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TMI Blog2013 (11) TMI 1243X X X X Extracts X X X X X X X X Extracts X X X X ..... s.47,397/-) for non deduction of TDS u/s.40(a)(ia). 3. Before CIT(A) it was submitted that since the expenditure claimed has already been paid and not remained payable at the year end, therefore, the provisions of section 40(a)(ia) are not applicable. For this proposition, the assessee relied on the decision of the Hyderabad Bench of the Tribunal in the case of Teja Construction Vs. ACIT reported in 129 TTJ 57. However, the Ld.CIT(A) was not satisfied with the explanation given by the assessee. Relying on various other decisions the Ld.CIT(A) upheld the addition made by the Assessing Officer. 4. Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds : "1. In the facts and circumstances of the case and in law, the learned CIT[A] has erred in sustaining the disallowance of Rs. 7,20,252.00 made by the learned Assessing Officer u/s 40[a][ia] of the I.T. Act 1961. The said disallowance being patently illegal, bad in law and devoid of merits the same may please be deleted. 2. In the facts and circumstances of the case and in law, the learned CIT[A] has failed to appreciate that during the year the appellant had paid an amount of Rs. 6,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e during the year. Accordingly, they have held that the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transport Ltd. (Supra) does not lay down the correct law. He accordingly submitted that the 2 decisions of the High Courts which were subsequent to the decision of the Special Bench of the Tribunal would prevail. Since these decisions were not brought to the notice of the Hon'ble High Court, therefore, the decision of the Hon'ble Allahabad High Court cannot be applied. 7. The Ld. Counsel for the assessee in his rejoinder submitted that when there are conflicting decisions the decision which is in favour of the assessee has to be followed in view of the decision of Hon'ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd. reported in 88 ITR 192. 8. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute to the fact that the Assessing Officer in the body of the assessment order disallowed an amount of Rs.7,20,252/- u/s.40(a)(ia) for non d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 operation solely depends on the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, 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 this Section. The relevant Sections in Chapter XVII-B are re-p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 timeof 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, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 profession' ". 16. A bare reading of the above provision would make it clear that the term 'paid' does not only mean actual payment but if the liability has been incurred according to the method of accounting followed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 rendered in the context of constitutional validity of the provisions of section 40(a)(ia) and, therefore, in view of the decision of Hon'ble Delhi High Court in the case of Lachman Dass Bhatia Hingwala (P) Ltd.'s case (supra), t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 the hands of the assessee. The learned counsel also contended that since the recipient of the expenditure of the assessee is also taxed, the imposition of tax by invoking s. 40(a)(ia) would result in double taxation which cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 with the provisions of section 201 of the Income Tax Act and, it was, inter alia, observed that as far as section 201 is concerned that would relate to the amount of tax that could be deducted by way of TDS. However, as far as section 40(a)(ia) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviso 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 discussion, we answer the question as under:- The provisions of section 40(a)(ia) of the Income Tax Act, 1961, 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was there in the bill was rejected by the Supreme Court by holding as follows:- "It must, at this juncture, be noted that in spite of Section 2(11), which included the words "but for the provisions of this Act is not adequately protected by legislation for welfare and benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly 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 legislature. This is our answer to the submission of Mr. Bagchi. The submission of Ms. Roychowdhuri that the second proviso sought to become effective from 1st April, 2013 should be held to have already become operative prior to the appointed date cannot also be acceded to for the same rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construed, if possible, that absurdity and mischief may be avoided." (2) In the case of Commissioner of Income-Tax, Bangalore vs. J.H. Golta reported in [1985] 156 ITR 323 = (2002-TIOL- 131-SC-IT), in which it was observed that "Where the plain literal interpretation of a statutory provision produces a manifestly unjust result, which could never have been intended by the legislature, the Court might modify the language used by the legislature so as to achieve the intention of the legislature and produce rational construction." (3) In the case of C.W.S.(India) Ltd. vs. Commissioner of Income-Tax reported in [1994] 208 ITR 649, in which it was observed that "While we agree that literal construction may be the general rule in construing taxing enactments, it does not mean that it should be adopted even if it leads to a discriminatory or incongruous result. Interpretation of statutes cannot be a mechanical exercise." 