Dy.Commissioner of Income -Tax-VI, Lucknow V. M/s. Ama Medical & Diagnostic Centre, Lucknow

ITA 119/LKW/2013

• Counselvise Citation: 11923714 RSA 2013
• Duration Of Justice: 1 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-03-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 04-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: FAILED TO FOLLOW IT
• Keywords: Question of law
• Section: 194C; 139

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.119/LKW/2013 ASSESSMENT YEAR:2005 - 06 DY.C.I.T. - VI, LUCKNOW. VS. M/S AMA MEDICAL & DIAGNOSTIC CENTRE, K.G.M.C. CAMPUR, CHOWK, LUCKNOW. PAN:AAIFA9512H (APPELLANT) (RESPONDENT) O R D E R PER SUNIL KUMAR YADAV: THIS APPEAL IS PREFERRED ON BEHALF OF REVENUE AGAINST THE ORDER OF CIT(A), INTER ALIA, ON VARIOUS GROUNDS, WHICH ARE AS UNDER: 1. THE COMMISSIONER OF INCOME - TAX (APPEAL), LUCKNOW HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE BY THE AO OF RS.33,14,317/ - U/S 40(A)(IA) AS THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE U/S 194C OF THE INCOME - TAX ACT, ON PAYMENTS MADE TO SERVICE PROVIDER, M/S WIPRO G. E. MEDICAL SYSTEMS FOR CARRYING OUT THE WORK OF THE MAINTENANCE SE RVICES. HE FAILED TO APPRECIATE THAT THE PAYMENT MADE TO M/S WIPRO G. E. MEDICAL SERVICES WAS IN NATURE OF WORK CONTRACT AS DEFINED IN SECTION 194C OF THE INCOME - TAX ACT AND ON WHICH TDS U/S 40(A)(IA) WAS LIABLE TO BE DEDUCTED AS PER THE STATUTORY PROVISIO NS AND THE ASSESSEE FAILED TO FOLLOW IT. APPELLANT BY SHRI P. K. DEY, D.R. RESPONDENT BY SHRI DHARMENDRA KUMAR, C.A. DATE OF HEARING 05/03/2014 DATE OF PRONOUNCEMENT 11/04/2014 2 2. THE COMMISSIONER OF INCOME - TAX (APPEAL), LUCK N OW 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/VOZ/2008 [20 TAXMAN.COM 244) 70 DTR 8 1 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., L D. CIT(A) AS THE ABOVE SAID ORDER OF HON'BLE I TAT HAS BEEN STAYED BY THE HON'BLE HIGH COURT OF ANDHRA PRADESH. 3. IN DOING S O, L D. CIT(A) FAILED TO APPRECIATE THE WORD 'PAYABLE' USED IN THE SUB - SECTION 40(A)( I A) INCLUDES, C ASES WHERE THE AMOUNTS, WERE 'PA ID' 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 AUTHORITIES BELOW, ARE THAT IN THE ORIGINAL ASSESSMENT, THE ASSESSING OFFICER HAD DISALLOWED THE PAYMENT OF RS.33,14,317/ - AS AMC PAID TO WIPRO G.E. MEDICAL SERVICES ON THE GROUND THAT THE PAYMENTS WE RE COVERED UNDER THE PROVISIONS OF SECTION 194C OF THE ACT (HEREINAFTER REFERRED TO AS THE ACT) ON WHICH TDS WAS NOT DEDUCTED UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE MATTER TRAVELLED UP TO TRIBUNAL AND THE TRIBUNAL HAS SET ASIDE THE ISS UE VIDE ITS ORDER DATED 12/01/2010 AND RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE WHETHER THE CONTRACT BETWEEN THE ASSESSEE AND WIPRO G. E. MEDICAL S YSTEMS WAS A WORK CONTRACT OR WHETHER IT WAS A SERVICE C ONTRACT. THE ASSESSING OFFICER WAS ALSO DIRECTED TO ADJUDICATE THE ISSUE IN THE LIGHT OF SERVICE/WORK CONTRACT AGREEMENT AS THE SAME WAS NOT FURNISHED BEFORE THE TRIBUNAL. IN SET ASIDE PROCEEDINGS, THE MAINTENANCE SERVICE 3 AGREEMENT WAS FILED BEFORE THE ASSESSING OFFICER WITH THE CONTENTION THAT IT WAS MERE A SERVICE CONTRACT FOR WHICH PROVISIONS OF SECTION 194C ARE NOT APPLICABLE, THEREFORE, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS AS PER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE CONTENTI ONS OF THE ASSESSEE WERE NOT ACCEPTED BY THE ASSESSING OFFICER AND HE DISALLOWED THE AFORESAID PAYMENT OF RS.33,14,317/ - PAID TO WIPRO G. E. MEDICAL SYSTEMS HAVING OBSERVED THAT THE PROVISIONS OF SECTION 194C ARE APPLICABLE AND TDS AS REQUIRED U/S 40(A)(IA ) WAS NOT DEDUCTED. 