TaxTMI 
TaxTMI 
2009 (9) TMI 37
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.... 194C of the Act. 2. In W.P.No.10751 of 2009, the very same petitioners seek for the issuance of a Writ of Declaration to declare Section 40(a)(ia) of the Act as beyond the legislative competence of the Union of India under Serial No.82 of List-I of the Seventh Schedule of the Constitution of India besides being void as infringing Articles 14, 19(1)(g), 265 and 300A of the Constitution and consequently unenforceable in law. 3. In all these writ petitions, the common challenge is to Section 40(a)(ia) of the Act to declare as ultra vires of the Constitution on the grounds stated therein. All the writ petitions are therefore disposes of by this common order. 4. Arguments were heard in common, learned senior counsels M/s. C. Natarajan and V. Ramachandran as well as other learned counsel viz., M/s. Joseph Prabhakar, N. Devanathan, N. Viswanathan and V.S. Jayakumar appeared on behalf of the petitioners. Mrs. Pushya Sitaraman, Mr. K. Subramanian and Mr. J. Naresh Kumar learned standing counsel for the Income Tax Department appeared on behalf of the Revenue. 5. Mr. C. Natarajan, learned senior counsel appearing for the petitioners in W.P.Nos.10750 & 10751 of 2009 contended that....
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....uge losses and thereby neutralises the profits with mere carry forward facility and that the tax recovered in the year of assessment can hardly be secured back, even if business is carried on for so long with profit to absorb the losses of the subsequent year. 10. It was lastly contended that every assessee has got a right to terminate his business and if the business is terminated in the subsequent year or thereafter, the tax recovered by virtue of Section 40(a)(ia) in the previous year can never be off set. 11. Mr. V. Ramachandran, learned senior counsel appearing for the petitioners in W.P.Nos.1106, 1107, 1690, 1691, 2478, 2479, 3330, 3331, 1056, 1057, 1717, 1718, 2013 and 2014 of 2008, contended that the object of introduction of Section 40(a)(ia) by the Parliament was to augment the TDS recovery provided under Chapter XVII-B, for which there are various provisions contained in Chapter XVII C,D,E and F in as much as the entire Chapter XVII deals with recovery of tax in different situations by different modes. 12. According to the learned senior counsel, while Chapter XVII-B deals with the recovery of tax to be deducted at source, the other sub-chapters C, D, E and F pr....
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....essee deducts and or pays the tax in any subsequent year, the assessment for the earlier year in which Section 40(a)(ia) was invoked can be reopened to withdraw the additions made. In support of his submissions, the learned senior counsel relied upon the decisions reported in : (i) AIR 2002 (SC) 2004 (Rakesh Wadhawan Vs. M/s. Jagadamba Industrial Corporation), (ii) 194 ITR 539 (Commissioner of Wealth Tax Vs. S.Jindal) (iii) 156 ITR 323 (Commissioner of Income Tax, Bangalore Vs. J.H.Gotla) (iv) (1994) 208 ITR 649 (C.W.S. (India) Ltd., Vs. Commissioner of Income Tax) (v) (2002) 254 ITR 337 (Omkars S.Kanwar Vs. Union of India and others) (vi) AIR 1941 (Federal Court) 72 (Hindu Women's Right to Property Act) (vii) AIR 1980 SC 1042 (All Saints High School Vs. Govt. of A.P.) (viii) (2000) 120 STC 302 (B.R. Enterprises Vs. State of U.P.) (ix) AIR 1996 S.C. 1023 (Panalal Bansilal & Others Vs. State of Andhra Pradesh) (x) (1989) 178 ITR 31 (Sanyasi Rao Vs. Government of A.P.) (xi) 236 ITR 380 (Geetha Hariharan Vs. Reserve Bank of India) 17. Mr. N. Viswanathan, learned counsel appearing ....
