TaxTMI 
TaxTMI 
2012 (4) TMI 290
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....vious year? Consequently, special bench was constituted and the aforesaid question was answered in favour of the assessee. According to the majority view, it was held that section 40a(ia) of the Act is applicable only to expenditure which is payable as on 31st March of every year and cannot be invoked to disallow the amounts which have already been paid during the year without deducting tax at source. 2. Issue involved in this appeal is with regard to the disallowance of payments of Rs. 38,75,000/- towards brokerage and Rs. 2,43,253/- towards commission on non-deduction of TDS by invoking the provisions of section 40a(ia) of the Act. The assessee's case was that the entire brokerage in commission payments were actually paid during the financial year excepting an amount of Rs. 1,78,025/- which remained payable as on 31.3.2005. The claim of the assessee was rejected by the revenue resulting in an appeal before us by the assessee. Following the majority view of the special bench, the provisions of section 40a(ia) cannot be invoked with respect to the aforesaid payments which were actually paid during the financial year but it can be invoked with respect to Rs. 1,78,025/- which rema....
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....ct, 2004 w.e.f. 1st April, 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 & 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 gains of business or profession",- (a) in the case of any assessee- (i)** ** ** (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 resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not be....
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....n sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid " From the above comparison between the proposed and enacted provision, I find that the Legislature has replaced the word "amounts credited or paid" with the word "payable" in the final enactment. As argued by ld. Counsel for assessee as well as for the Interveners, a question arises as to why the Legislature dropped the words "credited" and "paid" under section 40(a)(ia) as proposed in the Finance Bill, 2004. The ld. Counsel argued that the word "paid" was not incorporated because Legislature knew it that if amount is already paid, IDS cannot be deducted. According to ld. Counsel, as per Rule 30 of Income Tax Rules, 1962 (hereinafter referred to as 'the Rules'), which, inter alia, deals with time and mode of payment of Tax deducted at source, he pointed that Rule 30 of the Rules prior to its substitution by the Income-tax (Sixth Amendment) Rules, 2010 with retrospective effect from 1st April, 2010 allowed two months period of time for depositing of TDS, if the amount is deducted with reference to this Rule. According to ....
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....sed but it well-settled that in the absence of there being anything contrary to the context the language of its statute should be interpreted according to the plain dictionary meaning of the terms used therein. 3. Further, the ld. Counsel relied on the decision of the Hon'ble Supreme Court in the case of Smt Tarulata Shyam & Ors. 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 into the statute words which are not there, such importation would be not to construe, but to amend, the statute. Even if there is any casus omisus the defect can be remedied by the legislation alone and not by judicial interpretation. Ld. Counsel also relied on the decision of Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC), wherein it is held that if the court finds that the language of the taxing provision is ambiguous or capable of more meanings than one, then the court has to adopt that interpretation which favours the assessee, more particularly so where the provision relates to imposition of a penalty. Ld. Counsel in this context here argued that the provisions o....
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...., 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 communicate with each other. Life will become impossible. Hence, the meaning of the literal rule of interpretation is simply that we mean what we say and we say what we mean. " The provision of section 40(a)(ia) of the Act clearly uses the term "payable" and not "paid". Hence, if the literal construction of this word is taken, then no word can be substituted in place of the said word "payable" nor can any new word be supplied in the provision. The language of the provision has thrown open two terms "paid" and "payable" for judicial interpretation. We have gone through the meaning of terms "payable" and "paid" as defined in various judicial dictionaries and the definitions are reproduced above in para 3 of this order. 5. In respect to this, Reve....
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....ount 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 also explained by Hon'ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC), wherein it is held "Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion". However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament reintroduced the said expression and deleted the word "opinion " on the ground that it would vest arbitrary powers in the AO. " And further Hon'ble Supreme Court quoted the relevant portion of circular no.549 dated October 31, 1989 (1990) 182 ITR (St.) 1, 29), which reads as under: "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression ^reason to believe' in section 147.- A number of representations were received against the omission of the words reason to believe' from section 147 and their substitution by the 'opin....
