Sangamner Taluka Sahakari Dudh Utpadak and Prakriya Sangh Maryadit, Ahmednagar V. TRO, Ahmednagar Range, Ahmednagar

ITA 1752/PUN/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88965 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 17-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASEEM SHARMA
• Assessee Lawyers: S N DOSHI
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Period of limitation; Deemed to accrue or arise in india; Non-deduction of tax; Reasonable cause; Capital receipt
• Section: 43B; 234B; 194C; 145; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1752/PN/2013 ASSESSMENT YEAR : 2007-08 SANGAMNER TALUKA SAHAKARI DUDH UTPADAK AND PRAKRIYA SANGH MARYADIT, AMRUTNAGAR, SANGAMNER, DIST : AHMEDNAGAR-422608 .. APPELLANT PAN NO. AAAAS3069C VS. TRO, AHMEDNAGAR RANGE, AHMEDNAGAR .. RESPONDENT ASSESSEE BY : SHRI S.N. DOSHI REVENUE BY : SHRI ASEEM SHARMA DATE OF HEARING : 30-12-2014 DATE OF PRONOUNCEMENT : 20-02-2015 ORDER PER SUSHMA CHOWLA, JM : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A)- IT/TP, PUNE DATED 16-08-2013 RELATING TO ASSESSMENT Y EAR 2007-08 AGAINST ORDER PASSED UNDER SECTION143(3) OF THE ACT. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 16,06,040/- MADE U/S. 40(A)(IA) OVERLOOKING THE FACT THAT ENTIRE AMOUNT H AS ACTUALLY BEEN PAID DURING THE PREVIOUS YEAR ITSELF. REFER THE JUDGMENT O F ALLAHABAD HIGH COURT IN THE CASE OF VECTOR SHIPPING PVT. LTD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE CIT(A) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 40,71,516/- WH ICH REPRESENTS THE AMOUNT COLLECTED BY THE APPELLANT BEING THE FEDERAL MILK SOCIETY FROM IT'S MEMBERS PRIMARY SOCIETIES IN ORDER TO FACILITATE T HE PURCHASES OF MILK TESTING MACHINES AND MILKING MACHINES IN BULK FOR AND ON BEHALF OF THESE PRIMARY CO-OPERATIVE SOCIETIES AND ERRONEOUSL Y HOLDING THAT THIS CONTRIBUTION MADE BY THESE PRIMARY SOCIETIES IS INC OME ON REVENUE ACCOUNT. 2 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF DEPRECATION OF RS. 10,12,500/- TREATING THE AMOUNT OF GRANT OF RS.1,35,00,000/- REC EIVED FROM THE CENTRAL GOVERNMENT UNDER THE SPONSORED SCHEME CALLED ' STRENGTHENING THE INFRASTRUCTURE FOR QUALITY AND CLEAN MILK PRODUC TION' ERRONEOUSLY HOLDING THAT THE SAID GRANT IS PROVIDED TO MEET THE COST OF CAPITAL ASSET NAMELY THE BULK COOLERS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED IN NOT SUSTAINING THE CLAIM OF EXEMPTION MADE U /S. 80P(2) (D) OF RS. 8,24,156/- THAT REPRESENTS THE INTEREST INCOME FROM THE FIXED DEPOSITS HELD WITH THE COOPERATIVE BANK AND CONFIRMIN G THE ACTION OF THE ASSESSING OFFICER OF ADJUSTING THE SAME TO THE AMOUN T OF INTEREST PAID ON THE SECURED BANK LOAN. THE ABOVE GROUNDS OF APPEAL MAY KINDLY BE ALLOWED TO BE AMENDED, ALTERED, MODIFIED ETC., IN THE INTEREST OF NATURAL J USTICE. 3. THE ISSUE IN GROUND OF APPEAL NO.1 IS AGAINST THE DISALLOW ANCE MADE UNDER SECTION 40(A)(IA) OF THE ACT. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE SO CIETY FOR THE YEAR UNDER CONSIDERATION HAD FURNISHED RETURN OF INCOME O N 17-10- 2008 DECLARING TOTAL INCOME AT NIL, AFTER CLAIMING DEDUCTION UNDER SECTION 80P OF THE INCOME TAX ACT. THE ASSESSEE WAS E NGAGED IN THE SALE/PURCHASE OF PROCESSING OF MILK AND ALSO MANUFACTURING O F MINERAL WATER. THE ASSESSEE WAS CARRYING ON THE SAID M ILK BUSINESS AS A FEDERAL MILK SOCIETY, I.E. IT WAS COLLECTING MILK FROM PRIMARY COOPERATIVE MILK SOCIETIES AND SUPPLYING IT TO THE GOVERNM ENT AND MAHANANDA DAIRY. THE MILK WAS SOLD UNDER THE BRAND NAM E RAJHANS IN POUCHES OF ONE LITRE AND HALF LITRE AND THE SA ME WERE ALSO SOLD THROUGH DEALERS IN VARIOUS CITIES. 