8. Counsel also contended that interpretation made by the Tribunal leads to results wholly unintended by the legislature. If disallowance under Section 40(a)(ia) is applied only in case of amounts payable as on 31st March of the year under consideration, in large number ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was conscious omission on the part of the legislature. They, therefore, contended with all the more force that the term "payable" used in Section 40(a)(ia) of the Act would not include expression "paid". They pointed out that term "paid" has been defined under section 43(2) of the Act whereas the word "payable" has not been defined in the Act. 12. In support of the contentions they relied on the following decision:- In the case of Mugat Dyeing and Printing Mills vs. Assistant Commissioner of Income-Tax reported in [2007] 290 ITR 282 (Guj), in which the Division Bench of this Court in the context of Section 43B of the Act observed that the expression employed in the said section is "actually paid" and in view of the non-obstante clause contained in the said Section, it would not be permissible to refer to the expression "paid" as defined under section 43(2) of the Act. This decision, however, was rendered in the background of Section 43B of the Act, which used the expression "actually paid". Reliance was placed in the case of Commissioner of Income-Tax vs. Upnishad Investment P. Ltd and others reported in [2003] 260 ITR 532, wherein the Division Bench of this Court had an occasion ..... 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 in pursuance of a contract between the contractor and the specified person, shall at the time of credit of such sum to the account of the contractor 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 the amount specified in the said provision as income-tax on income comprised therein. Section 200 of the Act pertains to duty of person deducting tax. Sub-Section (1) thereof provides that any person deducting any sum in accordance with the foregoing provisions of the Chapter, shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs. Section 201 provides for consequences of failure to deduct or pay tax at source. Sub-Section (1) thereof, in essence, provides that any person, who is required to deduct any sum in accordance with the provisions of the Act or referred to in sub- Section (1) of Section 192 being an employer but does not deduct or does not pay or after so deducting fails to pay whole or part of the tax as required under the Act, then such person shall, without prejudice to any other cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to those cases where the amount remains payable till the end of the previous year or would include all amounts which became payable during the entire previous year. 19. Decision in the case of M/s. Merilyn Shipping & Transports vs. ACIT (supra) was rendered by the Special Bench by a split opinion. Learned Accountant Member who was in minority, placed heavy reliance on a decision of Madras High Court in the case of Tube Investments of India Ltd. and another vs. Assistant Commissioner of Income-Tax (TDS) and others reported in [2010] 325 ITR 610 (Mad) = (2O09-TIOL-529-HC-MAD-IT). Learned Judge did notice that the High Court in such case was concerned with the vires of the statutory provision but found some of the observations made by the Court in the process useful and applicable. Learned Judge rejected the theory of narrow interpretation of term "payable" and observed as under: "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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d gains are computed under the head "Profits and Gains of Business or Profession". Such definition is applicable for the purpose of Sections 28 to 41 unless the context otherwise requires. 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". In other words, therefore, an amount which is already paid over ceases to be payable and conversely what is payable cannot be one that is already paid. When as rightly pointed out by Counsel Mr. Hemani, the Act uses terms "paid" and "payable" at different places in different context differently, for the purpose of Section 40(a)(ia) of the Act, term "payable" cannot be seen to be including the expression "paid". The term "paid" and "payable" in the context of Section 40(a)(ia) are not used interchangably. In the case of Birla Cement Works and another vs. State of Rajasthan and another reported in AIR 1994 (SC) 2393, the Apex Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged by any addition or subtraction of words not used by the legislature. The term used is interest, commission, brokerage etc. is payable to a resident or amounts payable to a contractor or sub-contractor for carrying out any work. The language used is not that such amount must continue to remain payable till the end of the accounting year. Any such interpretation would require reading words which the legislature has not used. No such interpretation would even otherwise be justified because in our opinion, the legislature could not have intended to bring about any such distinction nor the language used in the section brings about any such meaning. If the interpretation as advanced by the assessees is accepted, it would lead to a situation where the assessee who though was required to deduct the tax at source but no such deduction was made or more flagrantly deduction though made is not paid to the Government, would escape the consequence only because the amount was already paid over before the end of the year in contrast to another assessee who would otherwise be in similar situation but in whose case the amount remained payable till the end of the year. We simply do not see any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bihar and others reported in AIR 1955 SC 661, the Apex Court referred to the famous english decision in Hyden's case wherein while adopting restrictive or enlarging interpretation, it was observed that four things are to be considered, (1) what was the common law before making of the act (2) what was the mischief and defect in which the common law did not provide. (3) what remedy the Parliament had resolved and adopted to cure the disease and (4) true reason of the remedy. 28. In such context, the position prevailing prior to the amendment introduced in Section 40(a) would certainly be a relevant factor. However, the proceedings in the Parliament, its debates and even the speeches made by the proposer of a bill are ordinarily not considered as relevant or safe tools for interpretation of a statute. In the case of Aswini Kumar Chose and another vs. Arabinda Bose and another reported in A.I.R. 1952 SC 369 in a Constitution Bench decision of (Coram: Patanjali Sastri, CJ.), observed that:- "33. .....It was urged that acceptance or rejection of amendments to a Bill in the course of Parliamentary proceedings forms part of the preenactment history of a statute and as such might throw v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vague that resort may be had to them for the purpose of arriving at the true intention of the Legislature." 31. It can thus be seen that the debates in the Parliament are ordinarily not considered as the aids for interpretation of the ultimate provision which may be brought into the statute. The debates at best indicate the opinion of the individual members and are ordinarily not relied upon for interpreting the provisions, particularly when the provisions are plain. We are conscious that departure is made in two exceptional cases, namely, the debates in the Constituent Assembly and in case of Finance Minister's speech explaining the reason for introduction of a certain provision. The reason why a certain language was used in a draft bill and why the provision ultimately enacted carried a different expression cannot be gathered from mere comparison of the two sets of provisions. There may be variety of reasons why the ultimate provision may vary from the original draft. In the Parliamentary system, two Houses separately debate the legislations under consideration. It would all the more be unsafe to refer to or rely upon the drafts, amendments, debates etc for interpretation of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition clause to Section 10(20) of the Act. It was further noticed that there were significant difference in the definition of term "local authority" contained under Section 3(31) of the General Clauses Act, 1987 as compared to the definition - clause inserted in Section 10(20) of the Income Tax Act, 1961 vide Finance Act, of 2002. In this context it was observed that:- "27. Certain glaring features can be deciphered from the above comparative chart. Under Section 3(31) of the General Clauses Act, 1897, "local authority" was defined to mean " a municipal committee, district board, body of port commissioners or other authority legally entitled to the control or management of a municipal or local fund. The words " other authority" in Section 3(31) of the 1897 Act has been omitted by Parliament in the Explanation/ definition clause inserted in Section 10(20) of the 1961 Act vide Finance Act, 2002. Therefore, in our view, it would not be correct to say that the entire definition of the word "local authority" is bodily lifted from Section 3(31) of the 1897 Act and incorporated, by Parliament, in the said Explanation to Section 10(20) of the 1961 Act. This deliberate omission is impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and slimes chose to make provision for quantification of royalty only by reference to the quantity of lumps, fines and concentrates. It left slimes out of consideration. Nothing prevented the Parliament from either providing for the quantity of iron ore as such as the basis for quantification of royalty. It chose to make provision for the quantification being awaited until the emergence of lumps, fines and concentrates. Having done so the Parliament has not said "fines including slimes". Though 'slimes' are not 'fines' the Parliament could have assigned an artificial or extended meaning to 'fines' for the purpose of levy of Royalty which it has chosen not to do. It is clearly suggestive of its intention not to take into consideration 'slimes' for quantifying the amount of royalty. This deliberate omission of Parliament cannot be made good by interpretative process so as to charge royalty on 'slimes' by reading Section 9 of the Act divorced from the provisions of the Second Schedule. Even if slimes were to be held liable to charge of royalty, the question would still have remained at what rate and on what quantity which questions cannot be answered by Section 9." 36. In the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n favour of the Revenue and against the assessees. Question (2) also in the negative i.e. in favour of the Revenue and against the assessees. 40. All Tax Appeals are allowed. Decisions of the Tribunal under challenge are reversed. In the earlier portion of the judgment, we had recorded that the Tribunal in all cases had proceeded only on this short basis without addressing other issues. We, therefore, place all these matters back before the Tribunal for fresh consideration of other issues, if any, regarding disallowance under Section 40(a)(ia) of the Act. All appeals are disposed of accordingly." 8.3 However, we find although the above 2 decisions were rendered prior to the hearing before the Hon'ble Allahabad High Court the same were not brought to the notice of the Hon'ble Bench and the Bench relying on the decision of the Special Bench in the case of Merilyn Shipping and Transport Ltd. (Supra) upheld the decision of the Tribunal. Under these circumstances, following the decision of the Hon'ble Gujarat High Court and Hon'ble Calcutta High Court (Supra) we uphold the order of the CIT(A) sustaining the disallowance made by the Assessing Officer. We further find the Co-ordinate B ..... 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