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....f the Act would become otiose in cash system of accounting, was without any basis. 8. I have no dispute about the Rule of interpretation, wherein referred the decision of England in the case of Inland Revenue Commissioner v Hinchy [1960] A.C. 748 at page 767; [1960] 1 All E.R. 505 (512) Lord Reid observed as under: "What we must 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." Further, it was observed as under: "Moreover, the expression 'intention of the legislature' is ambiguous. 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? But in the present case, the only word put in the provision of section 40(a)(ia) of the Act is "payable" and not "paid" or "credited", rather Legislature consciously replaced the word "amoun....
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....e words so that the language may be clear and clear meaning may be given. One may look into the language contained in Finance Bill, 2004 wherein this provision was introduced. In the finance bill both the words paid and payable were used (2004) 268 ITR (Statute) 40. However the word paid was subsequently dropped which shows that 40(a)(ia) was meant to be applicable only if the amounts covered therein was "payable" at the end of the year. Reference may be made, for the scope and effect of section 40(a)(ia) as clarified by CBDT in Circular No. 5 of 2005, date 15th July, 2005 to show that the intention to introduce this provision was brought to curb bogus payments by creating bogus liability. 9. I find that Hon'ble Supreme Court in the case of Vegetable Products Ltd. (supra) have interpreted the word payable as the amount "payable" after deducting the amount paid at the time of imposing penalty. Further, the Hon'ble Gujarat High Court in the case of CIT v Upnishad Investment (P) Ltd & Ors [2003] 260 ITR 532 (Guj.) may also be referred wherein the word payable has been interpreted by Hon'ble Gujarat High Court as the amount due or outstanding as under: "We are o....
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....tal or inevitable corollaries to giving effect to the fiction. (ii) The legal fiction cannot be interpreted in a manner that extends the effect of fiction beyond the purpose for which it is created or beyond the language of the section by which it is created. Neither can one allow himself to be so carried away by a legal fiction so as to ignore the words of the very section which creates it or its context or setting in the statute which contains that section nor can one loose sight of the purpose for which the fiction is created. (iii) Outside the bounds of the legal fiction the difference between the reality and the fiction may still persist in the provisions of the same Act which creates the fiction and the difference may be ascertained by reference to the subject and context of those provisions. It means that legal fiction cannot be extended any further and has to be limited to the area for which it is created. Hon'ble Andhra Pradesh High Court in the case of Addl. CIT v. J Durgamma P. [1987] 167 ITR 776 (AP) held that it is not possible to extend the fiction beyond the field legitimately intended by the statute. The Hon'ble court was dealing with th....
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....nts outstanding or remains payable i.e. at the end of every year as on 31^st March and it cannot be extended for taxing the amounts already paid. In fact, section 201 of the Act itself take care of tax to be collected in the hands of the payee and other TDS provisions under chapter XVIIB of the Act. No further legal fiction from elsewhere in the statute can be borrowed to extend the field of section 40(a)(ia) of the Act. This fiction cannot be extended any farther and, therefore, cannot be invoked by Assessing Officer to disallow the genuine and reasonable expenditure on the amounts of expenditure already paid. 11. As regards to argument of revenue regarding challenge to the constitution of this provision before Hon'ble Madras High Court in the case of Tube Investments of India v. ACIT [2009] 325 ITR 610 wherein the court rejected the said challenge and upheld the validity of section 40(a)(ia) of the Act and the competence of the Legislature in enacting such a provision on the ground that this provision has been introduced in order to augment tax through the mechanism of TDS and the provisions of section 40(a)(ia) of the Act is in furtherance to the said objective. Further, ....