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....nded that even by applying the proviso to Section 40(a)(ia), the assessee was entitled to claim the entire sum of Rs. 2,19,00,000/- in the subsequent assessment year, the assessee could claim only to an extent of the total income available and since the available income itself was Rs. 42,00,000/- as per book profits provided under the Companies Act, it would take five other financial years to adjust the whole of the additional tax paid which would result in a loss mounting in each of the subsequent years to the disadvantage of the petitioner. 23. Mr. V. S. Jayakumar, learned counsel appearing for the petitioners in W.P.Nos.9142 and 28097 of 2008 contended that the impugned provision violates Article 265, 14 and 19(1)(g) of the Constitution. As far as the violation alleged against Article 265 is concerned, the learned counsel submitted that simply because the assessee committed default in implementing the TDS under Chapter XVII-B, the liability to tax cannot be granted as provided under Section 40(a)(ia) of the Act, which is not permissible under Article 265 of the Constitution. In other words, while Chapter XVII-B provides for mode of recovery, under the guise of recovery tax ca....
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....h as, it picks out some persons and leaving out others and thereby a discriminatory treatment is meted out. 28. The learned counsel then contended that since the citizen is entitled to retain his income ascertained after deduction of tax payable under the Act, any provision which authorizes the taking by the Government of the retained income of the citizen would be confiscatory in nature and thereby violative of Article 19(1)(g) of the Constitution. The learned counsel relied upon (i) 27 STC 1 (SC) (K.P.Abdullah Vs. State of Tamil Nadu) (ii) 22 STC 552 (MAD) 29. Lastly, it was contended by the learned counsel that even if the Section is held to be valid, the assessee should be directed to pay tax under the provisions which is lighter in burden. Reliance was placed on 8 ITR 41 (MAD) (CIT Vs. Bosotto). 30. Mr. N. Devanathan, learned counsel appearing for the petitioner in W.P.No.4782 of 2008, in his submissions contended that applying the maxim "NEMO DEBET BIS VEXARI EADEM CAUSA" i.e. no one should be twice harassed for the same cause this Court should hold that severe hardship and violation of the Constitutional provisions of Article 14, 19(1)(g) and 265 h....
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.... (ii) 1982 (1) S.C.R. 947 (R.K.Garg Vs. Union of India) (iii) (2005) 274 ITR 194 (Gujarat Ambuja Cements case). 37. By relying upon the decision of the Hon'ble Supreme Court reported in (2002) 255 ITR 258 (Asst. Director of Inspection (Investigation) vs. A.B. Shanthi) the learned standing counsel contended that the legislation which is intended to achieve the collection of income tax and to make it easier and systematic is enacted, such legislation would certainly be within the competence of Parliament. She also relied upon the decision reported in 215 ITR 371 (K.M. Vijayan Vs. Union of India). 38. To meet the contention of the petitioners that Section 40(a)(ia) seeks to tax the income of the payee in the hands of the payer, the learned standing counsel contended that what is provided under Section 40(a)(ia) is the disallowance as is provided in various other provisions contained in Sections 30 to 43D of the Act. By referring to Sections 37 (2 to 4), 40A and 43B, the learned standing counsel contended that even in those cases when the expenses are disallowed, such disallowance results in treating the same as income of the payer and it cannot be held that payee&....
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....see's pocket but not deducted, he would be eligible for the deduction. 42. The learned standing counsel also pointed out that similar provision under Section 40(a)(i) is holding the field for more than 40 years which has stood the test of time which relates to payment to non-residents, while Section 40(a)(ia) relates to payment to residents. The learned standing counsel pointed out that in the case of non-resident when the provision can be scrupulously followed, there is no reason why in the case of a resident, the assessee should make a hue and cry. 43. The learned standing counsel contended that after the introduction of Section 40(a)(ia) the TDS provision have been augmented which was not the position inspite of Sections 201, 271C and other provisions falling under Chapter XVII. The learned standing counsel also pointed out that among other things, PAN number of the payee is to be filled up in the TDS return, the augmentation of the TDS provision was working well since more persons will come within the preview of the income tax. 44. On reading down a provision, the learned standing counsel by relying upon (2007) 288 ITR 400 (CIT Vs. Valli Cotton Traders P. Ltd.), 28....
