Appeal Details
Counselvise Citation
[2014] 120 COUNSELVISE.COM (IT) 6785 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-07-2014
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
17-07-2014
Assessment Year
2007-2008
Appeal Filed On
18-07-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.1564/PN/2012 (ASSESSMENT YEAR : 2007-08) KUNAL RAMBHAU NEVSE, PROP. M/S SAI TRACTORS, NEVSE ROAD, BARAMATI, PUNE 413 102. PAN : ABMPN3455B . APPELLANT VS. INCOME TAX OFFICER, WARD- 5(4), PUNE. . RESPONDENT ASSESSEE BY : MR. S. N. DOSHI DEPARTMENT BY : MRS. S. PRAVEENA DATE OF HEARING : 17-07-2014 DATE OF PRONOUNCEMENT : 25-07-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AG AINST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, PUNE DATED 31.05.2011 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 24.12.2009 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2007-08. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL :- 1. ON THE FACTS AND CIRCUMSTANCES OF CASE THE LD. CIT-A HAS ERRED IN SUSTAINING THE ADDITION OF RS.14,53,302/- BY UPHOLDING THE ESTIMATION OF GROSS PROFIT MADE BY THE ASSESSING OF FICER AT THE RATE OF 5% OF TURNOVER OF SPARE PARTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT-A HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS.7,08 ,284/- UPHOLDING THE VIEW OF THE ASSESSING OFFICER THAT THE SAID AMOUNT REPRESENTS THE EXCESS EXPENDITURE CLAIMED BY THE APPELLANT PERTAINING TO CONSUMABLE OIL EXPENSES. ITA NO.1564/PN/2012 A.Y. : 2007-08 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT-A HAS ERRED IN SUSTAINING THE ADDITION OF RS.8,10,000 /- BY UPHOLDING THE VIEW OF THE ASSESSING OFFICER THAT IT REPRESENTS EXCESS CLAIM OF COMMISSION PAID BY THE APPELLANT. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT-A HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS.1,37 ,000/- BY INVOKING THE PROVISIONS OF SEC 40(A)(IA) OVERLOOKING THE FACT TH AT THE SAID AMOUNT OF COMMISSION IS ACTUALLY PAID BY CHEQUE AND THAT DISA LLOWANCE U/S 40(I)(IA) CAN ONLY BE MADE OF THE AMOUNT WHICH IS PAYABLE. RE FER THE SPL BENCH DECISION OF VISHAKHAPATNAM HON'BLE ITAT IN THE CASE OF MERILYN SHIPPING & TRANSPORT REPORTED IN ITA NO.477/VIZAG/2008. 3. IN BRIEF, THE RELEVANT FACTS ARE THAT ASSESSEE I S AN INDIVIDUAL, WHO FILED A RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08 DECLAR ING A TOTAL INCOME OF RS.8,22,164/-. THE ASSESSEE IS ENGAGED IN THE BUSI NESS OF DEALING IN TRACTORS AND SPARE PARTS. THE RETURN OF INCOME FURNISHED BY THE ASSESSEE WAS ACCOMPANIED BY THE AUDITED STATEMENT OF ACCOUNTS OF M/S SHRI SAI TRACTORS, THE PROPRIETARY CONCERN WHICH CARRIES OUT THE BUSIN ESS OF DEALING IN TRACTORS, SPARE PARTS AND OTHER EQUIPMENTS. 4. IN SO FAR AS THE GROUND OF APPEAL NO.1 IS CONCER NED, IT RELATES TO AN ADDITION OF RS.14,53,302/- MADE ON ACCOUNT OF GROSS PROFIT (GP) ESTIMATED ON THE SPARE PARTS TRADING. IN THIS CONTEXT, THE RELE VANT FACTS ARE THAT FOR THE YEAR UNDER CONSIDERATION, ASSESSEE HAD DECLARED TOTAL SA LES OF RS.10,16,26,360/- ON WHICH GP OF RS.1,12,68,183/- BEING 11.09% WAS DE CLARED. AS THE GP DECLARED AT 11.09% WAS LOWER THAN GP OF 12.71% DECL ARED IN THE IMMEDIATELY PRECEDING YEAR, THE ASSESSING OFFICER MADE FURTHER VERIFICATION. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO PREPARE SEPARATE TRADING ACCOUNTS FOR TRACTORS AND SPARE PARTS. THE TRACTORS TRADING ACCOUNT SHOWED A GP OF 13.63% WHILE SPARE PARTS TRADING ACCOUNT SHOWED A G P OF 0.68%. THE GP IN SPARE PARTS TRADING WAS FOUND TO BE LOWER THAN THE EARLIER YEAR GP RATE OF 5.81%. THEREFORE, THE ASSESSING OFFICER ESTIMATED THE GP OF SPARE PARTS TRADING IN THIS YEAR ALSO AT 5% WHICH RESULTED IN A N ADDITION OF RS.14,53,302/-. THE CIT(A) HAS AFFIRMED THE ORDER OF THE ASSESSING OFFICER, AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. ITA NO.1564/PN/2012 A.Y. : 2007-08 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS ASSERTED THAT THERE WAS NO DEFECT FOUND IN THE PURCHASES AND SALES RECO RDED BY THE ASSESSEE; THAT THE ENTIRE BOOKS OF ACCOUNT ARE SUBJECT TO AUD IT; THAT THE TRADING RESULTS CANNOT BE REJECTED ONLY ON THE GROUND OF LOW GP RAT E UNLESS SPECIFIC DEFECTS ARE NOTED; THAT THERE WAS NO FINDING THAT ASSESSEE HAS INFLATED ANY PURCHASE OR SALES; AND, THAT ABSENCE OF STOCK REGISTER IS NO T A RELEVANT FACTOR BECAUSE IN THE PRESENT CASE THERE IS NEITHER OPENING OR CLOSIN G STOCK AND THUS NON- MAINTENANCE OF STOCK REGISTER CANNOT BE FATAL TO TH E DECLARED RESULTS. ACCORDING TO HIM, THERE IS NO MATERIAL TO SUGGEST A NY MANIPULATION OF ACCOUNTS BY THE ASSESSEE AND THEREFORE THE BOOKS OF ACCOUNT HAVE BEEN WRONGLY REJECTED. 6. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE POINTED OUT THAT IN THE PRESENT CASE, ASSESSEE DID NOT SHOW ANY OPENING OR CLOSING STOCK OF SPARE PARTS, WHICH WAS HIGHLY DOUBTFUL IN ASSESSEES LINE OF BUSINESS. IT WAS SUBMITTED THAT ASSESSEE WAS HAVING A HUGE TU RNOVER IN SPARE PARTS TRADING BUSINESS, AND ABSENCE OF OPENING OR CLOSING STOCK IS QUITE A PECULIAR SITUATION WHICH MADE THE TRADING RESULTS UNRELIABLE . 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE DISPUTE BEFORE US IS CONFINED TO THE GP DECLARED WITH RESPE CT TO THE SPARE PARTS TRADING ACTIVITY. THE TURNOVER IN THE SPARE PARTS TRADING HAS INCREASED TO RS.3,36,78,560/- AS AGAINST RS.73,21,839/- FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. AS PER THE RESULTS DECLARED BY TH E ASSESSEE, THE GP IN SPARE PARTS TRADING IS 0.68% AS AGAINST 5.81% FOR T HE IMMEDIATELY PRECEDING YEAR. ON BEING SHOW-CAUSED TO EXPLAIN THE DECLINE IN GP RATE, WE FIND THAT THE ASSESSEE HAS NOT FURNISHED ANY SPECIFIC REASONS OTH ER THAN PROFESSING THAT THE RESULTS ARE BASED ON THE AUDITED BOOKS OF ACCOUNT. SIMILAR PLEA HAS BEEN RAISED BEFORE US BY ASSERTING THAT THERE IS NO INST ANCE OF INFLATED PURCHASES OR SUPPRESSED SALES FOUND BY THE ASSESSING OFFICER. N EVERTHELESS, WE FIND THAT ITA NO.1564/PN/2012 A.Y. : 2007-08 THE DECLINE IN THE GP RATE HAS NOT BEEN ADEQUATELY EXPLAINED BY THE ASSESSEE ON THE BASIS OF ANY COGENT REASONING OR MATERIAL. THEREFORE, IN-PRINCIPLE THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE TR ADING RESULT IN SPARE PARTS TRADING ACTIVITY IS HEREBY UPHELD. HOWEVER, IN OUR VIEW, THE ESTIMATION MADE BY THE ASSESSING OFFICER AT 5% AS AGAINST 0.68% DEC LARED BY ASSESSEE IS EXCESSIVE. THE TURNOVER OF SPARE PARTS HAS INCREAS ED SUBSTANTIALLY. CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR VIEW, AS AGAINST AN ADDITION OF RS.14,53,302/- MADE BY THE A SSESSING OFFICER, IT WOULD MEET THE ENDS OF JUSTICE IF AN ADDITION OF RS.7,00, 000/- IS RETAINED AND THE BALANCE IS DELETED. HENCE, WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO RETAIN THE ADDITION OF RS.7,00 ,000/- ON THIS SCORE AND DELETE THE BALANCE OF RS.7,53,302/-. THUS, ON THIS GROUND OF APPEAL ASSESSEE PARTLY SUCCEEDS. 8. THE SECOND GROUND OF APPEAL IS WITH RESPECT TO A DISALLOWANCE OF RS.7,08,284/- ON ACCOUNT OF CONSUMABLE ENGINE OIL. IT WAS NOTED BY THE ASSESSING OFFICER THAT ASSESSEE HAD CLAIMED AN EXPE NDITURE OF RS.24,12,560/- ON ACCOUNT OF CONSUMABLE OIL, ETC.. ON BEING ASKED TO JUSTIFY THE EXPENDITURE, ASSESSEE FURNISHED THE DETAILS OF THE EXPENDITURE. THE ASSESSING OFFICER NOTED THAT SUBSTANTIAL PURCHASES WERE MADE FROM M/S NEVSE MARKETING, A SISTER CONCERN OF THE ASSESSEE. THE ASSESSEE EXPLA INED BEFORE THE ASSESSING OFFICER THAT THE EXPENDITURE IS REQUIRED TO BE MADE WITH REGARD TO THE FREE SERVICING OFFERED TO THE BUYERS OF THE TRACTOR. AP ART THEREFROM, THE ASSESSEE EXPLAINED THAT THE CONSUMABLES ARE BY WAY OF ENGINE OIL, GREASE, ETC. WHICH ARE TO BE FILLED-UP ON SALE AND DELIVERY OF EVERY N EW TRACTOR. IT WAS POINTED OUT THAT ENTIRE EXPENDITURE HAS BEEN VOUCHED. THE ASSESSING OFFICER, HOWEVER, DID NOT FIND JUSTIFICATION FOR THE ASSESSE E HAVING INCURRED EXPENDITURE TO THE EXTENT OF RS.24,12,560/- AND INSTEAD ESTIMAT ED IT AT RS.17.04.276/- AND DISALLOWED THE BALANCE OF RS.7,08,284/-. THE SAID DISALLOWANCE HAS SINCE BEEN AFFIRMED BY THE CIT(A), AGAINST WHICH ASSESSEE IS IN APPEAL BEFORE US. ITA NO.1564/PN/2012 A.Y. : 2007-08 9. BEFORE US, THE LEARNED COUNSEL HAS SUBMITTED THA T THE ENTIRE EXPENDITURE IS SUPPORTED BY THE INVOICES AND NO DEF ECT THEREON HAS BEEN POINTED OUT BY THE ASSESSING OFFICER. THE LEARNED COUNSEL ASSAILED THE PLEA OF THE ASSESSING OFFICER THAT THE SAID SISTER CONCERN HAD SUPPLIED GOODS ONLY TO ASSESSEE AND THEREFORE IT IS A MERE ACCOMMODATION E NTRY, BY POINTING OUT THAT THE SAID CONCERN HAS MADE SUPPLIES TO OTHER PERSONS ALSO. 10. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE APPEARING FOR THE REVENUE HAS RELIED UPON THE ORDERS OF THE A UTHORITIES BELOW IN SUPPORT OF THE CASE OF THE REVENUE. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. HAVING PERUSED THE ORDER OF THE AUTHORITIES BELOW, IN OUR VIEW, TH E ENTIRE ADDITION IS BASED ON MERE SURMISES AND CONJECTURES. ONE OF THE ASPECT W EIGHING WITH THE ASSESSING OFFICER TO DISREGARD THE QUANTUM OF EXPEN DITURE IS TO THE EFFECT THAT HE DID NOT BELIEVE THAT TRACTORS WERE DISPATCHED BY THE MANUFACTURING COMPANY TO THE DEALERS WITHOUT ENGINE OIL AND GEAR OIL. ACCORDING TO THE ASSESSING OFFICER, ASSESSEE WOULD NOT HAVE SPENT MO NEY ON ENGINE OIL AND GEAR OIL, ETC.. IN OUR CONSIDERED OPINION, THE AFO RESAID OBSERVATIONS OF THE ASSESSING OFFICER ARE MERE SURMISES DEVOID OF ANY F ACTUAL SUPPORT. EVEN THE OBSERVATION DOUBTING THE SUPPLIES RECEIVED FROM THE SISTER CONCERN, M/S NEVSE MARKETING IS ALSO WITHOUT ANY FACTUAL SUPPORT. THE ASSESSING OFFICER HAS NOT BEEN UNABLE TO ESTABLISH ANY PARTICULAR INFIRMITY I N THE EXPENDITURE CLAIMED ON ACCOUNT OF CONSUMABLE ENGINE OIL AND THEREFORE, THE AD-HOC DISALLOWANCE OF RS.7,08,284/- IS LIABLE TO BE DELETED. ACCORDINGLY , WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELE TE THE IMPUGNED ADDITION OF RS.7,08,284/-. THUS, ON THE SECOND GROUND ASSESSEE SUCCEEDS. 12. NEXT GROUND IS WITH REGARD TO A DISALLOWANCE OF RS.8,10,000/- OUT OF COMMISSION EXPENSE. THE ASSESSEE HAD CLAIMED A TOT AL EXPENDITURE OF ITA NO.1564/PN/2012 A.Y. : 2007-08 RS.12,70,000/- ON ACCOUNT OF SALE COMMISSION. THE ASSESSEE FURNISHED THE REQUISITE DETAILS DURING THE COURSE OF THE ASSESSME NT PROCEEDINGS. THE ASSESSING OFFICER EXAMINED THE PAYMENT VOUCHERS AND NOTICED THAT THE EXPENDITURE COMPRISED OF TWO PARTS (I) AN AMOUNT OF RS.1,37,000/- PAID TO 8 PERSONS BY CHEQUE; AND, (II) CASH PAID @ RS.2,000/- TO FOUR PERSONS FOR EACH TRACTOR SOLD AMOUNTING TO RS.10,80,000/-. ON BEING ASKED TO JUSTIFY THE COMMISSION PAYMENT, ASSESSEE POINTED OUT THAT COMMI SSION IS PAID TO THE PEOPLE WHO ACCOMPANY THE CUSTOMERS COMING TO PURCHA SE THE TRACTORS. IT WAS EXPLAINED THAT THE PERSONS TO WHOM THE COMMISSI ON IS PAID ARE PETTY MECHANICS, ETC.. SOME OF THESE PERSONS ASSIST THE CUSTOMERS IN AVAILING THE BANK LOAN FACILITY ALSO AND A PERSON WHO IS A MECHA NIC IS ABLE TO CONVINCE THE CUSTOMERS ABOUT THE MECHANICAL AND TECHNICAL ASPECT S. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF T HE ASSESSEE AND HAS DISALLOWED THE ENTIRE EXPENDITURE. IN THIS VIEW OF THE MATTER, THE ASSESSING OFFICER DISALLOWED A SUM OF RS.8,10,000/- OUT OF TH E CASH PAYMENTS OF COMMISSION MADE AND WITH RESPECT TO THE COMMISSION OF RS.1,37,000/- PAID BY CHEQUE TO 8 PERSONS, THE SAME WAS DISALLOWED BY INVOKING SECTION 40(A)(IA) OF THE ACT ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE. THE LATTER ADDITION IS THE SUBJECT-MATTER OF THE LAST GROUND O F APPEAL, WHICH WE SHALL DEAL A LITTLE LATER. 13. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT A SSESSEE WAS DOING BUSINESS IN A RURAL AREA (BARAMATI) WHERE THERE ARE 8 OTHER DEALERS DEALING IN TRACTORS. OWNING TO THE COMPETITION IN THE BUSINES S OF TRACTOR, COMMISSION PAYMENT WAS JUSTIFIED. THE LEARNED COUNSEL SUBMITT ED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT THERE WAS NO NECESSITY FOR THE ASSESSEE TO HAVE PAID THE COMMISSION INASMUCH AS IT IS FOR THE ASSESSEE TO EXAMINE THE COMMERCIAL EXPEDIENCY FOR INCURRENCE OF EXPENDITURE. ITA NO.1564/PN/2012 A.Y. : 2007-08 14. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE APPEARING FOR THE REVENUE HAS RELIED UPON THE ORDERS OF THE A UTHORITIES BELOW IN SUPPORT OF THE CASE OF THE REVENUE. 15. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. AT THE OUTSET, WE MAY OBSERVE THAT A PERUSAL OF THE ORDERS OF THE AUT HORITIES BELOW REVEALS THAT THE ENTIRE DISALLOWANCE IS BASED ON MERE CONJECTURE S AND SURMISES. THERE IS NO EXTERNAL EVIDENCE OR ANY OTHER CLINCHING EVIDENC E TO SAY THAT ANY OF THE EXPENDITURE ON ACCOUNT OF COMMISSION WAS NOT GENUIN E OR FALSE. THEREFORE, ON THIS POINT ITSELF, WE ARE UNABLE TO SUSTAIN THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. MOREOVER, IT IS FOR THE ASSESSE E TO DECIDE WHETHER ANY EXPENDITURE SHOULD BE INCURRED IN THE COURSE OF BUS INESS OR NOT? WHILE CONSIDERING ALLOWABILITY OF AN EXPENSE, IT IS ALSO NOT A CONDITION PRECEDENT THAT THERE SHOULD BE A NECESSITY OF INCURRENCE OF EXPEND ITURE SO AS TO QUALIFY FOR DEDUCTION U/S 37(1) OF THE ACT. AS HELD BY THE HON BLE SUPREME COURT IN THE CASE OF SASSOON J. DAVID VS. CIT, 118 ITR 261 (SC), AN EXPENDITURE MAY BE INCURRED VOLUNTARILY AND WITHOUT ANY NECESSITY AND THE SAME WOULD BE AN ALLOWABLE DEDUCTION, IF IT IS INCURRED FOR PROMOTIN G THE BUSINESS. IN OTHER WORDS, IN ORDER TO CLAIM DEDUCTION FOR AN EXPENDITU RE, THE ASSESSEE CANNOT BE REQUIRED TO DEMONSTRATE THAT THERE WAS A COMPELLING NECESSITY TO INCUR SUCH EXPENDITURE. THEREFORE, IN OUR VIEW, THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER IS BASED ON IRRELEVANT CONSIDERATIONS AND I S HEREBY SET-ASIDE. THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITIO N OF RS.8,10,000/- MADE ON ACCOUNT OF SALE COMMISSION. THUS, ON THIS GROUND A LSO ASSESSEE SUCCEEDS. 16. THE LAST GROUND OF APPEAL IS WITH REGARD TO A D ISALLOWANCE OF RS.1,37,000/- MADE BY THE ASSESSING OFFICER BY INVO KING SECTION 40(A)(IA) OF THE ACT. IT HAS BEEN HELD BY THE LOWER AUTHORITIES THAT THE CORRESPONDING TAX HAS NOT BEEN DEDUCTED AT SOURCE AND THEREFORE SUCH EXPENDITURE IS DISALLOWABLE IN TERMS OF SECTION 40(A)(IA) OF THE A CT. ITA NO.1564/PN/2012 A.Y. : 2007-08 17. BEFORE US, THE PLEA OF THE ASSESSEE IS THAT NON E OF THE RECIPIENTS ARE TAXPAYERS, AS THEY ARE MAINLY FARMERS. THEREFORE, ACCORDING TO THE LEARNED COUNSEL, THE NON-DEDUCTION OF TDS IN TERMS OF SECTI ON 194H OF THE ACT IS MERE TECHNICAL BREACH AND NO LOSS IS CAUSED TO THE REVEN UE. 18. ON THIS ASPECT, WE ARE UNABLE TO APPRECIATE THE PLEA RAISED BY THE ASSESSEE TO ESCAPE FROM THE RIGOURS OF SECTION 40(A )(IA) OF THE ACT. QUITE CLEARLY, HAVING REGARD TO THE MATERIAL ON RECORD, T HE IMPUGNED PAYMENTS WERE REQUIRED TO BE SUBJECT TO TAX DEDUCTION AT SOURCE I N TERMS OF SECTION 194H OF THE ACT, WHICH THE ASSESSEE HAS FAILED TO DO. THE INVOKING OF SECTION 40(A)(IA) OF THE ACT IS QUITE JUSTIFIED TO DISALLOW THE CORRE SPONDING EXPENDITURE OF RS.1,37,000/-. 19. ONE OF THE PLEA RAISED BY THE ASSESSEE IS THAT THE IMPUGNED EXPENDITURE WAS ACTUALLY PAID DURING THE YEAR ITSEL F AND NO AMOUNT WAS OUTSTANDING AT THE CLOSE OF THE YEAR AND THEREFORE, SECTION 40(A)(IA) OF THE ACT IS NOT ATTRACTED ON SUCH SUMS. IN SUPPORT, RELIANC E HAS BEEN PLACED ON THE JUDGEMENT OF THE HONBLE ALLAHABAD HIGH COURT IN TH E CASE OF CIT VS. M/S VECTOR SHIPPING SERVICES (P) LTD. VIDE INCOME TAX A PPEAL NO.122 OF 2013 ORDER DATED 09.07.2013. ON THE OTHER HAND, THE LEA RNED DEPARTMENTAL REPRESENTATIVE HAS PLACED RELIANCE ON A CONTRARY JU DGEMENT OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CRESCENT EXPORT SYNDICATE (SUPRA), WHICH HAS BEEN RENDERED PRIOR TO THE JUDGEMENT OF THE HON BLE ALLAHABAD HIGH COURT. 20. FURTHER, THIS ASPECT OF THE CONTROVERSY HAS BEE N CONSIDERED BY OUR CO- ORDINATE BENCH OF PUNE IN THE CASE OF VINAY ASHWINI KUMAR JONEJA VS. ITO VIDE ITA NO.1514/PN/2012 (ASSESSMENT YEAR 2006-07) DATED 22.10.2013. THE BENCH HAS CONSIDERED THE DIVERGENT VIEWS EXPRESSED BY THE HONBLE ALLAHABAD HIGH COURT AND THE HONBLE CALCUTTA HIGH COURT AND ULTIMATELY ITA NO.1564/PN/2012 A.Y. : 2007-08 FOLLOWED THE RATIO LAID DOWN BY THE HONBLE CALCUTT A HIGH COURT. THE FOLLOWING DISCUSSION IN THE ORDER OF THE TRIBUNAL DATED 22.10 .2013 (SUPRA) IS RELEVANT :- 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DIS PUTE TO THE FACT THAT THE ASSESSING OFFICER IN THE BODY OF THE ASSESSMENT ORD ER DISALLOWED AN AMOUNT OF RS.7,20,252/- U/S.40(A)(IA) FOR NON DEDUCTION OF TAX. WE FIND THE LD.CIT(A) DISTINGUISHING VARIOUS DECISIONS CITED BEFORE HIM U PHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. IT IS THE CASE OF T HE LD. COUNSEL FOR THE ASSESSEE THAT IN VIEW OF THE DECISION OF HONBLE AL LAHABAD HIGH COURT IN THE CASE OF M/S. VECTOR SHIPPING SERVICE PVT. LTD. (SUP RA) NO DISALLOWANCE U/S.40(A)(IA) CAN BE MADE SINCE NO AMOUNT WAS PAYAB LE AT THE END OF THE YEAR. 8.1 WE FIND THE HONBLE HIGH COURT WHILE DECIDING T HE ISSUE HAS RELIED ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORT LTD. REPORTED IN 136 ITD 23 (SC). WE FIND THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF MERILYN SHIPPING AND TRANSPORT LTD. (SUPRA) WAS REVERSED BY THE HON BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. CRESCENT EXPORT SYNDICATE VI DE ORDER DATED 03-04-2013 REPORTED IN TIOL-404-HC-KOL. THE RELEVANT OBSERVAT ION OF THE HONBLE HIGH COURT READ AS UNDER : WE REQUESTED MR. KHAITAN, LEARNED SENIOR ADVOCATE TO ASSIST THE COURT IN RESOLVING THE ISSUE. THE MATTER WAS DIRECTED TO BE LISTED FOR FURTHER HEARING ON 1ST APRIL, 2013. DICTATED ON 3RD APRIL 2013 MR. KHAITAN, LEARNED SENIOR COUNSEL, SUBMITTED THAT THE VIEWS EXPRESSED BY THE ACCOUNTANT MEMBER ARE PREFERABLE TO THE VIEWS E XPRESSED BY THE JUDICIAL MEMBERS. THE ACCOUNTANT MEMBER IN THE CASE OF MERIL YN SHIPPING & TRANSPORTS HAD EXPRESSED THE FOLLOWING VIEWS : 12.2. THE QUESTION FOR CONSIDERATION IS AS TO WHY THE WOR DS 'CREDITED' OR 'PAID' CONTEMPLATED IN THE BILL WERE DROPPED WHI LE INCORPORATING SECTION 40(A)(IA). ALL THE AMOUNTS WHETHER 'CREDITE D' OR 'PAID' COME WITHIN THE AMBIT OF TERM 'PAYABLE' AND, THEREFORE, THE TWO TERMS, VIZ. 'CREDITED' OR 'PAID' WERE ONLY SUPERFLUOUS AND, THE REFORE, WERE DROPPED IN THE SECTION 40(A)(IA) INSERTED IN THE ACT. IN TH E PROVISIONS RELATING TO TDS, THE RELEVANCE OF THESE TERMS WAS WITH REFERENC E TO TIMING OF DEDUCTION BUT WHILE MAKING DISALLOWANCE UNDER SECTI ON 40(A)(IA), THESE TERMS HAD NO RELEVANCE AND, THEREFORE, LEGISL ATURE DROPPED THESE TWO TERMS, VIZ. 'PAID' OR 'CREDITED' BEFORE I NSERTION OF SECTION 40(A)(IA) IN THE STATUTE. 12.3. IT IS NOTICEABLE THAT SECTION 40(A) IS APPLICABLE I RRESPECTIVE OF THE METHOD OF ACCOUNTING FOLLOWED BY AN ASSESSEE. THERE FORE, BY USING THE TERM 'PAYABLE' LEGISLATURE INCLUDED THE ENTIRE ACCRUED LIABILITY. IF ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING, THEN THE MOMENT AMOUNT WAS CREDITED TO THE ACCOUNT OF PAYEE ON ACCRUAL OF LIABILITY, TDS WAS REQUIRED TO BE MADE BUT IF ASSES SEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING, THEN ON MAKING PAYMENT T DS WAS TO BE MADE AS THE LIABILITY WAS DISCHARGED BY MAKING PAYM ENT. THE TDS PROVISIONS ARE APPLICABLE BOTH IN THE SITUATION OF ACTUAL PAYMENT AS ITA NO.1564/PN/2012 A.Y. : 2007-08 WELL OF THE CREDIT OF THE AMOUNT. IT BECOMES VERY C LEAR FROM THE FACT THAT THE PHRASE, 'ON WHICH TAX IS DEDUCTIBLE AT SOU RCE UNDER CHAPTER XVII-B', WAS NOT THERE IN THE BILL BUT INCORPORATED IN THE ACT. THIS WAS NOT WITHOUT ANY PURPOSE. 12.4 IN OUR CONSIDERED OPINION, THERE IS NO AMBIGUITY IN THE SECTION AND TERM 'PAYABLE' CANNOT BE ASCRIBED NARROW INTERP RETATION AS CONTENDED BY ASSESSEE. HAD THE INTENTIONS OF THE LE GISLATURE WERE TO DISALLOW ONLY ITEMS OUTSTANDING AS ON 31ST MARCH, T HEN THE TERM 'PAYABLE' WOULD HAVE BEEN QUALIFIED BY THE PHRASE A S OUTSTANDING ON 31ST MARCH. HOWEVER, NO SUCH QUALIFICATION IS THERE IN THE SECTION AND, THEREFORE, THE SAME CANNOT BE READ INTO THE SECTION AS CONTENDED BY THE ASSESSEE. 13. SECTION 40(A)(IA) IS TO BE INTERPRETED HARMONIOUSLY WITH THE TDS PROVISION AS ITS OPERATION SOLELY DEPENDS ON THE PR OVISIONS CONTAINED UNDER CHAPTER XVII-B. IT CONTEMPLATES ONE OF THE CO NSEQUENCES OF NON-DEDUCTION OF TAX AND ,THEREFORE, HAS TO BE INTE RPRETED IN THE LIGHT OF MANDATORY PROVISIONS CONTAINED UNDER CHAPTER XVII-B . IT WOULD BE APPROPRIATE TO REPRODUCE SECTION 40(A)(IA), WHICH R EADS AS UNDER:- SECTION 40(A)(IA):- ANY INTEREST, COMMISSION OR BRO KERAGE, [RENT, ROYALTY,] FEES FOR PROFESSIONAL SERVICES OR FEES FO R TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONT RACTOR OR SUB- CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WO RK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BE EN DEDUCTED OR, AFTER DEDUCTION, [HAS NOT BEEN PAID,- (A) IN A CASE WHERE THE TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR, ON OR B EFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139; OR (B) IN ANY OTHER CASE, ON OR BEFORE THE LAST DAY OF THE PREVIOUS YEAR:] [ PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCT ED (A) DURING THE LAST MONTH OF THE PREVIOUS YEAR BUT PAID AFTER THE SAID DUE DATE; OR (B) DURING ANY OTHER MONTH OF THE PREVIOUS YEAR BUT PAID AFTER THE END OF THE SAID PREVIOUS YEAR, SUCH SUM SHALL BE ALLOWE D AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID.] EXPLANATION:-FOR THE PURPOSES OF THIS SUB-CLAUSE,- (I) COMMISSION OR BROKERAGE SHALL HAVE THE SAME M EANING AS IN CLAUSE (I) OF THE EXPLANATION TO SECTION 194 H; (II) FEES FOR TECHNICAL SERVICES SHALL HAVE THE S AME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (I) OF SECTION 9; (III) PROFESSIONAL SERVICES SHALL HAVE THE SAME M EANING AS IN CLAUSE (A) OF THE EXPLANATION TO SECTION 194J; (IV) WORK SHALL HAVE THE SAME MEANING AS IN EXPLA NATION III TO SECTION 194C; [(V) RENT SHALL HAVE THE SAME MEANING AS IN CLAUS E (I) TO THE ITA NO.1564/PN/2012 A.Y. : 2007-08 EXPLANATION TO SECTION 194-I; (V) ROYALTY SHALL HAVE THE SAME MEANING AS IN EXP LANATION 2 TO CLAUSE (VI) OF SUB- SECTION (I) OF SECTION 9;] SECTION 40 CONTAINED IN CHAPTER IV DEALS WITH COMPU TATION OF BUSINESS INCOME AND LISTS OUT VARIOUS AMOUNTS WHICH ARE NOT DEDUCTIBLE NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION S 30 TO 38. THIS IMPLIES THAT EVEN IF A PARTICULAR AMOUNT IS ALLOWABLE UNDER SECT IONS 30 TO 38 STILL, IF IT DOES NOT COMPLY THE PROVISIONS CONTAINED IN SECTION 40, THEN THE SAME CANNOT BE ALLOWED. THE BASIC INGREDIENTS OF SECTION 40(A)(IA) ARE AS U NDER:- (I) IT APPLIES TO INTEREST, COMMISSION OR BROKERAGE , RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICE S; (II) THE AFOREMENTIONED AMOUNTS ARE PAYABLE TO A RE SIDENT, (III) THE AMOUNTS ARE PAYABLE TO A CONTRACTOR OR S UB-CONTRACTOR BEING RESIDENT. (IV) TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII -B IN RESPECT OF AMOUNTS PAYABLE IN RESPECT OF A AFOREMENTIONED ITEM S. (V) TAX HAS NOT BEEN DEDUCTED AS PER REQUIREMENT OF CHAPTER XVII-B. (VI) AFTER DEDUCTION OF TAX, AMOUNT HAS NOT BEEN PA ID. THEREFORE, IF AFOREMENTIONED CONDITIONS ARE NOT FUL FILLED THEN DEDUCTION WOULD NOT BE ALLOWED. HOWEVER, PROVISO TO THIS SECTION FURTHER GIVES LEVE RAGE TO ASSESSEE TO DEDUCT TAX IN SUBSEQUENT YEAR OR PAY TAX DEDUCTED DURING T HE PREVIOUS YEAR AFTER THE DUE DATE SPECIFIED IN SECTION 139(1). IN SUCH A SIT UATION, DEDUCTION WOULD BE ALLOWED IN THE YEAR IN WHICH SUCH TAX HAS BEEN DEDU CTED. THE EXPLANATION TO THIS SECTION DEFINES VARIOUS AMOUNTS CONTEMPLATED I N THIS SECTION. THE RELEVANT SECTIONS IN CHAPTER XVII-B ARE RE-PRODUCED HEREUNDER:- INTEREST ON SECURITIES. 