TaxTMI 
TaxTMI 
2013 (5) TMI 510
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....ld not be made by invoking the provisions of section 40(1)(ia) of the Act". ITAT No.20 of 2013 is directed against a judgment and order dated May 24, 2012, by which the learned Tribunal, following the aforesaid judgment in the case of Merilyn Shipping & Transports, passed the following order: "As the issue claimed by the assessee is that there is nothing payable as on 31.03.2006 and this expenditure of Rs.1,08,80,559/- is paid during the year and nothing remains payable, it means that the issue is covered. Principally, we have agreement with the assessee's counsel and are of the view that the issue is squarely covered in favour of the assessee. Principally, we allow this issue of the assessee but subject to the verification by AO that these expenses are paid within the year i.e. up to 31.03.2006 and nothing remains payable. Hence, this appeal of assessee in principle is allowed in favour of the assessee but subject to verification." The revenue has come up in appeal in both the matters. 2. Mr. Bagchi, learned Advocate appearing for the assessee in ITAT No.30 of 2013, drew our attention to the judgment in the case of Merilyn Shipping & Transports. The reasons w....
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....d 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 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 term "payable" in the provision the only conclusion, which can be reached, is that 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 well-thought of and properly worded in order to give meaning to its intent by changing the words from "credited" or "paid" or 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 ....
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.... 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". "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 words "amounts credited or paid" with the word "payable" in the final enactment and such change was done with a purpose. I am of the view that presumption that enactment brought in by the Legislature is well-thought off and properly worded in order to give meaning to its intent. The Legislature by consciously replacing the words from "credited" or "paid" or "payable", the intent has been made clear that only the outstanding amount or the provision for expenses are liable for TDS are to be disallowed in the event there is default in not following the TDS provisions under Chapter XVII-B of the Act. No doubt the object of section 40(a)(ia) of the Act is to ensure that the TDS provision as provided in Chapter XVII-B is implemented without any default. As per section 40(a)(ia) of the Act any interest, com....
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....er to disallow the genuine and reasonable expenditure on the amounts of expenditure already paid." "On comparison between the proposed and enacted provision, the only conclusion which I can reach is 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 XVII-B 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." Mr. Bagchi drew our attention to the relevant clause (ia) which reads as follows: "(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 ded....
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.... "The following second proviso shall be inserted in sub-clause (ia) of clause (a) of section 40 by the Finance Act, 2012, w.e.f. 1.4.2013 : Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso." 5. She submitted that considering that the legislature was not in favour of creating undue hardship for an assessee, Clause (ia) should only be construed to apply to those cases where the payment is outstanding. 6. We requested Mr. Khaitan, learned Senior Advocate to assist the Court in resolving the issue. The matter was directed to be listed for further hearing on 1st April, 2013. Dictated on 3rd April 2013 7. Mr. Khaitan, learned Senior Counsel, submitted that the views expressed by the Accountant Member are preferable to the views expresse....
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....sion as its operation solely depends on the provisions contained under Chapter XVII-B. It contemplates one of the consequences of non-deduction of tax and, therefore, has to be interpreted in the light of mandatory provisions contained under Chapter XVII-B. It would be appropriate to reproduce 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 deducted - ....
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....n such a situation, deduction would be allowed in the year in which such tax has been deducted. The explanation to this Section defines various amounts contemplated in this Section. The relevant Sections in Chapter XVII-B are re-produced hereunder:- Interest on securities. 193. The person responsible for paying [to a resident] any income [by way of interest on securities] shall, [at the time of credit of such income 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 income-tax [***] at the rates in force on the amount of the interest payable: Payments to contractors and sub-contractors. 194C. (1) Any person responsible for paying any sum to any resident (hereinafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and - ** ** &nbs....
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....nal services, or (b) fees for technical services, (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 cent of such sum as income tax on income comprised therein: ** ** ** Explanation. - For the purposes of this section,- (a) "professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section; (b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (I) of section....
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....) 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. 14. Ld. Counsel has relied on the dictionary meaning of term 'payable' which, in our opinion, cannot be resorted to in view of discussion in foregoing paras. The context in which term 'payable' has been used in Section 40(a)(ia) is to be taken into consideration. The context is various sections of Chapter XVII-B. 15. The next argument of ld. Counsel is based on the definition of term 'paid' as contemplated under Section 43(2) which reads as under:- "43(2) : 'paid' means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head 'profits and gains of business or profession' ". 16. A bare reading of the above provision would make it clear that the term 'paid' does not only mean actual payment but if the liability has been incurred according to the method of....