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....ion, 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". Hence, in my view, my answer to the question referred by Hon'ble President to the Special Bench is as under: The provisions of section 40(a)(ia) of the Act are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow which had been actually paid during the previous year, without deduction of TDS. ORDER S. V. Mehrotra, Accountant Member This appeal filed by the assessee is against the order of Id. Commissioner of Income-tax (Appeals)-I. Visakhapatnam dated 03.07.2008 for the assessment year 2005-06. 2. When the matter came up before the ld. Members of the Visakhapatnam Bench on 08.03.2010, the assessee relied on the order of Tribunal dated 23.10.2009 of ITAT, Hyderabad 'A' Bench. Hyderabad in the case of M/s. Teja Constructions, Hyderabad in I.T.A. No. 308/Hyd./2009 relating to the assessment year 2005-06. After hearing ld. D.R., the Bench could not agree with the decision rendered b....
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....a harmonious construction of the word 'payable' leads to the inevitable conclusion that the said word also includes the 'paid' amount. Hence, the assessee's argument in this regard was not acceptable and the Assessing Officer was correct in disallowing the entire payments claimed towards brokerage and commission. Being aggrieved, the assessee is in appeal before us. As noted earlier, Hon'ble President has constituted this Special Bench to decide the question noted above in para 2. Following are the Interveners in the matter Intervener No. 1 - M/s. Blue Marine Logistics Pvt. Ltd., Chennai, for which Shri B. Ramakrishnan, C.A. appeared, Intervener No. 2 - Rajamahendri Shipping & Oil Field Services Ltd. for which Shri Gun Hari, C.A. appeared, and Intervener No. 3 - Srinivasa Rao for which Shri Y. Suryachandra Rao, C.A. appeared, C.A. 4. Ld. counsel for the assessee, Shri S. Subramanyam submitted that Finance (No. 2) Bill, 2004 sought to amend section 40 of the Income Tax Act by inserting sub-clause in clause (a) w.e.f. 1st April, 2005 as under :- (ia) Any interest, commission or brokerage, fees for professional services or fees for technical s....
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....id amendment used words 'payable' as well as 'paid' or 'credited'. However, when parliament gave final approval to the Bill, the word 'paid' or 'credited^1 was omitted and only word 'payable' remained in section 40(a)(ia) of the Act, which would be evident from 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 resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid,- (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139; or (B) in any other case, on or before the last day of the previous year:] [Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deduct....
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....n 194A, section 194B, section 194BB, section 194C, section 194D, section 194E, section 194EE, section 194F, section 194G, section 194H, section 1941, section 194J, section 194K, section 194LA, section 195, section 196A, section 196B, section 196C and section 196D shall be paid to the credit of the Central Government- (a) in the case of deduction by or on behalf of the Government, on the same day; (b) in the case of deduction by or on behalf of persons other than those mentioned in clause (a)- (i) in respect of sums deducted in accordance with the provisions of section 193, section 194A, section 194C, section 194D, section 194E, section 194G, section 194H, section 194I, section 194J, section 195, section 196A, section 196B, section 196C and section 196D-(1) where the income by way of interest on securities referred to in section 193 or the income by way of interest referred to in section 194A or the sum referred to in section 194C or the income by way of insurance commission referred to in section 194D or the payment to non-resident sportsmen or sports associations referred to in section 194E or the income by way of commission, remuneration or prize on sal....
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.... [predict.] 1. (of money) required to be paid; due : 2. able to be paid: Noun (payables) Debts owed by a business' liabilities. Paid: Past and past principal of PAY. (b) According to Black's Law Dictionary (Seventh Edition) at p. 1150-, the term 'payable' is defined as a sum of money that is to be paid, Another meaning to the term 'payable' 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}. Uncollected (outstanding debts). Unpaid, undischarged, unsatisfied, unsettled, mature, owed, ripe, collectable, in arrears, redeemable. 4.3 Ld. counsel referred to the decision of the Hon'ble Bombay High Court in the case of Abdul Gafar A. Nadiadwala v. ACIT & Others reported in 267 ITR 488, wherein the Hon'ble Bombay High Court at paid 511 has observed as under :- "With the aforesaid strongly canvassed rival views, one has to find the answer to the q....
