TMI Blog2016 (4) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... hat flows is to invoke Section 40(a)(ia) of the Act as has been rightly held by the Assessing Authority and affirmed by the First Appellate Authority. In the result, the appeals filed by the Revenue are allowed by answering the following substantial question of law in its favour and it is held that in the facts and circumstances of this case, the Tribunal was not correct in interpreting the language of section 40(a)(ia) to mean that the consequence of disallowance is attracted only in respect of amounts which remain payable on the last day of the financial year. - Decided in favour of revenue - ITAs No.100111-100120/2015, c/w ITAs No.100012/2016, 100013/2016, 100014/2016, 100015/2016, 100016/2016 & 100017/2016 - - - Dated:- 26-2-2016 - MR. H.BILLAPPA AND MR. .S.DINESH KUMAR, JJ. FOR THE APPELLANT : Sri MANOJ D PUKALE, ADV., Sri H.R.KAMBIYAVAR, ADV., FOR THE RESPONDENT : Sri Y.V. RAVIRAJ, ADV. Though these appeals are listed for admission, with consent of learned Counsel for the assessee and the Revenue, they are taken up for final disposal. 2. I.T.As. No. 100111-100120/2015 are filed by the assessee challenging the common order dated 4.8.2015 in ITAs No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial year ignoring the language used in the statutory provisions which makes it clear that the consequences of disallowance is attracted when a person liable to deduct tax on any interest payable to a resident, on which tax is deductible at source, commits a default? 6. Heard Sri Manoj D. Pukale, learned Counsel for the assessee and Sri Y.V. Raviraj, learned Standing Counsel for the Income Tax Department. 7. Brief facts of the case: Assessee is a Co-operative Sugar Factory. The returns filed by the assessee for the assessment years 2005-06, 2006-07 2008-09 to 2011-12 were taken up for scrutiny and notices under Section 143(2) of the Income Tax Act (for short 'the Act') were issued. Assessee was represented by its authorised representative. During the scrutiny, the Assessing Authority noticed that the assessee was engaging services of contractor/s for harvesting, cutting and transporting Sugarcane from the Farmers' fields to its factory. The amount paid to those contractors was bifurcated under different heads namely cane cutting charges, harvesters' bonus, transportation charges and transportation commission. Payments made on those amounts were bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Harvester's commission ₹ 31,37,220/- 4. Vehicle rents ₹ 2,32,100/- TOTAL ₹ 6,44,95,184/- For the assessment year 2009-10: Sl.No. Amount 1. Harvesting charges paid above ₹ 20,000/- ₹ 1,91,22,674/- 2. Harvester's commission ₹ 15,42,086/- 3. Transportation ₹ 2,33,70,855/- 4. Cart Bill ₹ 20,75,841/- 5. Transporter commission ₹ 49,60,196/- 6. Hire charges ₹ 1,30,350/- 7. Advocate fee ₹ 1,55,000/- 8. Donation to 55th National Co-operative week ₹ 1,00,000/- 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roved before the Tribunal as to whether the amounts were paid before the year end. The assessee was directed to prove before the Assessing Authority that no amount had remained payable as on the year end and that all the amounts claimed on which the provisions of Sections 194C and 194J were invoked stood fully paid by the year end. It was further held that if the assessee proved that there was no outstanding and all the amounts had been paid in full then, in the light of the judgment in the case Commissioner of Income-tax, Muzaffarnagar v. Vector Shipping Services (P.) Ltd., reported in [2013]38 taxmann.com 77 (Allahabad) the Assessing Authority shall not invoke the provisions of Section 40(a)(ia) of the Act. Hence, these appeals. 12. Shri M.D. Pukale, learned counsel for the assessee urged the following contentions: (a) The agreement between the assessee and the harvester cannot be construed as legally enforceable contract because the 'farmer' in whose land the harvester works and harvests the sugarcane is not a party to the contract nor there is evidence to prove that the farmer has ratified the contract inter se between the assessee and the harvester. (b) The fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to the members of the society. 14. The learned Counsel for the assessee also submitted that an identical matter is pending consideration before the Hon'ble High Court of Gujarat in Tax Appeal No. 2397/2009. Therefore, the questions raised are substantial in nature and require consideration by this Court. 15. With the above contentions, it was urged on behalf of the assessee to allow its appeals and to dismiss the appeals filed by the Revenue. 