TMI Blog2012 (3) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 - Decision against Assessee. Mahavir Singh (Judicial Member) - Having different opinion from the learned Accountant Member, Shri S. V. Mehrotra he concluded that the Legislature consciously replaced the words amounts credited or paid with the word payable in the final enactment. By changing the words from credited or paid to payable , the legislative intent has been made clear that only outstanding amounts or the provisions for expenses liable for TDS under Chapter XVIIB of the Act is sought to be disallowed in the event there is a default in following the obligations casted upon the assessee under Chapter XVII-B. In the present dispute before us, the word payable used in section 40(a)(ia) is to be assigned strict interpretation, in view of the object of legislation, which is intended from the replacement of the words in the proposed and enacted provision from the words amount credited or paid to payable - Decision in favour of Assessee. According to him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature referred to therein which is shown as 'payable' as on the date of the balance-sheet or it can be invoked also to disallow such expenditure which become payable at any time during the relevant previous year and was actually paid within the previous year ? 3. The brief facts of the case are that the assessee, a partnership firm, in the relevant assessment year, derived income from business of ship containers transport and handling, customs clearing and as forwarding agents. It filed its return of income for the assessment year 2005-06 declaring total income of ₹ 15,24,710 on March 29, 2006. In the course of the assessment proceedings, the Assessing Officer noticed that the assessee had claimed certain expenditure in the profit and loss account, i.e., brokerage expenses of ₹ 38,75,000 and commission ₹ 2,43,253 without deducting TDS on payment of these amounts as required under section 40(a)(ia) of the Income-tax Act. The Assessing Officer intimated the defaults. In response the assessee's representative accepted his failure for non-deduction of TDS at the time of making payment and agreed for the disallowance. Accordingly, the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of labour for carrying out any work), on which tax has not been deducted or, after deduction, has not been paid before the expiry of the time prescribed under sub-sec tion (1) of section 200 and in accordance with the other provisions of Chapter XVII-B : Provided that where in respect of any such sum, tax has been deducted under Chapter XVII-B or paid in any subsequent year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. 7. Learned counsel for the assessee further referred to clause 11 of Notes on Clauses to the Finance (No. 2) Bill, 2004, which reads as under (page 121 of 268 ITR (St.)) : Clause 11 of the Bill seeks to amend section 40 of the Income-tax Act relating to amounts not deductible. The proposed amendment seeks to insert a new sub-clause (ia) in clause (a) of the said section so as to provide that any interest, commission or brokerage, fees for professional services or fees for technical services, payable to a resident or amount credited or paid to a contractor or sub-contractor being a resident for carrying out any work (including supply of labour for carrying out any work) on which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation.-For the purposes of this sub-clause,- (i) 'commission or brokerage' shall have the same meaning as in clause (i) of the Explanation to section 194H ; (ii) 'fees for technical services' shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) 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 section 194C ; (v) 'rent' shall have the same meaning as in clause (i) to the Explanation to section 194-I ; (vi) 'royalty' shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9 ; 9. Learned counsel submitted that in the back drop of the above, the question arises as to why the Legislature dropped credited and paid under section 40(a)(ia). He submitted that paid was not incorporated because the Legislature knew that if amount is already paid, TDS cannot be made. Learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of fees for professional or technical services referred to in section 194J or the interest or any other sum referred to in section 195 or the income of a foreign company referred to in sub-section (2) of section 196A or the income from units referred to in section 196B or the income from foreign currency bonds or shares of an Indian company referred to in section 196C or the income of Foreign Institutional Investors from securities referred to in section 196D is credited by a person to the account of the payee as on the date up to which the accounts of such person are made, within two months of the expi ration of the month in which that date falls ; (2) in any other case, within one week from the last day of the month in which the deduction is made ; and (ii) in respect of sums deducted in accordance with the other pro visions within one week from the last day of the month in which the deduction is made : 10. With reference to