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....n if there is any casus omisus the defect can be remedied by the legislation alone and not by judicial interpretation". He submitted that the term 'payable' admits only of one meaning and the construction in different way is unwarranted. He referred to page 9 of paper book containing various case laws and pointed out that in the case of Teja Constructions v. ACIT, Hon'ble ITAT, Hyderabad Bench has held that the term 'payable' means the amount outstanding on the date of balance-sheet and does not include the paid amount. 4.4 Ld. counsel also relied on the decisions of the Hon'ble Supreme Court in the case of Union of India & Others v. Onkar S. Kanwar & Others reported in 258 ITR 761 (SC) and in the case of CIT v. Vegetable Products Limited reported in 88 ITR 192 (SC). He also submitted that section 40(a)(ia) did not cover rent, royalty and the same had been inserted by Taxation Laws (Amendment) Act, 2006 with retrospective effect from 1st April, 2006. He further submitted that if prior to amendment, rent and royalty amounts were paid or were credited to the account of payee, then no TDS was required to be made. He, therefore, submitted that TDS provisions ....
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....one does not depend upon other. Ld. counsel further pointed out that TDS provisions have classified the expenses under two categories; (i) first category is of those expenses, where tax is to be deducted at source when amount is 'credited' to party account. Second category of expenses is when tax deducted at the time of payment like salary, compensation paid on land acquisition. He further referred to Rule 30 and pointed out that it does not contain all the sections of TDS provision. He submitted that Income Tax Act did not provide third category of expenses, i.e. payment of deductible amount 'paid' without deducting of tax at source. He submitted that on careful scrutiny of Rule 30, it brings forth the distinct treatment given to nature of expenses belonging to either first category or second category as enumerated above. For the first category, extended time limit is given (however, Government deductors do not have this benefit of extended time limit) and for this two situations have been provided, i.e. credit at the time when annual accounts are made and credit at any other time of the previous year. For the second category, only one time limit is provided usi....
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....ia). Any other interpretation will result in an 'absurd' situation of 'permanent disallowance' to the persons following cash system of accounting in as much as the proviso to S. 40(a)(ia) does not provide for such a situation. 16. In addition to all the above, S. 40(a)(ia) imposing tax on 'deemed income' needs to be interpreted by 'strict rule of construction' and therefore 'interchangeability' of words 'paid' and 'payable' is not permitted. Ld. counsel for the assessee submitted that some of the provisions will become redundant if 'payable' is held to be including 'paid'. He clarified that when estimation of profit is made, the disallowance cannot be made. Ld. counsel further submitted that income tax charges on income and not on expenditure, therefore, expenses cannot be denied if they have been incurred for the purposes of business. In this regard, he referred to the decision of the Hon'ble Supreme Court in the case of CIT v. C.P. Sarathy Mudaliar [1972] 83 ITR 170 (SC) and also the decision of the Hon'ble Supreme Court in the case of CIT v. Prem Bhai Parekh & Others [1970] 77 ITR 27 (SC)....
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....d by the legislature and it is not a sound principle of construction to brush aside words in a statute as being inapposite surpluses, if they can have a proper application in circumstances conceivable within the contemplation of the statute ". The same view has been taken by this Court in S. Mehta v. State of Maharashtra 2001 (8) SCC 257 (vide para 34) and Patangrao Kaddam v. Prithviraj Sajirao Yadav Deshmugh 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 impos....