193. THE PERSON RESPONSIBLE FOR PAYING [TO A RESIDENT] A NY INCOME [BY WAY OF INTEREST ON SECURITIES] SHALL, [AT THE TIME OF CRED IT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN C ASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER ], DEDUCT INCOME-TAX [***] AT THE RATES IN FORCE ON THE AMOUNT OF THE INTEREST PA YABLE: PAYMENTS TO CONTRACTORS AND SUB-CONTRACTORS. 194C. (1) ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO AN Y RESIDENT (HEREINAFTER IN THIS SECTION REFERRED TO AS THE CON TRACTOR) FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT A NY WORK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND ** ** ** SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACC OUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO- (I) ONE PER CENT IN CASE OF ADVERTISING, (II) IN ANY OTHER CASE TWO PER CENT, OF SUCH AS INC OME-TAX ON INCOME COMPRISED THEREIN. COMMISSION OR BROKERAGE: ITA NO.1564/PN/2012 A.Y. : 2007-08 194-H: ANY PERSON, NOT BEING AN INDIVIDUAL OR A HINDU UNDI VIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING, ON OR AFTER THE 1ST DAY OF JUNE, 2001, TO A RESIDENT, ANY INCOME BY WAY OF COMMISSION (NOT BEING INSURANCE CO MMISSION REFERRED TO IN SECTION 194D) OR BROKERAGE, SHALL, AT THE TIME OF C REDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT OF S UCH INCOME IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE , WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATE OF (TEN) PER CENT: ** ** ** RENT. 194-I. ANY PERSON NOT BEING AN INDIVIDUAL OR A HINDU UNDIV IDED FAMILY, WHO IS RESPONSIBLE FOR PAYING TO A RESIDENT ANY INCOME BY WAY OF RENT, SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THERE ON AT THE RATE OF (A) TEN PER CENT FOR THE USE OF ANY MACHINERY OR PL ANT OR EQUIPMENT; (B) FIFTEEN PER CENT FOR THE USE OF ANY LAND OR BUI LDING (INCLUDING FACTORY BUILDING) OR LAND APPURTENANT TO A BUILDING (INCLUD ING FACTORY BUILDING) OR FURNITURE OR FITTINGS WHERE THE PAYEE IS AN INDIVID UAL OR A HINDU UNDIVIDED FAMILY; AND (C) TWENTY PER CENT FOR THE USE OF ANY LAND OR BUIL DING (INCLUDING FACTORY BUILDING) OR LAND APPURTENANT TO A BUILDING (INCLUD ING FACTORY BUILDING) OR FURNITURE OR FITTINGS WHERE THE PAYEE IS A PERSON O THER THAN AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY: FEES FOR PROFESSIONAL OR TECHNICAL SERVICES SECTION 194-J:- (1) ANY PERSON, NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING TO A RESIDENT ANY SUM BY WAY OF - (A) FEES FOR PROFESSIONAL SERVICES, OR (B) FEES FOR TECHNICAL SERVICES, (C) ROYALTY, OR (D) ANY SUM REFERRED TO IN CLAUSE (VA) OF SECTION 2 8, SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE PAYEE OR AT THE T IMEOF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTH ER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO TEN PER CENT OF SUCH SUM AS INCOME TAX ON INCOME COMPRISED THEREIN: ** ** ** EXPLANATION. FOR THE PURPOSES OF THIS SECTION,- (A) PROFESSIONAL SERVICES MEANS SERVICES RENDERED BY A PERSON IN THE COURSE OF CARRYING ON LEGAL, MEDICAL, ENGINEERING O R ARCHITECTURAL PROFESSION OR THE PROFESSION OF ACCOUNTANCY OR TECH NICAL CONSULTANCY OR INTERIOR DECORATION OR ADVERTISING OR SUCH OTHER PROFESSION AS IS NOTIFIED BY THE BOARD FOR THE PURPOSES OF SECTION 4 4AA OR OF THIS SECTION; (B) FEES FOR TECHNICAL SERVICES SHALL HAVE THE SA ME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (I) OF SECTION9; (BA) ROYALTY SHALL HAVE THE SAME MEANING AS IN EX PLANATION 2 TO ITA NO.1564/PN/2012 A.Y. : 2007-08 CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9; (C) WHERE ANY SUM REFERRED TO IN SUB-SECTION (1) IS CREDITED TO ANY ACCOUNT, WHETHER CALLED SUSPENSE ACCOUNT OR BY AN Y OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE PERSON LIABLE TO PAY SU CH SUM, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH SUM TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY. IF WE EXAMINE THE AFOREMENTIONED SECTIONS, WE FIND THAT IDENTICAL CONSIDERATIONS PERMEATE THROUGH ALL THE AFOREMENTIO NED SECTIONS WHICH ARE AS UNDER:- (I) ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO AN Y RESIDENT IN RESPECT OF AFOREMENTIONED ITEMS; (II) SHALL; (III) AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCO UNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER; (IV) DEDUCT INCOME TAX THEREON AT THE PRESCRIBED RA TE; THE TERM 'SHALL' USED IN ALL THESE SECTIONS MAKE IT CLEAR THAT THESE ARE MANDATORY PROVISIONS AND APPLICABLE TO THE ENTIRE S UM CONTEMPLATED UNDER THE RESPECTIVE SECTIONS. THESE SECTIONS DO NOT GIVE ANY LEVERAGE TO THE ASSESSEE TO MAKE THE PAYMENT WITHOUT MAKING TDS. ON THE CONTRARY, THE INTENTION OF THE LEGISLATURE IS EVIDENT FROM THE FA CT THAT TIMING OF DEDUCTION OF TAX IS EARLIEST POSSIBLE OPPORTUNITY TO RECOVER TAX , EITHER AT THE TIME OF CREDIT IN THE ACCOUNT OF PAYEE OR AT THE TIME OF PAYMENT TO P AYEE, WHICHEVER IS EARLIER. WHEN WE EXAMINE SECTION 40(A)(IA) IN THE BACKDROP O F THESE SECTIONS, WE FIND THAT IT REFERS TO THE AMOUNT 'PAYABLE' 'ON WHICH TA X WAS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B'. APPLYING THE PRINCIPLES OF E UJESDEM GENERIS, IT CAN EASILY BE INFERRED THAT TERM 'PAYABLE' IN SECTION 4 0(A)(IA) HAS TO BE INTERPRETED IN THE LIGHT OF SUM REFERRED TO IN VARIOUS SECTIONS CONTAINED IN CHAPTER XVII-B NOTED ABOVE, ON WHICH TAX WAS DEDUCTIBLE AND, THERE FORE, THE TERM 'PAYABLE' IN SECTION 40(A)(IA) REFERS TO ENTIRE AMOUNT ON WHICH TAX WAS REQUIRED TO BE DEDUCTED. KEEPING IN VIEW THE PRINCIPLES OF HARMONI OUS CONSTRUCTION, THE TERM 'PAYABLE' IN SECTION 40(A)(IA) CANNOT BE READ SEPAR ATELY FROM THE PROVISIONS RELATING TO TDS AS PLEADED ON BEHALF OF ASSESSEE. I N OUR OPINION, LD. CIT (APPEALS) HAS RIGHTLY OBSERVED THAT TAKING THE SPIR IT OF TDS PROVISION INTO ACCOUNT AND SECTION 40(A)(IA) BEING DIRECTLY RELATE D TO SUCH TDS PROVISION, A HARMONIOUS CONSTRUCTION OF THE WORD 'PAYABLE' LEADS TO INEVITABLE CONCLUSION THAT THE SAID WORD ALSO INCLUDES THE 'PAID' AMOUNT. 14. LD. COUNSEL HAS RELIED ON THE DICTIONARY MEANING OF TERM 'PAYABLE' WHICH, IN OUR OPINION, CANNOT BE RESORTED TO IN VIEW OF DI SCUSSION IN FOREGOING PARAS. THE CONTEXT IN WHICH TERM 'PAYABLE' HAS BEEN USED I N SECTION 40(A)(IA) IS TO BE TAKEN INTO CONSIDERATION. THE CONTEXT IS VARIOUS SE CTIONS OF CHAPTER XVII-B. 15. THE NEXT ARGUMENT OF LD. COUNSEL IS BASED ON THE DE FINITION OF TERM 'PAID' AS CONTEMPLATED UNDER SECTION 43(2) WHICH READS AS UNDER:- 43(2) : PAID MEANS ACTUALLY PAID OR INCURRED ACC ORDING TO THE METHOD OF ACCOUNTING UPON THE BASIS OF WHICH THE PROFITS O R GAINS ARE COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION . 16. A BARE READING OF THE ABOVE PROVISION WOULD MAKE IT CLEAR THAT THE TERM 'PAID' DOES NOT ONLY MEAN ACTUAL PAYMENT BUT IF THE LIABILITY HAS BEEN INCURRED ITA NO.1564/PN/2012 A.Y. : 2007-08 ACCORDING TO THE METHOD OF ACCOUNTING FOLLOWED BY T HE ASSESSEE, THEN THE SAME ALSO COMES WITHIN THE PURVIEW OF TERM 'PAID'. IF THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING THEN AS SOON AS THE LIABILITY ACCRUES IN ITS FAVOUR, THE SAME IS ACCOUNTED FOR BY CREDITING THE AMOUNT OF PAYEE. THUS, IT IS EVIDENT THAT THE EMPHASIS IS ON LIABILITY TO PAY AN D NOT ON ACTUAL PAYMENT. IF WE ACCEPT THE CONTENTION OF ASSESSEE, THEN SECTION 40(A)(IA) WOULD BECOME OTIOSE AND THE SECTION WILL NOT BE ATTRACTED WHERE PAYMENT IS MADE THOUGH WITHOUT DEDUCTING TAX AT SOURCE. LD. COUNSEL HAS RE FERRED TO THE VARIOUS DECISIONS AND IN THE CASE OF JAIPUR VIDYUT VITARAN NIGAM LIMITED (SUPRA), THE TRIBUNAL HAD RELIED ON THE DEFINITION OF SECTION 43 (2) BUT THE IMPORT OF PHRASE 'INCURRED IN ACCORDANCE WITH THE METHOD OF ACCOUNTI NG FOLLOWED' WAS NOT CONSIDERED. THEREFORE, THE FINDING THAT BY IMPLICAT ION THE WORD 'PAYABLE' DOES NOT INCLUDE 'PAID' CANNOT BE ACCEPTED. 17. THE NEXT ARGUMENT OF LD. COUNSEL FOR THE ASSESSEE I S BASED ON RULE 30, WHICH CONTEMPLATES TIME AND MODE OF PAYMENT TO GOVE RNMENT ACCOUNT OF TAX DEDUCTED AT SOURCE. IN OUR OPINION, THIS RULE MEREL Y CONTEMPLATES THE PROCEDURE OF DEPOSITING THE TDS AMOUNT AND MERELY B ECAUSE DIFFERENT TIME LIMITS ARE PRESCRIBED, IT WOULD NOT FOLLOW THAT DIF FERENT CONSIDERATIONS WOULD APPLY WHILE CONSIDERING THE TERM 'PAYABLE' UNDER SE CTION 40(A)(IA) OF THE ACT. LD. COUNSEL HAS ALSO REFERRED TO SECTION 234B DEALI NG WITH LEVY OF INTEREST TO DEMONSTRATE THAT ACTUAL PAYMENT AND PAYABLE AMOUNT ARE TO BE SEPARATELY DEALT WITH. HOWEVER, THESE PROCEDURAL SECTIONS CANN OT OVERRIDE THE SUBSTANTIVE PROVISION OF THE ACT. TRIBUNAL IN THE C ASE OF JAIPUR VIDYUT VITARAN NIGAM LIMITED (SUPRA) HAS ALSO OBSERVED THAT SECTIO N 40(A)(IA) BEING A LEGAL FICTION NEEDS TO BE CONSTRUED STRICTLY. THERE IS NO QUARREL WITH THIS PROPOSITION BUT AT THE SAME TIME WE HAVE TO TAKE INTO CONSIDERA TION THE CONTEXT IN WHICH A PARTICULAR WORD IS USED AND THE OVERALL PURPOSE SOU GHT TO BE ACHIEVED BY INSERTING A SECTION IN THE ACT. 18. ONE MORE ARGUMENT OF ASSESSEE IS THAT IF THE AMOUNT HAS ALREADY PAID, THEN THE ASSESSEE WILL NOT BE ABLE TO IN A POSITION TO DEDUCT ANY PAY TAX, BECAUSE, UNDER SUCH CIRCUMSTANCES, AS PER THE PROVI SIONS OF SECTION 191, THE LIABILITY FOR PAYMENT OF TAX IS TO BE DISCHARGED BY PAYEE. IN THE FIRST PLACE, THE ARGUMENT SEEMS TO BE QUITE CONVINCING BECAUSE THE A SSESSEE WOULD BE DEPRIVED OF GENUINE EXPENDITURE AND THE PAYEE WILL PAY THE TAX ON ITS INCOME. FURTHER, THE PROVISO TO SECTION 40 (A)(IA) DOES NOT MAKE ANY PROVISION IN REGARD TO THIS CONTINGENCY. THIS MAY BE A CASE OF C ASUS OMISUS BUT THE COURT CANNOT FILL THIS GAP. HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF DEY'S MEDICALS (UP) (P) LTD. CASE (SUPRA) OBSERVED AS UN DER:- 'ONCE A DEDUCTION OF A PARTICULAR AMOUNT IS NOT ALL OWABLE UNDER THE ACT, IT IS LIABLE TO BE TAXED AND MERELY BECAUSE SO ME OTHER PERSON MAY ALSO BE LIABLE TO TAX AFTER RECEIVING THE SAID AMOU NT IN ONE OR THE OTHER MANNER, IT CANNOT BE SAID THAT FORMER ASSESSEE IS E NTITLED FOR EXEMPTION AND CANNOT BE TAXED. NO AUTHORITY IS SHOW N PROVIDING THAT SUCH TAXATION IS NOT PERMISSIBLE IN LAW AND IS BAD EVEN OTHERWISE.' 19. LD. CIT, DR HAS STRONGLY RELIED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF TUBE INVESTMENTS OF INDIA LTD.S CASE (SUPRA). THE CONTENTION OF LD. COUNSEL FOR THE ASSESSEE IS THAT THIS DECISION WAS RENDERED IN THE CONTEXT OF CONSTITUTIONAL VALIDITY OF THE PR OVISIONS OF SECTION 40(A)(IA) AND, THEREFORE, IN VIEW OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF LACHMAN DASS BHATIA HINGWALA (P) LTD.S CASE (SU PRA), THE SAID DECISION IS NOT RELEVANT. IT IS TRUE THAT THIS DECISION HAS BEE N RENDERED IN THE CONTEXT OF EXAMINING OF CONSTITUTIONAL VALIDITY OF THE PROVISI ONS OF SECTION 40(A)(IA) OF THE ACT BUT IN COURSE OF EXAMINING THE CONSTITUTIONAL V ALIDITY, HONBLE MADRAS HIGH COURT HAS EXTENSIVELY CONSIDERED THE IMPORT OF SECT ION 40(A)(IA) AND, ITA NO.1564/PN/2012 A.Y. : 2007-08 THEREFORE, IN OUR OPINION, THIS DECISION HAS STRONG BEARING ON THE PRESENT ISSUE. 