3. AGGRIEVED, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE CIT(A) AND HAS PLACED RELIANCE UPON THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ACIT 70 DTR 81 WITH THE SUBMISSIONS THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE NOT APPLICABLE IN THE LIGHT OF THE AFORESAID ORDER AS THE PAYMENT WAS ACTUALLY MADE AND NO PAYMENT WAS OUTSTANDING AT THE END OF THE FINANCIAL YEAR. THE CIT(A) SOLELY RELYING UPON UPON THE ORDER OF THE SP ECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS (SUPRA) AND THE ORDER OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF UNDERWATER SERVICES CO. VS. INCOME TAX OFFICER [2012] 54 SOT 25 IN WHICH THE AFORESAID ORDER OF THE SPECIAL BE NCH WAS FOLLOWED, HAS DELETED THE ADDITION HAVING OBSERVED THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING THE ADDITION OF RS.33,14,317/ - U/S 40(A)(IA) OF THE 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 WA S 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 SYNDICA TE I.T.A. 20 OF 2013 AND GA 190 OF 2013 AND THE JUDGMENT 4 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 TAKE N 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. RISH TI STOCK AND SHARES PVT. LTD. I.T.A. NO. 112/BOM/2012 4.1 IN THE A FORESAID JUDGMENTS IT HAS BEEN REPEATEDLY HELD THAT WHAT SECTION 40(A)(IA) REQUIRES IS THAT THERE SHOULD BE AN AMOUNT PAYABLE ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B OR SUCH TAX HAS NOT BEEN DEDUCTED OR IF DEDUCTED NOT PAID BEFORE THE DUE DATE AND THIS PROVISION NOWHERE REQUIRES THAT THE AMOUNT WHICH IS PAYABLE IS PAYABLE THROUGHOUT THE YEAR. LEARNED D.R. FURTHER CONTENDED THAT SINCE THE VIEW TAKEN BY THE SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING & TRANSPORTS HAS BEEN OVERRULED BY V ARIOUS HIGH COURTS AND THE OPERATION OF THE ORDER WAS STAYED BY HON'BLE ANDHRA PRADESH HIGH COURT ALSO, THE ORDER OF CIT(A) DESERVES TO BE SET ASIDE AND THE ORDER OF THE ASSESSING OFFICER SHOULD BE RESTORED AS IT WAS PASSED IN CONSONANCE WITH THE JUDICIAL INTERPRETATION ADOPTED BY VARIOUS HIGH COURTS. 5. THE LEARNED COUNSEL FOR THE ASSESSEE BESIDES PLACING RELIANCE UPON THE ORDER OF CIT(A) HAS CONTENDED THAT THE IMPUGNED ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. VECTOR SHIPPING SERVICES P. LTD., I.T.A. NO.122 OF 2013 IN WHICH THE VIEW TAKEN BY THE SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING & TRANSPORTS (SUPRA) WAS APPROVED AND FOLLOWED. WHEN THE HON'BLE JURISDICTIONAL HIGH COURT HAS APPROVED T HE VIEW TAKEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS , THE SUBORDINATE JUDICIAL FORUMS WITH IN THE JURISDICTION OF HON'BLE ALLAHABAD 5 HIGH COURT ARE SUPPOSE TO FOLLOW THE SAME AND DECIDE THE ISSUE ACCORDINGLY. DUR ING THE COURSE OF HEARING OF THE APPEAL NO ARGUMENT WAS ADVANCE D ON BEHALF OF THE ASSESSEE ON MERIT NOR DID THE CIT(A) HAS GIVEN ANY FINDING WITH REGARD TO THE APPLICABILITY OF SECTION 194C OF THE ACT. 6. IN REBUTTAL THE LEARNED D.R. INVITED OUR ATTENTIO N TO THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT WITH THE SUBMISSION THAT HON'BLE JURISDICTIONAL HIGH COURT HAS NOT APPROVED THE VIEW TAKEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS. TH E HON'BLE ALLAHABAD HIGH COURT HAS SIMPLY APPROVED THE VIEW OF THE TRIBUNAL TAKEN ON MERIT HAVING NOTED THAT IN THE PRESENT CASE, TAX WAS DEDUCTED ON THE SALARY OF THE EMPLOYEES PAID BY MERCATOR LINES LIMITED AND THE CIRCUMSTANCES IN WHICH THE SALARIES WERE PAID BY MERCATOR LINES LIMITED FOR VECTOR SHIPPING SERVICES P LTD., THE ASSESSEE WERE SUFFICIENTLY EXPLAINED. AT THE CONCLUDING PARA OF THE ORDER, THE HON'BLE HIGH COURT HAS SIMPLY 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 T HE 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 THOROU GHLY 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 GRA NTED 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 6 HIGH COURT . THE LEARNED D.R. FURTHER CONTENDED THAT HAVING TAKEN COGNIZANCE OF ALL THESE DEVELOPMENTS WITH REGARD TO THE PROVISION OF SECTION 40 (A)(IA) , THE CBDT HAS ISSUED A CIRCULAR DATED 16/12/2013 EXPLAINING THE DEPARTMENTAL VIEW WITH REGARD TO THE INTERPRETATION OF SECTION 40(A)(IA) OF THE ACT AND CLARIFIED THAT IN CONTEXT OF SECTION 40(A)(IA), THE TE RM PAYABLE WOULD INCLUDE THE SUMS WHICH ARE PAYABLE DURING THE PREVIOUS YEAR. THEREFORE, IN THE LIGHT OF ALL THESE JUDGMENTS AND CIRCULARS, THE ORDER OF CIT(A) DESERVES TO BE SET ASIDE. 7. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS IN THE LIGHT OF THE ORDERS OF THE AUTHORITIES BELOW AND THE JUDGMENTS REFERRED TO BY THE PARTIES, WE FIND THAT THE CIT(A) HAS ADJUDICATED THE ISSUE IN THE LIGHT OF ORDER OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS (SUPRA) AND DELETED THE ADDITION. THE ORDER OF THE SPECIAL BENCH WAS CHALLENGED BEFORE HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. MERILYN SHIPPING & TRANSPORTS IN I.T.A. NO. 38 4 OF 2012 AND VIDE ORDER DATED 8 TH OCTOBER, 2012, THE HON'BLE HIGH COUR T HAS SUSPENDED THE OPERATION OF THE ORDER OF THE TRIBUNAL. DESPITE THE SUSPENSION OF THE ORDER OF THE TRIBUNAL BY THE CONCERNED HON'BLE JURISDICTIONAL HIGH COURT, THE CIT(A) HAS FOLLOWED THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL AND DECIDED THE ISSU E IN FAVOUR OF THE ASSESSEE AS THE CIT(A) HAS PASSED AN ORDER ON 03/12/2012. 7.1 DURING THE COURSE OF HEARING, IT WAS EMPHATICALLY ARGUED ON BEHALF OF THE ASSESSEE THAT WHEN THE HON'BLE ALLAHABAD HIGH COURT HAS APPROVED THE VIEW TAKEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS , THIS BENCH OF THE TRIBUNAL BEING SUBORDINATE TO THE HIGH COURT OF ALLAHABAD IS BOUND TO FOLLOW THE SAME AND DECIDE THE ISSUE ACCORDINGLY EVEN WITHOUT TAKING COGNIZANCE OF THE JUDGMENT OF OTHER HIGH COURTS IN THIS REGARD. THE SUBORDINATE AUTHORITY HAS NO JURISDICTION TO 7 QUESTION THE WISDOM OF THE HIGHER AUTHORITY AND T HEY ARE REQUIRED TO FOLLOWS THE VERDICT IN ITS LETTER AND SPIRIT GIVEN BY HIGHER AUTHORITY. 7.2 SINCE THE SOLE CONTROVERSY IS R AISED WITH REGARD TO THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT, WE HAVE TO EXAMINE THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT WHETHER THERE HAVE LAID DOWN ANY LAW ON THE IMPUGNED ISSUE OR A PASSING REFERENCE WAS MADE WITH REGARD TO THE AFORE SAID ORDER IN THE CASE OF MERILYN SHIPPING & TRANSPORTS . 7.3 HAVING CAREFULLY EXAMINED THE 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 DISALLOW ANCE 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 C OURT. 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 ME MORANDUM 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 BEFORE THE HON'BLE HIGH COURT WAS THAT M/S MERCATOR LINES LTD. HAD DEDUCT ED TDS ON SALARIES PAID BY IT ON BEHALF OF THE ASSESSEE. UNDER SUCH CIRCUMSTANCES, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS ON REIMBURSEMENT BEING MADE BY IT TO M/S MERCATOR LINES LTD. BESIDES REFERENCE WAS ALSO MADE ABOUT THE ORDER OF 8 THE SPECIAL BEN CH IN THE CASE OF MERILYN SHIPPING & TRANSPORTS WHEREIN IT HAS BEEN HELD THAT IF NO AMOUNT REMAINED PAYABLE AT THE YEAR END, THERE WOULD NOT BE ANY DISALLOWANCE AS THE PROVISION OF SECTION 40(A)(IA) ARE NOT APPLICABLE. AFTER RECORDING THE FINDING OF THE TRIBUNAL AND THE CIT(A), THE HON'BLE HIGH COURT HAS OBSERVED IN LAST TWO PARAS THAT THE PROVISION OF 40(A)(IA) WAS BROUGHT ON STATUTE TO DISALLOW THE CLAIM OF EVEN GENUINE AND ADMISSIBLE EXPENSES OF THE ASSESSEE UNDER THE HEAD 'INCOME FROM BUSINESS AND PRO FESSION' IN CASE THE ASSESSEE DOES NOT DEDUCT TDS ON SUCH EXPENSES AND T HE DEFAULT IN DEDUCTION OF TDS WOULD RESULT IN DISALLOWANCE OF EXPENDITURE O N WHICH SUCH TDS WAS DEDUCTIBLE. THEIR LIRDSHIPS