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.... 40(a)(ia) of the Act, it will be appropriate to extract the provision as it stood as on the date of the challenge: "Section 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 an assessee- (i)..... (A)..... (B)..... (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 or 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 during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200: Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of....
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.... "26. The Constitutional Validity of an Act can be challenged only on two grounds viz. (i) lack of legislative competence; and (ii) violation of any of the fundamental rights guaranteed in Part III of the Constitution or of any other constitutional provisions. In State of A.P. v. McDowell & Co. this Court has opined that except the above two grounds there is no third ground on the basis of which the law made by the competent legislature can be invalidated and that the ground of invalidation must necessarily fall within the four corners of the aforementioned two grounds." 51. In the decision reported in (1996) 3 SCC 709 (State of A.P. Vs. Mcdowell & Co) at page 737 in paragraph 43 & 44 the Hon'ble Supreme Court has held as under: "43....In India, the position is similar to the United States of America. The power of Parliament or for that matter, the State Legislatures is restricted in two ways. A law made by Parliament or the legislature can be struck down by courts on two grounds and two grounds alone, viz., (1) lack of legislative competence and (2) violation of any of the fundamental rights guaranteed in Part III of the Constitution or of any other constitutiona....
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....nment of A.P. Vs. P.Laxmi Devi) at page 744, the Hon'ble Supreme Court held as under in paragraph 56 & 57: "56. In our opinion adjudication must be done within the system of historically validated restraints and conscious minimisation of the judges personal preferences. The court must not invalidate a statute lightly, for, as observed above, invalidation of a statute made by the legislature elected by the people is a grave step.As observed by this Court in State of Bihar v. Kameshwar Singh(AIR p.274, para 52) "52. The legislature is the best judge of what is good for the community, by whose suffrage it comes into existence." x x x x x 57. In our opinion, the court should, therefore, ordinarily defer to the wisdom of the legislature unless it enacts a law about which there can be no manner of doubt about its unconstitutionality." 55. In (1982) 133 ITR 239 (R.K.Garg Vs. Union of India and others) the Hon'ble Supreme Court laid down the basic principle while examining the constitutionality of a Statute has held as under in page 254: "6.....It is clear that Article 14 does not forbid reasonable classification of persons, objects a....
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....allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud where Frankfurter, J., said in his inimitable style: "In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability. The Court must always remember that legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and....
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.... the Court cannot condemn the same as violative of Article 14 of the Constitution. Even otherwise, Parliament had treated all alike and has not made any invidious distinction or discrimination and has not picked up anybody for a hostile and discriminatory treatment. When that is so, it is difficult to hold that Section 43B of the Act contravenes Article 14 of the Constitution." 57. With the above principles in mind we proceed to examine the various contentions of the learned counsel for the petitioners. The contentions are three fold. In the first place it is contended that the implication of Section 40(a)(ia) is arbitrary, unreasonable and in violation of Article 14 of the Constitution; it imposes unreasonable restrictions in violation of Article 19(1)(g) of the Constitution and it lacks legislative competence and is in violation of Articles 265 and 300A of the Constitution. 58. According to the learned counsel for the petitioners, it is arbitrary, in as much as, it seeks to tax the petitioners at far higher rate then the rate at which the defaulted TDS tax is fixed. The other limb of the argument is that by providing for disallowance of the entire expenditure for t....
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....of TDS at the point where the payment is made or credited to a third party. It is also true that in the event of failure to deduct or pay as prescribed in the said Chapter, Section 201 automatically comes into play, by which, the person who is obligated upon to make the deduction himself will be deemed to be an assessee in default in respect of such deduction which is liable to deduction at source. The proviso to the said Section however makes the said provision less rigourous by stating that the Assessing Officer if satisfied with such persons with good and sufficient reasons failed to deduct and pay, no penalty as could be levied under Section 221 need be charged. The said provision at best would only relate to the amount of tax that could be deducted by way of TDS as compared to Section 40(a)(ia) 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., 62. In this context when we examine the object for the introduction of the impugned provision, the Finance Bill No.2 of 2004 states that the insertion of such clause (ia) in clause (....