20. HONBLE MADRAS HIGH COURT HAS NOTICED VARIOUS CONTE NTIONS OF ASSESSEE. WE RE-PRODUCE SOME CONTENTIONS, WHICH HAVE DIRECT B EARING ON THE PRESENT ISSUE:- AT PARA 5 OF JUDGMENT: MR. C. NATARAJAN, LEARNED S ENIOR COUNSEL APPEARING FOR THE PETITIONERS IN WRIT PETN. NOS. 10 750 AND 10751 OF 2009 CONTENDED THAT WHILE CONTRACTORS BUSINESS HAS NO NEXUS TO THE DETERMINATION OF PROFITS AND GAINS OF THE BUSINESS OF THE PETITIONER, S. 40(A)(IA) MUTATES ITSELF TO TAX THE PETITIONERS AT A DISPROPORTIONATE RATE AND QUANTUM WHILE PURPORTING TO ADDRESS S. 194C AND THE CONTRACTORS. ACCORDING TO HIM THE EFFECT OF S. 40(A) (IA) IS SO GROSSLY UNREASONABLE THAT IT IMPOSES TAX LIABILITY ON THE BUSINESS OF TH E PETITIONERS EVEN IF THE CONTRACTOR HIMSELF PAID THE TAX IN HIS RETURNS IN T HE ABSENCE OF TDS EFFECTED BY THE PETITIONERS. AT PARA 14 OF JUDGMENT: ACCORDING TO THE LEARNED SE NIOR COUNSEL, THE IMPLICATION OF S. 40(A)(IA) IS IRRESPECTIVE OF THE CIRCUMSTANCES IN WHICH THE DEDUCTION FAILED TO BE MADE AND THEREFORE IT IS ARBITRARY. BY RELYING UPON THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF COCA COLA AND ELI LILY, THE LEARNED SENIOR COUNSEL CONT ENDED THAT WHEN THE HONBLE SUPREME COURT HAS HELD THAT THE LIABILITY O F AN ASSESSEE UNDER S. 201 ON FAILURE TO DEDUCT OR PAY TAX DISAPPEARS O NCE THE RECIPIENT HAS PAID THE FIX AND EVEN PENALTY CANNOT BE LEVIED IF T HERE WAS A REASONABLE CAUSE FOR NON-DEDUCTION, IT SHOULD BE HE LD THAT S. 40(A)(IA) CANNOT BE INVOKED IN THE CASE WERE THE RECIPIENT HA D PAID THE TAX. ABSENCE OF SUCH A RELIEF UNDER S. 40(A)(IA) MAKES T HE PROVISION ARBITRARY. AT PARA 18 OF JUDGMENT: ACCORDING TO THE LEARNED CO UNSEL WHEN THE OBJECT OF INTRODUCTION OF S. 40(A)(IA) IS TO ENFORC E TDS PROVISION, IN THE LIGHT OF THE FACT THAT VERY MANY PROVISIONS BY WAY OF IMPOSITION OF PENALTY, INTEREST AND PROSECUTION HAVE BEEN PROVIDE D UNDER THE RECOVERY CHAPTER VIZ. CHAPTER XVII, THE ADDITION OF S. 40(A)(IA) DISALLOWING THE WHOLE OF THE ACTUAL EXPENDITURE IS HIGHLY ONEROUS AND THEREBY IT BECOMES ARBITRARY, UNREASONABLE WARRANTI NG DECLARATION OF THE PROVISION AS ULTRA VIRES OF THE CONSTITUTION. AT PARA 20 OF JUDGMENT: ACCORDING TO THE LEARNED CO UNSEL, THE PROVISO TO S. 40(A)(IA) DOES NOT IN ANY WAY MITIGATE THE DA MAGE CAUSED UNDER THE MAIN PROVISION. IT WAS ALSO CONTENDED THAT UNDE R S. 195(5) OF THE ACT RELATING TO NON-RESIDENTS, WHERE ON PRODUCTION OF A CERTIFICATE AS PER THE IT RULES, THE REQUIREMENT OF TDS IS EXEMPTE D, SUCH A SAFETY VALVE MEASURE NOT BEING AVAILABLE IN RESPECT OF A R ESIDENT RECIPIENT, S. 40(A)(IA) IS UNREASONABLE AND UNJUSTIFIABLE. AT PARA 24 OF JUDGMENT: ACCORDING TO THE LEARNED CO UNSEL A COMPARATIVE READING OF S.40(A)(IA) AND S. 198 WOULD SHOW THAT WHILE UNDER S. 198, THE NON-DEDUCTION OF TDS WOULD RESULT IN DEEMED INCOME IN THE HANDS OF THE ASSESSEE, THERE IS NO SU CH EXPRESSION IN S. 40(A)(IA) AND CONSEQUENTLY THE NON-INCOME VIZ., THE EXPENDITURE CANNOT BE TREATED AS DEEMED INCOME IN THE HANDS OF THE ASSESSEE. THE LEARNED COUNSEL ALSO CONTENDED THAT SINCE THE R ECIPIENT OF THE EXPENDITURE OF THE ASSESSEE IS ALSO TAXED, THE IMPO SITION OF TAX BY INVOKING S. 40(A)(IA) WOULD RESULT IN DOUBLE TAXATI ON WHICH CANNOT BE PERMITTED. ITA NO.1564/PN/2012 A.Y. : 2007-08 AT PARA 25 OF JUDGMENT: THE LEARNED COUNSEL BY POIN TING OUT SS. 205 AND 64 OF THE ACT CONTENDED THAT IN SIMILAR SITUATI ONS THE LEGISLATURE HAS MADE SPECIFIC EXONERATION OF DOUBLE TAXATION. T HE LEARNED COUNSEL RELIED UPON: (I) CIT V. INDO NIPPON CHEMICALS CO. LTD. [2003] 18 2 CTR 291/[2003] 261 ITR 275 (SC); (II) K.P. VARGHESE V. CIT [1981] 24 CTR 358 [1981] 131 ITR 597 (SC); (III) NAVNIT LAI C. JAVERI V. K.K.SEN, AAC [1065] 5 6 ITR 198 (SC); (IV) GOVIND SARAN GANGA SARAN V. CST [1985] 155 ITR 144 (SC); (V) GODHIRA ELECTRICITY CO. LTD. V. CIT [1997] 139 (JR 564/ [1997] 225 ITR 746 (SC) IN SUPPORT OF HIS SUBMISSIONS. AT PARA 33 OF JUDGMENT: IT WAS THEN CONTENDED THAT AN EXPENDITURE IS NOT AN INCOME AND CONSEQUENTLY THE COLLECTION OF TA X AS ENVISAGED UNDER ART. 265 IS NOT PERMISSIBLE. IT WAS ALSO CONT ENDED THAT S. 40(A)(IA) CONFLICTS WITH S. 145 OF THE ACT SINCE TH E METHOD OF ACCOUNTING IS DISTURBED. AT PARA 41 OF JUDGMENT: AS AGAINST THE SUBMISSIONS OF THE PETITIONERS THAT THE PROVISION IS ILLUSORY, THE LEARNED COUNSEL CONTENDED THAT THOUGH THE WORDS USED IN THE PROVISO ARE DEDUCT AND PAY, THERE IS NO PROHIBITION FOR THE ASSESSEE TO MAKE THE PAYMENT WI THOUT ANY DEDUCTION. IN THAT CONTEXT, THE LEARNED COUNSEL REL IED UPON S. 195A AND STATED THAT SUCH A SITUATION IS ENVISAGED THEREIN. THE LEARNED STANDING COUNSEL ALSO RELIED UPON ADDL CIT V. FARASOL LTD. [ 1987] 163 ITR 364 (RAJ.) WHERE IN THE CONTEXT OF S.40(A) IT WAS HELD BY THE RAJASTHAN HIGH COURT THAT EVEN WHERE THE AMOUNT IS PAID OUT OF THE ASSESSEES POCKET BUT NOT DEDUCTED, HE WOULD BE ELIGIBLE FOR THE DEDU CTION. AT PARA 46 OF JUDGMENT : MR.K. SUBRAMANIAM, LEARNED STANDING COUNSEL FOR THE IT DEPARTMENT BROUGHT TO OUR NOTICE THE CBDT CIRCULARS PUBLISHED IN [2009] 310 ITR (ST)55, WHEREIN IT WAS STATED THAT THE INTRODUCTION OF S.40(A)(IA) ALLOWS ADDITIONAL TIME (TILL DUE DATE OF FILING RETURN OF INCOME) FOR DEPOSIT OF TDS PURSUANT TO TH E DEDUCTION MADE FOR THE MONTH OF MARCH SO THAT THE DISALLOWANCE UND ER THE SUB-CLAUSE IS NOT ATTRACTED. THE LEARNED STANDING COUNSEL SUBM ITTED A STATEMENT CONTAINING THE TDS COLLECTIONS FOR THE FINANCIAL YE AR 2008-09, WHICH WAS RS.1,30,470.8 CRORES AS COMPARED TO OTHER FORMS OF TAX COLLECTIONS WHICH SHOWS THAT OUT OF THE NET COLLECT ION, AT LEAST 1/3 IS BY WAY OF TDS. THE LEARNED STANDING COUNSEL THEREFORE CONTENDED THAT THE OBJECT FOR INTRODUCING S.40(A)(IA) HAS REALLY W ORKED VIZ., AUGMENTATION OF THE TDS PROVISION AND THEREFORE THE PROVISION SHOULD BE UPHELD. IN THE BACKDROP OF THESE SUBMISSIONS, HONBLE MADRA S HIGH COURT UPHELD THE CONSTITUTIONAL VALIDITY OF THE PROVISION S OF SECTION 40(A)(IA) AND MADE VARIOUS OBSERVATIONS:- (I) HONBLE MADRAS HIGH COURT, INTER ALIA, NOTED TH E OBSERVATIONS OF HONBLE SUPREME COURT IN THE CASE OF A.S.KRISHNA V. STATE OF MADRAS AIR 1957 SC 297 WHICH ARE AS UNDER:- IT WOULD BE QUITE AN ERRONEOUS APPROACH TO THE QUE STION TO VIEW SUCH A STATUTE NOT AS AN ORGANIC WHOLE, BUT AS A MERE CO LLECTION OF SECTIONS THEN DISINTEGRATE IT INTO PARTS, EXAMINE UNDER WHAT HEADS OF LEGISLATION THOSE PARTS WOULD SEVERALLY FALL, AND BY THAT PROCE SS DETERMINE WHAT PORTIONS THEREOF ARE INTER VIRES AND WHAT ARE NOT. THUS, SECTION ITA NO.1564/PN/2012 A.Y. : 2007-08 40(A)(IA) COULD NOT BE VIEWED INDEPENDENTLY AND HAD TO BE CONSIDERED ALONG WITH OTHER PROVISIONS. (II) THE PROVISIONS OF SECTION 40(A)(IA) WERE COMPA RED WITH THE PROVISIONS OF SECTION 201 OF THE INCOME TAX ACT AND , IT WAS, INTER ALIA, OBSERVED THAT AS FAR AS SECTION 201 IS CONCERNED TH AT WOULD RELATE TO THE AMOUNT OF TAX THAT COULD BE DEDUCTED BY WAY OF TDS. HOWEVER, AS FAR AS SECTION 40(A)(IA) IS CONCERNED, WHICH WOULD RESULT IN THE DISALLOWANCE OF WHOLE OF THE EXPENDITURE AND THEREB Y THE ENTIRE SUM EXPENDED WOULD ATTRACT THE LEVY OF TAX AT A PRESCRI BED RATE WITH ALL OTHER CONDITIONS SUCH AS SURCHARGE, ETC. THUS, HON BLE MADRAS HIGH COURT HAS ALSO HELD IN PARA 61 OF ITS JUDGMENT THAT WHOLE OF THE EXPENDITURE CLAIMED WITHOUT MAKING TDS IS TO BE DIS ALLOWED AND NOT ONLY PART OF THE EXPENDITURE. (III) THE FINANCE BILL NO.2 OF 2004 STATES THAT THE INSERTION OF CLAUSE (IA) IN CLAUSE (A) TO SECTION 40 OF THE ACT WAS WITH A V IEW TO AUGMENT COMPLIANCE OF TDS PROVISIONS. (IV) WHEN THE PROVISIONS AND PROCEDURES RELATING TO TDS ARE SCRUPULOUSLY APPLIED, FIRST AND FOREMOST IT ENSURES THE IDENTIFICATION OF THE PAYEES AND THEREBY NETWORK OF ASSESSEES GETS CO NFIRMED. WHEN ONCE SUCH IDENTITY OF ASSESSEES, WHO ARE IN RECEIPT OF THE INCOME CAN BE ASCERTAINED, IT WILL ENABLE TAX COLLECTION MACHI NERY TO BRING WITHIN ITS FOLD ALL SUCH PERSONS WHO ARE LIABLE TO COME WITHIN THE NETWORK OF TAXPAYERS. THUS, IF IT IS HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE IN RESPECT OF THOSE PAYMENTS WHICH HAVE BEEN PAID WITHOUT MAKING TDS AND AT THE END OF THE YEAR NO AMOUNT IS OUTSTANDING THEN THE VERY OBJECT OF IDENTIFICATION OF PAYEES WILL GE T FRUSTRATED. (V) THE LEGISLATIVE INTENT OF THE INTRODUCTION OF S ECTION 40(A)(IA) IS IN THE LARGER PERSPECTIVE OF AUGMENTING THE VERY TDS PROVI SIONS THEMSELVES. IT IS NOT MERELY RELATED TO THE COLLECTION OF TDS O NLY. (VI) THE INTENTION OF THE LEGISLATURE IS NOT TO TAX THE PAYER FOR ITS FAILURE TO DEDUCT THE TAX AT SOURCE. THE OBJECT OF INTRODUC TION OF SECTION 40(A)(I) AS WELL AS SECTION 40(A)(IA) IS TO ENSURE THAT ONE OF THE MODES OF RECOVERY AS PROVIDED IN CHAPTER XVII-B IS SCRUPU LOUSLY IMPLEMENTED WITHOUT ANY DEFAULT, IN ORDER TO AUGMENT THE SAID M ODE OF RECOVERY. HONBLE MADRAS HIGH COURT, INTER ALIA, OBSERVED AT PARA 69 OF ITS JUDGMENT AS UNDER:- WITH THE PROVISO TO SECTION 40(A)(IA) THE DEDUCTIO N IN THE SUBSEQUENT YEAR BY RECTIFYING THE DEFAULT COMMITTED IN THE MATTER OF TDS IN THE PREVIOUS YEAR, A DEFAULTING AS SESSEE CANNOT BE HEARD TO SAY THAT IRRESPECTIVE OF THE DEL IBERATE DEFAULT COMMITTED BY IT IN IMPLEMENTING THE PROVISI ON RELATING TO TDS, IT SHOULD BE HELD THAT A HIGHER TAX LIABILITY IS MULCTED ON IT. HONBLE MADRAS HIGH COURT, INTER ALIA, OBSERVED IN PARA 83 OF ITS JUDGMENT AS UNDER:- AFTER ALL THE PROVISO HAS BEEN INSERTED IN ORDER T O ENSURE THAT EVEN A DEFAULTER IS NOT PUT TO SERIOUS PREJUDICE, I N AS MUCH AS, BY OPERATION OF THE SUBSTANTIVE PROVISION, THE EXPE NDITURE WHICH IS OTHERWISE ALLOWABLE AS A DEDUCTION IS DENI ED ON THE GROUND THAT THE OBLIGATION OF TDS PROVISIONS IS VIO LATED. THE LAW MAKES WHILE IMPOSING SUCH A STRINGENT RESTRICTI ON WANTED TO SIMULTANEOUSLY PROVIDE SCOPE FOR THE DEFAULTER TO G AIN THE ITA NO.1564/PN/2012 A.Y. : 2007-08 DEDUCTION BY COMPLYING WITH THE TDS PROVISION AT A LATER PINT OF TIME. THUS, IMPLIEDLY HONBLE MADRAS HIGH COURT, HAS, INT ER ALIA, HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) WILL BE APPLICA BLE WITH RESPECT TO ENTIRE EXPENDITURE. IT IS TRUE THAT SPECIFIC ISSUE REGARDING PAID, CREDITED AND PAYABLE HAS NOT BEEN CONSIDERED BU T FROM THE JUDGMENT IT IS EVIDENT THAT IF ASSESSEES CONTENTION IS ACCE PTED THEN THE VERY OBJECT OF INCORPORATION OF SECTION 40(A)(IA) WOULD BE FRUSTRATED. 