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....el 133TTJ 1 (Ahd.); (iv) Gaonkar Mines 45 SOT 437 (Bang.) 2011; (v) Ashika Stock Brokers Ltd. 56 DTR 417 (Kol.) (vi) Rajendra Kumar 134 TTJ 244 (Bang.); (vii) Parinika Construction (P.) Ltd. 1081/Hyd./2009 dated 16.07.2010. He also referred to following case laws which have decided the issue in favour of revenue :- (i) Dey's Medicals (UP) (P.) Ltd. 216 CTR 83 (Alld.); (ii) ITO v. M. Shankar [ITA No. 665/Mad./2009]/ [2010] 127 ITD 316 (iii) Sarala Associates 35 SOT 148 (Mum.); (iv) Umang Dairies 36 SOT 383 (Delhi). He further referred to the decision of the Hon'ble Madras High Court in the case of Tube Investment of India Ltd. reported in 325 ITR 610 (Mad.), wherein the Hon'ble Madras High Court has upheld the constitutional validity of section 40(a)(ia) of the Act. Ld. DR further submitted that liability for TDS is a continuous liability and, therefore, it cannot be segregated between 'paid' and 'payable' amounts. 9. In regard to arguments with reference to Rule 30, ld. DR submitted that the said Rule only prescribes the procedure for remittance of TDS amount and that cannot override the Act. Ld. DR further submitted that....
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.... but the same was dropped and in the finally inserted clause (ia) only word 'payable' was retained. The contention is that this itself shows the intention of legislature that the payments covered under Chapter XVII-B as referred to in section 40(a)(ia) paid without making TDS are not contemplated under section 40(a)(ia) of the Act. 12. Before considering the argument of ld. counsel, we may refer to a discussion on the subject by R.W.M, Dias in his book on Jurisprudence. It is well settled Rule of interpretation that when confronted with the task of interpreting a statute, the accepted formula is that the judges seek to ascertain the 'intention of the legislature'. The problem becomes apparent when one investigates whose intention it is that is thought to be relevant. Certainly it cannot be that is incorporated in the bill presented before Parliament but the statute which is passed by Parliament. He observes that in the case of Inland Revenue Commissioner v. Hinchy [1960] A.C. 748 at page 767; [1960] 1 All. E.R. 505 (512) Lord Reid observed as under :- "What we must look for is the intention of Parliament, and I also find it difficult to believe that Parl....
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.... be segregated into two parts -one part which has been paid within the financial year itself without complying with the provisions of TDS will escape the rigour of section 40(a)(ia), but balance amount which is payable at the end of the year would only be covered by section 40(a)(ia). We hesitate to subscribe to such a view because legislature never intended so strange a result. 12.2. The question for consideration is as to why the words 'credited' or 'paid' contemplated in the Bill were dropped while incorporating section 40(a)(ia). All the amounts whether 'credited' or 'paid' come within the ambit of term 'payable' and, therefore, the two terms, viz. 'credited' or 'paid' were only superfluous and, therefore, were dropped in the section 40(a)(ia) inserted in the Act. In the provisions relating to TDS, the relevance of these terms was with reference to timing of deduction but while making disallowance under section 40(a)(ia), these terms had no relevance and, therefore, legislature dropped these two terms, viz. 'paid' or 'credited' before insertion of section 40(a)(ia) in the statute. 12.3. It is noticeab....
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....ection 139; or (B) in any other case, on or before the last day of the previous year:] [Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted- (A) during the last month of the previous year but paid after the said due date; or (B) during any other month of the previous year but paid after the end of the said 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; (v....
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....ance of a contract between the contractor and- ** ** ** shall, 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 an amount equal to- (i) one per cent in case of advertising, (ii) in any other case two per cent, of such sum as income-tax on income comprised therein. Commission or brokerage: 194-H :- Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of [ten] per cent : [Rent 194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to [a resident] any income by way of rent, shall, at the ....
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....y such sum, such crediting shall be deemed to be credit of such sum to the account of the payee and the provisions of this section shall apply accordingly. If we examine the aforementioned sections, we find that identical considerations permeate through all the aforementioned sections which are as under :- (i) any person responsible for paying any sum to any resident in respect of aforementioned items; (ii) shall; (iii) 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 cheque or draft or by any other mode, whichever is earlier; (iv) Deduct income-tax thereon at the prescribed rate; The term 'shall' used in all these sections makes it clear that these are mandatory provisions and applicable to the entire sum contemplated under the respective sections. These sections do not give any leverage to the assessee to make the payment without making TDS. On the contrary, the intention of the legislature is evident from the fact that timing of deduction of tax is earliest possible opportunity to recover tax, either at the time of credit in the account of payee or ....