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....h of the following month and if any delay is caused beyond that, Section 201 would come into operation and thereby interest would become payable. It was also stated that Section 40(a)(ia) grants time till 31st March next following and that any tax deducted in April of that year can be paid into the Government accounts on 31st March of the subsequent year to avail the deduction while the deduction to be made in March of that year could be paid in the Government accounts before the end of September of the subsequent year and thereby sufficient time is available to correct any errors in tax deduction during the year. 66. One other contention of the learned counsel appearing for the petitioners was that going by the specific provision contained under Section 194C, where it stipulate that the deduction is to be made at the point of either credit or payment, in the event of any default in compliance with the said provision, Section 40(a)(ia) would immediately come into play. Such a submission of the learned counsel appearing for the petitioners, in our opinion is taken care of by virtue of the stipulations contained under Section 200 read along with Rule 30 of the Income Tax Rules. It....
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.... usual stipulations, Section 221 creates an obligation on the Authority to give necessary opportunity etc., before imposing any penalty. Further under the proviso to Section 201, it is specifically provided that if the payer satisfies the Assessing Officer, the failure to make the deduction or payment was for good and sufficient reasons no penalty need be imposed. 68. All the above consequence are all related and restricted to the amount of TDS to be deducted under Chapter XVII-B. The purport and intent of the above said provision are only to ensure that in the event of any default in making the deduction, the required amount to be deducted is ultimately collected. As compared to those provisions, the legislative intent of the introduction of Section 40(a)(ia) is in the larger perspective of augmenting the very TDS provisions themselves. It is not merely related to the collection of TDS alone. In this context, it will be appropriate to refer to one of the submission of the learned standing counsel for the Revenue that only about 3% of the Returns filed are taken up for scrutiny, in view of the fact that the Act and administration have been moving towards self-assessment. In othe....
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....e is a provision inbuilt in the impugned Section itself providing for rectification of any default and thereby restore the financial implications suffered, it will have to be held that by virtue of such a procedural safeguard provided in the provision, it would be well within the Legislative competence of the Parliament in having set out a provision as contained in Section 40(a)(ia) of the Act. 70. One other submission made is on the ground that the provision seeks to tax the income of the payee in the hands of the payer and therefore it imposes an arbitrary and unreasonable restriction. According to the learned counsel for the petitioners while under Chapter XVII-B, the TDS is only to the prescribed percentage of the payment to be made to the payee by the payer, the consequence of default in compliance of TDS would result in entirety of the payment to the payee subjected to tax. It is therefore contended that while on the one hand the payer parts with the entire amount of the payee while at the same time for the said payment already made a further sum at 30% of that amount plus 5% surcharge and other liabilities are imposed which is highly excessive and it will have to be held ....
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....ing counsel is in consonance with what is stipulated in the proviso and therefore there is every justification in accepting the said submission. When the said submission can be validly accepted, it will have to be held that the effect or the rigour of restriction of disallowance made under Section 40(a)(ia) can be rectified by the assessee himself by resorting to the benefits contained in the proviso to that Section. Therefore, when Section 40(a)(ia) is read along with its proviso, there is no scope to hold that the said provision is so very harsh or creates any insurmountable situation for the assessee to claim the deduction of expenditure actually made. We therefore hold that Section 40(a)(ia) cannot be read in isolation but must be read along with its proviso and when it is read in that manner, there would be no scope to hold that there will be any harsh treatment meted out to any assessee in the matter of disallowance of any expenditure validly made by them. 72. Yet another argument made on behalf of the petitioners was that the impugned Section seeks to deduct the income of the payee in the hands of the payer. The argument is on the footing that by virtue of the disallowanc....