HAVE FURTHER OBSERVED THAT I N THE PRESENT CASE TAX WAS DEDU CTED 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. IN LAST FEW LINES, THE HON'BLE HIGH COURT HAS MADE A REFERENCE TO THE RATIO LAID DOWN BY THE SPECIAL BENCH OF THE TRIBUNAL AND OBSERVED THAT IT IS NOTED THAT FOR DISALLOWING EXPENSES FROM BUSINESS AND PROFESSION ON THE GROUND THAT TDS HAS NOT BEEN DEDUCTED, THE AMOUN T SHOULD BE PAYABLE AND NOT WHICH HAS BEEN PAID BY THE END OF THE YEAR. EXCEPT THESE OBSERVATIONS, THE HON'BLE HIGH COURT HAS NOT ADVERTED TO THE LEGAL PROPOSITION LAID DOWN BY THE SPECIAL BENCH OF THE TRIBUNAL. FOR THE SAKE OF REFERENCE, WE EXTRACT THE FINDING OF THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THIS REGARD AS UNDER: WE DO NOT FIND THAT THE REVENUE CAN TAKE ANY BENEFIT FROM THE OBSERVATIONS MADE BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORT LTD. (136 ITD. 23) (SB) QUOTED AS ABOVE TO THE EFFECT SECTION 40(A)(IA) WAS INTRODUCED IN THE ACT BY THE FINANCE ACT, 2004 WITH EFFECT FROM 1.4.2005 WITH A VIEW TO AUGMENT THE REVENUE THROUGH THE MECHANISM OF TAX DEDUCTED AT SOURCE. THIS PROVISION WAS BROUGHT O N STATUTE TO DISALLOW THE CLAIM OF EVEN GENUINE AND ADMISSIBLE EXPENSES OF THE ASSESSEE UNDER THE HEAD 'INCOME 9 FROM BUSINESS AND PROFESSION' IN CASE THE ASSESSEE DOES NOT DEDUCT TDS ON SUCH EXPENSES. THE DEFAULT IN DEDUCTION OF TDS WOULD RESULT IN DISALLOW ANCE 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 NOT ARISE FOR CONSIDERATION IN THE APPEAL. 7.5 THE IMPACT OF THE JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT AND OTHER HIGH COURTS WAS ALSO EXAMINED BY THE DIFFERENT BENCHES OF THE TRIBUNAL AND THEY HAVE CATEGORICALLY HELD THAT THE HON'BLE ALLAHABAD HIGH COURT HAS DECIDED THE ISSUE REFERRED TO IT ON DIFFERENT FOOTING AND HAS MADE A PASSING REFERENCE ABOUT THE DECISION REN DERED BY THE SPECIAL BENCH. THEREFORE, WE ARE OF THE VIEW THAT THE HON'BLE JURISDICTIONAL HIGH COURT HAS NOT EXAMINED THE IMPUGNED ISSUE I.E. WHETHER DISALLOWANCE U/S 40(A)(IA) OF THE ACT COULD BE MADE ONLY IN RESPECT OF SUCH AMOUNT WHICH ARE PAYABLE AS O N 31 ST MARCH OF EVERY YEAR UNDER CONSIDERATION WHEREAS THE HON'BLE GUJARAT HIGH COURT AND HON'BLE CALCUTTA HIGH COURT HAVE DEALT WITH THE ISSUE IN DETAIL IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENT AND HAVE CATEGORICALLY HELD THAT SECTION 40(A)(IA) WOUL D COVER NOT ONLY TO THE AMOUNT WHICH ARE PAYABLE AS ON 31 ST MARCH OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. 7.6 BEFORE THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIKANDARKHAN N. TUNVAR (SUPRA) , THE FOLLOWING Q UESTION OF LAW WAS RAISED : 10 (I) WHETHER THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT WOULD BE MADE ONLY IN RESPECT OF SUCH AMOUNTS WHICH ARE PAYABLE ON 31 ST OF MARCH? (II) WHETHER THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPI NG & TRANSPORTS LAYS DOWN CORRECT LAW? 7.7 THE HON'BLE HIGH COURT HAVE ADJUDICATED THE ISSUE IN THE DETAIL IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS AND HAVE CONCLUDED THAT THE SECTION 40(A)(IA) WOULD COVER NOT ONLY THE AMOUNTS WHICH ARE PAYABLE ON 31 ST MARCH OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. THE RELEVANT OBSERVATIONS OF HON'BLE HIGH COURT ARE EXTRACTED AS UNDER: IN ADDITION TO SUCH PROVISIONS ALREADY EXISTING, THE LEGISLATURE INTRODUCED YET ANOTHER PROVISION FOR ENSURING COMPLIANCE WITH THE REQUIREMENT OF DEDUCING TAX AT SOURCE AND DEPOSITING IT WITH THE CENTRAL GOVERNMENT. SECTION 40(A)(IA), RELEVANT FOR OUR PURPOSE, READS AS UNDER : '(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 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 DEDU CTED 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 HA S BEEN PAID.' .. .. IN SUCH CONTEXT, THEREFORE, THE