TaxTMI 
TaxTMI 
TaxTMI 
2014 (5) TMI 931
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....low it. 2. The Commissioner of Income-tax (Appeal), Lucknow is not justified in relying on the judgment of the Visakhapatnam Special Bench in the case of M/s Merilyn Shipping & Transports Vs. ACIT; Range-1, Vishakhapatnam in ITA No. 477/Viz/2008 [20 taxman.com 244) 70 DTR 81 and in deleting the disallowance made by A.O. u/s 40(a)(ia) as the assessee failed to deduct tax at source u/s 194C of the Income-tax Act, on the payments made to M/s Wipro-G.E. Medical Services Ltd., Ld. CIT(A) as the above said order of Hon'ble ITAT has been stayed by the Hon'ble High Court of Andhra Pradesh. 3. In doing so, Ld. CIT(A) failed to appreciate the word 'payable' used in the sub-section 40(a)(ia) includes, cases where the amounts, were 'paid' during the year in view of order of the Hon'ble High Court of Andhra Pradesh. 4. That the appellant craves leaves to add or amend any of the grounds of appeal mentioned above and or to add any fresh grounds as and when it is required to do so." 2. The facts, in brief, culled out from the orders of the autho....
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.... Act. 4. Now the Revenue has preferred an appeal before the Tribunal with the submissions that the CIT(A) has followed the order of the Special Bench of the Tribunal while deciding the issue without having realized that the operation of the order of the Tribunal was stayed by Hon'ble Andhra Pradesh High Court in I.T.A. M.P. No. 908 of 2012 in I.T.A. No.384 of 2012. The learned D.R. further invited our attention to the judgment of Hon'ble Calcutta High Court in the case of CIT, Kolkata-XI vs. Crescent Export Syndicate I.T.A. 20 of 2013 and GA 190 of 2013 and the judgment of Hon'ble Gujarat High Court in the case of Commissioner of Income-tax Vs Sikandarkhan N. Tunvar [2013] 357 ITR 213 (Guj) and the orders of the Tribunal in the following cases in which the view taken by the Special Bench of the Tribunal in case of Merilyn Shipping & Transports (supra) was over ruled: (i) Shri Antony D. Mundachal vs. ACIT, I.T.A. No.38/Coch/2013 (ii) ACIT vs. Rishti Stock and Shares Pvt. Ltd. I.T.A. No. 112/Bom/2012 4.1 In the aforesaid judgments it has been repeatedly held that what section 40(a)(ia) requires ....
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.... made a reference to the ratio laid down by the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports. Therefore, it cannot be said that the Jurisdictional High Court has thoroughly examined the view taken by the Special Bench of the Tribunal and approved the same. Whereas the validity of the order of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports was thoroughly examined by the Calcutta and Gujarat High Court and they have overruled the view taken by the Special Bench in so many words. The other Benches of the Tribunal in the case of Antony D. Mundackal and Rishti Stock and Shares Pvt. Ltd. have examined the view of the Special Bench in the light of the judgment of the other High Courts and also the judgment of Hon'ble Allahabad High Court and have categorically held that Hon'ble Allahabad High Court has not examined the issues in detail as the relief was granted to the assessee on merit. Therefore, the impugned issue is required to be adjudicated in the light of the judgment of Hon'ble Gujarat and Calcutta High Court. The learned D.R. further contended that having taken cognizance of all these developments with regar....
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....he judgment of Hon'ble Allahabad High Court in the case of Vector Shipping Services P. Ltd. (supra), we find that though there was dispute with regard to the disallowance of payment of salaries on account of non deduction of TDS as required u/s 40(a)(ia) of the Act but no question of law with regard to the ratio laid down by the Tribunal in the case of Merilyn Shipping & Transports was raised before the Hon'ble High Court. The question of law before the Hon'ble High Court is as under: "(a) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT has rightly confirmed the order of the CIT(A) and thereby deleting the disallowance of Rs.1,17,68,621/- made by the Assessing Officer under section 40(a)(ia) of the I.T. Act, 1961 by ignoring the fact that the company M/s Mercator Lines Ltd. had performed ship management work on behalf of the assessee M/s. Vector Shipping Services (P) Ltd. and there was a Memorandum of Understanding signed between both the companies and as per the definition of memorandum of understanding, it included contract also." 7.4 The main thrust of the argument be....