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.........The taxes and duties collected but remaining unpaid to the Government on account of orders of stay, etc., were claimed as a deduction for income-tax purposes setting up an attractive plea that the accounts are made up on mercantile system and, consequently, the disputed taxes and duties constituted legitimate deductions as the liability to pay the same was incurred in the accounting years concerned, albeit the amounts were not actually paid. The Revenue was told that in a system of mercantile accounting, actual payment is unnecessary and the profits and gains under the head "Profits and gains of business or profession" would have, therefore, to be computed deducting these taxes and duties. Thus, on the one hand, the businessmen had free use of the funds collected from the public by way of taxes for the ostensible purpose of making them over to the public exchequer and at the same time secured tax reliefs without paying the same. The provisions of law, as they stood at the relevant time, could not remedy the situation and the result was that "taxes and duties" aggregating to thousands of crores of rupees lay in the hands of the tax payers while the Government was reeling under ....
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....ion on account of sales tax would be allowed when the money is actually paid and not when the liability is incurred. In fact following the Division Bench decision of the Andhra Pradesh High Court upholding the Constitutional validity of Section 43B, when notice came to be issued under Section 153 of the Act, the challenge came to be made to the said notice before the Division Bench of the Delhi High Court and the Division Bench in the decision reported in (1991) 189 ITR 81 (Escorts Ltd., Vs. Union of India and others) upheld the said notice as valid in law. 75. The said provision along with Sections 37(3A), 40A (8), (9) & (10) came to be challenged before the Karnataka High Court also. The Division Bench of the Karnataka High Court in the decision reported in (1986) 160 ITR 50 (Mysore Kirloskar Ltd. And Others Vs. Union of India and Others) upheld the constitutional validity of the said provision. While so holding, the Division Bench held as under at page 66 : "Section 43B does not disallow the payments made towards taxes and contributions made to superannuation fund or gratuity fund or any other fund for the welfare of the employees but allows them as deductions only w....
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....gislative competence of the Union Parliament; (ii) that the provisions suffer from the vice of impermissible classification or were irrational, unconscionable, arbitrary and were violative of article 14 of the Constitution; and (iii) that the provisions unreasonably interfere with their freedom of trade and business guaranteed to them under article 19(1)(g) of the Constitution and were not saved by sub-article (6) of article 19 of the Constitution." 77. The above reasoning of the Division Bench decisions of the Andhra Pradesh High Court and Karnataka High Court are well founded. We have no hesitation to follow the same while rejecting the challenge made by the petitioners on the above grounds. 78. One other argument made on behalf of the petitioners is that it is a hostile scheme of taxation, in which on the ground of default of tax recovery from a contractor's income, the whole of the contractors income is taxed at the hands of the petitioners while such tax on the said sum is paid by the contractor himself in his returns even in the absence of the TDS effected by the petitioners. In the first blush though the said submission looks attractive, when a detailed considerati....
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....of the entire amount by rectifying the default in implementing the TDS provision prescribed under Chapter XVII-B of the Act. In fact the petitioners failed to realise that while the various recovery procedure prescribed under Chapter XVII-B would ensure the recovery of the defaulted TDS under the said Chapter, the moment the recoveries are effected under the said Chapter, the same would automatically entitle the assessee to fall back upon the proviso to Section 40(a)(ia) and thereby the disallowance will get reversed in any of the subsequent year in which such recoveries are made. Therefore the said contention also does not merit acceptance. 81. The other contentions made on behalf of the petitioner that the proviso is illusory cannot be accepted, in as much as, it proceeds on the footing that unless the TDS deducted from the payment made to the contractor in the previous year or in the subsequent year, it has no operation. As stated by us earlier, on a reading of the Section 201, where the expression "it is not deducted, or does not pay or after so deducted fails to pay" makes it clear that the proviso would be applicable even in respect of rectification of the TDS provision by....
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.... on the ground that the obligation of TDS provisions are violated. The law makers 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 point of time. Therefore such a remedial measure provided in the form of a proviso cannot be tested in the anvil of the grievance which is sought to be demonstrated by stating that in order to get the adjustments one has to survive in the business and that in the course of such survival, he should also make a profit. On the basis of such extreme imaginary consideration, which in our opinion are farfetched, the vires of a provision cannot be tested. We are therefore rejecting such a contention at the very outset. 84. One other argument of the learned counsel appearing for the petitioners is that Section 2(24) having defined the term 'income' have included only profits or gains of business or profession and the disallowance provided under Section 40(a)(ia) is indisputably an expenditure in the hands of the assessee and in the absence of deeming such expenditure as income of the assessee falling under Section 2(24) of the Act,....