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.... 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 omisus but the Court cannot fill this gap. Hon'ble Allahabad High Court in the case of Dey's Medicals (UP) (P) Ltd.' case (supra) 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 person may also be liable to tax after receiving the said amount in one or the other manner, it cannot be said that former assessee is entitled for exemption and cannot be taxed. No authority is shown providing that such taxation is not permissible in law and is bad even otherwise." 19. Ld. CIT, DR has strongly relied on the decision of the Hon'ble Madras High Court in the case of Tube Investments of India Ltd.'s case (supra). The contention of Ld. Counsel for the assessee is that this decision was rendered in the context of constitutional validity of the provisions of section 40(a)(ia) and, therefore, in view of the decision ....
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....ion have been providved under the recovery chapter viz. Chapter XVII, the addition of s. 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 Constitution. At para 20 of judgment: According to the learned Counsel, the proviso to s. 40(a)(ia) does not in any way mitigate the damage caused under the main provision. It was also contended that under s. 195(5) of the Act relating to non-residents, where on production of a certificate as per the IT Rules, the requirement of TDS is exempted, such a safety valve measure not being available in respect of a resident recipient, s. 40(a)(ia) is unreasonable and unjustifiable. At para 24 of judgment: According to the learned counsel a comparative reading of s.40(a)(ia) and s. 198 would show that while under s. 198, the non-deduction of TDS would result in deemed income in the hands of the assessee, there is no such expression in s. 40(a)(ia) and consequently the non-income viz., the expenditure cannot be treated as deemed income in the hands of the assessee. The learned counsel also contended that....
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....ich was Rs.1,30,470.8 crores as compared to other forms of tax collections which shows that out of the net collection, at least 1/3 is by way of TDS. The learned standing counsel therefore contended that the object for introducing s.40(a)(ia) has really worked viz., augmentation of the TDS provision and therefore the provision should be upheld. In the backdrop of these submissions, Hon'ble Madras High Court upheld the constitutional validity of the provisions of section 40(a)(ia) and made various observations:- (i) Hon'ble Madras High Court, inter alia, noted the observations of Hon'ble Supreme Court in the case of A.S. Krishna v. State of Madras AIR 1957 SC 297 which are as under:- 'It would be quite an erroneous approach to the question to view such a statute not as an organic whole, but as a mere collection of sections then disintegrate it into parts, examine under what heads of legislation those parts would severally fall, and by that process determine what portions thereof are inter vires and what are not. Thus, section 40(a)(ia) could not be viewed independently and had to be considered along with other provisions. (ii) The ....
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....ed 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 held that a higher tax liability is mulcted on it". Hon'ble Madras High Court, inter alia, observed in para 83 of its judgment as under:- "After all the proviso has been inserted in order to ensure that even a defaulter is not put to serious prejudice, in as much as, by operation of the substantive provision, the expenditure which is otherwise allowable as a deduction is denied on the ground that the obligation of TDS provisions is violated. The law makes while imposing such a stringent restriction wanted to simultaneously provide scope for the defaulter to gain the deduction by complying with the TDS provision at a later pint of time". Thus, impliedly Hon'ble Madras High Court, has, inter alia, held that the provisions of section 40(a)(ia) will be applicable with respect to entire expenditure. It is true that specific issue regarding 'paid', 'credited' and 'payable' has not been considered but from the judgment it is evid....
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....ess and profession" if the assessee does not deduct TDS on such expenses are disallowed". 14. Having held so was it open to the Tribunal to seek to justify that "this fiction cannot be extended any further and, therefore, cannot be invoked by Assessing Officer to disallow the genuine and reasonable expenditure on the amounts of expenditure already paid"? Does this not amount to deliberately reading something in the law which is not there? 15. We, as such, have no doubt in our mind that the Learned 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 reported in 2010 (2) SCC 273. 16. 'Unprotected worker' ....
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.... nor credited. If an amount has neither been paid nor credited, there can be no occasion for claiming any deduction. 20. 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 langua....