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TMI Blog2015 (3) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... acated." 3. The only issue in this appeal arises from a disallowance of Rs. 16,82,727/- made by the Assessing Officer by invoking section 40(a)(ia) of the Act. The aforesaid amount comprised of interest paid of Rs. 16,42,152/- to Bajaj Auto Finance Ltd. and legal charges paid to Rs. 40,120,/-. Although, the aforesaid expenditures were debited in the Profit & Loss Account on account of failure of the assessee to deduct the relevant tax at source, the Assessing Officer invoked section 40(a)(ia) of the Act and disallowed the same. The CIT(A) has set-aside the disallowance on the ground that the provisions of section 40(a)(ia) of the Act are not applicable in the present context since the aforesaid amounts were not payable at the end of the year but were already paid to the respective parties. While doing so, the CIT(A) has primarily relied upon the decision of the Special Bench of the Tribunal in the case of M/s Merilyn Shipping & Transports, Visakhapatnam vs. Addl. CIT, (2012) 70 DTR 81 (SB). On this aspect, it was a common point between the parties that similar issue had come up before our Co-ordinate Bench in the case of Vinay Ashwinikumar Joneja Vs. ITO vide ITA No.1514/PN/2012, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e two terms, viz. 'credited' or 'paid' were only superfluous and, therefore, were dropped in the Section 40(a)(ia) inserted in the Act. In the provisions relating to TDS, the relevance of these terms was with reference to timing of deduction but while making disallowance under Section 40(a)(ia), these terms had no relevance and, therefore, legislature dropped these two terms, viz. 'paid' or 'credited' before insertion of Section 40(a)(ia) in the statute. 12.3. It is noticeable that Section 40(a) is applicable irrespective of the method of accounting followed by an assessee. Therefore, by using the term 'payable' legislature included the entire accrued liability. If assessee was following mercantile system of accounting, then the moment amount was credited to the account of payee on accrual of liability, TDS was required to be made but if assessee was following cash system of accounting, then on making payment TDS was to be made as the liability was discharged by making payment. The TDS provisions are applicable both in the situation of actual payment as well of the credit of the amount. It becomes very clear from the fact that the phrase, &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all have the same meaning as in Explanation 2 to clause (vii) of sub-section (I) of section 9; (iii) "professional services" shall have the same meaning as in clause (a)of the Explanation to section 194J; (iv) "work" shall have the same meaning as in Explanation III to section194C; [(v) "rent" shall have the same meaning as in clause (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 forprofessional 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 resid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of (ten) per cent: ** ** ** Rent. 194-I. Any person not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of - (a) ten per cent for the use of any machinery or plant or equipment; (b) fifteen per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings where the payee is an individual or a Hindu undivided family; and (c) twenty per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings where the payee is a person other than an individual or a Hindu undivided family: Fees for professional or technical services Section 194-J:- (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of - (a) fees for profes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of payment to payee, whichever is earlier. When we examine Section 40(a)(ia) in the backdrop of these sections, we find that it refers to the amount 'payable' 'on which tax was deductible at source under Chapter XVII-B'. Applying the principles of eujesdem generis, it can easily be inferred that term 'payable' in section 40(a)(ia) has to be interpreted in the light of sum referred to in various sections contained in Chapter XVII-B noted above, on which tax was deductible and, therefore, the term 'payable' in Section 40(a)(ia) refers to entire amount on which tax was required to be deducted. Keeping in view the principles of harmonious construction, the term 'payable' in Section 40(a)(ia) cannot be read separately from the provisions relating to TDS as pleaded on behalf of assessee. In our opinion, ld. CIT (Appeals) has rightly observed that taking the spirit of TDS provision into account and Section 40(a)(ia) being directly related to such TDS provision, a harmonious construction of the word 'payable' leads to inevitable conclusion that the said word also includes the 'paid' amount. 