TMI Blog2015 (3) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... IN] has restored the matter back to the file of the Assessing Officer. In the precedent Gaurimal Mahajan(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 the Assessing Officer in the light of the order of the Tribunal dated 06.01.2014 (supra). The aforesaid plea of the respondent-assessee has not been seriously opposed by the Ld. Departmental Representative appearing for the Revenue. Following the aforesaid precedent, we therefore deem it fit and proper to restore the matter back to the file of the Assessing Officer who shall consider the plea of the assessee based on the second proviso to section 40(a)(ia) of the Act inserted by the Finance Act w.e.f. 01.04.2013 in the light of the directions of cases quoted. - Decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly paid and are not outstanding as on the year end. The following discussion in the order of the Tribunal dated 22.10.2013 is relevant in this context :- 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 ₹ 7,20,252/- u/s.40(a)(ia) for non deduction of tax. We find the Ld.CIT(A) distinguishing various decisions cited before him upheld the disallowance made by the Assessing Officer. It is the case of the Ld. Counsel for the assessee that in view of the decision of Hon ble Allahabad High Court in the case of M/s. Vector Shipping Service Pvt. Ltd. (Supra) no disallowance u/s.40(a)(ia) can be made since no amount was payable at the end of the year. 8.1 We find the Hon ble High Court while deciding the issue has relied on the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transport Ltd. reported in 136 ITD 23 (SC). We find the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 provisions contained under Chapter XVII-B. It contemplates one of the consequences of non-deduction of tax and ,therefore, has to be interpreted in the light of mandatory provisions contained under Chapter XVII-B. It would be appropriate to reproduce Section 40(a)(ia), which reads as under:- Section 40(a)(ia):- any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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 reproduced hereunder:- Interest on securities. 193. The person responsible for paying [to a resident] any 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 on the amount of the interest payable: Payments to contractors and sub-contractors. 194C. (1) An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) fees for technical services, (c) royalty, or (d) any sum referred to in Clause (va) of Section 28, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income tax on income comprised therein: ** ** ** Explanation. - For the purposes of this section,- (a) professional services means services rendered by a person in the course of carrying on legal, 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 the purposes of section 44AA or of this section; (b) fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (I) of section9; (ba) royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; (c) where any sum referred to in sub-section (1) is credited to any account, whether called suspense account or by any other name, in the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied 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 by the assessee, then the same also comes within the purview of term 'paid'. If the assessee is following mercantile system of accounting then as soon as the liability accrues in its favour, the same is accounted for by crediting the amount of payee. Thus, it is evident that the emphasis is on liability to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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), the said decision is not relevant. It is true that this decision has been rendered in the context of examining of constitutional validity of the provisions of section 40(a)(ia) of the Act but in course of examining the constitutional validity, Hon ble Madras High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate 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 be permitted. At para 25 of judgment: The learned counsel by pointing out ss. 205 and 64 of the Act contended that in similar situations the legislature has made specific exoneration of double taxation. The learned counsel relied upon: (i) CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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) is concerned, which would result in the disallowance of whole of the expenditure and thereby the entire sum expended would attract the levy of tax at a prescribed rate with all other conditions such as surcharge, etc. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 at any time during the relevant previous year and was actually paid within the previous year. In the result the question is decided in favour of revenue and against the assessee. Before dealing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses 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 benefits of the labour force in the State , these precise words were removed by the legislature and the definition was made limited as it has been finally legislated upon. It is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ductible 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 subcontractor 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 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 inadvert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n [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 of cases where the assessees might have actually paid the amounts but might not have either deducted tax at source though required under the Act or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 to interpret expressions receivable and due . It was observed that expressions receivable is used with reference to the recipient an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 consequences which he may incur, be deemed to be an assessee in default in respect of the said tax. Section 271C of the Act provides for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) = (2009- 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 the phrase as outstanding on 31st March. However, no such qualification is there in the section and, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition 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 Court observed that the word payable is a descriptive word, which ordinarily means that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 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 logic why the legislature would have desired to bring about such irrecon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 pre-enactment history of a statute and as such might throw valuable light on the intention of the Legislature whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 statutory provision when the language ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 important. 34. The Apex Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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' 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 the Assessing Officer in the light of the order of the Tribunal dated 06.01.2014 (supra). The aforesaid plea of the respondent-assessee has not been seriously opposed by the Ld. Departmental Representative appearing for the Revenue. 5. Following the aforesaid precedent, we therefore deem it fit and proper to restore the matter back to the file of the Assessing Officer who shall consider the plea of the assessee based on the second proviso to section 40(a)(ia) of the Act inserted by the Finance Act w.e.f. 01.04.2013 in the light of the directions of the Tribunal contained in its order dated 06.01.2014 (supra). Needless to say, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard before passing an order afresh on this aspect as per law. 6. In the result, the appeal of the assessee is treated as allowed for statistical purposes. Order pronounced on 18th March, 2015. - - TaxTMI - TMITax - Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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