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....serve any socio-economic cause. Even assuming to be true, it cannot be a ground for striking down the said provision. It is besides the fact that after the introduction of Section 40(a)(ia), the object with which the provision came to be introduced was nearly achieved, in as much as, the statistical data of collection and refund for the financial year 2008-09 upto 01.08.2009, discloses that at least 50% of such collection was by way of TDS. It is common knowledge that the revenue set up of the Country is substantially supported by the fiscal Statutes and even amongst them in the recent past due to wide spread network of the income tax coverage, the economy of the State is substantially supported by the tax revenue. Viewed in that respect, such economic support to the State will enable the State to concentrate on other welfare activities catering to the needs of the downtrodden by virtue of the improved financial status comfortable and thereby fulfil the socio economic obligation enshrined under the Preamble of our Constitution. Therefore, we do not find any substance in the said submission. 87. The contention comparing Section 40(a)(ia) with the proviso to Section 40A(3)(b) of t....
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....behalf of the petitioners that Section 40(a)(ia) fails to cover all assessee in all situation and thereby it is highly inequitable and unreasonable is to be stated only to be rejected. Section 40(a)(ia) will apply wherever Chapter XVII-B gets attracted. Therefore, in respect of all those assessee who are governed by Chapter XVII-B would be equally governed by Section 40(a)(ia). We are unable to understand as to how there could be any inequality or unreasonableness in such a situation. On the other hand, in respect of assessees who are governed by Chapter XVII-B of the Act, Section 40(a)(ia) does not make any discrimination and consequently the said contention has no legs to stand. 91. The argument based on Section 10A/10B and those availing deduction under Section 80(ia) cannot be accepted for the reason that in the first place it is not the case of the petitioners that total exemption has been granted from the applicability of Section 10A(1A). Secondly, by applying Section 40(a)(ia) if an assessee is governed by Sections 10A/10B or 80(IA) 80(IE) and is able to get any benefit by virtue of the applicability of those other provisions, it cannot be stated that they were on par wit....
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....cation of Section 40(a)(ia), it is not the case of the petitioners that they would be deprived of taking the stand that after complying with the requirement of TDS provisions under Chapter XVII-B and to put forth their stand, they are deprived of any such machinery and thereby prevent the Department from invoking Section 40(a)(ia). In other words, when the petitioners can vindicate their stand in the assessment proceedings as regards the non-applicability of Section 40(a)(ia) under Chapter XIV of the Act, we do not find any support to the petitioners in relying upon the above decision. In other words, in the said decision, this Court noted that though the provision impugned therein did not suffer from any Constitutional vires, yet, the absence of a machinery for an assessee to agitate the justifiability of a disputed right needed rectification. In the case on hand having regard to the existing availability of a right in an assessee to question any erroneous disallowance made under Section 40(a)(ia) in the assessment proceedings, there is no scope to compare the ratio of the said decision to the facts of this case. 94. One other contention raised on behalf of the petitioners was ....
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....d 2% on the warehousing charges treating them as one falling under Section 143C. The Assessing Authority however held the said payment as rent and passed orders for recovery of difference in tax and interest under Section 194-I and 201(1A). Subsequently the deductee paid tax on the entire sum received by it. In the above stated background the Appellate Tribunal held that there cannot be a recovery once again from the assessee considering the fact that the deductee had already paid the tax on the amount received from the assessee. In the special facts of that case, the High Court reversed the order of the Tribunal on a different ground. The Hon'ble Supreme Court went into the merits of the case and upheld the ultimate order of the Tribunal. In the first place the question of invocation of Section 40(a)(ia) did not arise in that case. Secondly in the special facts of that case, the Hon'ble Supreme Court while upholding the order of the Tribunal held that the decision that the assessee is only to pay interest under Section 201(1A) was valid. Moreover, the Hon'ble Supreme Court has referred to Circular No.275/201/95-IT(B) dated 29.01.1997 issued by the CBDT, which specifica....