5. THE ASSESSEE WAS CARRYING ON THE BUSINESS OF MANUFA CTURING AND SALE OF MILK PRODUCTS AND ALSO AQUA WATER UNDER THE NAME RAJHANS. THE CASE OF THE ASSESSEE ON THIS ASPECT WA S SCRUTINIZED BY THE ASSESSING OFFICER. ON THE VERIFICATION OF PROPRIETARY CONCERN, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD DEBITE D ADVERTISEMENT EXPENSES UNDER THE HEADS ADVERTISEMENT , RAJHANS 3 AQUA ADVERTISEMENT AND RAHJANS MILK SALE ADVERTISEMENT. THE ASSESSEE FOR THE PURPOSES OF ADVERTISEMENT HAD MADE PA YMENTS TO DIFFERENT AGENCIES AS TABULATED AT PAGE 4 OF THE ASSESSME NT ORDER. THE TOTAL ADVERTISEMENT EXPENSES WERE RS.16,06,040/-. TH E ASSESSING OFFICER SHOW CAUSED THE ASSESSEE TO EXPLAIN WHY IN VIEW OF THE PROVISIONS OF SECTION 194C OF THE ACT, TAX WAS NOT DEDUCTED AT SOURCE, CONSEQUENTLY WHY THE AMOUNTS SHOULD NOT BE DIS ALLOWED IN VIEW OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE ASSESSEE IN REPLY ACCEPTED THAT HE HAD NOT DEDUCTED THE TAX A T SOURCE OUT OF SUCH PAYMENTS, HOWEVER, IN RESPECT OF THE SOME PAYMENTS , HE CLAIMED THAT THESE WERE AGAINST THE PURCHASE OF GOODS. THE ASSESSING OFFICER ON VERIFICATION OF THE BILLS NOTED THAT THE A SSESSEE HAD PLACED ORDERS FOR CALENDARS AND PVC BOARD IN WHICH T HE BRAND NAME OF THE ASSESSEE WAS REFLECTED AND THE SAME BEING ADVERTISEMENT MATERIAL WAS LIABLE FOR TAX DEDUCTION AT SOUR CE UNDER SECTION 194C OF THE ACT. CONSEQUENTLY, A SUM OF RS.16,06 ,040/- WAS DISALLOWED AND ADDED BACK TO THE INCOME. 6. THE CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER IN M AKING THE DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT IN VIEW OF T HE RATIO LAID DOWN BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. CRESCENT EXPORT SYNDICATE IN 262 CTR 252 (CAL) AND BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIKANDA RKHAN N. TUNVAR 357 ITR 312 (GUJ). THE CONTRARY DECISION BY THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. VECTOR SHIPPI NG PVT. LTD. WAS NOT ADOPTED AS THE FACTS OF THAT CASE WERE DIFFERENT. 7. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 8. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSE E POINTED OUT THAT THE ENTIRE AMOUNT ON ACCOUNT OF ADVER TISEMENT 4 EXPENDITURE HAD BEEN PAID AND CONSEQUENTLY THE SAID EX PENDITURE IS ALLOWABLE IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE ALLAHAB AD HIGH COURT IN THE CASE OF CIT VS. VECTOR SHIPPING PVT. LT D. 357 ITR 642 (ALL). IT WAS ALSO POINTED OUT BY THE LEARNED AR THA T THE SLP FILED BY THE DEPARTMENT HAS BEEN DISMISSED BY THE HONBLE SUPREME COURT AND OTHER RELIANCE WAS PLACED ON THE RATIO LAID DOW N BY THE PUNE BENCHES OF THE TRIBUNAL IN THE CASE OF ITO VS. M/S . GAURIMAL MAHAJAN & SONS VIDE ITA NO.1852/PN/2012 RELATING TO ASS ESSMENT YEAR 2008-09 ORDER DATED 06-01-2014. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVEN UE ON THE OTHER HAND PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS.SIKANDERKHAN N. TUNWAR (SUPRA) AND IN THE CASE OF CIT VS. CRESCENT EXPORT SYND ICATE (SUPRA). 