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....asis is on liability to pay and not on actual payment. If we accept the contention of assessee, then section 40(a)(ia) would become otiose and the section will not be attracted where payment is made though without deducting tax at source. Ld. counsel has referred to the various decisions and in the case of Jaipur Vidyut Vitaran Nigam Limited (supra), the Tribunal had relied on the definition of section 43(2) but the import of phrase 'incurred in accordance with the method of accounting followed' was not considered. Therefore, the finding that by implication the word 'payable' does not include 'paid' cannot be accepted. 17. The next argument of ld. counsel for the assessee is based on Rule 30, which contemplates time and mode of payment to Government account of tax deducted at source. In our opinion, this Rule merely contemplates the procedure of depositing the TDS amount and merely because different time limits are prescribed, it would not follow that different considerations would apply while considering the term 'payable' under section 40(a)(ia) of the Act. Ld. Counsel has also referred to section 234B dealing with levy of interest to demonstrat....
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....but in course of examining the constitutional validity, Hon'ble Madras High Court has extensively considered the import of section 40(a)(ia) and, therefore, in our opinion, this decision has strong bearing on the present issue. 20. Hon'ble Madras High Court has noticed various contentions of assessee. We re-produce some contentions, which have direct bearing on the present issue :- At para 5 of judgment : Mr. C. Natarajan, learned senior counsel appearing for the petitioners in Writ Petn. Nos. 10750 and 10751 of 2009 contended that while contractors business has no nexus to the determination of profits and gains of the business of the petitioner, s. 40(a)(ia) mutates itself to tax the petitioners at a disproportionate rate and quantum while purporting to address s. 194C and the contractors. According to him the effect of s. 40(a)(ia) is so grossly unreasonable that it imposes tax liability on the business of the petitioners even if the contractor himself paid the tax in his returns in the absence of TDS effected by the petitioners. At para 14 of judgment : According to the learned senior counsel, the implication of s. 40(a)(ia) is irrespective of the ci....
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....imilar situations the legislature has made specific exoneration of double taxation. The learned counsel relied upon : (i) CIT v. Indo Nippon Chemicals Co. Ltd. [2003] 182 CTR (SC) 291/[2003] 261 ITR 275 (SC); (ii) K.P. Varghese v. CIT [1981] 24 CTR (SC) 358/[1981] 131ITR 597 (SC); (iii) Navnit Lai C. Javeri v. K.K. Sen, AAC ]1065] 56 ITR 198 (SC); (iv) Govind Saran Ganga Saran v. CST [1985] 155 ITR 144 (SC); (v) Godhira Electricity Co. Ltd. v. CIT [1997] 139 (JR (SC) 564/[1997] 225 ITR 746 (SC) in support of his submissions. At para 33 of judgment : It was then contended that an expenditure is not an income and consequently the collection of tax as envisaged under Art. 265 is not permissible. It was also contended that s. 40(a)(ia) conflicts with S. 145 of the Act since the method of accounting is disturbed. At para 41 of judgment : As against the submissions of the petitioners that the provision is illusory, the learned counsel contended that though the words used in the proviso are deduct and pay, there is no prohibition for the assessee to make the payment without any deduction. In that context, the learned counsel r....
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....tion 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, Hon'ble Madras High Court has also held in para 61 of its judgment that "whole of the expenditure claimed without making TDS is to be disallowed and not only part of the expenditure". (iii) The Finance Bill No. 2 of 2004 states that the insertion of clause (ia) in clause (a) to section 40 of the Act was with a view to augment compliance of TDS provisions. (iv) When the provisions and procedures relating to TDS are scrupulously applied, first and foremost it ensures the identification of the payees and thereby network of assessees gets confirmed. When once such identity of assessees, who are in receipt of the income can be ascertained, it will enable tax collection machinery to bring within its fold all such persons who are liable to come within the network of taxpayers. Thus, if it is held that the provisions of section 40(a)(ia) are not applicable in respect of those payments which have been paid without ma....