in case of omission to deduct tax even the genuine and admissible expenses are to be disallowed. But they sought to remove the rigour of the law by holding that the disallowance shall be restricted to the money which is yet to be paid. What the Tribunal by majority did was to supply the casus omissus which was not permissible and could only have been done by the Supreme Court in an appropriate case. Reference in this regard may be made to the judgment in the case of Bhuwalka Steel Industries vs. Bombay Iron Steel Labour Board reported in 2010 (2) SCC 273. 'Unprotected worker' was finally defined in Section 2 (II) of the Mathadi Act as follows:- " 'unprotected worker' means a manual worker who is engaged or to be engaged in any scheduled employment." The contention raised with reference to what wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o treat the payments made or credited in favour of a contractor or sub-contractor differently than the payments on account of interest, commission or brokerage, fees for professional services or fees for technical services because the words "amounts credited or paid" were used only in relation to a contractor or sub-contractor. This differential treatment was not intended. Therefore, the legislature provided that the amounts, on which tax is deductible at source under Chapter XVII-B payable on account of interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services or to a contractor or sub-contractor shall not be deducted in computing the income of an assessee in case he has not deduced, or after deduction has not paid within the specified time. The language used by the legislature in the finally enacted law is clear and unambiguous whereas the language used in the bill was ambiguous. A few words are now necessary to deal with the submission of Mr. Bagchi and Ms. Roychowdhuri. There can be no denial that the provision in question is harsh. But that is no ground to read the same in a manner which was not intended by the legislatur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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