21. IN VIEW OF ABOVE DISCUSSION, WE ANSWER THE QUESTION AS UNDER:- THE PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME T AX ACT, 1961, ARE APPLICABLE NOT ONLY TO THE AMOUNT WHICH IS SHOWN AS PAYABLE ON THE DATE OF BALANCE-SHEET, BUT IT IS APPLICABLE TO SUCH EXPENDITURE, WHICH BECOME PAYABLE AT ANY TIME DURING THE RELEVANT PREV IOUS YEAR AND WAS ACTUALLY PAID WITHIN THE PREVIOUS YEAR. IN THE RESU LT THE QUESTION IS DECIDED IN FAVOUR OF REVENUE AND AGAINST THE ASSESS EE. BEFORE DEALING WITH THE SUBMISSIONS OF THE LEARNED COUNSEL APPEARING FOR THE ASSESSEES IN BOTH THE APPEALS WE HAVE TO EX AMINE THE CORRECTNESS OF THE MAJORITY VIEWS IN THE CASE OF ME RILYN SHIPPING. WE ALREADY HAVE QUOTED EXTENSIVELY BOTH THE MAJORIT Y AND THE MINORITY VIEWS EXPRESSED IN THE AFORESAID CASE. THE MAIN THR UST OF THE MAJORITY VIEW IS BASED ON THE FACT THAT THE LEGISLATURE HAS REPLACED THE EXPRESSION AMOUNTS CREDITED OR PAID WITH THE EXPR ESSION PAYABLE IN THE FINAL ENACTMENT. COMPARISON BETWEEN THE PRE-AMENDMENT AND POST AMEND MENT LAW IS PERMISSIBLE FOR THE PURPOSE OF ASCERTAINING THE MIS CHIEF SOUGHT TO BE REMEDIED OR THE OBJECT SOUGHT TO BE ACHIEVED BY AN AMENDMENT. THIS IS PRECISELY WHAT WAS DONE BY THE APEX COURT IN THE CASE OF CIT VS. KELVINATOR REPORTED IN 2010(2) SCC 723. BUT THE SAM E COMPARISON BETWEEN THE DRAFT AND THE ENACTED LAW IS NOT PERMIS SIBLE. NOR CAN THE DRAFT OR THE BILL BE USED FOR THE PURPOSE OF REGULA TING THE MEANING AND PURPORT OF THE ENACTED LAW. IT IS THE FINALLY ENACT ED LAW WHICH IS THE WILL OF THE LEGISLATURE. THE LEARNED TRIBUNAL FELL INTO AN ERROR IN NOT REAL IZING THIS ASPECT OF THE MATTER. THE LEARNED TRIBUNAL HELD THAT WHERE LANGUAGE IS C LEAR THE INTENTION OF THE LEGISLATURE IS TO BE GATHERED FROM THE LANGU AGE USED. HAVING HELD SO, IT WAS NOT OPEN TO SEEK TO INTERPRET THE S ECTION ON THE BASIS OF ANY COMPARISON BETWEEN THE DRAFT AND THE SECTION AC TUALLY 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) O F THE ACT CREATES A LEGAL FICTION BY VIRTUE OF WHICH EVEN THE GENUINE A ND ADMISSIBLE EXPENSES CLAIMED BY AN ASSESSEE UNDER THE HEAD INC OME FROM BUSINESS AND PROFESSION IF THE ASSESSEE DOES NOT D EDUCT TDS ON SUCH EXPENSES ARE DISALLOWED. HAVING HELD SO WAS IT OPEN TO THE TRIBUNAL TO SEEK TO JUSTIFY THAT THIS FICTION CANNOT BE EXTENDED ANY FURTHER AND, THEREFO RE, CANNOT BE INVOKED BY ASSESSING OFFICER TO DISALLOW THE GENUIN E AND REASONABLE EXPENDITURE ON THE AMOUNTS OF EXPENDITURE ALREADY P AID? DOES THIS NOT AMOUNT TO DELIBERATELY READING SOMETHING IN THE LAW WHICH IS NOT THERE? ITA NO.1564/PN/2012 A.Y. : 2007-08 WE, AS SUCH, HAVE NO DOUBT IN OUR MIND THAT THE LEA RNED TRIBUNAL REALIZED THE MEANING AND PURPORT OF SECTION 40(A)(I A) CORRECTLY WHEN IT HELD THAT IN CASE OF OMISSION TO DEDUCT TAX EVEN TH E GENUINE AND ADMISSIBLE EXPENSES ARE TO BE DISALLOWED. BUT THEY SOUGHT TO REMOVE THE RIGOUR OF THE LAW BY HOLDING THAT THE DISALLOWA NCE SHALL BE RESTRICTED TO THE MONEY WHICH IS YET TO BE PAID. WHAT THE TRIB UNAL BY MAJORITY DID WAS TO SUPPLY THE CASUS OMISSUS WHICH WAS NOT PERMI SSIBLE AND COULD ONLY HAVE BEEN DONE BY THE SUPREME COURT IN AN APPR OPRIATE CASE. REFERENCE IN THIS REGARD MAY BE MADE TO THE JUDGMEN T IN THE CASE OF BHUWALKA STEEL INDUSTRIES VS. BOMBAY IRON & STEEL L ABOUR BOARD REPORTED IN 2010 (2) SCC 273. UNPROTECTED WORKER WAS FINALLY DEFINED IN SECTION 2 (II) OF THE MATHADI ACT AS FOLLOWS:- UNPROTECTED WORKER MEANS A MANUAL WORKER WHO IS ENGAGED OR TO BE ENGAGED IN ANY SCHEDULED EMPLOYMENT. THE CONTENTION RAISED WITH REFERENCE TO WHAT WAS TH ERE IN THE BILL WAS REJECTED BY THE SUPREME COURT BY HOLDING AS FOLLOWS :- IT MUST, AT THIS JUNCTURE, BE NOTED THAT IN SPITE OF SECTION 2(11), WHICH INCLUDED THE WORDS BUT FOR THE PROVISIONS OF THIS ACT IS NOT ADEQUATELY PROTECTED BY LEGISLATION FOR WELFARE AND BENEFITS OF THE LABOUR FORCE IN THE STATE, THESE PRECISE WO RDS WERE REMOVED BY THE LEGISLATURE AND THE DEFINITION WAS M ADE LIMITED AS IT HAS BEEN FINALLY LEGISLATED UPON. IT IS TO BE NOTED THAT WHEN THE BILL CAME TO BE PASSED AND RECEIVED THE ASSENT OF THE VICE- PRESIDENT ON 05-06-1969 AND WAS FIRST PUBLISHED IN THE MAHARASHTRA GOVERNMENT GAZETTE EXTRAORDINARY, PART IV ON 13- 06-1969, THE AFOREMENTIONED WORDS WERE OMITTED. THE REFORE, THIS WOULD BE A CLEAR POINTER TO THE LEGISLATIVE IN TENT THAT THE LEGISLATURE BEING CONSCIOUS OF THE FACT AND BEING A RMED WITH ALL THE COMMITTEE REPORTS AND ALSO BEING ARMED WITH THE FACTUAL DATA, DELIBERATELY AVOIDED THOSE WORDS. WHAT THE AP PELLANTS ARE ASKING WAS TO READ IN THAT DEFINITION, THESE PR ECISE WORDS, WHICH WERE CONSCIOUSLY AND DELIBERATELY OMITTED FRO M THE DEFINITION. THAT WOULD AMOUNT TO SUPPLYING THE CASU S OMISSUS AND WE DO NOT THINK THAT IT IS POSSIBLE, PARTICULAR LY, IN THIS CASE. THE LAW OF SUPPLYING THE CASUS OMISSUS BY THE COURT S IS EXTREMELY CLEAR AND SETTLED THAT THOUGH THIS COURT MAY SUPPLY THE CASUS OMISSUS, IT WOULD BE IN THE RAREST OF THE RARE CASE AND THUS SUPPLYING OF THIS CASUS OMISSUS WOULD BE E XTREMELY NECESSARY DUE TO THE INADVERTENT OMISSION ON THE PA RT OF THE LEGISLATURE. BUT, THAT IS CERTAINLY NOT THE CASE HE RE. WE SHALL NOW ENDEAVOUR TO SHOW THAT NO OTHER INTERP RETATION IS POSSIBLE. 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 DISALL OWED? THE ANSWER IS BOUND TO BE THOSE EXPENSES ON WHICH TAX IS DEDU CTIBLE AT SOURCE UNDER CHAPTER XVII B. ONCE THIS IS REALIZED NOTHIN G TURNS ON THE BASIS OF THE FACT THAT THE LEGISLATURE USED THE WORD PAY ABLE AND NOT PAID OR CREDITED. UNLESS ANY AMOUNT IS PAYABLE, IT CAN NEI THER BE PAID NOR CREDITED. IF AN AMOUNT HAS NEITHER BEEN PAID NOR CR EDITED, THERE CAN BE NO OCCASION FOR CLAIMING ANY DEDUCTION. THE LANGUAGE USED IN THE DRAFT WAS UNCLEAR AND SUSC EPTIBLE TO GIVING MORE THAN ONE MEANING. BY LOOKING AT THE DRAFT IT C OULD BE SAID THAT THE LEGISLATURE WANTED TO TREAT THE PAYMENTS MADE OR CR EDITED IN FAVOUR OF ITA NO.1564/PN/2012 A.Y. : 2007-08 A CONTRACTOR OR SUB-CONTRACTOR DIFFERENTLY THAN THE PAYMENTS ON ACCOUNT OF INTEREST, COMMISSION OR BROKERAGE, FEES FOR PROF ESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES BECAUSE THE WORDS AMOU NTS 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 DEDUCTIB LE AT SOURCE UNDER CHAPTER XVII-B PAYABLE ON ACCOUNT OF INTEREST, COMM ISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SER VICES OR FEES FOR TECHNICAL SERVICES OR TO A CONTRACTOR OR SUB-CONTRA CTOR SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME OF AN ASSESSEE IN CASE HE HAS NOT DEDUCED, OR AFTER DEDUCTION HAS NOT PAID WITHIN THE SPECIFIED TIME. THE LANGUAGE USED BY THE LEGISLATURE IN THE FINALLY ENA CTED LAW IS CLEAR AND UNAMBIGUOUS WHEREAS THE LANGUAGE USED IN THE BILL W AS AMBIGUOUS. A FEW WORDS ARE NOW NECESSARY TO DEAL WITH THE SUBM ISSION OF MR. BAGCHI AND MS. ROYCHOWDHURI. THERE CAN BE NO DENIAL THAT THE PROVISION IN QUESTION IS HARSH. BUT THAT IS NO GROU ND TO READ THE SAME IN A MANNER WHICH WAS NOT INTENDED BY THE LEGISLATU RE. THIS IS OUR ANSWER TO THE SUBMISSION OF MR. BAGCHI. THE SUBMISS ION OF MS. ROYCHOWDHURI THAT THE SECOND PROVISO SOUGHT TO BECO ME 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 SAME REASON INDICATED ABOVE. THE LAW WAS DELIBERATELY MA DE HARSH TO SECURE COMPLIANCE OF THE PROVISIONS REQUIRING DEDUC TIONS OF TAX AT SOURCE. IT IS NOT THE CASE OF AN INADVERTENT ERROR. FOR THE REASONS DISCUSSED ABOVE, WE ARE OF THE OPIN ION THAT THE MAJORITY VIEWS EXPRESSED IN THE CASE OF MERILYN SHIPPING & T RANSPORTS ARE NOT ACCEPTABLE. THE SUBMISSIONS ADVANCED BY LEARNED ADV OCATES HAVE ALREADY BEEN DEALT WITH AND REJECTED. THE APPEAL IS, THUS, ALLOWED IN FAVOUR OF THE REVEN UE. 8.2 WE FIND THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF CIT VS. SIKANDARKHAN N. TUNVAR IN THE ORDER DATED 02-05-201 3 REPORTED IN 2013- TIOL-389-HC-AHM HAS HELD AS UNDER : 5. IN ALL THESE APPEALS THE TRIBUNAL HAS FOLLOWED THE DECISION OF THE SPECIAL BENCH IN THE CASE OF M/S. MERILYN SHIPPING & TRANSP ORTS VS. ACIT (SUPRA) AND DELETED THE DISALLOWANCE ON THIS LIMITED GROUND. AS IN THE PRESENT CASE, OTHER GROUNDS OF CONTROVERSY BETWEEN THE PARTIES WITH RES PECT TO ALLOWABILITY OR OTHERWISE OF SUCH EXPENDITURE WAS NOT EXAMINED BY T HE TRIBUNAL. FOR THE PURPOSE OF THESE APPEALS, THEREFORE, WE FRAME FOLLO WING SUBSTANTIAL QUESTIONS OF LAW:- '1. WHETHER DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961 COULD BE MADE ONLY IN RESPECT OF SUCH AMOUNTS WHICH ARE PAYABLE AS ON 31ST MARCH OF THE YEAR UNDE R CONSIDERATION? 2. WHETHER DECISION OF SPECIAL BENCH OF THE TRIBUNA L IN THE CASE OF M/S. MERILYN SHIPPING & TRANSPORTS VS. ACIT (SUP RA) LAYS DOWN CORRECT LAW?' 6. COUNSEL FOR THE REVENUE CONTENDED THAT THE TRIB UNAL HAS COMMITTED SERIOUS ERROR IN HOLDING THAT PROVISION OF SECTION 40(A)(IA) OF THE ACT WOULD APPLY ONLY WHEN THE AMOUNT HAS REMAINED PAYABLE TIL L THE END OF THE ACCOUNTING YEAR. THEY POINTED OUT THAT THE WORD 'PA YABLE' HAS NOT BEEN DEFINED UNDER THE ACT AND THE SAME WOULD, IN THE CO NTEXT OF THE PROVISION UNDER CONSIDERATION, INCLUDE THE EXPRESSION 'PAID'. ANY OTHER INTERPRETATION WOULD LEAD TO ABSURD RESULTS. THEY CONTENDED THAT T HE INTERPRETATION WHICH ITA NO.1564/PN/2012 A.Y. : 2007-08 ADVANCES THE TRUE MEANING OF THE PROVISION SHOULD B E ADOPTED AND NOT ONE WHICH FRUSTRATES THE PROVISION. 7. IN THIS RESPECT RELIANCE WAS PLACED ON THE FOLL OWING DECISIONS:- (1) IN THE CASE OF K.P.VARGHESE VS. INCOME-TAX OFFI CER, ERNAKULAM, AND ANOTHER REPORTED IN [1981] 131 ITR 5 97 = F2O02-TIOL-128-SC-IT), IN WHICH IT WAS OBSERVED THAT 'IT IS A WELL RECOGNIZED RULE OF CONSTRUCTION THAT THE STATUTORY PROVISION MUST BE SO CONSTRUED, IF POSSIBLE, THAT A BSURDITY AND MISCHIEF MAY BE AVOIDED.' (2) IN THE CASE OF COMMISSIONER OF INCOME-TAX, BANGALORE VS. J.H. GOLTA REPORTED IN [1985] 156 ITR 323 = (2002-TIOL-131-SC-IT), IN WHICH IT WAS OBSERVED THAT 'WHERE THE PLAIN LITERAL INTERPRETATION OF A STATUT ORY PROVISION PRODUCES A MANIFESTLY UNJUST RESULT, WHIC H COULD NEVER HAVE BEEN INTENDED BY THE LEGISLATURE, THE CO URT MIGHT MODIFY THE LANGUAGE USED BY THE LEGISLATURE S O AS TO ACHIEVE THE INTENTION OF THE LEGISLATURE AND PRO DUCE RATIONAL CONSTRUCTION.' (3) IN THE CASE OF C.W.S.(INDIA) LTD. VS. COMMISSIO NER OF INCOME-TAX REPORTED IN [1994] 208 ITR 649, IN WHICH IT WAS OBSERVED THAT 'WHILE WE AGREE THAT LITERAL CONSTRUCTION MAY BE THE GENERAL RULE IN CONSTRUING TAXING ENACTMENTS, IT DOES NOT MEAN THAT IT SHOULD BE ADOP TED EVEN IF IT LEADS TO A DISCRIMINATORY OR INCONGRUOUS RESULT. INTERPRETATION OF STATUTES CANNOT BE A MECHANICAL EXERCISE.' 8. COUNSEL ALSO CONTENDED THAT INTERPRETATION MADE BY THE TRIBUNAL LEADS TO RESULTS WHOLLY UNINTENDED BY THE LEGISLATU RE. IF DISALLOWANCE UNDER SECTION 40(A)(IA) IS APPLIED ONLY IN CASE OF AMOUNT S PAYABLE AS ON 31ST MARCH OF THE YEAR UNDER CONSIDERATION, IN LARGE NUM BER OF CASES WHERE THE ASSESSEES MIGHT HAVE ACTUALLY PAID THE AMOUNTS BUT MIGHT NOT HAVE EITHER DEDUCTED TAX AT SOURCE THOUGH REQUIRED UNDER THE AC T OR EVEN AFTER DEDUCTION NOT DEPOSITED WITH THE GOVERNMENT, WOULD ESCAPE THE CONSEQUENCES ENVISAGED UNDER THE SAID PROVISION. IT WAS FURTHER CONTENDED THAT SECTION 40(A)(IA) OF THE ACT IN ITS PLAIN LANGUAGE DOES NOT PERMIT SUCH INTERPRETATION ADOPTED BY THE TRIBUNAL IN THE CASE OF M/S. MERILYN SHIPPING & TRANSPORTS VS. ACIT(SUPRA). EVEN ON THE PREMISE OF LITERAL CONSTRUCTION, THE VIEW ADOPTED BY THE TRIBU NAL SHOULD BE REJECTED. 9. ON THE OTHER HAND, COUNSEL APPEARING FOR THE AS SESSEES SUPPORTED THE VIEW OF THE TRIBUNAL. THEY CONTENDED THAT IN TAXING STATUTE THERE IS NO ROOM FOR INTENDMENT. THE PROVISIONS MUST BE CONSTRUED STRICTLY ON THE BASIS OF PLAIN LANGUAGE USED BY THE LEGISLATURE. AC CORDING TO THEM ONLY MEANING THAT CAN BE ASCRIBED TO SECTION 40(A)(IA) O F THE ACT IS THAT THE DISALLOWANCE CAN BE MADE IN RESPECT OF AMOUNTS, WHI CH ARE PAYABLE BUT NOT YET PAID TILL 31ST MARCH OF THE YEAR UNDER CONS IDERATION AND NO OTHER. 10. IT WAS CONTENDED THAT THE PROVISION IN QUESTIO N IS EXPROPRIETARY SINCE IT DISALLOWS ENTIRE EXPENDITURE FOR NOT DEDUC TING A SMALL PORTION OF TAX AT SOURCE. IT IS THUS IN A NATURE OF PENALTY. I T WAS CONTENDED THAT IN ANY CASE, SECTION 40(A)(IA) CREATES DEEMING FICTION WHE RE THE SUM . THOUGH NOT AN INCOME OF THE ASSESSEE IS TAXED AS SUCH. IT WAS, THEREFORE, CONTENDED THAT SUCH PROVISION SHOULD BE INTERPRETED STRICTLY AND NARROWLY. EVEN IF THE INTENTION OF THE LEGISLATURE MAY NOT HAVE BEEN TO LIMIT SUCH PROVISION, IF THE PLAIN LANGUAGE OF THE SECTION PER MITS NO OTHER MEANING, THIS ITA NO.1564/PN/2012 A.Y. : 2007-08 COURT CANNOT AND WOULD NOT EXPAND THE MEANING OF TH E SECTION TO COVER ANY LEGISLATIVE IMPERFECTIONS OR ERRORS. 