this rule, learned counsel submitted that the words paid and payable have different connotations and, accordingly, different time periods have been prescribed for depositing of TDS. Learned counsel further referred to section 43, which dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of the particular word or phrase. It is well settled that in the absence of there being anything contrary to the context, the language of a statute should be interpreted according to the plain dictionary meaning of the terms used therein. Though the dictionaries are not to be taken as authoritative exponents of the meaning of the statutory language, it is permissible to seek instruction from these books to understand the ordinary sense of the words in an enactment. At this juncture we are reminded of what Samuel Johnson, a great English poet, critic, essa yist and dictionary maker, has stated : 'Dictionaries are like watches, the worst is better than none, and the best cannot be expected to go quite true. Every honest lexicographer agrees knowing that no matter how keenly he strives to make his book go true he would inevitably lose the battle with what might be called linguistic indeterminacy. Since indeterminacy will be the prima facie of his professional life, he will often be tempted to deny and resent, like the grammarians of the 17th and 18th centuries, the radical instability of languages.' It is thus clear that the court can always take aid of the dictio ..... 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 : (i) Jaipur Vidyut Vitaran Nigam Limited v. ACIT (Jaipur Bench) ; (ii) Teja Constructions v. ACIT (Hyderabad Bench) ; (iii) K. Srinivasa Naidu v. ACIT (Hyderabad Bench) ; (iv) Sanap Agroanimals P. Ltd. v. ACIT (Nasik-Pune Bench) ; (v) SRS Real Estate Ltd. v. Addl. CIT (Faridabad) ; (vi) Shah Charulatha Milind v. ITO (Pune Bench) ; (vii) Alishan Realcon Pvt. Ltd. v. ITO (Khurda-Cuttack Bench) ; (viii) Sri Narayanbhai Dahyabhi Prajapati v. ITO (Ahmedabad) ; and (ix) G. F. Securities v. Deputy CIT (ITA No. 1215/Mad./2009) (Chen nai Bench). 15. Learned counsel further referring to the decision in the case of Jaipur Vidyut Vitran Nigam Ltd. submitted that section 40(a)(ia), otherwise being a legal fiction, needs to be construed strictly in view of the decision of the hon'ble Supreme Court in the case of CIT v. Mother India Refrigeration Industries P. Ltd. [1985] 155 ITR 711 (SC). 16. On behalf of the intervener M/s. Blue Marine Logistics P. Ltd., Chennai, Shri B. Ramakrishnan, chartered accountant advanced similar contentions as advanced in the main appeal and further submitted that the words paid and payable are distinct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of payments made without deduction of tax at source. He submitted that all the expenses referred to in section 40(a)(ia) are the expenses of the first category. The notable omission being section 194-I was rectified immediately within one year. He has made his arguments as under : 11. To sum up, the provisions of tax deduction at source do not con template a scenario of expenditure being paid out without deduction of tax at source. The reason is simple. Once payment is made without deduction of tax at source, it will render it impossible to effect deduction from such payment : (i) Technically because the whole of the amount is paid out. (ii) Practically because payee may not be any more in the control of the payer or because payee has already paid advance tax on such amounts. 18. In the second case, the liability of the payer under section 201 ceases as it was rightly explained in the Department circular and upheld by the hon'ble apex court in the case of Hindustan Coca Cola Beverage P. Ltd. v. CIT [2007] 293 ITR 226 (SC). 19. The mischief caused by initially using the words paid is that it results in a permanent disallowance, which was not the intention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervener Rajamahendri Shipping and Oil Field Services Ltd., Shri Gun Hari, chartered accountant appeared and referred to the decision of the hon'ble Madras High Court in the case of CIT v. TVS Lean Logistics Ltd. [2007] 293 ITR 432 (Mad) contained at page 56 of the paper book, wherein the hon'ble Madras High Court has observed that where the words of a statute are absolutely clear and unambiguous, rule of literal construction has to be followed, even if literal interpretation results in hardship or inconvenience. The court cannot enlarge the scope of legislation when the language of the provision is plain and unambiguous. It cannot add or subtract words in a statute or read something into it which is not there even if there is a defect or any omission in the words used in the legislation. 