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN GROUND OF APPEAL NO.1 IS IN RELATION TO THE INVOKING OF PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE ASS ESSEE DURING THE YEAR UNDER CONSIDERATION HAD INCURRED ADVERT ISEMENT EXPENDITURE BY WAY OF PAYMENTS TO THE DIFFERENT ADVERTISE RS WHICH EXCEEDED THE SUM OF RS.20,000/-. UNDER THE PROVISIONS OF SECTION 194C OF THE ACT WHERE THE PAYMENTS MADE TO ADVERTISER IS RS.20,000/- OR ABOVE, THEN, THE PAYER IS REQUIRED TO DED UCT TAX AT SOURCE OUT OF SUCH PAYMENTS EITHER AT THE TIME OF PAYME NT OR THE CREDIT OF THE AMOUNT, WHICHEVER IS EARLIER. IN CASE OF FAILUR E TO DEDUCT TAX AT SOURCE UNDER SECTION 194C OF THE ACT, TH E SAID EXPENDITURE IS NOT TO BE ALLOWED AS AN EXPENSE IN VIEW OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. ADMITTEDLY, THE ASS ESSEE DID NOT DEDUCT THE TAX AT SOURCE OUT OF THE ADVERTISE MENT EXPENDITURE TOTALING RS.16,06,040/- AS PAID TO DIFFERENT PART IES AS 5 DETAILED AT PAGE 4 OF THE ASSESSMENT ORDER. THE PLEA O F THE ASSESSEE BEFORE US WAS THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WERE ATTRACTED IN CASE THE AMOUNT IS PAYABLE AT THE CLOSE O F THE YEAR. HOWEVER, IN THE CASE OF THE ASSESSEE, THE PAYMENTS HAD BEEN MADE DURING THE ACCOUNTING YEAR ITSELF AND THERE WAS NO AMOUN T PAYABLE AT THE CLOSE OF THE YEAR AND HENCE NO DISALLOWANCE COULD BE MADE IN THE HANDS OF THE ASSESSEE. RELIANCE IN THIS REGARD WAS P LACED UPON THE RATIO LAID DOWN BY THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF VECTOR SHIPPING PVT. LTD., (SUPRA). HOWEVER, WE FIND THAT T HE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF VINAY ASHWINIKUM AR JONEJA VS. ITO VIDE ITA NO.1514/PN/2012 RELATING TO ASSE SSMENT YEAR 2006-07 AFTER CONSIDERING CONTRARY VIEWS HELD BY TH E HONBLE CALCUTTA HIGH COURT AND HONBLE GUJARAT HIGH COURT AND HONBLE ALLAHABAD HIGH COURT HAS HELD AS UNDER : 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A ) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE AL SO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSING OFFICER IN THE BODY OF THE ASSESSMENT ORDER D ISALLOWED AN AMOUNT OF RS.7,20,252/- U/S.40(A)(IA) FOR NON DEDUCTI ON OF TAX. WE FIND THE LD.CIT(A) DISTINGUISHING VARIOUS DECISIONS CITED BEF ORE HIM UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. IT IS T HE CASE OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN VIEW OF THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF M/S. VECTOR SHIP PING SERVICE PVT. LTD. (SUPRA) NO DISALLOWANCE U/S.40(A)(IA) CAN BE MAD E SINCE NO AMOUNT WAS PAYABLE 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 T RIBUNAL 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 TRIBUN AL IN THE CASE OF MERILYN SHIPPING AND TRANSPORT LTD. (SUPRA) WAS REVER SED BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. CR ESCENT EXPORT SYNDICATE VIDE ORDER DATED 03-04-2013 REPORTED IN T IOL-404-HC-KOL. THE RELEVANT OBSERVATION OF THE HONBLE HIGH COURT R EAD AS UNDER : WE REQUESTED MR. KHAITAN, LEARNED SENIOR ADVOCATE T O ASSIST THE COURT IN RESOLVING THE ISSUE. THE MATTER WAS DIRECTED TO BE L ISTED FOR FURTHER HEARING ON 1ST APRIL, 2013. DICTATED ON 3RD APRIL 2013 MR. KHAITAN, LEARNED SENIOR COUNSEL, SUBMITTED THAT T HE VIEWS EXPRESSED BY THE ACCOUNTANT MEMBER ARE PREFERABLE TO THE VIEWS 6 EXPRESSED BY THE JUDICIAL MEMBERS. THE ACCOUNTANT MEMB ER IN THE CASE OF MERILYN SHIPPING & TRANSPORTS HAD EXPRESSED THE FOLL OWING VIEWS : 12.2. THE QUESTION FOR CONSIDERATION IS AS TO WHY THE WORDS 'CREDITED' OR 'PAID' CONTEMPLATED IN THE BILL WERE DROPPED WHILE INCORPORATING SECTION 40(A)(IA). ALL THE AMOUNTS WHE THER 'CREDITED' OR 'PAID' COME WITHIN THE AMBIT OF TERM 'PAYABLE' AND, THEREFORE, THE TWO TERMS, VIZ. 'CREDITED' OR 'PAID' WERE ONLY SUPERFLUOUS AND, THEREFORE, WERE DROPPED IN THE SECTI ON 40(A)(IA) INSERTED IN THE ACT. IN THE PROVISIONS RELAT ING TO TDS, THE RELEVANCE OF THESE TERMS WAS WITH REFERENCE TO TIM ING OF DEDUCTION BUT WHILE MAKING DISALLOWANCE UNDER SECTIO N 40(A)(IA), THESE TERMS HAD NO RELEVANCE AND, THEREFOR E, LEGISLATURE DROPPED THESE TWO TERMS, VIZ. 