QUESTION ARISES WHETHER UNDER SECTION 40(A)(IA) OF THE ACT DISALLOWANCE OF THE EXPENDITURE 11 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 DECISION IN THE CASE OF M ERILYN SHIPPING AND TRANSPORTS V. ADDL. CIT WAS RENDERED BY THE SPECIAL BENCH BY A SPLIT OPINION. LEARNED ACCOUNTANT MEMBER WHO WAS IN MINORITY, PLACED HEAVY RELIANCE ON A DECISION OF THE MADRAS HIGH COURT IN THE CASE OF TUBE INVESTMENTS OF INDIA LTD. V . ASST. CIT (TDS) REPORTED IN [2010] 325 ITR 610 (MAD). THE LEARNED JUDGE DID NOTICE THAT THE HIGH COURT IN SUCH CASE WAS CONCERNED WITH THE VIRES OF THE STATUTORY PROVISION BUT FOUND SOME OF THE OBSERVATIONS MADE BY THE COURT IN THE PROCESS USEFUL AND APPLICABLE. THE LEARNED JUDGE REJECTED THE THEORY OF NARROW INTERPRETATION OF THE TERM 'PAYABLE' AND OBSERVED AS UNDER (PAGE 21 OF 16 ITR (TRIB)) : '12.4 IN OUR CONSIDERED OPINION, THERE IS NO AMBIGUITY IN THE SECTION AND THE TERM 'PAYABLE' CANNOT BE ASCRIBED A NARROW INTERPRETATION AS CONTENDED BY THE ASSESSEE. HAD THE INTENTIONS OF THE LEGISLATURE WERE TO DISALLOW ONLY ITEMS OUTSTANDING AS ON MARCH 31, THEN THE TERM 'PAYABLE' WOULD HAVE BEEN QUALIFIED BY THE PHRASE AS OUTSTANDING ON MARCH 31. HOWEVE R, NO SUCH QUALIFICATION IS THERE IN THE SECTION AND, THEREFORE, THE SAME CANNOT BE READ INTO THE SECTION AS CONTENDED BY THE ASSESSEE.' ON THE OTHER HAND, THE LEARNED JUDICIAL MEMBER, SPEAKING FOR MAJORITY, ADOPTED A STRICTER INTERPRETATION. HEAVY REL IANCE WAS PLACED ON THE FINANCE BILL OF 2004, WHICH INCLUDED THE DRAFT OF THE AMENDMENT IN SECTION 40 AND THE ULTIMATE AMENDMENT WHICH ACTUALLY WAS PASSED BY PARLIAMENT. IT WAS OBSERVED THAT FROM THE COMPARISON BETWEEN THE PROPOSED AND THE ENACTED PROVI SION IT CAN BE SEEN THAT THE LEGISLATURE HAS REPLACED THE WORDS 'AMOUNTS CREDITED OR PAID' WITH THE WORD 'PAYABLE' IN THE ENACTMENT. ON SUCH BASIS, IT WAS HELD THAT THIS IS A CASE OF CONSCIOUS OMISSION AND WHEN THE LANGUAGE WAS CLEAR THE INTENTION OF TH E LEGISLATURE HAD TO BE GATHERED FROM LANGUAGE USED. IN THEIR OPINION, THE PROVISION WOULD APPLY ONLY TO AMOUNTS WHICH ARE PAYABLE AT THE END OF THE YEAR. HAVING SAID SO, CURIOUSLY, IT WAS OBSERVED THAT THE PROVISO TO SECTION 40(A)(IA) OF THE ACT LAYS D OWN THAT EARLIER 12 YEARS PROVISION CAN BE ALLOWED IN SUBSEQUENT YEARS ONLY IF TAX AT SOURCE IS DEDUCTED AND DEPOSITED AND, THEREFORE, THE REVENUE'S FEAR IS UNFOUNDED AS THE PROVISION OF SECTION 40(A)(IA) OF THE ACT 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 THER EIN 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 INTERP RETATION WOULD REQUIRE READING WORDS WHICH THE LEGISLATURE HAS NOT USED. NO SUCH INTERPRETATION WOULD EVEN OTHERWISE BE JUSTIFIED BECAUSE, IN OUR OPINION, THE LEGISLATURE COULD NOT HAVE INTENDED TO BRING ABOUT ANY SUCH DISTINCTION NOR THE LANGUAGE USED IN THE SECTION BRINGS ABOUT ANY SUCH MEANING. IF THE INTERPRETATION, AS ADVANCED BY THE ASSESSEES IS ACCEPTED, IT WOULD LEAD TO A SITUATION WHERE THE ASSESSEE WHO THOUGH WAS REQUIRED TO DEDUCT THE TAX AT SOURCE BUT NO SUCH DEDUCTION WAS MADE OR MORE FLA GRANTLY DEDUCTION THOUGH MADE IS NOT PAID TO THE GOVERNMENT, WOULD ESCAPE THE CONSEQUENCE ONLY BECAUSE THE AMOUNT WAS ALREADY PAID OVER BEFORE THE END OF THE YEAR IN CONTRAST TO ANOTHER ASSESSEE WHO WOULD OTHERWISE BE IN SIMILAR SITUATION BUT IN WHOSE C ASE THE AMOUNT REMAINED PAYABLE TILL THE END OF THE YEAR. WE SIMPLY DO NOT SEE ANY LOGIC WHY THE LEGISLATURE WOULD HAVE DESIRED TO BRING ABOUT SUCH IRRECONCILABLE AND DIVERSE CONSEQUENCES. WE HASTEN TO ADD THAT THIS IS NOT THE PRIME BASIS ON WHICH WE H AVE ADOPTED THE INTERPRETATION WHICH WE HAVE GIVEN. IF THE LANGUAGE USED BY PARLIAMENT CONVEYED SUCH A MEANING, WE WOULD NOT HAVE HESITATED IN 13 ADOPTING SUCH AN INTERPRETATION. WE