11. IT WAS STRONGLY CONTENDED THAT TERMS 'PAYABLE' AND 'PAID' ARE NOT SYNONYMOUS. SECTION 40(A)(IA), THEREFORE, WHEN USES THE EXPRESSION 'PAYABLE', SUCH TERM MUST BE GIVEN ITS ORDINARY MEA NING AND THE EXPRESSION 'PAID', CANNOT BE READ INTO IT. COUNSEL FURTHER SUBMITTED THAT THE FINANCE BILL NO.2 OF 2004 UNDER WHICH SECTION 40 OF THE ACT WAS PROPOSED TO BE AMENDED TO INCLUDE CLAUSE (A)(IA) ORIGINALLY USED DIFFERENT LA NGUAGE. IN PLACE OF THE WORD 'PAYABLE' EXPRESSION USED WAS 'AM OUNT CREDITED OR PAID'. IN THE AMENDMENT, WHICH WAS ULTIMATELY BROUGHT ABOU T, THE SAID EXPRESSION WAS CONSCIOUSLY DROPPED. THUS, THERE WAS CONSCIOUS OMISSION ON THE PART OF THE LEGISLATURE. THEY, THEREFORE, CONTENDED WITH ALL THE MORE FORCE THAT THE TERM 'PAYABLE' USED IN SECTION 40(A)(IA) OF THE ACT WOULD NOT INCLUDE EXPRESSION 'PAID'. THEY POINTED OUT THAT TERM 'PAID ' HAS BEEN DEFINED UNDER SECTION 43(2) OF THE ACT WHEREAS THE WORD 'PA YABLE' HAS NOT BEEN DEFINED IN THE ACT. 12. IN SUPPORT OF THE CONTENTIONS THEY RELIED ON T HE FOLLOWING DECISION:- IN THE CASE OF MUGAT DYEING AND PRINTING MILLS VS. ASSISTANT COMMISSIONER OF INCOME-TAX REPORTED IN [2007] 290 ITR 282 (GUJ), IN WHICH THE DIVISION BENCH OF THIS COURT IN THE CONTEXT OF SECTION 43B O F THE ACT OBSERVED THAT THE EXPRESSION EMPLOYED IN THE SAID SECTION IS 'ACT UALLY PAID' AND IN VIEW OF THE NON-OBSTANTE CLAUSE CONTAINED IN THE SAID SE CTION, IT WOULD NOT BE PERMISSIBLE TO REFER TO THE EXPRESSION 'PAID' AS DE FINED UNDER SECTION 43(2) OF THE ACT. THIS DECISION, HOWEVER, WAS RENDERED IN THE BACKGROUND OF SECTION 43B OF THE ACT, WHICH USED THE EXPRESSION ' ACTUALLY PAID'. RELIANCE WAS PLACED IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. UPNISHAD INVESTMENT P. LTD AND OTHERS REPORTED IN [ 2003] 260 ITR 532, WHEREIN THE DIVISION BENCH OF THIS COURT HAD AN OCC ASION TO INTERPRET EXPRESSIONS 'RECEIVABLE' AND 'DUE'. IT WAS OBSERVED THAT EXPRESSIONS 'RECEIVABLE' IS USED WITH REFERENCE TO THE RECIPIEN T AND THE WORD 'PAYABLE' IS USED WITH REFERENCE TO THE PAYER. 13. OUR ATTENTION WAS DRAWN TO THE DECISION OF THE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX, GUJARAT VS. ASHOKBHAI CHIMANBHAI REPORTED IN [1965] 56 ITR 42, WHEREIN WH ILE EXPLAINING THE CONCEPT OF TAXABILITY OF INCOME, WHEN IT ACCRUES, A RISES OR IS RECEIVED, IT WAS OBSERVED THAT THE RECEIPT IS NOT THE ONLY TEST OF CHARGEABILITY TO TAX AND IF INCOME ACCRUES OR ARISES, IT MAY BECOME LIAB LE TO TAX. IN THIS CONTEXT, IT WAS OBSERVED THAT 'WORKING OF COMPANY F ROM DAY TO DAY WOULD CERTAINLY NOT INDICATE ANY PROFIT OR LOSS, EVEN WOR KING OF THE COMPANY FROM MONTH TO MONTH COULD NOT BE TAKEN AS A RELIABLE GUI DE FOR THIS PURPOSE. IF THE PROFIT OR LOSS HAS TO BE ASCERTAINED BY COMPARI SON OF THE ASSETS AT TWO STATED POINTS, THE MOST BUSINESSLIKE WAY WOULD BE T O DO SO AT STATED INTERVALS OF ONE YEAR AND THAT WOULD BE A REASONABL E PERIOD TO BE ADOPTED FOR THE PURPOSE.' ON THE BASIS OF SUCH OBSERVATIONS IT WAS CANVASSED THAT THE PAYABILITY OF THE SUM AS REFERRED TO IN SECTION 40(A)(IA) OF THE ACT MUST BE JUDGED AS ON 31ST MARCH OF THE PARTICULAR YEAR. 14. COUNSEL HAVE ALSO REFERRED TO VARIOUS JUDGMENT S IN SUPPORT OF THE CONTENTION THAT IN THE PRESENT CASE, STRICT INTERPRETATION IS CALLED FOR. IT IS NOT NECESSARY TO REFER TO SUCH DECISIONS. 15. CHAPTER XVII-A OF THE ACT PERTAINS TO COLLECTI ON AND RECOVERY OF THE TAX. PART-A THEREOF IS GENERAL. PART-B OF CHAPTER XVII PERTAINS TO DEDUCTION AT SOURCE. SEVERAL PROVISIONS HAVE BEEN M ADE IN THE SAID CHAPTER FASTENING THE LIABILITY ON THE PAYEE TO DED UCT TAX AT SOURCE AND ITA NO.1564/PN/2012 A.Y. : 2007-08 DEPOSIT WITH THE GOVERNMENT. FOR EXAMPLE, SUB-SECTI ON (1) OF SECTION 194A OF THE ACT PROVIDES THAT ANY PERSON, NOT BEING AN INDIVIDUAL O R AN HINDU UNDIVIDED FAMILY, WHO IS RESPONSIBLE FOR PAYI NG TO A RESIDENT ANY INCOME BY WAY OF INTEREST OTHER THAN THE INCOME BY WAY OF INTEREST ON SECURITIES, SHALL, AT THE TIME OF CREDIT OF SUCH IN COME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE WHICHEVER IS EARLIER, DE DUCT INCOME TAX AT THE RATES IN FORCE. LIKEWISE SECTION 194C OF THE ACT PR OVIDES THAT ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT (REF ERRED TO AS A CONTRACTOR) FOR CARRYING OUT ANY WORK INCLUDING SUPPLY OF LABOU R IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND THE SPECIFIED P ERSON, SHALL AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE CO NTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT THE AMOUNT SPECI FIED IN THE SAID PROVISION AS INCOME-TAX ON INCOME COMPRISED THEREIN . SECTION 200 OF THE ACT PERTAINS TO DUTY OF PERSON DEDUCTING TAX. SUB-S ECTION (1) THEREOF PROVIDES THAT ANY PERSON DEDUCTING ANY SUM IN ACCOR DANCE WITH THE FOREGOING PROVISIONS OF THE CHAPTER, SHALL PAY WITH IN THE PRESCRIBED TIME, THE SUM SO DEDUCTED TO THE CREDIT OF THE CENTRAL GO VERNMENT OR AS THE BOARD DIRECTS. SECTION 201 PROVIDES FOR CONSEQUENCE S OF FAILURE TO DEDUCT OR PAY TAX AT SOURCE. SUB-SECTION (1) THEREOF, IN E SSENCE, PROVIDES THAT ANY PERSON, WHO IS REQUIRED TO DEDUCT ANY SUM IN AC CORDANCE WITH THE PROVISIONS OF THE ACT OR REFERRED TO IN SUB-SECTION (1) OF SECTION 192 BEING AN EMPLOYER BUT DOES NOT DEDUCT OR DOES NOT PAY OR AFTER SO DEDUCTING FAILS TO PAY WHOLE OR PART OF THE TAX AS REQUIRED UNDER T HE ACT, THEN SUCH PERSON SHALL, WITHOUT PREJUDICE TO ANY OTHER CONSEQUENCES WHICH HE MAY INCUR, BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF T HE SAID TAX. SECTION 271C OF THE ACT PROVIDES FOR PENALTY FOR FAILURE TO DEDUCT TAX AT SOURCE. 16. IN ADDITION TO SUCH PROVISIONS ALREADY EXISTIN G, THE LEGISLATURE INTRODUCED YET ANOTHER PROVISION FOR ENSURING COMPL IANCE WITH THE REQUIREMENT OF DEDUCING TAX AT SOURCE AND DEPOSITIN G IT WITH THE CENTRAL GOVERNMENT. SECTION 40(A) (IA) RELEVANT FOR OUR PUR POSE READS AS UNDER:- '(IA) ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SER VICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONT RACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT AN Y WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WO RK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVI I-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SU BSECTION (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 TH E DUE DATE SPECIFIED IN SUB-SECTION(L) OF SECTION 139, SUCH SU M SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF T HE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID.' 17. IN PLAIN TERMS SECTION 40(A)(IA) PROVIDES THAT IN CASE OF ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PR OFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR FOR CARRYING OUT ANY W ORK ON WHICH TAX IS DEDUCTIBLE AT SOURCE AND SUCH TAX HAS NOT BEEN DEDU CTED OR AFTER DEDUCTION HAS NOT BEEN PAID BEFORE THE DUE DATE, SU CH AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS ITA NO.1564/PN/2012 A.Y. : 2007-08 AND GAINS OF BUSINESS OR PROFESSION' IRRESPECTIVE O F THE PROVISIONS CONTAINED IN SECTIONS 30 TO 38 OF THE ACT. PROVISO TO SECTION 40(A)(IA), HOWEVER, ENABLES THE ASSESSEE TO TAKE SUCH DEDUCTIO N IN SUBSEQUENT YEAR, IF TAX IS DEDUCTED IN SUCH YEAR OR THOUGH DED UCTED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB-SECTION(1) OF SECTION 139 OF THE ACT. 18. IN SUCH CONTEXT, THEREFORE, THE QUESTION ARISE S 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 AMO UNT REMAINS PAYABLE TILL THE END OF THE PREVIOUS YEAR OR WOULD INCLUDE ALL A MOUNTS WHICH BECAME PAYABLE DURING THE ENTIRE PREVIOUS YEAR. 19. DECISION IN THE CASE OF M/S. MERILYN SHIPPING & TRANSPORTS VS. ACIT (SUPRA) WAS RENDERED BY THE SPECIAL BENCH BY A SPLI T OPINION. LEARNED ACCOUNTANT MEMBER WHO WAS IN MINORITY, PLACED HEAVY RELIANCE ON A DECISION OF MADRAS HIGH COURT IN THE CASE OF TUBE I NVESTMENTS OF INDIA LTD. AND ANOTHER VS. ASSISTANT COMMISSIONER OF INCOME-TA X (TDS) AND OTHERS REPORTED IN [2010] 325 ITR 610 (MAD) = (2O09-TIOL-5 29-HC-MAD-IT). 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 APPLICA BLE. LEARNED JUDGE REJECTED THE THEORY OF NARROW INTERPRETATION OF TER M 'PAYABLE' AND OBSERVED AS UNDER: '12.4 IN OUR CONSIDERED OPINION, THERE IS NO AMBIGU ITY IN THE SECTION AND TERM 'PAYABLE' CANNOT BE ASCRIBED N ARROW INTERPRETATION AS CONTENDED BY ASSESSEE. HAD THE INTENTIONS OF THE LEGISLATURE WERE TO DISALLOW ONLY ITEMS OUTSTANDING AS ON 31ST MARCH, THEN THE TERM 'PAYABL E' WOULD HAVE BEEN QUALIFIED BY THE PHRASE AS OUTSTAND ING ON 31ST MARCH. HOWEVER, NO SUCH QUALIFICATION IS THERE IN THE SECTION AND, THEREFORE, THE SAME CANNOT BE READ INT O THE SECTION AS CONTENDED BY THE ASSESSEE.' 20. ON THE OTHER HAND, LEARNED JUDICIAL MEMBER SPE AKING FOR MAJORITY ADOPTED A STRICTER INTERPRETATION. HEAVY RELIANCE W AS PLACED ON THE FINANCE BILL OF 2004, WHICH INCLUDED THE DRAFT OF THE AMEND MENT IN SECTION 40 AND THE ULTIMATE AMENDMENT WHICH ACTUALLY WAS PASSED BY THE PARLIAMENT. IT WAS OBSERVED THAT FROM THE COMPARISON BETWEEN THE P ROPOSED AND THE ENACTED PROVISION IT CAN BE SEEN THAT THE LEGISLATU RE 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 CONS CIOUS OMISSION AND WHEN THE LANGUAGE WAS CLEAR THE INTENTION OF THE LEGISLA TURE 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. H AVING SAID SO, CURIOUSLY, IT WAS OBSERVED THAT THE PROVISO TO SECT ION 40(A)(IA) OF THE ACT LAYS DOWN THAT EARLIER YEAR'S PROVISION CAN BE ALLO WED IN SUBSEQUENT YEARS ONLY IF IDS IS DEDUCTED AND DEPOSITED AND, THEREFOR E, REVENUE'S FEAR IS UNFOUNDED AS THE PROVISION OF SECTION 40(A)(IA) OF THE ACT COVERS THE SITUATION. 21. IN THE PRESENT CASE, WE HAVE NO HESITATION IN ACCEPTING THE CONTENTION THAT THE PROVISION MUST BE CONSTRUED STR ICTLY. THIS BEING A PROVISION WHICH CREATES AN ARTIFICIAL CHARGE ON AN AMOUNT WHICH IS OTHERWISE NOT AN INCOME OF THE ASSESSEE, CANNOT BE LIBERALLY CONSTRUED. UNDOUBTEDLY IF THE LANGUAGE OF THE SECTION IS PLAIN , IT MUST BE GIVEN ITS TRUE MEANING IRRESPECTIVE OF THE CONSEQUENCES. WE HAVE N OTICED THAT THE ITA NO.1564/PN/2012 A.Y. : 2007-08 PROVISION MAKES DISALLOWANCE OF AN EXPENDITURE WHIC H HAS OTHERWISE BEEN INCURRED AND IS ELIGIBLE FOR DEDUCTION, ON THE GROU ND THAT THOUGH TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE IT WAS NOT DEDUCT ED OR IF DEDUCTED, HAD NOT BEEN DEPOSITED BEFORE THE DUE DATE. BY ANY INTE NDMENT OR LIBERAL CONSTRUCTION OF SUCH PROVISION, THE LIABILITY CANNO T BE FASTENED IF THE PLAIN MEANING OF THE SECTION DOES NOT SO PERMIT. 22. FOR THE PURPOSE OF THE SAID SECTION, WE ARE AL SO OF THE OPINION THAT THE TERMS 'PAYABLE' AND 'PAID' ARE NOT SYNONYMOUS. WORD 'PAID' HAS BEEN DEFINED IN SECTION 43(2) OF THE ACT TO MEAN ACTUALL Y PAID OR INCURRED ACCORDING TO THE METHOD OF ACCOUNTING, UPON THE BAS IS OF WHICH PROFITS AND GAINS ARE COMPUTED UNDER THE HEAD 'PROFITS AND GAIN S OF BUSINESS OR PROFESSION'. SUCH DEFINITION IS APPLICABLE FOR THE PURPOSE OF SE CTIONS 28 TO 41 UNLESS THE CONTEXT OTHERWISE REQUIRES. IN CONTRA ST, TERM 'PAYABLE' HAS NOT BEEN DEFINED. THE WORD 'PAYABLE' HAS BEEN DESCR IBED IN WEBSTER'S THIRD NEW INTERNATIONAL UNABRIDGED DICTIONARY AS RE QUIRING TO BE PAID: CAPABLE OF BEING PAID: SPECIFYING PAYMENT TO A PART ICULAR PAYEE AT A SPECIFIED TIME OR OCCASION OR ANY SPECIFIED MANNER. IN THE CONTEXT OF SECTION 40(A)(IA), THE WORD 'PAYABLE' WOULD NOT INC LUDE 'PAID'. IN OTHER WORDS, THEREFORE, AN AMOUNT WHICH IS ALREADY PAID O VER CEASES TO BE PAYABLE AND CONVERSELY WHAT IS PAYABLE CANNOT BE ON E THAT IS ALREADY PAID. WHEN AS RIGHTLY POINTED OUT BY COUNSEL MR. HEMANI, THE ACT USES TERMS 'PAID' AND 'PAYABLE' AT DIFFERENT PLACES IN DIFFERENT CONTEXT DIFFERENTLY, FOR THE PURPOSE OF SECTION 40(A)(IA) OF THE ACT, TERM ' PAYABLE' CANNOT BE SEEN TO BE INCLUDING THE EXPRESSION 'PAID'. THE TER M 'PAID' AND 'PAYABLE' IN THE CONTEXT OF SECTION 40(A)(IA) ARE NOT USED IN TERCHANGABLY. IN THE CASE OF BIRLA CEMENT WORKS AND ANOTHER VS. STATE OF RAJA STHAN AND ANOTHER REPORTED IN AIR 1994 (SC) 2393, THE APEX COURT OBSE RVED THAT 'THE WORD PAYABLE IS A DESCRIPTIVE WORD, WHICH ORDINARILY MEA NS THAT WHICH MUST BE PAID OR IS DUE OR MAY BE PAID BUT ITS CORRECT MEANI NG CAN ONLY BE DETERMINED IF THE CONTEXT IN WHICH IT IS USED IS KEPT IN VIEW. THE WO RD HAS BEEN FREQUENTLY UNDERSTOOD TO MEAN THAT WHICH MAY, CAN O R SHOULD BE PAID AND IS HELD EQUIVALENT TO 'DUE'. 