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....he mechanism of tax deducted 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 and Profession' in case the assessee does not deduct TDS on such expenses. The default in deduction of TDS would result in disallowance of expenditure or which such TDS was deductible. In the present case tax was deducted as TDS from the salaries of the employees paid by M/s. Mercator Lines Ltd. and the circumstances under which such salaries were paid by M/s. Mercator Lines Ltd., for M/s. Vector Shipping Services, the assessee were sufficiently explained. It is to be noted that for disallowing expenses from business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year. We do not find that the Tribunal has committed any error in recording the finding on the facts, which were not controverted by the department and thus the question of law as framed does ....
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....ctor or subcontractor, 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 on or before the due date specified in sub-section (1) of section 139 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in 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." In such context, therefore, the question arises whether under section 40(a)(ia) of the Act disallowance of the expenditure payment of which, though required deduction of tax at source has not been made would be 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. The deci....
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.... covers the situation. What this sub-section, therefore, requires is that there should be an amount payable in the nature described above, which is such on which tax is deductible at source under Chapter XVII-B but such tax has not been deducted or if deducted not paid before the due date. This provision nowhere requires that the amount which is payable must remain so payable throughout during the year. To reiterate the provision has certain strict and stringent requirements before the unpleasant consequences envisaged therein can be applied. We are prepared to and we are duty bound to interpret such requirements strictly. Such requirements, however, cannot be enlarged by any addition or subtraction of words not used by the Legislature. The term used is interest, commission, brokerage, etc., is payable to a resident or amounts payable to a contractor or a sub-contractor for carrying out any work. The language used is not that such amount must continue to remain payable till the end of the accounting year. Any such interpretation would require reading words which the Legislature has not used. No such interpret....
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....n March 31." 7.8 Before Hon'ble Calcutta High Court in the case of Crescent Export Syndicate (supra), the following question of law was raised: "If all the amounts have been paid, then obviously following the principles laid down by the Hon'ble Special Bench of this Tribunal in the case of Merilyn Shipping & Transports, no addition shall be made. If any amount is found to be payable as on the year end, then the Assessing Officer shall give the assessee adequate opportunity to substantiate his case as to why the disallowance, if any, should not be made by invoking the provisions of section 40(1)(ia) of the Act". 7.9 The Hon'ble High Court has examined the issue in the light of the Finance Bill 2004, relevant provisions of the Act and various judicial pronouncements and the detailed order of the Special Bench of the Tribunal in the case of Merilyn Shipping & Transports and have finally concluded that majority view expressed in the Merilyn Shipping & Transports are not acceptable. 7.10 The relevant observations of their Lordships are as under: "We already have quoted ex....
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....nce 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. The key words used in Section 40(a)(ia), according to us, are "on which tax is deductible at source under Chapter XVII -B". If the question is "which expenses are sought to be disallowed?" The answer is bound to be "those expenses on which tax is deductible at source under Chapter XVII -B. Once this is realized nothing turns on the basis of the fact that the legislature used the word 'payable' and not 'paid or credited'. Unless any amount is payable, it can neither be paid nor credited. If an amount has neither been paid nor credited, there can be no occasion for claiming any deduction. 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 pa....
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.... sake of reference, we extract the circular as under: Circular No.10/DV/2013 (Departmental View) F. No.279/Misc./M-61/2012-ITJ (Vol.-II) Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, the December 16th 2013 Subject: Circular on Section 40(a)(ia) of the Income Tax Act, 1961-reg. It has been brought to the notice of the Board that there are conflicting interpretations by judicial authorities regarding the applicability of the provisions of section 40(a)(ia) of the Income-tax Act, 1961 (`the Act') with regard to the amount not deductible in computing the income chargeable under the head 'Profits and gains of business or profession'. 2. Section 40(a)(ia) of the Act reads as under: ".....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 ....
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....gh Court (supra) were 'ratio decidendi'. The ITAT accordingly applied the view taken by the Hon'ble Gujarat and Calcutta High Court as ratio decidendi prevails over an orbiter dicta. 4. After careful examination of the issue, the Board is of the considered view that the provision of section 40(a) (ia) of the Act would cover not only the amounts which arc payable as on 31st March of a previous year but also amounts which are payable at any time during the year. The statutory provisions are amply clear and in the context of section 40(a) (ia) of the Act the term 'payable' would include 'amounts which are paid during the previous year'. 5. Where any High Court decides an issue contrary to the 'Departmental View', the `Departmental View' thereon shall not be operative in the area falling in the jurisdiction of the relevant High Court. However, the CCIT concerned should immediately bring the judgement to the notice of the CTC. The CTC shall examine the said judgement on priority to decide as to whether filing of SLP to the Supreme Court will be adequate response for the time being or some legislative amendme....