14. Ld. Counsel has relied on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be separately dealt with. However, these procedural sections cannot override the substantive provision of the Act. Tribunal in the case of Jaipur Vidyut Vitaran Nigam Limited (supra) has also observed that Section 40(a)(ia) being a legal fiction needs to be construed strictly. There is no quarrel with this proposition but at the same time we have to take into consideration the context in which a particular word is used and the overall purpose sought to be achieved by inserting a Section in the Act. 18. One more argument of assessee is that if the amount has already paid, then the assessee will not be able to in a position to deduct 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 Medi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court in the case of Coca cola and Eli Lily, the learned senior counsel contended that when the Hon'ble Supreme court has held that the liability of an assessee under s. 201 on failure to deduct or pay tax disappears once the recipient has paid the fix and even penalty cannot be levied if there was a reasonable cause for non-deduction, it should be held that s. 40(a)(ia) cannot be invoked in the case were the recipient had paid the tax. Absence of such a relief under s. 40(a)(ia) makes the provision arbitrary. At para 18 of judgment: According to the learned counsel when the object of introduction of s. 40(a)(ia) is to enforce TDS provision, in the light of the fact that very many provisions by way of imposition of penalty, interest and prosecution have been provided under the recovery chapter viz. Chapter XVII, the addition of s. 40(a)(ia) disallowing the whole of the actual expenditure is highly onerous and thereby it becomes arbitrary, unreasonable warranting declaration of the provision as ultra vires of the Constitution. At para 20 of judgment: According to the learned Counsel, the proviso to s. 40(a)(ia) does not in any way mitigate the damage caused under the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt that even where the amount is paid out of the assessee's pocket but not deducted, he would be eligible for the deduction. At para 46 of judgment : Mr.K. Subramaniam, learned standing counsel for the IT Department brought to our notice the CBDT circulars published in [2009] 310 ITR (St)55, wherein it was stated that the introduction of s.40(a)(ia) allows additional time (till due date of filing return of income) for deposit of TDS pursuant to the deduction made for the month of March so that the disallowance under the sub-clause is not attracted. The learned standing counsel submitted a statement containing the TDS collections for the financial year 2008-09, which was Rs. 1,30,470.8 crores as compared to other forms of tax collections which shows that out of the net collection, at least 1/3 is by way of TDS. The learned standing counsel therefore contended that the object for introducing s.40(a)(ia) has really worked viz., augmentation of the TDS provision and therefore the provision should be upheld. In the backdrop of these submissions, Hon'ble Madras High Court upheld the constitutional validity of the provisions of section 40(a)(ia) and made various observations:- (i) Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The intention of the legislature is not to tax the payer for its failure to deduct the tax at source. The object of introduction of section 40(a)(i) as well as section 40(a)(ia) is to ensure that one of the modes of recovery as provided in Chapter XVII-B is scrupulously implemented without any default, in order to augment the said mode of recovery. Hon'ble Madras High Court, inter alia, observed at para 69 of its judgment as under:- "With the proviso to section 40(a)(ia) the deduction in the subsequent Year by rectifying the default committed in the matter of TDS in the previous year, a defaulting assessee cannot be heard to say that irrespective of the deliberate default committed by it in implementing the provision relating to TDS, it should be held that a higher tax liability is mulcted on it". Hon'ble Madras High Court, inter alia, observed in para 83 of its judgment as under:- "After all the proviso has been inserted in order to ensure that even a defaulter is not put to serious prejudice, in as much as, by operation of the substantive provision, the expenditure which is otherwise allowable as a deduction is denied on the ground that the obligation of TDS provisions is v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -B". If the question is "which expenses are sought to be disallowed?" The answer is bound to be "those expenses on which tax is deductible at source under Chapter XVII -B. Once this is realized nothing turns on the basis of the fact that the legislature used the word 'payable' and not 'paid or credited'. Unless any amount is payable, it can neither be paid nor credited. If 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, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue contended that the Tribunal has committed serious error in holding that provision of Section 40(a)(ia) of the Act would apply only when the amount has remained payable till the end of the accounting year. They pointed out that the word "payable" has not been defined under the Act and the same would, in the context of the provision under consideration, include 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 = (2O02-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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpreted strictly and narrowly. Even if the intention of the legislature may not have been to limit such provision, if the plain language of the section permits no other meaning, this Court cannot and would not expand the meaning of the section to cover any legislative imperfections or errors. 11. It was strongly contended that terms "payable" and "paid" 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pertains to collection and recovery of the tax. Part-A thereof is general. Part-B of Chapter XVII pertains to deduction at source. Several provisions have been made in the said Chapter fastening the liability on the payee to deduct tax at source and deposit with the Government. For example, sub-Section (1) of Section 194A of the Act provides that any 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esident, or amounts payable to a contractor or subcontractor for carrying out any work on which tax is deductible at source and such tax has not been deducted or after deduction has not been paid before the due date, such amounts shall not be deducted in computing the income chargeable under the head "Profits and Gains of Business or Profession" 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n an amount which is otherwise not an income of the assessee, cannot be liberally construed. Undoubtedly if the language of the section is plain, it must be given its true meaning irrespective of the consequences. We have noticed that the provision makes disallowance of an expenditure which has otherwise been incurred and is eligible for deduction, on the ground that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re such on which tax is deductible at source under Chapter XVII-B. (c) Such tax has not been deducted or after deduction has not been paid on or before due date specified in sub- Section (1) of Section 39. For the purpose of current discussion reference to the proviso is not necessary. 24. What this Sub-Section, therefore, requires is that there should be an 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed on that date and the computation of profit and loss is to be judged with reference to such date, does not mean that whether an amount is payable or not must be ascertained on the strength of the position emerging on 31st March. 25. This brings us to the second aspect of this discussion, namely, whether this is a case of conscious omission and therefore, the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved as under:- "173. We do not propose to enter into any elaborate discussion on the question whether it would be competent to us in arriving at a proper construction of the expression "fixing rates of wages" to look into the Statement of Objects and Reasons attached to the Bill No. 13 of 1955 as introduced in the Rajya Sabha or the circumstances under which the 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onscious act on the part of the legislature, only with the objective to provide protection to all the labourers or workers, who were the manual workers and were engaged or to be engaged in any scheduled employment. Therefore, there was a specific act on the part of the legislature to enlarge the scope of the definition and once we accept this, all the arguments 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 definiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall mean 'banking company' as defined in Section 5(c) and shall include 'co-operative bank' as defined in Section 5(cci) and 'primary co-operative bank' as defined in Section 5(ccv). However, the Parliament did not do so. There was thus a conscious exclusion and deliberate commission of co-operative banks from the purview of the RDB Act. The reason for excluding cooperative banks seems to be that co-operative banks have comprehensive, self-contained and less expensive remedies available to them under the State Co-operative 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct specifically and expressly governs an application to be made under the said section and not the period prescribed under Article 137 of the Limitation Act." 37. In our opinion, the Tribunal committed an error in applying the principle of conscious omission in the present case. Firstly, as already observed, we have serious doubt whether such principle can be applied by comparing the draft presented in Parliament and ultimate legislation which may be passed. 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the first proviso to section 201(1) of the Act. The stand of the assessee is that the said proviso should be understood as retrospective in nature as it has been introduced to eliminate unintended consequences which may cause undue hardships to the tax payers. It was pointed out that in similar circumstances, the Pune Bench of the Tribunal in the case of ITO vs. M/s Gaurimal Mahajan & Sons vide ITA No.1852/PN/2012 dated 06.01.2014 following the decision of the Cochin Bench of the Tribunal in the case of Antony D. Mundackal vs. ACIT vide ITA No.38/Coch/2013 dated 29.11.2013 has restored the matter back to the file of the Assessing Officer. In the precedent dated 06.01.2014 (supra), the Tribunal noted that such a plea was raised for the first time before the Tribunal and the correctness or otherwise of the contentions raised was not examined by the lower authorities. Therefore, the Tribunal restored the matter back to the file of the Assessing Officer for examination afresh, following the decision of the Cochin Bench of the Tribunal in the case of Antony D. Mundackal (supra) in a similar circumstance. The Ld. Representative submitted that the matter be restored back to the file of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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