'PAID' OR 'C REDITED' BEFORE INSERTION OF SECTION 40(A)(IA) IN THE STATUTE. 12.3. IT IS NOTICEABLE THAT SECTION 40(A) IS APPLICABLE IRR ESPECTIVE OF THE METHOD OF ACCOUNTING FOLLOWED BY AN ASSESSEE. T HEREFORE, BY USING THE TERM 'PAYABLE' LEGISLATURE INCLUDED THE ENTIRE ACCRUED LIABILITY. IF ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THEN THE MOMENT AMOUNT WAS CREDITED TO T HE ACCOUNT OF PAYEE ON ACCRUAL OF LIABILITY, TDS WAS RE QUIRED TO BE MADE BUT IF ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNT ING, THEN ON MAKING PAYMENT TDS WAS TO BE MADE AS THE LIAB ILITY WAS DISCHARGED BY MAKING PAYMENT. THE TDS PROVISIONS ARE APPLICABLE BOTH IN THE SITUATION OF ACTUAL PAYMENT AS WELL OF THE CREDIT OF THE AMOUNT. IT BECOMES VERY CLEAR FROM THE FACT THAT THE PHRASE, 'ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CH APTER XVII- B', WAS NOT THERE IN THE BILL BUT INCORPORATED IN TH E ACT. THIS WAS NOT WITHOUT ANY PURPOSE. 12.4 IN OUR CONSIDERED OPINION, THERE IS NO AMBIGUITY IN T HE SECTION AND TERM 'PAYABLE' CANNOT BE ASCRIBED NARROW INTERPRETATION AS CONTENDED BY ASSESSEE. HAD THE INTENTI ONS OF THE LEGISLATURE WERE TO DISALLOW ONLY ITEMS OUTSTANDING AS ON 31ST MARCH, THEN THE TERM 'PAYABLE' WOULD HAVE BEEN QUALIFIED BY THE PHRASE AS 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 A SSESSEE. 13. SECTION 40(A)(IA) IS TO BE INTERPRETED HARMONIOUSLY W ITH THE TDS PROVISION AS ITS OPERATION SOLELY DEPENDS ON THE PR OVISIONS CONTAINED UNDER CHAPTER XVII-B. IT CONTEMPLATES ONE OF THE CONSEQUENCES OF NON-DEDUCTION OF TAX AND ,THEREFORE, HAS TO BE INTERPRETED IN THE LIGHT OF MANDATORY PROVISIONS CONT AINED UNDER CHAPTER XVII-B. IT WOULD BE APPROPRIATE TO RE PRODUCE SECTION 40(A)(IA), WHICH READS AS UNDER:- SECTION 40(A)(IA):- ANY INTEREST, COMMISSION OR BROKER AGE, [RENT, ROYALTY,] FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECH NICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR CAR RYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OU T ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XV II-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, [ HAS NOT BEEN PAID,- 7 (A) IN A CASE WHERE THE TAX WAS DEDUCTIBLE AND WAS SO D EDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR, ON OR BEF ORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139; OR (B) IN ANY OTHER CASE, ON OR BEFORE THE LAST DAY OF T HE PREVIOUS YEAR:] [ PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCTED (A) DURING THE LAST MONTH OF THE PREVIOUS YEAR BUT PA ID 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 ALL OWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YE AR IN WHICH SUCH TAX HAS BEEN PAID.] EXPLANATION:-FOR THE PURPOSES OF THIS SUB-CLAUSE,- (I) COMMISSION OR BROKERAGE SHALL HAVE THE SAME MEANI NG AS IN CLAUSE (I) OF THE EXPLANATION TO SECTION 194 H; (II) FEES FOR TECHNICAL SERVICES SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (I) OF SECTION 9; (III) PROFESSIONAL SERVICES SHALL HAVE THE SAME MEANING AS IN CLAUSE (A)OF THE EXPLANATION TO SECTION 194J; (IV) WORK SHALL HAVE THE SAME MEANING AS IN EXPLANAT ION III TO SECTION194C; [(V) RENT SHALL HAVE THE SAME MEANING AS IN CLAUSE (I ) TO THE EXPLANATION TO SECTION 194-I; (V) ROYALTY SHALL HAVE THE SAME MEANING AS IN EXPLAN ATION 2 TO CLAUSE (VI) OF SUB- SECTION (I) OF SECTION 9;] SECTION 40 CONTAINED