ONLY HIGHLIGHT THAT WE WOULD NOT READILY ACCEPT THAT THE LEGISLATURE DESIRE D TO BRING ABOUT AN INCONGRUOUS AND SEEMINGLY IRRECONCILABLE CONSEQUENCES. THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. ASHOKBHAI CHIMANBHAI (SUPRA), WOULD NOT ALTER THIS SITUATION. THE SAID DECISION, OF COURSE, RECOGNIZES THE CONCEPT OF ASC ERTAINING THE PROFIT AND LOSS FROM THE BUSINESS OR PROFESSION WITH REFERENCE TO A CERTAIN PERIOD, I.E., THE ACCOUNTING YEAR. IN THIS CONTEXT, THE LAST DATE OF SUCH ACCOUNTING PERIOD WOULD ASSUME CONSIDERABLE SIGNIFICANCE. HOWEVER, THIS DECISION NOWHERE I NDICATES THAT THE EVENTS WHICH TAKE PLACE DURING THE ACCOUNTING PERIOD SHOULD BE IGNORED AND THE ASCERTAINMENT OF FULFILLING A CERTAIN CONDITION PROVIDED UNDER THE STATUTE MUST BE JUDGED WITH REFERENCE TO THE LAST DATE OF THE ACCOUNTING PERIOD. PARTICULA RLY, IN THE CONTEXT OF REQUIREMENTS OF SECTION 40(A)(IA) OF THE ACT, WE SEE NO WARRANT IN THE SAID DECISION OF THE SUPREME COURT TO APPLY THE TEST OF PAYABILITY ONLY AS ON MARCH 31, OF THE YEAR UNDER CONSIDERATION. MERELY BECAUSE, ACCOUNTS ARE CLOSED ON THAT DATE AND THE COMPUTATION OF PROFIT AND LOSS IS TO BE JUDGED WITH REFERENCE TO SUCH DATE, DOES NOT MEAN THAT WHETHER AN AMOUNT IS PAYABLE OR NOT MUST BE ASCERTAINED ON THE STRENGTH OF THE POSITION EMERGING ON 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 HONBLE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF MERIL YN 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 B E 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 14 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 EXTENSIVELY BOTH THE MAJORITY AND THE MINORITY VIEWS EXPRESSED IN THE AFORESAID CASE. THE MAIN THRUST OF THE MAJORITY VIEW IS BASED ON THE FACT THAT THE LEGISLATURE HAS REPLACED THE EXPRESSION AMOUNTS CREDITED OR PAID WITH THE EXP RESSION PAYABLE IN THE FINAL ENACTMENT. C OMPARISON BETWEEN THE PRE - AMENDMENT AND POST AMENDMENT LAW IS PERMISSIBLE FOR THE PURPOSE OF ASCERTAINING THE MISCHIEF SOUGHT TO BE REMEDIED OR THE OBJECT SOUGHT TO BE ACHIEVED BY AN AMENDMENT. THIS IS PRECISEL Y WHAT WAS DONE BY THE APEX COURT IN THE CASE OF CIT VS. KELVINATOR REPORTED IN 2010(2) SCC 723. BUT THE SAME COMPARISON BETWEEN THE DRAFT AND THE ENACTED LAW IS NOT PERMISSIBLE. NOR CAN THE DRAFT OR THE BILL BE USED FOR THE PURPOSE OF REGULATING THE MEA NING AND PURPORT OF THE ENACTED LAW. IT IS THE FINALLY ENACTED LAW WHICH IS THE WILL OF THE LEGISLATURE. THE LEARNED TRIBUNAL FELL INTO AN ERROR IN NOT REALIZING THIS ASPECT OF THE MATTER. THE LEARNED TRIBUNAL HELD THAT WHERE LANGUAGE IS CLEAR THE INTENTION OF THE LEGISLATURE IS TO BE GATHERED FROM THE LANGUAGE USED. HAVING HELD SO, IT WAS NOT OPEN TO SEEK TO INTERPRET THE SECTION ON THE BASIS OF ANY COMPARISON BETWEEN THE DRAFT AND THE SECTION ACTUALLY ENACTED NOR WAS IT OPEN TO SPECULATE AS TO THE EFFECT OF THE SO - CALLED REPRESENTATIONS MADE BY THE PROFESSIONAL BODIES. THE LEARNED TRIBUNAL HELD THAT SECTION 40(A)(IA) OF THE ACT CREATES A LEGAL FICTION BY VIRTUE OF WHICH EVEN THE G ENUINE AND ADMISSIBLE EXPENSES CLAIMED BY AN ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION IF THE ASSESSEE DOES NOT DEDUCT TDS ON SUCH EXPENSES ARE DISALLOWED. HAVING HELD SO WAS IT OPEN TO THE TRIBUNAL TO SEEK TO JUSTIFY THAT THIS FIC TION CANNOT BE EXTENDED ANY FURTHER AND, THEREFORE, CANNOT BE INVOKED BY ASSESSING OFFICER TO DISALLOW THE GENUINE AND REASONABLE EXPENDITURE ON THE AMOUNTS OF 15 EXPENDITURE ALREADY PAID? DOES THIS NOT AMOUNT TO DELIBERATELY READING SOMETHING IN THE LAW WH ICH IS NOT THERE? 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 D ISALLOWED. 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. 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 DISALLOW ED? 