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.... that the denial of relief provided by Sections 28 to 43C to particular businesses or trades dealt with under Section 44AC had no nexus to the object sought to be achieved by the Legislature, in as much as, there was a discrimination to a particular business and trade covered by Section 44AC of the Act, in so far as it denied the relief provided under Sections 28 to 43C to those business or trade dealt with in the said Section. In other words, the Hon'ble Supreme Court held that Section 44AC read with Section 206C is wholly hit by the Constitution. The said decision of the Hon'ble Supreme Court was in the peculiar nature of the provisions viz., Sections 44AC and 206C which came to be enacted to enable the Revenue to collect the legitimate dues of the State from the persons carrying on particular trade in view of the peculiar difficulties expressed in the past and the measure was so enacted to check evasion of substantial revenue due to the State. Nevertheless, when the Hon'ble Supreme Court noticed that while enacting the said provisions it denied the relief provided by Sections 28 to 43C applicable to all other assessees, the Hon'ble Supreme Court held the non-obst....
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....Section 13(4) of the SRFAESI Act. While an Appeal remedy is provided under Section 17 of the Act, the said provision as it stood prior to its striking down imposed a condition that the debtor in order to work out such appellate remedy should deposit 75% of the amount claimed in the notice issued under Section 13(4) of the SRFAESI Act. It is also relevant to note that barring the only remedy provided immediately after the issuance of notice under Section 13(4) of the SRFAESI Act by way of appeal under Section 17, the debtor was not provided with any other remedy at that stage. Therefore, the said decision of the Hon'ble Supreme Court in striking down that part of the provision contained under Section 17(2) of the SRFAESI Act cannot be taken to have laid down a general proposition of law applicable to all situations in order to apply the said principle to a case falling under Section 40(a)(ia) of the Act. 99. As far as the reliance placed upon the decision reported in (2009) 5 SCC 342 (Grand Kakatiya Sheraton Hotel & Towers Employees & Workers Union Vs. Srinivasa Resorts Ltd.) is concerned, the said case has absolutely no comparison to the case on hand. That was a case arising....
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....nd (3-a) of Section 69 of the Partnership Act, 1932 introduced by the Maharashtra Amendment Act, 29 of 1984. While countenancing the challenge made to the sub-section (2-A) of Section 69, the Hon'ble Supreme Court held as under in paragraph 25 and 26: "25. The effect of the 1984 Amendment is that a partnership firm is allowed to come into existence and function without registration but it cannot go out of existence (with certain exceptions). This can result into a situation where in case of disputes amongst the partners the relationship of partnership cannot be put to an end by approaching a court of law. A dishonest partner, if in control of the business, or if simply stronger, can successfully deprive the other partner of his dues from the partnership. It could result in extreme hardship and injustice. Might would be right. An aggrieved partner is left without any remedy whatsoever. He can neither file a suit to compel the mischievous partner to cooperate for registration, as such a suit is not maintainable, nor can he resort to arbitration if any, because the arbitration proceedings would be hit by Section 69(1) of the Act (Jagdish Chandra Gupta Vs. Kajaria Traders ....
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....rinciple that the fiscal Statute should clearly and unambiguously convey the three condition of the tax law viz., (i) the subject of the tax, (ii) the person who is liable to pay the tax and (iii) the rate at which the tax is to be paid, the Hon'ble Supreme Court on finding that there was a lacunae in the provision which did not provide for the rate of tax to be applied to such an exempted provision rendered the proviso invalid and ultra vires of the Constitution. The ratio of the said decision was exclusively applicable to the nature of provision dealt with therein and we do not find any scope to apply the said ratio to the provision impugned in these writ petitions. We do not find any ambiguity in the language used in Section 40(a)(ia), where it seeks to disallow the expenditure for the stated reasons. The settled principles in the said decision viz., the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid are all clear while applying Section 40(a)(ia) and therefore the said decision does not help the petitioners. 103. In the decision reported in (1993) 4 SCC 380 (State of Haryana Vs. Santlal) the challenge was to Section....