IN CHAPTER IV DEALS WITH COMPUT ATION OF BUSINESS INCOME AND LISTS OUT VARIOUS AMOUNTS WHICH ARE N OT DEDUCTIBLE NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38. THIS IMPLIES THAT EVEN IF A PARTICULAR AMOU NT IS ALLOWABLE UNDER SECTIONS 30 TO 38 STILL, IF IT DOES NO T COMPLY THE PROVISIONS CONTAINED IN SECTION 40, THEN THE SAME CANN OT BE ALLOWED. THE BASIC INGREDIENTS OF SECTION 40(A)(IA) ARE AS UNDE R:- (I) IT APPLIES TO INTEREST, COMMISSION OR BROKERAGE, RE NT, ROYALTY, FEES FORPROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVIC ES; (II) THE AFOREMENTIONED AMOUNTS ARE PAYABLE TO A RESI DENT, (III) THE AMOUNTS ARE PAYABLE TO A CONTRACTOR OR SUB- CONTRACTOR BEING RESIDENT. (IV) TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B IN RESPECT OF AMOUNTS PAYABLE IN RESPECT OF A AFOREMENTIONED IT EMS. (V) TAX HAS NOT BEEN DEDUCTED AS PER REQUIREMENT OF C HAPTER XVII-B. (VI) AFTER DEDUCTION OF TAX, AMOUNT HAS NOT BEEN PAI D. THEREFORE, IF AFOREMENTIONED CONDITIONS ARE NOT FULF ILLED THEN DEDUCTION WOULD NOT BE ALLOWED. HOWEVER, PROVISO TO THIS SECTION FURTHER GIVES LEVERAG E TO ASSESSEE TO DEDUCT TAX IN SUBSEQUENT YEAR OR PAY TAX DEDU CTED DURING THE PREVIOUS YEAR AFTER THE DUE DATE SPECIFIED IN SECTION 139(1). IN SUCH A SITUATION, DEDUCTION WOULD BE ALLO WED IN THE 8 YEAR IN WHICH SUCH TAX HAS BEEN DEDUCTED. THE EXPLANA TION TO THIS SECTION DEFINES VARIOUS AMOUNTS CONTEMPLATED IN T HIS SECTION. THE RELEVANT SECTIONS IN CHAPTER XVII-B ARE RE-PRODUCED HEREUNDER:- INTEREST ON SECURITIES. 193. THE PERSON RESPONSIBLE FOR PAYING [TO A RESIDENT] ANY INCOME [BY WAY OF INTEREST ON SECURITIES] SHALL, [AT TH E TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER], DEDUCT INCOME -TAX [***] AT THE RATES IN FORCE ON THE AMOUNT OF THE INTEREST PAYA BLE: PAYMENTS TO CONTRACTORS AND SUB-CONTRACTORS. 194C. (1) ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT (HEREINAFTER IN THIS SECTION REFERRED TO AS T HE CONTRACTOR) FOR CARRYING OUT ANY WORK (INCLUDING SU PPLY OF LABOUR FOR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND ** ** ** SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUN T 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, WHICHEVE R 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 INCOME -TAX ON INCOME COMPRISED THEREIN. COMMISSION OR BROKERAGE: 194-H: ANY PERSON, NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING, ON O R AFTER THE 1ST DAY OF JUNE, 2001, TO A RESIDENT, ANY INCOME BY W AY OF COMMISSION (NOT BEING INSURANCE COMMISSION REFERRED TO I N SECTION 194D) OR BROKERAGE, SHALL, AT THE TIME OF CR EDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME O F PAYMENT OF SUCH INCOME IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAF T 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 UNDIVI DED FAMILY, WHO IS RESPONSIBLE FOR PAYING TO A RESIDENT AN Y INCOME BY WAY OF RENT, SHALL, AT THE TIME OF CREDIT OF SUCH INC OME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THER EOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MOD E, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT T HE RATE OF (A) TEN PER CENT FOR THE USE OF ANY MACHINERY OR PLA NT OR EQUIPMENT; (B) FIFTEEN PER CENT FOR THE USE OF ANY LAND OR BUIL DING (INCLUDING FACTORY BUILDING) OR LAND APPURTENANT TO A BUILDING (INCLUDING FACTORY BUILDING) OR FURNITURE OR FITTINGS WHERE THE PAYEE IS AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY; AND 9 (C) TWENTY PER CENT FOR THE USE OF ANY LAND OR BUILD ING (INCLUDING FACTORY