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 AMOU NT 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 LOOKI NG 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 DEDU CTIBLE 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 16 NOT BE DEDUCTED IN COMPUTING THE INCOME O F AN ASSESSEE IN CASE HE HAS NOT DEDUCED, OR AFTER DEDUCTION HAS NOT PAID WITHIN THE SPECIFIED TIME. THE LANGUAGE USED BY THE LEGISLATURE IN THE FINALLY ENACTED LAW IS CLEAR AND UNAMBIGUOUS WHEREAS THE LANGUAGE USED IN THE BILL WAS AMBIGUOUS. A FEW WORDS ARE NOW NECESSARY TO DEAL WITH THE SUBMISSION OF MR. BAGCHI AND MS. ROYCHOWDHURI. THERE CAN BE NO DENIAL THAT THE PROVISION IN QUESTION IS HARSH. BUT THAT IS NO GROUND TO READ THE SAME IN A MANNER WHICH WAS NOT INTENDED BY THE LEGISLATURE. THIS IS OUR ANS WER TO THE SUBMISSION OF MR. BAGCHI. THE SUBMISSION OF MS. ROYCHOWDHURI THAT THE SECOND PROVISO SOUGHT TO BECOME EFFECTIVE FROM 1ST APRIL, 2013 SHOULD BE HELD TO HAVE ALREADY BECOME OPERATIVE PRIOR TO THE APPOINTED DATE CANNOT ALSO BE ACCEDED TO FOR THE SA ME REASON INDICATED ABOVE. THE LAW WAS DELIBERATELY MADE HARSH TO SECURE COMPLIANCE OF THE PROVISIONS REQUIRING DEDUCTIONS OF TAX AT SOURCE. IT IS NOT THE CASE OF AN INADVERTENT ERROR. FOR THE REASONS DISCUSSED ABOVE, WE ARE OF THE OPINION THAT THE MAJO RITY VIEWS EXPRESSED IN THE CASE OF MERILYN SHIPPING & TRANSPORTS ARE NOT ACCEPTABLE. THE SUBMISSIONS ADVANCED BY LEARNED ADVOCATES HAVE ALREADY BEEN DEALT WITH AND REJECTED. THE APPEAL IS, THUS, ALLOWED IN FAVOUR OF THE REVENUE. 7.1 1 OUR ATTENTION WAS ALSO INVITED TO A CIRCULAR DATED 16/12/2013 ISSUED BY THE CBDT CLARIFYING THE STAND OF THE DEPARTMENT IN THE LIGHT OF THE AFORESAID JUDGMENTS OF DIFFERENT HIGH COURTS AND IT HAS BEEN CLARIFIED THAT 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. FOR THE SAKE OF REFERENCE, WE EXTRACT THE CIRCULAR AS UNDER: CIRCULAR NO. 10/DV/2013 (DEPARTMENTAL VIEW) F. NO. 279/MISC./M - 61/201 2 - ITJ (VOL. - II) GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE 17 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 I N 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 TECHN ICAL 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 ON OR BEFORE THE DUE DATE SPECIFIED IN SUB - SECTION (1) OF SECTION 139...' 3. IN THE CASE OF MERILYN SHIPPING & TRANSPORTS V. ADDL. CIT , IT WAS HELD BY SPECIAL BENCH OF ITAT, VISHAKHAPATNA M, THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WOULD APPLY ONLY TO THE AMOUNT WHICH REMAINED PAYABLE AT THE END OF THE RELEVANT FINANCIAL YEAR AND COULD NOT BE INVOKED TO DISALLOW THE AMOUNT WHICH HAD ACTUALLY BEEN PAID DURING THE PREVIOUS YEAR WIT HOUT DEDUCTION OF TAX AT SOURCE. THE ORDER OF THE SPECIAL BENCH HAS SINCE BEEN PUT UNDER INTERIM SUSPENSION BY THE ANDHRA PRADESH HIGH COURT. 3.1 THE HON'BLE CALCUTTA HIGH COURT AND HON'BLE GUJARAT HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX, KOLKATA - XI V. CRESCENT EXPORTS SYNDICATE AND COMMISSIONER OF INCOME - TAX - IV V. SIKANDARKHAN N TUNVAR RESPECTIVELY, HAVE HELD THAT SECTION 40(A)(IA) OF THE ACT WOULD COVER NOT ONLY THE AMOUNTS WHICH ARE PAYABLE AT THE END OF THE PREVIOUS YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. 3.2 THE HON'BLE HIGH COURTS HAVE FURTHER HELD THAT THE INTENTION OF THE LEGISLATION WAS TO DISALLOW CERTAI N TYPES OF 18 EXPENSE, SUBJECT TO PROVISIONS OF CHAPTER XVII - B, WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR BUT NO TAX WAS DEDUCTED AT SOURCE OR IF DEDUCTED WAS NOT PAID WITHIN THE STIPULATED TIME. THERE IS NO SUCH CONDITION THAT AMOUNT SHOULD REMAIN PAYABL E AT THE END OF THE YEAR. 3.3 THE HON'BLE ALLAHABAD HIGH COURT IN CIT V. VECTOR SHIPPING SERVICE (P) LTD . HAS AFFIRMED THE DECISION OF THE SPECIAL BENCH IN MERILYN SHIPPING THAT FOR DISALLOWANCE UNDER SECTION 40(A) (IA) OFTHE ACT, THE AMOUNT SHOULD BE PAYABLE AND NOT WHICH HAS BEEN PAID DURING THE YEAR. HOWEVER, THE DECISIONS OF THE HON'BLE GUJARAT AND CALCUTTA HIGH COURTS (SUPRA) WERE NOT BROUGHT TO THE ATTENTION OF THE HON'BLE ALLAHABAD HIGH COURT. 