16. Per contra, Sri.Y.V. Raviraj, learned standing counsel for the Revenue opposing the appeals filed by the assessee and in support of appeals filed by the Revenue contended that Section 194C of the Act mandates that an assessee responsible to pay any sum to carry out any work in pursuance of contract is required to deduct tax at source. As a consequences of failure to comply with Section 194C of the Act, any payment made without deduction of tax at source shall be brought to tax under Section 40(a)(ia) of the Act. 17. Shri Y.V. Raviraj further submitted that the pleadings and arguments on behalf of the assessee that the agreement between the assessee and the harvester/transporter is not a legally enforceable contract on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re payable at the end of the previous year but also which are payable at any time during the year. 21. He further submitted that the ITAT erred in relying on the decision in the case of Vector Shipping Pvt. Ltd., [2013]38 taxmann.com 77(Allahabad) when the declaration of law was clear in the cases of Crescent Export Syndicate (2013) 33 Taxman.com 250 Cal and Sikandarkhan N.Tunvar Ors(2013) 33 Taxman.com 133 Guj. 22. He next argued that CBDT in its Circular No. 10/DB/2013 (F No. 179/Misc/M61/2012-ITJ(Vol.II) dated 16.12.2013 has clarified that the provisions of Section 40(a)(ia) would cover not only the amounts which are payable as on 31st March of the previous year but also the amounts which are payable during the years. 23. In sum and substance, the case of the Revenue is that assessee runs a sugar factory and spends crores of rupees towards harvesting and transportation charges. It has also booked large sums of expenditure towards payments made to lawyers and consultants. Admittedly, tax has not been deducted at source in compliance of the provisions of Section 194C, 194I and 194J of the Act. Ignorance of law cannot be an excuse. Thus, the orders passed by the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 194C, 194I and 194J of the Act and accordingly added back the income under Section 40(a)(ia) of the Act. However, the ITAT, placing reliance on the judgment of the Hon'ble Allahabad High Court in the case of Vector Shipping Services Pvt. Ltd. [2013]38 taxmann.com 77(Allahabad) held that it was not proved before the ITAT whether the amounts were paid before the year end and accordingly, set aside the assessment orders and remitted the matter for re-adjudication before the Assessing Authority. Assessee was directed to prove that no amount was left payable at the year end and all amounts claimed on which the provisions of Section 194C, 194I and 194J of the Act were invoked had been fully paid by the year end. 27. We have carefully gone through the judgment in the case of Vector Shipping Services Pvt. Ltd. [2013]38 taxmann.com 77(Allahabad). In the said case, Hon'ble High Court of Allahabad was considering an issue with regard to non-compliance of provisions of Section 194C by the assessee therein. The said company had advanced a contention that work was carried out by one M/s. Mercator Lines Ltd., on behalf of Vector Shipping Services Pvt. Ltd., and M/s. Mercator Lines Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatutory obligations shall always have their own consequences to flow. Therefore, the instant ground does not advance the case of the assessee any further. 30. Adverting to yet another ground urged on behalf of the assessee suggesting that it did not have the benefit of proper legal advice due to its locational disadvantage, we are of the view that this argument is too feeble to countenance. While canvassing this ground, it is argued by the learned Counsel for the assessee that since the factory is situated in a remote area, it did not have access to competent consultants. Admittedly, assessee was represented by a Chartered Accountant Shri Praveen Ghali before the Tax Authority. In addition, books of the assessee are audited as required under Section 44AB of the Act. Deduction of tax at source under Section 194C, 194I and 194J are elementary aspects and shall be within the knowledge of all practicing Chartered Accountants. We notice that the assessee has spent large sums of money towards legal advice. Assessee has not complied with Section 194J even while making payments towards professional charges to the advocates. It is fairly well settled that ignorance of law is no excuse. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government. The claim of the appellant to exemption could be sustained only on the doctrine of promissory estoppel and this doctrine could not be said to be so well defined in its scope and ambit and so free from uncertainty in its application that we should be compelled to hold that the appellant must have had knowledge of its right to exemption on the basis of promissory estoppel at the time when it addressed the letter dated June 25, 1970. In fact, in the petition as originally filed, the right to claim total exemption from Sales Tax was not based on the plea of promissory estoppel which was introduced only by way of amendment. Moreover, it must be remembered that there is no presumption that every person knows the law. It is often