2013 (5) TMI 457 - HC - Income Tax

Disallowance under Section 40(a)(ia) applies to payments due anytime in the year, not just year-end

COMMISSIONER OF INCOME TAX-IV Versus SIKANDAR KHAN N TUNVAR

HC held that disallowance under s. 40(a)(ia) applies not only to amounts payable as of 31 March but also to those payable at any time during the previous ... Disallowance u/s 40(a)(ia) - Principle of deliberate or conscious omission - as per AO assessee had admittedly not deducted TDS though payments were made to transporters which exceeded to ₹ 20,000/- in a single trip and aggregated above ₹ 50,000/- in the year - assessee had obtained Form No.15-I from such contractors but were not furnished along with necessary particulars in Form-15J to the CIT before due date - ITAT allowed the appeal of assessee putting reliance on decision in case of Merliyn Shipping & Transports [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] - Whether decision of ITAT in the case of Merilyn Shipping & Transports lays down the correct law in respect of interpretation of section 40(a)(ia)? Whether disallowance 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? Whether the principle of conscious omission can be applied in case there is a doubt regarding the draft presented in Parliament and the final legislation passed? Held that:- No hesitation in accepting the contention that the provision must be construed strictly. 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”. 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 the context of requirements of Section 40(a)(ia) no warrant in the said decision of the Supreme Court in Ashokbhai Chimanbhai case [1964 (10) TMI 11 - SUPREME COURT] to apply the test of payability only as on 31st March of the year under consideration. Merely because, accounts are closed 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. 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. The Tribunal committed an error in applying the principle of conscious omission in the present case as already observed having a 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. The principle of deliberate or conscious omission is applied mainly when an existing provision is amended and a change is brought about. While interpreting such an amended provision, the Courts would immediately inquire what was the statutory provision before and what changes the legislature brought about and compare the effect of the two. The other occasion for applying the principle, has been when the language of the legislature is compared with some other analogous statute or other provisions of the same statute or with expression which could apparently or obviously been used if the legislature had different intention in mind, while framing the provision. In the result 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 Tribunal in the case of M/s. Merilyn Shipping & Transports vs. ACIT [2012 (4) TMI 290 - ITAT VISAKHAPATNAM], does not lay down correct law - in favour of the Revenue. Issues Involved:1. Interpretation of Section 40(a)(ia) of the Income-Tax Act, 1961.2. Applicability of the decision in M/s. Merilyn Shipping & Transports vs. ACIT.3. Scope of the terms 'payable' and 'paid' under Section 40(a)(ia).Detailed Analysis:1. Interpretation of Section 40(a)(ia) of the Income-Tax Act, 1961:The core issue revolves around whether disallowance under Section 40(a)(ia) applies only to amounts payable as on 31st March of the year under consideration or to amounts payable at any time during the year. The Revenue argued that the term 'payable' includes 'paid' and that a narrow interpretation would lead to absurd results, allowing many assessees to escape the consequences of non-deduction or non-payment of TDS. The Tribunal had previously interpreted 'payable' to mean only amounts outstanding as of 31st March, leading to the disallowance of expenses only if they were unpaid at the end of the year.2. Applicability of the decision in M/s. Merilyn Shipping & Transports vs. ACIT:The Tribunal had relied on the Special Bench decision in M/s. Merilyn Shipping & Transports vs. ACIT, which held that Section 40(a)(ia) applies only to amounts payable as of 31st March. The Revenue contended that this interpretation was incorrect and led to unintended results. The Court noted that the Tribunal's reliance on the draft Finance Bill language, which initially used 'amount credited or paid' and was later changed to 'payable,' was flawed. The Court emphasized that legislative intent should not be derived from draft language but from the final enacted provision.3. Scope of the terms 'payable' and 'paid' under Section 40(a)(ia):The Court examined whether the terms 'payable' and 'paid' are synonymous. It concluded that these terms are not interchangeable within the context of Section 40(a)(ia). The term 'payable' refers to amounts that require payment, while 'paid' refers to amounts already disbursed. The Court held that Section 40(a)(ia) covers amounts payable at any time during the year, not just those outstanding as of 31st March. This interpretation aligns with the legislative intent to ensure TDS compliance throughout the year, not just at the year-end.Conclusion:The Court concluded that Section 40(a)(ia) applies to amounts payable at any time during the year, provided other conditions are met. It rejected the Tribunal's interpretation in M/s. Merilyn Shipping & Transports vs. ACIT and reversed the Tribunal's decisions in the present appeals. The matters were remanded to the Tribunal for fresh consideration of other issues regarding disallowance under Section 40(a)(ia).Judgment:- Question (1): Answered in the negative, in favor of the Revenue.- Question (2): Answered in the negative, in favor of the Revenue.- All Tax Appeals allowed, Tribunal's decisions reversed, and matters remanded for fresh consideration.