3.4 IN THE CASE OF ACIT, CIRCLE 4(2), MUMBAI V. RI SHTI STOCK AND SHARES PVT. LTD. IN ITA NO. 112/MUM/2012, HON'BLE ITAT, MUMBAI IN ITS ORDER DATED 02 - 08 - 2013 HAS EXAMINED THE DECISION OF THE HON'BLE ALLAHABAD HIGH COURT (SUPRA) AS REGARDS TO SECTION 40(A)(IA) OF THE ACT AND CONCLUDED THAT THE SAME WAS AN 'ORBITER DICTA' WHILE THE DECISIONS OF THE HON'BLE GUJARAT AND CALCUTTA HIGH 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 CONTR ARY 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 AMENDMENT IS CALLED FOR. 19 6. THE ABOVE CLARIFICATION MAY BE BROUGHT TO THE NOTICE OF ALL OFFICERS. 8. KEEPING IN VIEW THE AFORESAID JUDGMENTS OF VARIOUS HIGH COURTS AND THE TRIBUNAL, WE ARE OF THE CONSIDERED OPINION THAT THE VIEW EXPRESSED OR THE RATIO LAID DOWN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANS PORTS HAS BEEN OVERRULED. THEREFORE, IT CANNOT BE SAID THAT SINCE THE HON'BLE JURISDICTIONAL HIGH COURT HAS APPROVED THE VIEW TAKEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS , THE SAME HAS TO BE FOLLOWED BY THE TRIB UNAL SITUATED WITHIN THE JURISDICTION OF HON'BLE ALLAHABAD HIGH COURT. HAD THE IMPUGNED ISSUE BEEN EXAMINED AND ADJUDICATED BY THE JURISDICTION AL HIGH COURT, IT WOULD HAVE BEEN RESPECTFULLY FOLLOWED BY THE TRIBUNAL IRRESPECTIVE OF THE FACT THAT CONTRARY V IEW HAVE BEEN EXPRESSED BY THE DIFFERENT HIGH COURTS. THE HON'BLE JURISDICTIONAL HIGH COURT HAS NOT EXAMINED THE IMPUGNED ISSUE AT ALL AND SIMPLE PASSING REFERENCE WAS MADE WITH REGARD TO THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERIL YN SHIPPING & TRANSPORTS AND THE RELIEF WAS GRANTED TO THE ASSESSEE ON MERIT. THEREFORE, THE RATIO LAID DOWN IN THE CASE OF MERILYN SHIPPING & TRANSPORTS , WHICH HAS BEEN SUSPENDED BY HON'BLE ANDHRA PRADESH HIGH COURT HAS NOT BEEN APPROVED BY THE HON'BLE ALLAHABAD HIGH COURT. THEREFORE, SUBORDINATE JUDICIAL FORUM ARE NOT REQUIRED TO FOLLOW THE RATIO ORDER LAID DOWN IN THE CASE OF MERILYN SHIPPING & TRANSPORTS (SUPRA) , AS IT WAS OVERRULED BY THE OTHER HIGH COURT. 9. IN THE INSTANT CASE, THE CIT(A) HAS ADJUDICATED THE ISSUE FOLLOWING THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE WITHOUT ADJUDICATING THE APPEAL ON MERIT, THOUGH SPECIFIC GROUNDS WERE RAISED BEFORE CIT(A). THOUGH THE REVENUE HAS CHALLENGED THE ORDER OF CIT(A) ON MERIT ALSO BUT NO FINDING WAS GIVEN BY THE CIT(A) ON MERIT WITH 20 REGARD TO THE NATURE OF PAYMENTS. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND REVE RSE THE FINDING OF CIT(A) GIVEN FOLLOWING THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS. SINCE THE CIT(A) HAS NOT GIVEN ANY FINDING ON MERIT, WE RESTORE THE MATTER TO HIS F ILE WITH THE DIRECTION TO ADJUDICATE THE ISSUE ON MERIT AS TO WHETHER THE PROVISIONS OF SECTION 194C ARE APPLICABLE TO THE PRESENT CASE AND FOR THE REMAINING ISSUE, WHETHER THE PROVISION OF SECTION 40(A)(IA) IS APPLICABLE IN RESPECT OF SUCH AMOUNTS, WHICH ARE PAYABLE AS ON 31 ST OF MARCH OF TH E YEAR UNDER CONSIDERATION , W E HOLD THAT THE PROVISION OF SECTION 40(A)(IA) WOULD COVER NOT ONLY TO THE AMOUNTS WHICH ARE PAYABLE AS ON 31 ST MARCH OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. ACCORDINGLY, THE MATTER IS REST ORED TO THE FILE OF THE CIT(A) FOR ADJUDICATION ON MERIT. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON 11/04/2014 ) SD/. SD/. ( A. K. GARODIA ) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:11/04/2014 *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR