TMI Blog2013 (11) TMI 1243X X X X Extracts X X X X X X X X Extracts X X X X ..... he Contractor Amount (Rs.) 1 D.H. Shaikh 1,12,000 2 K.T. Construction (Damania) 4,55,835 3 Chander Rathod 1,05,000 4 Poona Petroleum Co. 47,397 7,20,252 The Assessing Officer, therefore, rejecting the explanation of the assessee disallowed an amount of Rs.7,20,252/- (Rs.6,72,855/- + Rs.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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Transport Ltd. (Supra) are not acceptable. Referring to the decision of Hon ble Gujarat High Court in the case of CIT Vs. Sikandarkhan N. Tunvar reported in 2013-TIOL-389-HC-AHM-IT he submitted that the Hon ble High court in the said decision has held that provisions of section 40(a)(ia) is covered not only to the amounts which are payable as on 31st March of a particular year but also which are payable at any time 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause (I) to the Explanation to section 194-I; (v) royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub- section (I) of section 9;] Section 40 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 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asily 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' 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icular 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 any 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 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 spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es claimed by an assessee under the head income from business and profession if the assessee does not deduct TDS on such expenses are disallowed . Having held so was it open to the Tribunal to seek to justify that this fiction cannot be extended any further and, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount has neither been paid nor credited, there can be no occasion for claiming any deduction. The language used in the draft was unclear and susceptible to giving more than one meaning. By looking at the draft it could be said that the legislature wanted to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expression "paid". Any other interpretation would lead to absurd results. They contended that the interpretation which advances the true meaning of the provision should be adopted and not one which frustrates the provision. 7. In this respect reliance was placed on the following decisions:- (1) In the case of K.P.Varghese vs. Income-Tax Officer, Ernakulam, and another reported in [1981] 131 ITR 597 = f2O02-TIOL-128-SC-IT), in which it was observed that "It is a well recognized rule of construction that the statutory provision must be so 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d" are not synonymous. Section 40(a)(ia), therefore, when uses the expression "payable", such term must be given its ordinary meaning and the expression "paid", cannot be read into it. Counsel further submitted that the Finance Bill No.2 of 2004 under which Section 40 of the Act was proposed to be amended to include clause (a)(ia) originally used different language. In place of the word "payable" expression used was "amount credited or paid". In the amendment, which was ultimately brought about, the said expression was consciously dropped. Thus, there 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny person, not being an individual or an Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than the income by way of interest on securities, 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 issue of a cheque or draft or by any other mode whichever is earlier, deduct income tax at the rates in force. Likewise Section 194C of the Act provides that any person responsible for paying any sum to any resident (referred to as a contractor) for 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " irrespective of the provisions contained in Sections 30 to 38 of the Act. Proviso to Section 40(a)(ia), however, enables the assessee to take such deduction in subsequent year, if tax is deducted in such year or though deducted during the previous year but paid after the due date specified in sub-Section(1) of Section 139 of the Act. 18. In such context, therefore, the question arises whether under Section 40(a)(ia) of the Act disallowance of the expenditure payment of which, though required deduction of tax at source has not been made would be confined only 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat though tax was required to be deducted at source it was not deducted or if deducted, had not been deposited before the due date. By any intendment or liberal construction of such provision, the liability cannot be fastened if the plain meaning of the section does not so permit. 22. For the purpose of the said section, we are also of the opinion that 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". 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount payable in the nature described above, which is such on which tax is deductible at source under Chapter XVII-B but such tax has not been deducted or if deducted not paid before the due date. This provision nowhere requires that the amount which is payable must remain so payable throughout during the year. To reiterate the provision has certain strict and stringent requirements before the unpleasant consequences envisaged therein can be applied. We are prepared to and we are duty bound to interpret such requirements strictly. Such requirements, however, cannot be enlarged 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he legislature must be seen to have deliberately brought about a certain situation which does not require any further interpretation. This is the fundamental argument of the Tribunal in the case of M/s. Merilyn Shipping Transports vs. ACIT(supra) to adopt a particular view. 26. While interpreting a statutory provision the Courts have often applied Hyden's rule or the mischief rule and ascertained what was the position before the amendment, what the amendment sought to remedy and what was the effect of the changes. 27. In the case of Bengal Immunity Co. Ltd. vs. State of 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. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he word "minimum" came to be deleted from the provisions of the Bill relating to rates of wages and the Wage Board and the fact of such deletion when the act came to be passed in its present form. There is a consensus of opinion that these are not aids to the construction of the terms of the Statute which have of course to be given their plain and grammatical meaning (See: Ashvini Kumar ghosh v. Arabinda Bose, 1953 SC R 1:(AIR 1952 SC 369) (Z24) and Provat Kumar Kar v. William Trevelyan Curtiez Parker, AIR 1950 Cal 116 (Z25), It is only when the terms of the statute are ambiguous or 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding the objects and reasons, the Committee Reports, the legislative history being contrary to the express language, are relegated to the background and are liable to be ignored." 33. In the case of Agricultural Produce Market Committee, Narela, Delhi vs. Commissioner of Income Tax and anr. reported in AIR 2008 SC (Supplement) 566 = (2008-TIOL-155-SC-IT), the Supreme Court noticed that prior to Finance Act, 2002, the Income Tax Act did not contain the definition of words "Local Authority". The word came to be defined for the first time by the Finance Act of 2002 by explanation/ definition 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cooperative banks have comprehensive, self-contained and less expensive remedies available to them under the State Cooperative Societies Acts of the States concerned, while other banks and financial institutions did not have such speedy remedies and they had to file suits in civil courts." 35. In the case of National Mineral Development Corporation Ltd. vs. State of M.P and another reported in AIR 2004 SC 2456, the Apex Court observed as under:- "29. The Parliament knowing it full well that the iron ore shall have to undergo a process leading to emergence of lumps, fines, concentrates 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Secondly, the statutory provision is amply clear. 38. In the result, we are of the opinion that Section 40(a) (ia) would cover not only to the amounts which are payable as on 31th March of a particular year but also which are payable at any time during the year. Of course, as long as the other requirements of the said provision " exist. In that context, in our opinion the decision of the Special Bench of the Tribunal in the case of M/s. Merilyn Shipping Transports vs. ACIT (supra), does not lay down correct law. 39. We answer the questions as under:- Question (1) in the negative i.e. in 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 acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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