23. DESPITE THIS NARROW INTERPRETATION OF SECTION 40(A)(IA), THE QUESTION STILL SURVIVES IF THE TRIBUNAL IN CASE OF M/S. MERILYN SHIPPING & TRANSPO RTS VS. ACIT (SUPRA) WAS ACCURATE IN ITS OPINION. IN THIS CONTEXT, WE WOULD LIKE TO EXAMINE TWO ASPECTS. FIRSTLY, WHAT WOULD BE THE CORRECT INTERPRETATION OF THE SAID PROVISION. SECONDLY, WHETHER OUR SUCH U NDERSTANDING OF THE LANGUAGE USED BY THE LEGISLATURE SHOULD WAVER ON TH E PREMISE THAT AS PROPOUNDED BY THE TRIBUNAL, THIS WAS A CASE OF CONS CIOUS OMISSION ON PART OF THE PARLIAMENT. BOTH THESE ASPECTS WE WOULD ADDR ESS ONE AFTER ANOTHER. IF ONE LOOKS CLOSELY TO THE PROVISION, IN QUESTION, ADVERSE CONSEQUENCES OF NOT BEING ABLE TO CLAIM DEDUCTION ON CERTAIN PAYMEN TS IRRESPECTIVE OF THE PROVISIONS CONTAINED IN SECTIONS 30 TO 38 OF THE AC T WOULD FLOW IF THE FOLLOWING REQUIREMENTS ARE SATISFIED:- (A) THERE IS INTEREST, COMMISSION OR BROKERAGE, REN T, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SER VICES PAYABLE TO RESIDENT OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUBCONTRACTOR BEING RESIDENT FOR CARRYING OUT ANY WORK. (B) THESE AMOUNTS ARE SUCH ON WHICH TAX IS DEDUCTIB LE AT SOURCE UNDER CHAPTER XVII-B. (C) SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTI ON HAS NOT BEEN PAID ON OR BEFORE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 39. FOR THE PURPOSE OF CURRENT DISCUSSION REFERENCE TO THE PROVISO IS NOT NECESSARY. ITA NO.1564/PN/2012 A.Y. : 2007-08 24. 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 DAT E. THIS PROVISION NOWHERE REQUIRES THAT THE AMOUNT WHICH IS PAYABLE MUST REMA IN SO PAYABLE THROUGHOUT DURING THE YEAR. TO REITERATE THE PROVISION HAS CER TAIN STRICT AND STRINGENT REQUIREMENTS BEFORE THE UNPLEASANT CONSEQUENCES ENV ISAGED THEREIN CAN BE APPLIED. WE ARE PREPARED TO AND WE ARE DUTY BOUND T O INTERPRET SUCH REQUIREMENTS STRICTLY. SUCH REQUIREMENTS, HOWEVER, CANNOT BE ENLARGED BY ANY ADDITION OR SUBTRACTION OF WORDS NOT USED BY THE LE GISLATURE. THE TERM USED IS INTEREST, COMMISSION, BROKERAGE ETC. IS PAYABLE TO A RESIDENT OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR FOR CARRY ING OUT ANY WORK. THE LANGUAGE USED IS NOT THAT SUCH AMOUNT MUST CONTINUE TO REMAI N PAYABLE TILL THE END OF THE ACCOUNTING YEAR. ANY SUCH INTERPRETA TION WOULD REQUIRE READING WORDS WHICH THE LEGISLATURE HAS NOT USED. NO SUCH I NTERPRETATION WOULD EVEN OTHERWISE BE JUSTIFIED BECAUSE IN OUR OPINION, THE LEGISLATURE COULD NOT HAVE INTENDED TO BRING ABOUT ANY SUCH DISTINCTION NOR TH E LANGUAGE USED IN THE SECTION BRINGS ABOUT ANY SUCH MEANING. IF THE INTERPRETATIO N 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 FLAGRANTLY DEDUCTION THOUGH MADE IS NOT PAID TO THE GOVERNMENT, WOULD ESCAPE THE CONSEQUENCE ONLY BECAUSE THE AMOUN T WAS ALREADY PAID OVER BEFORE THE END OF THE YEAR IN CONTRAST TO ANOT HER ASSESSEE WHO WOULD OTHERWISE BE IN SIMILAR SITUATION BUT IN WHOSE CASE 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 HAVE ADOPTED THE INTERPRETATION WHICH WE HAVE GIVEN . IF THE LANGUAGE USED BY THE PARLIAMENT CONVEYED SUCH A MEANING, WE WOULD NO T HAVE HESITATED IN ADOPTING SUCH AN INTERPRETATION. WE ONLY HIGHLIGHT THAT WE WOULD NOT READILY ACCEPT THAT THE LEGISLATURE DESIRED TO BRING ABOUT AN INCONGRUOUS AND SEEMINGLY IRRECONCILABLE CONSEQUENCES. THE DECISION OF THE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX, GUJARAT VS. ASHOKBHAI CHIMANBHAI (SUPRA), WOULD NOT ALTER THIS SITUATION. THE SAID D ECISION, OF COURSE, RECOGNIZES THE CONCEPT OF ASCERTAINING THE PROFIT AND LOSS FROM THE BUSINESS OR PROFESSION WITH REFERENCE TO A CERTAIN PERIOD I.E. THE ACCOUNTING YEAR. IN THIS CONTEXT, L AST DATE OF SUCH ACCOUNTING PERIOD WOULD ASSUME CONSIDE RABLE SIGNIFICANCE. HOWEVER, THIS DECISION NOWHERE INDICATES THAT THE E VENTS WHICH TAKE PLACE DURING THE ACCOUNTING PERIOD SHOULD BE IGNORED AND THE ASCERTAINMENT OF FULFILLING A CERTAIN CONDITION PROVIDED UNDER THE S TATUTE MUST BE JUDGED WITH REFERENCE TO LAST DATE OF THE ACCOUNTING PERIOD. PA RTICULARLY, 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 31ST MARCH OF THE YEAR UNDER CONSIDERATION. MERELY BECAU SE, 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 POSI TION EMERGING ON 31ST MARCH. 25. THIS BRINGS US TO THE SECOND ASPECT OF THIS DI SCUSSION, NAMELY, WHETHER THIS IS A CASE OF CONSCIOUS OMISSION AND TH EREFORE, THE LEGISLATURE MUST BE SEEN TO HAVE DELIBERATELY BROUGHT ABOUT A CERTAIN SITUATION WHICH DOES NOT REQUIRE ANY FURTHER INTERPRETATION. THIS I S THE FUNDAMENTAL ARGUMENT OF THE TRIBUNAL IN THE CASE OF M/S. MERILYN SHIPPIN G & TRANSPORTS VS. ACIT(SUPRA) TO ADOPT A PARTICULAR VIEW. ITA NO.1564/PN/2012 A.Y. : 2007-08 26. WHILE INTERPRETING A STATUTORY PROVISION THE C OURTS HAVE OFTEN APPLIED HYDEN'S RULE OR THE MISCHIEF RULE AND ASCERTAINED W HAT WAS THE POSITION BEFORE THE AMENDMENT, WHAT THE AMENDMENT SOUGHT TO REMEDY AND WHAT WAS THE EFFECT OF THE CHANGES. 27. IN THE CASE OF BENGAL IMMUNITY CO. LTD. VS. ST ATE OF BIHAR AND OTHERS REPORTED IN AIR 1955 SC 661, THE APEX COURT REFERRED TO THE FAMOUS ENGLISH DECISION IN HYDEN'S CASE WHEREIN WHILE ADOPTING RESTRICTIVE OR ENLARGING INTERPRETATION, IT WAS OBSERVED THAT FOUR THINGS AR E TO BE CONSIDERED, (1) WHAT WAS THE COMMON LAW BEFORE MAKING OF THE ACT (2) WHA T WAS THE MISCHIEF AND DEFECT IN WHICH THE COMMON LAW DID NOT PROVIDE. (3) WHAT REMEDY THE PARLIAMENT HAD RESOLVED AND ADOPTED TO CURE THE DIS EASE AND (4) TRUE REASON OF THE REMEDY. 28. IN SUCH CONTEXT, THE POSITION PREVAILING PRIOR TO THE AMENDMENT INTRODUCED IN SECTION 40(A) WOULD CERTAINLY BE A RELEVANT FACTOR. HOWEVER, THE PROCEEDINGS IN THE PARLIAMENT, ITS DEBATES AND EVEN THE SPEECHES MADE BY THE PROPOSER OF A BILL ARE ORDINARILY NOT CONSIDERE D AS RELEVANT OR SAFE TOOLS FOR INTERPRETATION OF A STATUTE. IN THE CASE OF ASWINI KUMAR CHOSE AND ANOTHER VS. ARABINDA BOSE AND ANOTHER REPORTED IN A.I.R. 19 52 SC 369 IN A CONSTITUTION BENCH DECISION OF (CORAM: PATANJALI SA STRI, CJ.), OBSERVED THAT:- '33. .....IT WAS URGED THAT ACCEPTANCE OR REJECTION OF AMENDMENTS TO A BILL IN THE COURSE OF PARLIAMENTARY PROCEEDING S FORMS PART OF THE PRE-ENACTMENT HISTORY OF A STATUTE AND AS SUCH MIGHT THROW VALUABLE LIGHT ON THE INTENTION OF THE LEGISLATURE WHEN THE LANGUAGE USED IN THE STATUE ADMITTED OF MORE THAN ONE CONSTR UCTION. WE ARE UNABLE TO ASSENT TO THIS PREPOSITION. THE REASON WHY A PARTICULAR AMENDMENT WAS PROPOSED OR ACCEPTED OR REJECTED IS OFTEN A MATTER OF CONTROVER SY, AS IT HAPPENED TO BE IN THIS CASE, AND WITHOUT THE SPEECH ES BEARING UPON THE MOTION, IT CANNOT BE ASCERTAINED WITH ANY REASONABLE DEGREE OF CERTAINTY. AND WHERE THE LEGISLATURE HAPP ENS TO BE BICAMERAL, THE SECOND CHAMBER MAY OR MAY NOT HAVE K NOWN OF SUCH REASON WHEN IT DEALT WITH THE MEASURE. WE HOLD ACCORDINGLY THAT ALL THE THREE FORMS OF EXTRINSIC AID SOUGHT TO BE RESORTED TO BY THE PARTIES IN THE CASE MUST BE EXCLUDED FROM CONSI DERATION IN ASCERTAINING THE TRUE OBJECT AND INTENTION OF THE L EGISLATURE.' 29. IN YET ANOTHER CONSTITUTION BENCH JUDGMENT IN THE CASE OF A.K.GOPALAN VS. STATE OF MADRAS REPORTED IN AIR 1950 SC 27, IT WAS OBSERVED AS UNDER: - '17.....THE RESULT APPEARS TO BE THAT WHILE IT IS N OT PROPER TO TAKE INTO CONSIDERATION THE INDIVIDUAL OPINIONS OF MEMBERS OF PARLIAMENT OR CONVENTION TO CONSTRUE THE MEANING OF THE PARTICULA R CLAUSE, WHEN A QUESTION IS RAISED WHETHER A CERTAIN PHRASE OR EX PRESSION WAS UP FOR CONSIDERATION AT ALL OR NOT, A REFERENCE TO THE DEBATES MAY BE PERMITTED.' 30. IN THE CASE OF EXPRESS NEWSPAPER (PRIVATE) LTD . AND ANOTHER VS. THE UNION OF INDIA AND OTHERS REPORTED IN AIR 1958 SC 578, N.H.BHAGWATI, J., OBSERVED AS UNDER:- 173. WE DO NOT PROPOSE TO ENTER INTO ANY ELABORATE DISCUSSION ON THE QUESTION WHETHER IT WOULD BE COMPETENT TO US IN ARRIVING AT A PROPER CONSTRUCTION OF THE EXPRESSION 'FIXING RATES OF WAGES' TO LOOK INTO THE STATEMENT OF OBJECTS AND REASONS ATTACHED TO THE BILL NO. 13 OF 1955 AS INTRODUCED IN THE RAJYA SABHA OR THE CIRCUMSTANCES UNDER WHICH THE WORD 'MINIMUM' CAME TO BE DELETED F ROM THE ITA NO.1564/PN/2012 A.Y. : 2007-08 PROVISIONS OF THE BILL RELATING TO RATES OF WAGES A ND THE WAGE BOARD AND THE FACT OF SUCH DELETION WHEN THE ACT CAME TO BE PASSED IN ITS PRESENT FORM. THERE IS A CONSENSUS OF OPINION THAT THESE ARE NOT AIDS TO THE CONSTRUCTION OF THE TERMS OF THE STATUT E WHICH HAVE OF COURSE TO BE GIVEN THEIR PLAIN AND GRAMMATICAL MEAN ING (SEE: ASHVINI KUMAR GHOSH V. ARABINDA BOSE, 1953 SC R 1:( AIR 1952 SC 369) (Z24) AND PROVAT KUMAR KAR V. WILLIAM TREVELYA N CURTIEZ PARKER, AIR 1950 CAL 116 (Z25), IT IS ONLY WHEN THE TERMS OF THE STATUTE ARE AMBIGUOUS OR VAGUE THAT RESORT MAY BE H AD TO THEM FOR THE PURPOSE OF ARRIVING AT THE TRUE INTENTION OF TH E LEGISLATURE.' 31. IT CAN THUS BE SEEN THAT THE DEBATES IN THE PA RLIAMENT ARE ORDINARILY NOT CONSIDERED AS THE AIDS FOR INTERPRETATION OF THE UL TIMATE PROVISION WHICH MAY BE BROUGHT INTO THE STATUTE. THE DEBATES AT BEST INDICATE THE OPINION OF THE INDIVIDUAL MEMBERS AND ARE ORDINARILY NOT RELIED UP ON FOR INTERPRETING THE PROVISIONS, PARTICULARLY WHEN THE PROVISIONS ARE PL AIN. WE ARE CONSCIOUS THAT DEPARTURE IS MADE IN TWO EXCEPTIONAL CASES, NAMELY, THE DEBATES IN THE CONSTITUENT ASSEMBLY AND IN CASE OF FINANCE MINISTER'S SPEECH EXPLAINING THE REASON FOR INTRODUCTION OF A CERTAIN PROVISION. THE REASON WHY A CERTAIN LANGUAGE WAS USED IN A DRAFT BILL AND WHY THE PROVI SION ULTIMATELY ENACTED CARRIED A DIFFERENT EXPRESSION CANNOT BE GATHERED F ROM MERE COMPARISON OF THE TWO SETS OF PROVISIONS. THERE MAY BE VARIETY OF REA SONS WHY THE ULTIMATE PROVISION MAY VARY FROM THE ORIGINAL DRAFT. IN THE PARLIAMENTARY SYSTEM, TWO HOUSES SEPARATELY DEBATE THE LEGISLATIONS UNDER CON SIDERATION. IT WOULD ALL THE MORE BE UNSAFE TO REFER TO OR RELY UPON THE DRAFTS, AMENDMENTS, DEBATES ETC FOR INTERPRETATION OF A STATUTORY PROVISION WHEN TH E LANGUAGE USED IS NOT CAPABLE OF SEVERAL MEANINGS. IN THE PRESENT CASE TH E TRIBUNAL IN CASE OF M/S. MERILYN SHIPPING & TRANSPORTS VS. ACIT (SUPRA) FELL IN A SERIOUS ERROR IN MERELY COMPARING THE LANGUAGE USED IN THE DRAFT BILL AND FINAL ENACTMENT TO ASSIGN A PARTICULAR MEANING TO THE STATUTORY PROVISION. 32. IT IS, OF COURSE, TRUE THAT THE COURTS IN INDI A HAVE BEEN APPLYING THE PRINCIPLE OF DELIBERATE OR CONSCIOUS OMISSION. SUCH PRINCIPLE IS APPLIED MA INLY WHEN AN EXISTING PROVISION IS AMENDED AND A CHANGE IS BROUGHT ABOUT. WHILE INTERPRETING SUCH AN AMENDED PROVISION, THE COURTS WOULD IMMEDIATELY INQUIRE WHAT WAS THE STATUTORY PROVISION BEFORE AND WHAT CH ANGES THE LEGISLATURE BROUGHT ABOUT AND COMPARE THE EFFECT OF THE TWO. TH E OTHER OCCASION FOR APPLYING THE PRINCIPLE, WE NOTICE FROM VARIOUS DECI SIONS OF THE SUPREME COURT, HAS BEEN WHEN THE LANGUAGE OF THE LEGISLATURE IS CO MPARED WITH SOME OTHER ANALOGOUS STATUTE OR OTHER PROVISIONS OF THE SAME S TATUTE OR WITH EXPRESSION WHICH COULD APPARENTLY OR OBVIOUSLY BEEN USED IF TH E LEGISLATURE HAD DIFFERENT INTENTION IN MIND, WHILE FRAMING THE PROVISION. WE MAY REFER TO SOME OF SUCH DECISIONS PRESENTLY. IN THE CASE OF BHUWALKA STEEL INDUSTRIES LTD. VS. BOMBAY IRON AND STEEL LABOUR BOARD REPORTED IN AIR 2010 (SUPPL.) 