BUILDING) OR LAND APPURTENANT TO A BUILDING (INCLUDING FACTORY BUILDING) OR FURNITURE OR FITTINGS WHERE THE PAYEE IS A PERSON OTHER 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 U NDIVIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING TO A RESIDENT AN Y 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 28, SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE PAY EE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQU E OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT A N AMOUNT EQUAL TO TEN PER CENT OF SUCH SUM AS INCOME TAX ON IN COME COMPRISED THEREIN: ** ** ** EXPLANATION. FOR THE PURPOSES OF THIS SECTION,- (A) PROFESSIONAL SERVICES MEANS SERVICES RENDERED BY A P ERSON IN THE COURSE OF CARRYING ON LEGAL, MEDICAL, ENGINEE RING OR ARCHITECTURAL PROFESSION OR THE PROFESSION OF ACCOUNTAN CY OR TECHNICAL CONSULTANCY OR INTERIOR DECORATION OR ADVE RTISING OR SUCH OTHER PROFESSION AS IS NOTIFIED BY THE BOARD FOR TH E PURPOSES OF SECTION 44AA OR OF THIS SECTION; (B) FEES FOR TECHNICAL SERVICES SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (I) OF SECTION9; (BA) ROYALTY SHALL HAVE THE SAME MEANING AS IN EXPL ANATION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9; (C) WHERE ANY SUM REFERRED TO IN SUB-SECTION (1) IS CRE DITED TO ANY ACCOUNT, WHETHER CALLED SUSPENSE ACCOUNT OR BY A NY OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE PERSON LIABLE T O PAY SUCH SUM, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUC H SUM TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF THIS SEC TION SHALL APPLY ACCORDINGLY. IF WE EXAMINE THE AFOREMENTIONED SECTIONS, WE FIND TH AT IDENTICAL CONSIDERATIONS PERMEATE THROUGH ALL THE AFOREMENTIONED SECTIONS WHICH ARE AS UNDER:- (I) ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT IN RESPECT OF AFOREMENTIONED ITEMS; (II) SHALL; (III) AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUN T 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 RAT E; 10 THE TERM 'SHALL' USED IN ALL THESE SECTIONS MAKE IT CLE AR THAT THESE ARE MANDATORY PROVISIONS AND APPLICABLE TO THE ENTIRE SUM CONTEMPLATED UNDER THE RESPECTIVE SECTIONS. THESE SECTIO NS DO NOT GIVE ANY LEVERAGE TO THE ASSESSEE TO MAKE THE PAYME NT WITHOUT MAKING TDS. ON THE CONTRARY, THE INTENTION OF THE LEGISLATURE IS EVIDENT FROM THE FACT 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 PAYEE, 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 'PAYABL E' 'ON WHICH TAX WAS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B'. A PPLYING THE PRINCIPLES OF EUJESDEM GENERIS, IT CAN EASILY BE INFERR ED THAT TERM 'PAYABLE' IN SECTION 40(A)(IA) HAS TO BE INTERPRETED IN THE LIGHT OF SUM REFERRED TO IN VARIOUS SECTIONS CONTAINED IN CHAPTE R XVII-B NOTED ABOVE, ON WHICH TAX WAS DEDUCTIBLE AND, THEREF ORE, THE TERM 'PAYABLE' IN SECTION 40(A)(IA) REFERS TO ENTIRE AMOUNT ON WHICH TAX WAS REQUIRED TO BE DEDUCTED. KEEPING IN VI EW THE PRINCIPLES OF HARMONIOUS CONSTRUCTION, THE TERM 'PAYAB LE' IN SECTION 40(A)(IA) CANNOT BE READ SEPARATELY FROM THE PROVISIONS RELATING TO TDS AS PLEADED ON BEHALF OF ASSESSEE. IN OUR OPINION, LD. CIT (APPEALS) HAS RIGHTLY OBSERVED THAT TAKING THE SPIRIT OF TDS PROVISION INTO ACCOUNT AND SECTION 40(A)(IA) BEI NG DIRECTLY RELATED TO SUCH TDS PROVISION, A HARMONIOUS CONSTRUCTIO N OF THE WORD 'PAYABLE' LEADS TO INEVITABLE CONCLUSION THAT TH E SAID WORD ALSO INCLUDES THE 'PAID' AMOUNT. 