TMI Blog2014 (5) TMI 931X X X X Extracts X X X X X X X X Extracts X X X X ..... Range-1, Vishakhapatnam [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] – Held that:- The view expressed or the ratio laid down by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports has been overruled - it cannot be said that the Hon'ble Jurisdictional High Court has approved the view taken by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports, the same has to be followed by the Tribunal situated within the jurisdiction of Hon'ble Allahabad High Court - The Hon'ble Jurisdictional High Court has not examined the issue at all and simple passing reference was made with regard to the order of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports and the relief was granted to the assessee on merit - the ratio laid down in the case of Merilyn Shipping & Transports, which has been suspended by Hon'ble Andhra Pradesh High Court has not been approved by the Hon'ble Allahabad High Court - subordinate judicial forum are not required to follow the ratio order laid down in the case of Merilyn Shipping & Transports, as it was overruled by the other High Court. - Decided in favor of revenue. - ITA No.119/LKW/2013 - - - Dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TDS was not deducted under the provisions of section 40(a)(ia) of the Act. The matter travelled upto Tribunal and the Tribunal has set aside the issue vide its order dated 12/01/2010 and restored the matter to the file of the Assessing Officer with a direction to decide the issue whether the contract between the assessee and Wipro G. E. Medical Systems was a work contract or whether it was a service contract. The Assessing Officer was also directed to adjudicate the issue in the light of service/work contract agreement as the same was not furnished before the Tribunal. In set aside proceedings, the maintenance service agreement was filed before the Assessing Officer with the contention that it was mere a service contract for which provisions of section 194C are not applicable, therefore, the assessee was not required to deduct TDS as per the provisions of section 40(a)(ia) of the Act. The contentions of the assessee were not accepted by the Assessing Officer and he disallowed the aforesaid payment of Rs.33,14,317/- paid to Wipro G. E. Medical Systems having observed that the provisions of section 194C are applicable and TDS as required u/s 40(a)(ia) was not deducted. 3. Aggriev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench in the case of Merilyn Shipping Transports has been overruled by various High Courts and the operation of the order was stayed by Hon'ble Andhra Pradesh High Court also, the order of CIT(A) deserves to be set aside and the order of the Assessing Officer should be restored as it was passed in consonance with the judicial interpretation adopted by various High Courts. 5. The learned counsel for the assessee besides placing reliance upon the order of CIT(A) has contended that the impugned issue is squarely covered by the judgment of Hon'ble Jurisdictional High Court in the case of CIT vs. Vector Shipping Services P. Ltd., I.T.A. No.122 of 2013 in which the view taken by the Special Bench in the case of Merilyn Shipping Transports (supra) was approved and followed. When the Hon'ble Jurisdictional High Court has approved the view taken by the Special Bench of the Tribunal in the case of Merilyn Shipping Transports, the subordinate judicial forums within the jurisdiction of Hon'ble Allahabad High Court are suppose to follow the same and decide the issue accordingly. During the course of hearing of the appeal no argument was advanced on behalf of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of all these judgments and circulars, the order of CIT(A) deserves to be set aside. 7. Having given a thoughtful consideration to the rival submissions in the light of the orders of the authorities below and the judgments referred to by the parties, we find that the CIT(A) has adjudicated the issue in the light of order of Special Bench of the Tribunal in the case of Merilyn Shipping Transports (supra) and deleted the addition. The order of the Special Bench was challenged before Hon'ble Andhra Pradesh High Court in the case of CIT vs. Merilyn Shipping Transports in I.T.A. No. 384 of 2012 and vide order dated 8th October, 2012, the Hon'ble High Court has suspended the operation of the order of the Tribunal. Despite the suspension of the order of the Tribunal by the concerned Hon'ble Jurisdictional High Court, the CIT(A) has followed the order of the Special Bench of the Tribunal and decided the issue in favour of the assessee as the CIT(A) has passed an order on 03/12/2012. 7.1 During the course of hearing, it was emphatically argued on behalf of the assessee that when the Hon'ble Allahabad High Court has approved the view taken by the Special Bench of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been held that if no amount remained payable at the year end, there would not be any disallowance as the provision of section 40(a)(ia) are not applicable. After recording the finding of the Tribunal and the CIT(A), the Hon'ble High Court has observed in last two paras that the provision of 40(a)(ia) was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head 'Income from Business and Profession' in case the assessee does not deduct TDS on such expenses and the default in deduction of TDS would result in disallowance of expenditure on which such TDS was deductible. Their Lirdships have further observed that in the present case tax was deducted as TDS from the salaries of the employees paid by M/s. Mercator Lines Ltd. and the circumstances under which such salaries were paid by M/s. Mercator Lines Ltd., for M/s. Vector Shipping Services, the assessee were sufficiently explained. In last few lines, the Hon'ble High Court has made a reference to the ratio laid down by the Special Bench of the Tribunal and observed that it is noted that for disallowing expenses from business and profession on the ground that TDS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act could be made only in respect of such amount which are payable as on 31st March of every year under consideration whereas the Hon'ble Gujarat High Court and Hon'ble Calcutta High Court have dealt with the issue in detail in the light of various judicial pronouncement and have categorically held that section 40(a)(ia) would cover not only to the amount which are payable as on 31st March of a particular year but also which are payable at any time during the year. 7.6 Before the Hon'ble Gujarat High Court in the case of CIT vs. Sikandarkhan N. Tunvar (supra), the following question of law was raised: (i) Whether the disallowance u/s 40(a)(ia) of the Act would be made only in