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....k down. The said reasoning which weighed with the High Court and the Hon'ble Supreme Court cannot be applied to the impugned provision viz., Section 40(a)(ia) is as much as the two provisions are not comparable in any manner. We are not therefore in a position to apply the said decision to the facts of these cases. 104. Similar is the ratio laid down in the decisions reported in (1999) 2 SCC 253 (Tripura Goods Transport Association Vs. Commissioner of Taxes) and (2005) 6 SCC 424 (A.B.C.(India) Ltd. Vs. State of Assam) where more or less identical provisions under the Provisions of Tripura Sales Tax Act, 1976 and Assam General Sales Tax Act, 1993 respectively and the rules framed thereunder came up for challenge and for the very same reasons stated above, we do not find any scope to apply the said decisions to the facts of these cases. 105. As far as the reliance placed upon the decisions reported in (2008) 175 Taxman 77 (SC) (Vijay Ship Breaking Corporation Vs. Commissioner of Income Tax, Ahmedabad) is concerned, the ratio decided therein is in relation to the merits of the claim in respect of an allowable deduction. In so far as such a controversy is concerned, that can ....
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....s and provide a tool in their hands to be cracked like a whip on weaker tenants. Secondly, such an interpretation would bring the provision in conformity with the several other legislations of the times such as Section 13 of the M.P. Accommodation Control Act, 1961, Section 11 of A.P. Buildings (Lease and Eviction) Control Act, 1960, Section 11(4) of Bombay Rents, Hotels and Lodging House Rates Control Act, 1947, Section 15 of Delhi Rent Control Act, 1958 and so on. Thirdly, the provision suffers from ambiguity. In the absence of any in-built indication enabling determination of the quantum of arrears, if disputed, and the period for which interest at six per cent per annum is to be calculated, the provision would become unworkable and hence liable to be struck down under Article 14 of the Constitution. An obligation is case on the Court to interpret it in such a manner as to make it workable and save it from the vice of being rendered unconstitutional." (ii) In the decision reported (1992) 194 ITR 539 (Commissioner of Wealth Tax Vs. S.Jindal) the principle has been set down as under at page 544: "Several decisions were cited enunciating the principle of interpret....
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....e object of the enactment having regard to the language used. The intention of Parliament in enacting section 40(a)(v) can be gleaned from the memorandum explaining the provisions of the Finance Bill, 1968, which sets out the object behind this clause. The Full Bench of the Kerala High Court has set out the memorandum in the judgment under appeal. In this connection, we may refer to the well-recognised rule of interpretation of statutes that where a literal interpretation leads to an absurd or unintended result, the language of the statute can be modified to accord with the intention of Parliament and to avoid absurdity......." (v) In the decision reported in (2002) 254 ITR 337 the Gujarat High Court has held as under at page 352: ".....The doctrine of reading down, as one of the principles of interpretation of the statute, cannot be applied to add and read additional words into a statutory order as would transgress the limits of such order and the Scheme. The doctrine of reading down as a permissible means of the process of interpretation of statutes can be restored to to give the statute reasonable meaning and to make it constitutionally valid but not for adding....
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....or ignore statutory words in order to prevent a provision from being unintelligible, absurd or totally unreasonable, unworkable or totally irreconcilable with the rest of the statute."" 111. A conjoined reading of the various principles laid down in the above decisions, boils down to the position viz., (a) That so far as it is reasonably possible to read down a provision in order to construe the legislation as being within its power. (b) By applying the doctrine of Reading Down, no additional words into a statutory order which would transgress the limits of such order or the scheme. It can only be resorted to to give the statute a reasonable meaning in order to make it constitutionally valid. (c) Under the guise of Reading Down a provision nothing can be supplemented. Where a literal interpretation leads to an absurd or intended result, the language of the statute can be modified to accord with the intention of Parliament and to avoid absurdity. (d) The Doctrine of Reading Down a statutory provision is to make it a valid provision and prevents its nullification as unconstitutional. 112. Keeping the above principles in mind when we consider ....