14. LD. COUNSEL HAS RELIED ON THE DICTIONARY MEANING OF T ERM 'PAYABLE' WHICH, IN OUR OPINION, CANNOT BE RESORTED TO IN VIEW OF DISCUSSION IN FOREGOING PARAS. THE CONTEXT IN WHICH TER M 'PAYABLE' HAS BEEN USED IN SECTION 40(A)(IA) IS TO BE TAKEN INTO CONSIDERATION. THE CONTEXT IS VARIOUS SECTIONS OF CHAPTE R XVII-B. 15. THE NEXT ARGUMENT OF LD. COUNSEL IS BASED ON THE DEFIN ITION OF TERM 'PAID' AS CONTEMPLATED UNDER SECTION 43(2) WHI CH READS AS UNDER:- 43(2) : PAID MEANS ACTUALLY PAID OR INCURRED ACCO RDING TO THE METHOD OF ACCOUNTING UPON THE BASIS OF WHICH THE PROF ITS OR GAINS ARE COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION . 16. A BARE READING OF THE ABOVE PROVISION WOULD MAKE IT CLEAR THAT THE TERM 'PAID' DOES NOT ONLY MEAN ACTUAL PAYME NT BUT IF THE LIABILITY HAS BEEN INCURRED ACCORDING TO THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE, THEN THE SAME ALSO C OMES WITHIN THE PURVIEW OF TERM 'PAID'. IF THE ASSESSEE IS F OLLOWING MERCANTILE SYSTEM OF ACCOUNTING THEN AS SOON AS THE LIAB ILITY ACCRUES IN ITS FAVOUR, THE SAME IS ACCOUNTED FOR BY CR EDITING THE AMOUNT OF PAYEE. THUS, IT IS EVIDENT THAT THE EMPHASI S IS ON LIABILITY TO PAY AND NOT ON ACTUAL PAYMENT. IF WE A CCEPT THE CONTENTION OF ASSESSEE, THEN SECTION 40(A)(IA) WOULD BE COME OTIOSE AND THE SECTION WILL NOT BE ATTRACTED WHERE PA YMENT IS MADE THOUGH WITHOUT DEDUCTING TAX AT SOURCE. LD. COU NSEL HAS REFERRED TO THE VARIOUS DECISIONS AND IN THE CASE OF J AIPUR VIDYUT VITARAN NIGAM LIMITED (SUPRA), THE TRIBUNAL HAD RELI ED ON THE DEFINITION OF SECTION 43(2) BUT THE IMPORT OF PHRASE 'INCURRED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING FOLLOWED' WAS NOT 11 CONSIDERED. THEREFORE, THE FINDING THAT BY IMPLICATI ON THE WORD 'PAYABLE' DOES NOT INCLUDE 'PAID' CANNOT BE ACCEPTED . 17. THE NEXT ARGUMENT OF LD. COUNSEL FOR THE ASSESSEE IS BASE D ON RULE 30, WHICH CONTEMPLATES TIME AND MODE OF PAYMENT TO GOVERNMENT ACCOUNT OF TAX DEDUCTED AT SOURCE. IN OUR OPINION, THIS RULE MERELY CONTEMPLATES THE PROCEDURE OF DEPOSIT ING THE TDS AMOUNT AND MERELY BECAUSE DIFFERENT TIME LIMITS ARE PRESCRIBED, IT WOULD NOT FOLLOW THAT DIFFERENT CONSID ERATIONS WOULD APPLY WHILE CONSIDERING THE TERM 'PAYABLE' UN DER SECTION 40(A)(IA) OF THE ACT. LD. COUNSEL HAS ALSO REFERRED T O SECTION 234B DEALING WITH LEVY OF INTEREST TO DEMONSTRATE THA T ACTUAL PAYMENT AND PAYABLE AMOUNT ARE TO BE SEPARATELY DEAL T WITH. HOWEVER, THESE PROCEDURAL SECTIONS CANNOT OVERRIDE THE SUBSTANTIVE PROVISION OF THE ACT. TRIBUNAL IN THE CASE OF JAIPUR VIDYUT VITARAN NIGAM LIMITED (SUPRA) HAS ALSO OBSERVED THAT SECTION 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 CONSIDERATION THE CONTEXT IN WHICH A PARTICULAR WORD IS USED AND THE OVERALL PURPOSE SOUGHT 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 PROVISIONS OF SECTION 191, THE LIABILITY FOR PAYM ENT OF TAX IS TO BE DISCHARGED BY PAYEE. IN THE FIRST PLACE, THE AR GUMENT SEEMS TO BE QUITE CONVINCING BECAUSE THE ASSESSEE WOULD BE DEP RIVED OF GENUINE EXPENDITURE AND THE PAYEE WILL PAY THE T AX ON ITS INCOME. FURTHER, THE PROVISO TO SECTION 40 (A)(IA) D OES NOT MAKE ANY PROVISION IN REGARD TO THIS CONTINGENCY. THIS MAY BE A CASE OF CASUS OMISUS BUT THE COURT CANNOT FILL THIS GAP. HON 'BLE ALLAHABAD HIGH COURT IN THE CASE OF DEY'S MEDICALS (UP ) (P) LTD. CASE (SUPRA) OBSERVED AS UNDER:- 'ONCE A DEDUCTION OF A PARTICULAR AMOUNT IS NOT ALLO WABLE UNDER THE ACT, IT IS LIABLE TO BE TAXED AND MERELY BECAUSE SOME OTHER PERSON MAY ALSO BE LIABLE TO TAX AFTER RECEIVING THE SAID AMOUNT IN ONE OR THE OTHER MANNER, IT CANNOT BE SAID THAT F ORMER ASSESSEE IS ENTITLED FOR EXEMPTION AND CANNOT BE TAXED. NO AUTHORITY IS SHOWN PROVIDING THAT SUCH TAXATION IS NO T PERMISSIBLE IN LAW AND IS BAD EVEN OTHERWISE.' 