26. He, therefore, submitted that the word payable is to be strictly construed and cannot include the term paid within its ambit. He further referred to page 67 of the paper book, wherein the decision of the hon'ble Supreme Court in the case of Raghunath Rai Bareja v. Punjab National Bank [2007] 135 Comp Cas 163 (SC) is contained, in which it has been observed as under (page 179) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teral rule of interpretation is simply that we mean what we say and we say what we mean. 27. He referred to section 191 of the Income-tax Act as per which where Income-tax has not been deducted in accordance with the provisions of Chapter-XVII, then Income-tax shall be payable by the assessee (payee) directly. He submitted that the primary object of TDS, the power to recover the tax referred to in section 202 is that deduction is only one mode of recovery, which is without prejudice to any other mode of recovery. He further referred to section 205, where tax is deductible at the source under the foregoing provisions of this Chapter, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income. 28. With reference to these provisions, learned counsel submitted that once tax has been paid by the payee as per the provisions of section 191, the disallowance is called for under section 40(a)(ia) of the Act. 29. On behalf of the third intervener-Srinivasa Rao, Shri Y. Suryachandra Rao, chartered accountant appeared and adopted earlier submissions made by learned counsel for the assessee and interveners. 30. The lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount and that cannot override the Act. The learned Departmental representative further submitted that section 40(a)(ia) has been incorporated in the Act so that TDS provisions are strictly followed and, therefore, the word payable used in the section is to be assigned strict interpretation keeping in view the object of legislation. He further submitted that similar provisions contained in the section 40(a)(i) relating to foreign payments are being implemented without any difficulty for the last forty years, then why not the provisions of section 40(a)(ia) be also implemented effectively. 34. Learned counsel for the assessee in the rejoinder submitted that the proviso becomes inoperable in case of paid amount. He further submitted that the decision of the hon'ble Madras High Court in the case of Tube Investments of India Ltd. [2010] 325 ITR 610 (Mad) is not on this issue and, therefore, is not relevant. In this regard, he relied on the decision of the hon'ble Delhi High Court in the case of Lachman Dass Bhatia Hingwala P. Ltd. v. Asst. CIT [2011] 330 ITR 243 (Delhi) [FB], wherein it has been held as under (headnote of 330 ITR) : A judgment has to be read in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust look for is the intention of Parliament, and I also find it difficult to believe that Parliament ever really intended the consequences which flow from the appellant's contention. But we can only take the intention of Parliament from the words which they have used in the Act. 38. An Act is the product of compromise and the interplay of many factors, the result of all this being expressed in a set form of words. It is further observed as under : Moreover, the expression 'intention of the Legislature' is ambi guous. Does it connote meaning or purpose; or, putting it in another way, does the present case fall within what the Legislature 'meant' by these words, or does it fall within the purpose which they 'meant' to accomplish by the use of these words ? 39. Therefore, the intention of the Legislature is to be examined keeping in view the overall purpose for which a particular section has been incorporated in the Act. While it is generally true that cases in which the meaning is plain present small difficulty, it does sometimes happen that the meaning is plain, but the application of it to the particular case yields so extravagant a result as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Legislature included the entire accrued liability. If the assessee was following the mercantile system of accounting, then the moment the amount was credited to the account of payee on accrual of liability, TDS was required to be made but if the assessee was following the 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. 43. In our considered opinion, there is no ambiguity in the section and term payable cannot be ascribed narrow interpretation as contended by the assessee. Had the intention of the Legislature were to disallow only items outstanding as on the 31st March, then the term payable would have been qualified by the phrase as outsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning as in Explanation 2 to clause (vi) of sub-section (1) of section 9 ; 45. Section 40 is 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. 46. 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 aforementioned items ; (v) tax has not been deducted as per requirement of Chapter XVII-B ; and (vi) after deduction of tax, amount has not been paid. 47. Therefore, if the aforementioned conditions are not fulfilled then deduction would not be allowed. 48. However, the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 194-J. Fees for professional or technical services.-(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, or (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 ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplying the principles of ejusdem 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 the 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 the assessee. In our opinion, the learned Commissioner of Income-tax (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. 51. Learned counsel has relied on the dictionary meaning of term payable which, in our opinion, cannot be resorted to in view of discussion in the foregoing paragraphs. The context in which term payable has been used in section 40(a)(ia) is to be taken into consideration. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 56. One more argument of the assessee is that if the amount has already been paid, then the assessee will not be able to be in a position to deduct and pay tax, because, under such circumstances, as per the provisions of section 191, the liability for payment of tax is to be discharged by the 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 omissus but the court cannot fill this gap. The hon'ble Allahabad High Court in the case of Dey's Medical (U.P.) P. Ltd. v. Union of India [2009] 316 ITR 445 (All) 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Supreme Court in the cases of Hindustan Coca Cola Beverage P. Ltd. v. CIT [2007] 293 ITR 226 (SC) and CIT v. Eli Lilly and Co. (India) P. Ltd. [2009] 312 ITR 225 (SC), learned senior counsel contended that when the hon'ble Supreme Court has held that the liability of an assessee under section 201 on failure to deduct or pay tax disappears once the recipient has paid the tax and even penalty cannot be levied if there was a reasonable cause for non-deduction, it should be held that section 40(a)(ia) cannot be invoked in the case were the recipient had paid the tax. Absence of such a relief under section 40(a)(ia) makes the provision arbitrary. At paragraph 18 of the judgment : According to learned counsel when the object of introduction of section 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 has been provided under the recovery chapter, viz., Chapter XVII, the addition of section 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 Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 195A and stated that such a situation is envisaged therein. The learned standing counsel also relied upon Addl. CIT v. Farasol Ltd. [1987] 163 ITR 364 (Raj) where in the con text of section 40(a) it was held by the Rajasthan High Court that even where the amount is paid out of the assessee's pocket but not deducted, he would be eligible for the deduction. At paragraph 46 of the judgment : Mr. K. Subramaniam, learned stan ding counsel for the Income-tax Department brought to our notice the CBDT circulars published in [2009] 310 ITR (St.) 55, wherein it was stated that the introduction of section 40(a)(ia) allows additional time (till due date of filing return of income) for deposit of TDS pursuant to the deduc tion made for the month of March so that the disallowance under the sub- clause is not attracted. Learned standing counsel submitted a statement containing the TDS collections for the financial year 2008-09, which was ₹ 1,30,470.8 crores as compared to other forms of collections which shows that out of the net collection, at least one-third is by way of TDS. Learned standing counsel therefore contended that the object for intro ducing section 40(a)(ia) has really ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of those payments which have been paid without making TDS and at the end of the year no amount is outstanding then the very object of identification of payees will get frustrated. (v) The legislative intent of the introduction of section 40(a)(ia) is in the larger perspective of augmenting the very TDS provisions them selves. It is not merely related to the collection of TDS only. (vi) 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 sec tion 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. The hon'ble Madras High Court, inter alia, observed at paragraph 69 of its judgment as under (page 636 of 325 ITR) : 'With the proviso to section 40(a)(ia) the deduction in the sub sequent 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under : Whether section 40(a)(ia) of the Income-tax Act can be invoked only to disallow expenditure of the nature referred to therein which is shown as 'payable' as on the date of the balance-sheet or it can be invoked also to disallow such expenditure which become payable at anytime during the relevant previous year and was actually paid within the previous year ? 66. Section 40(a)(ia) of the Act was introduced in the Income-tax Act, 1961 by the Finance (No. 2) Act, 2004 with effect from April 1, 2005 with a view to augment the Revenue through the mechanism of tax deduction at source. This provision 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. The default in deduction of TDS would result in disallowance of expenditure on which such TDS was deductible. Let us see the provision as brought out in the Act, which is as under : 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id before the expiry of the time prescribed under sub-section (1) of section 200 and in accordance with the other provisions of Chapter XVII-B : paid on or before the due date specified in sub-section (1) of section 139 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduc-tion in computing the income of the previous year in which such tax has been paid. Provided that where in respect of any such sum, tax has been deducted under Chapter XVII-B or paid in any subsequent year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. 68. From the above comparison between the proposed and enacted provision, I find that the Legislature has replaced the words amounts credited or paid with the word payable in the final enactment. As argued by learned counsel for the assessee as well as for the interveners, a question arises as to why the Legislature dropped the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' is given as under : 'An amount may be payable without being due. Debts are commonly payable long before they fall due.' (c) According to West's Legal Thesaurus/Dictionary, 'paid' means pay. To discharge a debt. Payable : means justly or legally due (payable immediately). Un collected (outstanding debts). Unpaid, undischarged, unsatisfied, un settled, mature, owed, ripe, collectable, in arrears, redeemable. 70. To support this, learned counsel for the assessee relied on the decision of the hon'ble Bombay High Court in the case of Abdulgafar A. Nadiadwala v. Asst. CIT [2004] 267 ITR 488 (Bom) wherein it was held that the Income-tax Act does not define the words goods or merchandised but it well-settled that in the absence of there being anything contrary to the context the language of statute should be interpreted according to the plain dictionary meaning of the terms used therein. 71. Further, learned counsel relied on the decision of the hon'ble Supreme Court in the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 (SC) wherein it is held that, it is a fundamental rule of taxation that where there is no scope for importing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The same view has been taken by this court in Harshad S. Mehta v. State of Maharashtra [2001] 8 SCC 257 (vide paragraph 34) and Patangrao Kadam v. Prithviraj Sajirao Yadav Deshmukh, AIR 2001 SC 1121. The literal rule of interpretation really means that there should be no interpretation. In other words, we should read the statute as it is, without distorting or twisting its language. We may mention here that the literal rule of interpretation is not only followed by judges and lawyers, but it is also followed by the lay man in his ordinary life. To give an illustration, if a person says 'this is a pencil', then he means that it is a pencil ; and it is not that when he says that the object is a pencil, he means that it is a horse, donkey or an elephant. In other words, the literal rule of interpretation simply means that we mean what we say and we say what we mean. If we do not follow the literal rule of interpretation, social life will become impossible, and we will not understand each other. If we say that a certain object is a book, then we mean it is a book. If we say it is a book, but we mean it is a horse, table or an elephant, then we will not be able to communic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing as on the 31st March of every year. The contention was that a particular amount is covered under Chapter XVII-B and therefore TDS was required to be made from that amount but the amount has also been paid without TDS, therefore, disallowance to this extent should not be made under section 40(a)(ia) of the Act. The provision of section 40(a)(ia) of the Act was introduced in order to ensure compliance of TDS but assigned the term payable in the provision of section 40(a)(ia) of the Act. On a comparison between the proposed and enacted provision, the only conclusion, which can be reached, is that the Legislature consistently replaced the words amount credited or paid with the word payable in the final enactment and such change was not done without any purpose. It is a basic presumption that an enactment was brought in by the Legislature is wellthought of and properly worded in order to give meaning to its intent by changing the words from credited or paid to payable . The legislative intent has been made clear that only the outstanding amount or the provision for expense liable for TDS is sought to be disallowed in the event there is a default of TDS. This proposition is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s has to be avoided, unless it is covered by the rule of exception, including that of necessity. In the present provision of section 40(a)(ia) of the Act there is no such exception and the only word provided by Legislature is payable . 77. The Revenue's argument does not have any merit that payment of earlier year's outstanding expenses cannot be allowed in the subsequent year unless specifically provided in the statute. The proviso to section 40(a)(ia) of the Act lays down that the earlier year's provision can be allowed in the subsequent years only if the TDS is deducted and deposited. Hence, the Revenue's fear is unfounded and the provision of section 40(a)(ia) of the Act covers the situation. Another argument of the Revenue as regards to maintaining of books of account from cash and no amount claimed as expense being outstanding or payable, when the assessee itself has not claimed expense which is outstanding, there could be no reason to disallow the same. The Income-tax Act already has a precedence in section 43B of the Act which allows expense only on payment basis and therefore, the argument of the Revenue, that section 40(a)(ia) of the Act would become o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount is already paid the provisions of this section should not apply. The crucial word is payable . The question arises whether payable means payable at the end of the year or payable at any time during the year though paid during the year itself ? If one looks into the TDS provisions from sections 194A to 194K, it will be apparent that as per the language of those sections, tax is to be deducted at the time the amount is paid or at the time when the amount is credited, i.e., when the liability is admitted and it becomes payable. Therefore wherever the payment is covered by the aforesaid sections whether paid or credited, tax has to be deducted. Sections 194L and 194LA may also be looked into which says that tax has to be deducted only at the time of payment. The language in these sections therefore shows that the Legislature has used different language in different sections. It is trite law that each and every word of the section has its own meaning and while drafting section 40(a)(ia) of the Act, the Legislature was conscious of the fact that there may a case where the amount is paid and there may be a case where the amount is payable and have used appropriate words so t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance to the said objective. This is a deeming provision. How to interpret the deeming provision or what is the meaning of word deem . As verb transitive, the word deem means to treat something as if (i) it is really something else, or (ii) it has qualities that it does not have. Deem is a useful word when it is necessary to establish a legal fiction either positively by deeming something to be something it is not or negatively by deeming something not to be something which it is. Legal fiction is an assumption that something is true even though it may be untrue. Such an assumption is especially made in judicially reasoning to alter how a legal rule operates. When the law creates a legal fiction such fiction should be carried to its logical end. There should be no hesitation in giving full effect to it. The proposition that legal fiction must be carried to its logical conclusion does not, however, mean that it should be carried to an illogical length. By catena of decisions, three rules are fairly well settled for interpreting a provision creating a legal fiction. They are as under : (i) The court is to ascertain the purpose for which the fiction has been created, and af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. Further, the hon'ble Supreme Court in CIT v. Mother India Refrigeration Industries P. Ltd. [1985] 155 ITR 711 (SC) held that legal fictions are created only for some definite purpose and they must be limited to that purpose and should not be extended beyond that legitimate field. In CIT v. Bharani Pictures [1981] 129 ITR 244 (Mad) it is held that legal fictions are for a definite purpose and are limited to the purpose for which they are created and should not be extended beyond its legitimate field. The statutory fiction introduced in one enactment cannot be incorporated in another enactment. The point that legal fiction cannot be extended to a new field was highlighted by the hon'ble Madras High Court in CIT v. T. S. Rajam [1980] 125 ITR 207 (Mad) wherein it is held that section 41(2) of the Act creates a legal fiction under which the balancing charge is treated as business income chargeable to tax but when this amount is distributed to shareholders then it would not become deemed dividend and it would be only a capital receipt and not distribution of accumulated profits. Thus, a legal fiction was invoked in the hands of the assessee company and was not extended in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to payable , the legislative intent has been made clear that only outstanding amounts or the provisions for expenses liable for TDS under Chapter XVIIB of the Act is sought to be disallowed in the event there is a default in following the obligations casted upon the assessee under Chapter XVII-B of the Act. I agree with the arguments made by learned counsel for the assessee and other counsels for the interveners that while interpreting the word payable in this provision, the word of a statute must be understood in its natural, ordinary or popular sense and construed according to its grammatical meaning. According to me, such construction would not lead to absurdity because there is nothing in this context or in the object of this statute to suggest to the contrary. It is a cardinal principle of interpretation that the words of a statute must be prima facie given their ordinary meaning, when the words of the statute are clear, plain and unambiguous then the courts are bound to give effect to that meaning. The literal rule of interpretation really means that there should be no interpretation of the statute, rather in other words, we should read the statute as it is without doin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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