said that everyone is presumed to know the law, but that is not a correct statement: there is no such maxim known to the law. Over a hundred and thirty years ago, Maule, J., pointed out in Martindale v. Falkner [(1846) 2 CB 706 : 135 ER 1124] : There is no presumption in this country that every person knows the law: it would be contrary to common sense and reason if it were so. Scrutton, L.J., also once said: It is impossible to kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'the law' is. 15. But then in State of Maharashtra v. Mayer Hans George [AIR 1965 SC 722, 742 : (1965) 1 Cri LJ 641 : (1965) 1 SCR 123] Rajagopala Ayyangar, J. referred to the following comment of Prof. C.K. Allen on Johnson v. Sargant Sons [(1918) 1 KB 101 : 87 LJ KB 122 : 118 LT 95] : This was a bold example of judgment-made law. There was no precedent for it, and indeed a decision, Jones v. Robson [(1901) 1 KB 673 : 70 LJ KB 419 : 84 LT 230], which, though not on all fours, militated strongly against the judge's conclusion, was not cited; nor did the judge attempt to define how and when delegated legislation became known. Both arguments and judgment are very brief. The decision has always been regarded as very doubtful, but it never came under review by a higher court. And observed: We see great force in the learned author's comment on the reasoning in Sargant case [(1918) 1 KB 101 : 87 LJ KB 122 : 118 LT 95]. Taking the present case, the question would immediately arise is it to be made known in India or throughout the world, for the argument on behalf of the respondent was that when the respondent left Geneva on November 27 he was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the date of such publication or promulgation. 17. In the present case indisputably the mode of publication prescribed by Section 25(1) was complied with. The notification was published in the Official Gazette on the 13-2-1986. As to the effect of the publication in the Official Gazette, this Court held [Srinivasan case [(1987) 1 SCC 658, 672 : AIR 1987 SC 1059, 1067] AIR at p. 1067 : SCC pp. 672-73, para 15] : Where the parent statute is silent, but the subordinate legislation itself prescribes the manner of publication, such a mode of publication may be sufficient, if reasonable. If the subordinate legislation does not prescribe the mode of publication or if the subordinate legislation prescribes a plainly unreasonable mode of publication, it will take effect only when it is published through the customarily recognised official channel, namely, the Official Gazette or some other reasonable mode of publication. 18. We, therefore, see no substance in the contention that notwithstanding the publication in the Official Gazette there was yet a failure to make the law known and that, therefore, the notification did not acquire the elements of operativeness and enfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by us) State of A.P. v. Twin City Jewellers Assn. [2005] 13 SCC 552 at page 554, wherein it is held as follows: 8. It could not be denied that GO No. 303 dated 15-4-1997 was published in the Official Gazette on 23-4-1997. It is settled law that once publication in the Official Gazette takes place, it is deemed to be known to all. Ignorance of law can be no excuse. Once the GO was published, from the date it was published, it became effective. As it became effective from that date, the tax was leviable at the rate of 4%. If some assessing officers, due to their own ignorance or laxity accepted returns at the rate of 2% it did not permit the High Court to ignore the law and continue such laxity to prevail. It must be remembered that the assessing officer, who had assessed wrongly, could always reopen the assessment. 9. All that the errata, issued on 4-5-1998, does it reduce the rate of tax from 4% to 3%. The High Court has therefore also erred in concluding that the rate of tax has been increased. The whole judgment proceeds on the basis that the rate of tax has been increased when in fact it has been reduced. 10. We are unable to accept the submission that as GO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use 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 irreconcilable and diverse consequences. We hasten to add that this is not the prime basis on which we have adopted the interpretation which we have given. If the language used by the Parliament conveyed such a meaning, we would not have hesitated in adopting such an interpretation. We only highlight that we would not readily accept that the legislature desired to bring about an incongruous and seemingly irreconcilable consequences. (iii) In the case of Commissioner of Income Tax v. Crescent Export Syndicate reported (2013) 236 CTR 525 It is held by the Hon'ble High Court of Calcutta that: 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 becom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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