2013 (5) TMI 510 - HC - Income Tax

Disallowance under section 40(1)(ia) concerns amounts payable, not limited to outstanding balance; appeal allowed for revenue

The issue concerns whether the term payable in section 40(1)(ia) limits disallowance to amounts shown as payable on the balance-sheet or covers ... Disallowance u/s 40(1)(ia) - whether provisions of section 40(a)(ia) are applicable only to the amount which is shown as payable on the date of balance-sheet or to such expenditure, which become payable at any time during the relevant previous year and was actually paid within the previous year - Whether Merilyn Shipping & Transports case [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] concludes the correct law in stating that section 40(a)(ia) would be applicable only to expenditure which is payable as on March 31 of every year and can not be invoked to disallow amount which have already been paid during the previous year? Held that:- 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. 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”. The provisions of section 40(a)(ia) 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. On examining the correctness of the majority views in the case of Merilyn Shipping it can be concluded that the main thrust of the majority view is based on the fact 'that the Legislature has replaced the expression 'amounts credited or paid' with the expression 'payable' in the final enactment”. Comparison between the pre-amendment and post amendment law is permissible for the purpose of ascertaining the mischief sought to be remedied or the object sought to be achieved by an amendment. But the same comparison between the draft and the enacted law is not permissible. Nor can the draft or the bill be used for the purpose of regulating the meaning and purport of the enacted law. It is the finally enacted law which is the will of the legislature. 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 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 [2009 (12) TMI 697 - SUPREME COURT]. 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 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, fees for professional services or fees for technical services or to a contractor or sub-contractor 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. Thus, the majority views expressed in the case of Merilyn Shipping & Transports [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] are not acceptable. The appeal is, thus, allowed in favour of the revenue. Issues: Whether clause (ia) of section 40(a) of the Income-tax Act, 1961 applies only to amounts shown as payable on the date of the balance sheet (outstanding at year end) or also applies to amounts which became payable during the relevant previous year and were actually paid within that previous year.Analysis: The statutory text of section 40(a)(ia) must be read in the context of Chapter XVII-B which prescribes the timing and obligation of TDS (sections 193, 194C, 194H, 194-I, 194-J). The term 'payable' in section 40(a)(ia) is to be construed with reference to the TDS regime and the method of accounting employed by the assessee; it therefore covers amounts on which tax was required to be deducted under Chapter XVII-B when they became payable or were required to be credited or paid in accordance with those provisions. Comparative references to draft provisions are not permissible to alter the meaning of the enacted text and courts must avoid supplying omissions that the legislature deliberately chose not to include. The proviso to section 40(a)(ia) and related TDS machinery confirm that the provision operates to secure compliance with TDS obligations and applies to the whole expenditure on which TDS was required.Conclusion: Clause (ia) of section 40(a) is applicable not only to amounts shown as payable on the balance-sheet date but also to expenditures which became payable at any time during the relevant previous year and were actually paid within that previous year; decision is in favour of the Revenue and against the assessee.