122, THE APEX COURT OBSERVED AS UNDER:- 'THE OMISSION OF THE WORDS AS PROPOSED EARLIER FROM THE FINAL DEFINITION IS A DELIBERATE AND CONSCIOUS ACT ON THE PART OF THE LEGISLATURE, ONLY WITH THE OBJECTIVE TO PROVIDE PRO TECTION TO ALL THE LABOURERS OR WORKERS, WHO WERE THE MANUAL WORKE RS AND WERE ENGAGED OR TO BE ENGAGED IN ANY SCHEDULED EMPLOYMENT. THEREFORE, THERE WAS A SPECIFIC ACT ON THE PART OF THE LEGISLATURE TO ENLARGE THE SCOPE OF THE DEFI NITION AND ONCE WE ACCEPT THIS, ALL THE ARGUMENTS REGARDING TH E OBJECTS AND REASONS, THE COMMITTEE REPORTS, THE LEGISLATIVE HISTORY BEING CONTRARY TO THE EXPRESS LANGUAGE, ARE RELEGAT ED TO THE BACKGROUND AND ARE LIABLE TO BE IGNORED.' ITA NO.1564/PN/2012 A.Y. : 2007-08 33. IN THE CASE OF AGRICULTURAL PRODUCE MARKET COM MITTEE, NARELA, DELHI VS. COMMISSIONER OF INCOME TAX AND ANR. REPOR TED IN AIR 2008 SC (SUPPLEMENT) 566 = (2008-TIOL-155-SC-IT), THE SUPREME COURT NOTICED THAT PRIOR TO FINANCE ACT, 2002, THE INCOME TAX ACT DID NOT CONTAIN THE DEFINITION OF WORDS 'LOCAL AUTHORITY'. THE WORD CAM E TO BE DEFINED FOR THE FIRST TIME BY THE FINANCE ACT OF 2002 BY EXPLANATIO N/ DEFINITION CLAUSE TO SECTION 10(20) OF THE ACT. IT WAS FURTHER NOTICED THAT THERE WERE SIGNIFICANT DIFFERENCE IN THE DEFINITION OF TERM 'LOCAL AUTHORI TY' CONTAINED UNDER SECTION 3(31) OF THE GENERAL CLAUSES ACT, 1987 AS C OMPARED TO THE DEFINITION - CLAUSE INSERTED IN SECTION 10(20) OF T HE INCOME TAX ACT, 1961 VIDE FINANCE ACT, OF 2002. IN THIS CONTEXT IT WAS O BSERVED THAT:- '27. CERTAIN GLARING FEATURES CAN BE DECIPHERED FRO M THE ABOVE COMPARATIVE CHART. UNDER SECTION 3(31) OF THE GENERAL CLAUSES ACT, 1897, 'LOCAL AUTHORITY' WAS DE FINED TO MEAN ' A MUNICIPAL COMMITTEE, DISTRICT BOARD, BO DY OF PORT COMMISSIONERS OR OTHER AUTHORITY LEGALLY ENTIT LED TO THE CONTROL OR MANAGEMENT OF A MUNICIPAL OR LOCAL FUND. THE WORDS ' OTHER AUTHORITY' IN SECTION 3(31) OF THE 18 97 ACT HAS BEEN OMITTED BY PARLIAMENT IN THE EXPLANATION/ DEFINITION CLAUSE INSERTED IN SECTION 10(20) OF THE 1961 ACT VIDE FINANCE ACT, 2002. THEREFORE, IN OUR VIEW, IT WOULD NOT BE CORRECT TO SAY THAT THE ENTIRE DEFINITION OF THE WORD 'LOCAL AUTHORITY' IS BODILY LIFTED FROM SECTION 3(31) OF T HE 1897 ACT AND INCORPORATED, BY PARLIAMENT, IN THE SAID EXPLAN ATION TO SECTION 10(20) OF THE 1961 ACT. THIS DELIBERATE OMI SSION IS IMPORTANT.' 34. THE APEX COURT IN THE CASE OF GREATER BOMBAY C OOPERATIVE BANK LTD. VS. M/S. UNITED YARN TEX. PVT. LTD & ORS. REPORTED IN AIR 2007 SC 1584, IN THE CONTEXT OF QUESTION WHETHER TH E COOPERATIVE BANKS TRANSACTING BUSINESS OF BANKING FALL WITHIN THE MEA NING OF 'BANKING COMPANY' DEFINED IN THE BANKING REGULATION ACT, 194 9, OBSERVED AS UNDER:- '59. THE RDB ACT WAS PASSED IN 1993 WHEN PARLIAMENT HAD BEFORE IT THE PROVISIONS OF THE BR ACT AS AMEND ED BY ACT NO.23 OF 1965 BY ADDITION OF SOME MORE CLAUSES IN SECTION 56 OF THE ACT. THE PARLIAMENT WAS FULLY AWA RE THAT THE PROVISIONS OF THE BR ACT APPLY TO CO-OPERATIVE SOCIETIES AS THEY APPLY TO BANKING COMPANIES. THE PARLIAMENT WAS ALSO AWARE THAT THE DEFINITION OF 'B ANKING COMPANY' IN SECTION 5(C) HAD NOT BEEN ALTERED BY AC T NO.23 OF 1965 AND IT WAS KEPT INTACT, AND IN FACT A DDITIONAL DEFINITIONS WERE ADDED BY SECTION 56(C).'CO-OPERATI VE BANK' WAS SEPARATELY DEFINED BY THE NEWLY INSERTED CLAUSE (CCI) AND 'PRIMARY CO-OPERATIVE BANK' WAS SIMILARLY SEPARATELY DEFINED BY CLAUSE (CCV). THE PARLIAMENT WAS SIMPLY ASSIGNING A MEANING TO WORDS; IT WAS NOT INCORPORATING OR EVEN REFERRING TO THE ''SUBSTANTIV E PROVISIONS OF THE BR ACT. THE MEANING OF 'BANKING COMPANY' MUST, THEREFORE, NECESSARILY BE STRICTLY C ONFINED TO THE WORDS USED IN SECTION 5(C) OF THE BR ACT, IT WOULD HAVE BEEN THE EASIEST THING FOR PARLIAMENT TO SAY T HAT 'BANKING COMPANY' SHALL MEAN 'BANKING COMPANY' AS DEFINED IN SECTION 5(C) AND SHALL INCLUDE 'CO-OPERA TIVE BANK' AS DEFINED IN SECTION 5(CCI) AND 'PRIMARY CO- OPERATIVE BANK' AS DEFINED IN SECTION 5(CCV). HOWEV ER, THE PARLIAMENT DID NOT DO SO. THERE WAS THUS A CONSCIOU S ITA NO.1564/PN/2012 A.Y. : 2007-08 EXCLUSION AND DELIBERATE COMMISSION OF CO-OPERATIVE BANKS FROM THE PURVIEW OF THE RDB ACT. THE REASON F OR EXCLUDING COOPERATIVE BANKS SEEMS TO BE THAT CO- OPERATIVE BANKS HAVE COMPREHENSIVE, SELF-CONTAINED AND LESS EXPENSIVE REMEDIES AVAILABLE TO THEM UNDER THE STATE CO-OPERATIVE SOCIETIES ACTS OF THE STATES CONCERNED, WHILE OTHER BANKS AND FINANCIAL INSTITUT IONS DID NOT HAVE SUCH SPEEDY REMEDIES AND THEY HAD TO FILE SUITS IN CIVIL COURTS.' 35. IN THE CASE OF NATIONAL MINERAL DEVELOPMENT CO RPORATION LTD. VS. STATE OF M.P AND ANOTHER REPORTED IN AIR 2004 SC 24 56, THE APEX COURT OBSERVED AS UNDER:- '29. THE PARLIAMENT KNOWING IT FULL WELL THAT THE I RON ORE SHALL HAVE TO UNDERGO A PROCESS LEADING TO EMERGENC E OF LUMPS, FINES, CONCENTRATES AND SLIMES CHOSE TO MAKE PROVISION FOR QUANTIFICATION OF ROYALTY ONLY BY REF ERENCE TO THE QUANTITY OF LUMPS, FINES AND CONCENTRATES. IT L EFT SLIMES OUT OF CONSIDERATION. NOTHING PREVENTED THE PARLIAM ENT FROM EITHER PROVIDING FOR THE QUANTITY OF IRON ORE AS SUCH AS THE BASIS FOR QUANTIFICATION OF ROYALTY. IT CHOSE T O MAKE PROVISION FOR THE QUANTIFICATION BEING AWAITED UNTI L THE EMERGENCE OF LUMPS, FINES AND CONCENTRATES. HAVING DONE SO THE PARLIAMENT HAS NOT SAID 'FINES INCLUDING SLI MES'. THOUGH 'SLIMES' ARE NOT 'FINES' THE PARLIAMENT COUL D HAVE ASSIGNED AN ARTIFICIAL OR EXTENDED MEANING TO 'FINE S' FOR THE PURPOSE OF LEVY OF ROYALTY WHICH IT HAS CHOSEN NOT TO DO. IT IS CLEARLY SUGGESTIVE OF ITS INTENTION NOT TO TAKE INTO CONSIDERATION 'SLIMES' FOR QUANTIFYING THE AMOUNT O F ROYALTY. THIS DELIBERATE OMISSION OF PARLIAMENT CANNOT BE MA DE GOOD BY INTERPRETATIVE PROCESS SO AS TO CHARGE ROYA LTY ON 'SLIMES' BY READING SECTION 9 OF THE ACT DIVORCED F ROM THE PROVISIONS OF THE SECOND SCHEDULE. EVEN IF SLIMES W ERE TO BE HELD LIABLE TO CHARGE OF ROYALTY, THE QUESTION W OULD STILL HAVE REMAINED AT WHAT RATE AND ON WHAT QUANTITY WHI CH QUESTIONS CANNOT BE ANSWERED BY SECTION 9.' 36. IN THE CASE OF GOPAL SARDAR, VS. KARUNA SARDA R REPORTED IN AIR 2004 SC 3068, THE APEX . COURT IN THE CONTEXT OF LIMITATION WITHIN WHICH R IGHT OF PREEMPTION MUST BE EXERCISED AND WHETHER IN THE CON TEXT OF THE RELEVANT PROVISIONS CONTAINED IN WEST BENGAL LAND REFORMS AN D LIMITATION ACT, 1963 APPLIED OR NOT, OBSERVED AS UNDER:- '8....PRIOR TO 15-2-1971, AN APPLICATION UNDER SECT ION 8 WAS REQUIRED TO BE MADE TO THE 'REVENUE OFFICER SPECIFICALLY EMPOWERED BY THE STATE GOVERNMENT IN T HIS BEHALF.' THIS PHRASE WAS SUBSTITUTED BY THE PHRASE 'MUNSIF HAVING TERRITORIAL JURISDICTION' BY THE AFOREMENTIO NED AMENDMENT. EVEN AFTER THIS AMENDMENT WHEN AN APPLICATION IS REQUIRED TO BE MADE TO SECTION 8 OF THE ACT EITHER TO APPLY SECTION 5 OF THE LIMITATION ACT OR ITS PRINCIPLES SO AS TO ENABLE A PARTY TO MAKE AN APPLI CATION AFTER THE EXPIRY OF THE PERIOD OF LIMITATION PRESCR IBED ON SHOWING SUFFICIENT CAUSE FOR NOT MAKING AN APPLICAT ION WITHIN TIME. THE ACT IS OF 1955 AND FOR ALL THESE Y EARS, NO PROVISION IS MADE UNDER SECTION 8 OF THE ACT PROVID ING FOR CONDONATION OF DELAY. THUS, WHEN SECTION 5 OF THE ITA NO.1564/PN/2012 A.Y. : 2007-08 LIMITATION ACT IS NOT MADE APPLICABLE TO THE PROCEE DINGS UNDER SECTION 8 OF THE ACT UNLIKE TO THE OTHER PROC EEDINGS UNDER THE ACT, AS ALREADY STATED ABOVE, IT IS APPRO PRIATE TO CONSTRUE THAT THE PERIOD OF LIMITATION PRESCRIBED U NDER SECTION 8 OF THE ACT SPECIFICALLY AND EXPRESSLY GOV ERNS AN APPLICATION TO BE MADE UNDER THE SAID SECTION AND N OT THE PERIOD PRESCRIBED UNDER ARTICLE 137 OF THE LIMITATI ON ACT.' 37. IN OUR OPINION, THE TRIBUNAL COMMITTED AN ERRO R IN APPLYING THE PRINCIPLE OF CONSCIOUS OMISSION IN THE PRESENT CASE . FIRSTLY, AS ALREADY OBSERVED, WE HAVE SERIOUS DOUBT WHETHER SUCH PRINCIPLE CAN BE APPLIED BY COMPARING THE DRAFT PRESENTED IN PARLIAMENT AND ULT IMATE LEGISLATION WHICH MAY BE PASSED. SECONDLY, THE STATUTORY PROVISION IS AMPLY CLEAR. 38. IN THE RESULT, WE ARE OF THE OPINION THAT SECT ION 40(A) (IA) WOULD COVER NOT ONLY TO THE AMOUNTS WHICH ARE PAYABLE AS ON 31TH MARCH OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. OF COURSE, AS LONG AS THE OTHER REQUIREMENTS OF THE SA ID PROVISION ' EXIST. IN THAT CONTEXT, IN OUR OPINION THE DECISION OF THE SP ECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S. MERILYN SHIPPING & TRA NSPORTS VS. ACIT (SUPRA), DOES NOT LAY DOWN CORRECT LAW. 39. WE ANSWER THE QUESTIONS AS UNDER:- QUESTION (1) IN THE NEGATIVE I.E. IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEES. QUESTION (2) ALSO IN THE NEGATIVE I.E. IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEES. 40. ALL TAX APPEALS ARE ALLOWED. DECISIONS OF THE TRIBUNAL UNDER CHALLENGE ARE REVERSED. IN THE EARLIER PORTION OF T HE JUDGMENT, WE HAD RECORDED THAT THE TRIBUNAL IN ALL CASES HAD PROCEED ED ONLY ON THIS SHORT BASIS WITHOUT ADDRESSING OTHER ISSUES. WE, THEREFOR E, PLACE ALL THESE MATTERS BACK BEFORE THE TRIBUNAL FOR FRESH CONSIDER ATION OF OTHER ISSUES, IF ANY, REGARDING DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT. ALL APPEALS ARE DISPOSED OF ACCORDINGLY. 8.3 HOWEVER, WE FIND ALTHOUGH THE ABOVE 2 DECISIONS WERE RENDERED PRIOR TO THE HEARING BEFORE THE HONBLE AL LAHABAD HIGH COURT THE SAME WERE NOT BROUGHT TO THE NOTICE OF THE HONBLE BENCH AND THE BENCH RELYING ON THE DECISION OF THE SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING AND TRANSPORT LTD. (SUPRA) UPHELD THE DECISION OF T HE TRIBUNAL. UNDER THESE CIRCUMSTANCES, FOLLOWING THE DECISION OF THE HONBL E GUJARAT HIGH COURT AND HONBLE CALCUTTA HIGH COURT (SUPRA) WE UPHOLD THE O RDER OF THE CIT(A) SUSTAINING THE DISALLOWANCE MADE BY THE ASSESSING O FFICER. WE FURTHER FIND THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE O F ACIT VS. SHRI BHARAT DHANPAL PATIL VIDE ITA NO.600/PN/2012 ORDER DATED 3 0-07-2013 FOLLOWING THE DECISION OF HONBLE CALCUTTA HIGH COURT AND GUJARAT HIGH COURT CITED (SUPRA) HAD ALLOWED THE APPEAL FILED BY THE REVENUE WHEREIN THE CIT(A) HAD HELD THAT PROVISIONS OF SECTION 40(A)(IA) WOULD APPLY WHEN TH E AMOUNT IS PAYABLE AND WHERE THE EXPENDITURE IS PAID. THE ARGUMENT OF THE LD.COUNSEL FOR THE ASSESSEE THAT WHEN TWO VIEWS ARE POSSIBLE THE VIEW FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD .(SUPRA) IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. IN THIS VIEW OF THE MATTER, WE UPHOLD THE ORDER OF THE CIT(A) AND THE GROUNDS R AISED BY THE ASSESSEE ARE DISMISSED. ITA NO.1564/PN/2012 A.Y. : 2007-08 21. FOLLOWING THE AFORESAID PRECEDENT IN ORDER TO M AINTAIN CONSISTENCY, THE PLEA OF THE ASSESSEE IS DISMISSED AND IT HAS TO BE HELD THAT SECTION 40(A)(IA) OF THE ACT IS APPLICABLE ALSO TO SUMS WHICH ARE OUTSTA NDING AT THE END OF THE YEAR. THUS, ON THIS ASPECT, ASSESSEE FAILS. 22. IN VIEW OF THE AFORESAID DISCUSSION, WE HEREBY REJECT THE PLEA OF THE ASSESSEE AND SUSTAIN THE DISALLOWANCE OF RS.1,37,00 0/- MADE BY THE ASSESSING OFFICER BY INVOKING SECTION 40(A)(IA) OF THE ACT. THUS, ON THIS GROUND ASSESSEE FAILS. 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JULY, 2014. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 25 TH JULY, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-III, PUNE; 4) THE CIT-III, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE
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