respect of such amounts which are payable on 31st of March? (ii) Whether the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping Transports lays down correct law? 7.7 The Hon'ble High Court have adjudicated the issue in the detail in the light of various judicial pronouncements and have concluded that the section 40(a)(ia) would cover not only the amounts which are payable on 31st March of a particular year but also which are payable at any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in the section and the term 'payable' cannot be ascribed a narrow interpretation as contended by the assessee. Had the intentions of the Legislature were to disallow only items outstanding as on March 31, then the term 'payable' would have been qualified by the phrase as outstanding on March 31. However, no such qualification is there in the section and, therefore, the same cannot be read into the section as contended by the assessee. On the other hand, the learned Judicial Member, speaking for majority, adopted a stricter interpretation. Heavy reliance was placed on the Finance Bill of 2004, which included the draft of the amendment in section 40 and the ultimate amendment which actually was passed by Parliament. It was observed that from the comparison between the proposed and the enacted provision it can be seen that the Legislature has replaced the words amounts credited or paid with the word payable in the enactment. On such basis, it was held that this is a case of conscious omission and when the language was clear the intention of the Legislature had to be gathered from language used. In their opinion, the provision would apply only to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he prime basis on which we have adopted the interpretation which we have given. If the language used by Parliament conveyed such a meaning, we would not have hesitated in adopting such an interpretation. We only highlight that we would not readily accept that the Legislature desired to bring about an incongruous and seemingly irreconcilable consequences. The decision of the Supreme Court in the case of CIT v. Ashokbhai Chimanbhai (supra), would not alter this situation. The said decision, of course, recognizes the concept of ascertaining the profit and loss from the business or profession with reference to a certain period, i.e., the accounting year. In this context, the last date of such accounting period would assume considerable significance. However, this decision nowhere indicates that the events which take place during the accounting period should be ignored and the ascertainment of fulfilling a certain condition provided under the statute must be judged with reference to the last date of the accounting period. Particularly, in the context of requirements of section 40(a)(ia) of the Act, we see no warrant in the said decision of the Supreme Court to apply the test of payabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l held that where language is clear the intention of the legislature is to be gathered from the language used . Having held so, it was not open to seek to interpret the section on the basis of any comparison between the draft and the section actually enacted nor was it open to speculate as to the effect of the so-called representations made by the professional bodies. The Learned Tribunal held that Section 40(a)(ia) of the Act creates a legal fiction by virtue of which even the genuine and admissible expenses 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision 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 reason indicated above. The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It is not the case of an inadvertent error. For the reasons discussed above, we are of the opinion that the majority views expressed in the case of Merilyn Shipping Transports are not acceptable. The submissions advanced by learned advocates have already been dealt with and rejected. The appeal is, thus, allowed in favour of the revenue. 7.11 Our attention was also invited to a circular dated 16/12/2013 issued by the CBDT clarifying the stand of the Department in the light of the aforesaid judgments of different High Courts and it has been clarified that statutory provisions are amply clear and in the context of section 40(a)(ia) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the intention of the legislation was to disallow certain types of expense, subject to provisions of Chapter XVII-B, which are payable at any time during the year but no tax was deducted at source or if deducted was not paid within the stipulated time. There is no such condition that amount should remain payable at the end of the year. 3.3 The Hon'ble Allahabad High Court in CIT v. Vector Shipping Service (P) Ltd. has affirmed the decision of the Special Bench in Merilyn Shipping that for disallowance under section 40(a) (ia) of the Act, the amount should be payable and not which has been paid during the year. However, the decisions of the Hon'ble Gujarat and Calcutta High Courts (supra) were not brought to the attention of the Hon'ble Allahabad High Court. 3.4 In the case of ACIT, Circle 4(2), Mumbai v. Rishti Stock and Shares Pvt. Ltd. in ITA No. 112/Mum/2012, Hon'ble ITAT, Mumbai in its order dated 02-08-2013 has examined the decision of the Hon'ble Allahabad High Court (supra) as regards to section 40(a)(ia) of the Act and concluded that the same was an orbiter dicta while the decisions of the Hon'ble Gujarat and Calcutta High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Merilyn Shipping Transports, which has been suspended by Hon'ble Andhra Pradesh High Court has not been approved by the Hon'ble Allahabad High Court. Therefore, subordinate judicial forum are not required to follow the ratio order laid down in the case of Merilyn Shipping Transports (supra), as it was overruled by the other High Court. 9. In the instant case, the CIT(A) has adjudicated the issue following the order of the Special Bench of the Tribunal in the case of Merilyn Shipping Transports and decided the issue in favour of the assessee without adjudicating the appeal on merit, though specific grounds were raised before CIT(A). Though the Revenue has challenged the order of CIT(A) on merit also but no finding was given by the CIT(A) on merit with regard to the nature of payments. We, therefore, set aside the order of CIT(A) and reverse the finding of CIT(A) given following the order of the Special Bench of the Tribunal in the case of Merilyn Shipping Transports. Since the CIT(A) has not given any finding on merit, we restore the matter to his file with the direction to adjudicate the issue on merit as to whether the provisions of section 194C are a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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