19. LD. CIT, DR HAS STRONGLY RELIED ON THE DECISION OF TH E HONBLE MADRAS HIGH COURT IN THE CASE OF TUBE INVESTMENTS OF IN DIA LTD.S CASE (SUPRA). THE CONTENTION OF LD. COUNSEL FOR THE ASSESSEE IS THAT THIS DECISION WAS RENDERED IN THE CONTEXT OF CONSTITUTIONAL VALIDITY OF THE PROVISIONS OF SECTION 4 0(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 CA SE (SUPRA), THE SAID DECISION IS NOT RELEVANT. IT IS TRUE THAT THIS DECISION HAS BEEN RENDERED IN THE CONTEXT OF EXAMININ G OF CONSTITUTIONAL VALIDITY OF THE PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT BUT IN COURSE OF EXAMINING THE CONSTITUTIONAL VALIDITY, HONBLE MADRAS HIGH COURT HAS EXTENSIVELY CONSIDERED TH E IMPORT OF SECTION 40(A)(IA) AND, THEREFORE, IN OUR O PINION, THIS DECISION HAS STRONG BEARING ON THE PRESENT ISSUE. 12 20. HONBLE MADRAS HIGH COURT HAS NOTICED VARIOUS CONTENTI ONS OF ASSESSEE. WE RE-PRODUCE SOME CONTENTIONS, WHICH HAVE D IRECT BEARING ON THE PRESENT ISSUE:- AT PARA 5 OF JUDGMENT: MR. C. NATARAJAN, LEARNED SE NIOR COUNSEL APPEARING FOR THE PETITIONERS IN WRIT PETN. NOS. 1075 0 AND 10751 OF 2009 CONTENDED THAT WHILE CONTRACTORS BUSINE SS HAS NO NEXUS TO THE DETERMINATION OF PROFITS AND GAINS OF T HE 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 T HE EFFECT OF S. 40(A) (IA) IS SO GROSSLY UNREASONABLE THAT IT IMPO SES TAX LIABILITY ON THE BUSINESS OF THE PETITIONERS EVEN IF TH E CONTRACTOR HIMSELF PAID THE TAX IN HIS RETURNS IN THE ABSENCE OF T DS EFFECTED BY THE PETITIONERS. AT PARA 14 OF JUDGMENT: ACCORDING TO THE LEARNED SEN IOR COUNSEL, THE IMPLICATION OF S. 40(A)(IA) IS IRRESPECTIVE OF THE CIRCUMSTANCES IN WHICH THE DEDUCTION FAILED TO BE MAD E AND THEREFORE IT IS ARBITRARY. BY RELYING UPON THE DECISI ONS OF THE HONBLE SUPREME COURT IN THE CASE OF COCA COLA AND E LI LILY, THE LEARNED SENIOR COUNSEL CONTENDED THAT WHEN THE HONB LE SUPREME COURT HAS HELD THAT THE LIABILITY OF AN ASSESSE E UNDER S. 201 ON FAILURE TO DEDUCT OR PAY TAX DISAPPEARS ONCE T HE RECIPIENT HAS PAID THE FIX AND EVEN PENALTY CANNOT BE LEVIED I F THERE WAS A REASONABLE CAUSE FOR NON-DEDUCTION, IT SHOULD BE HELD THAT S. 40(A)(IA) CANNOT BE INVOKED IN THE CASE WERE THE REC IPIENT HAD PAID THE TAX. ABSENCE OF SUCH A RELIEF UNDER S. 40(A)( IA) MAKES THE 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 ENFO RCE TDS PROVISION, IN THE LIGHT OF THE FACT THAT VERY MANY P ROVISIONS BY WAY OF IMPOSITION OF PENALTY, INTEREST AND PROSECUTIO N HAVE BEEN PROVIDED UNDER THE RECOVERY CHAPTER VIZ. CHAPTER XV II, THE ADDITION OF S. 40(A)(IA) DISALLOWING THE WHOLE OF THE ACTUAL EXPENDITURE IS HIGHLY ONEROUS AND THEREBY IT BECOMES A RBITRARY, UNREASONABLE WARRANTING 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 T HE DAMAGE CAUSED UNDER THE MAIN PROVISION. IT WAS ALSO CONTENDED THAT UNDER S. 195(5) OF THE ACT RELATING TO NON-RESIDENTS, WHERE ON PRODUCTION OF A CERTIFICATE AS PER THE IT RULES, THE REQUIREMENT OF TDS IS EXEMPTED, SUCH A SAFETY VALVE MEASURE NOT BEING AVAILABLE IN RESPECT OF A RESIDENT RECIPIENT, S. 40(A) (IA) IS UNREASONABLE AND UNJUSTIFIABLE. AT PARA 24 OF JUDGMENT: ACCORDING TO THE LEARNED CO UNSEL A COMPARATIVE READING OF S.40(A)(IA) AND S. 198 WOULD SH OW THAT WHILE UNDER S. 198, THE NON-DEDUCTION OF TDS WOULD R ESULT IN DEEMED INCOME IN THE HANDS OF THE ASSESSEE, THERE IS NO S UCH EXPRESSION IN S. 40(A)(IA) AND CONSEQUENTLY THE NON-INC OME VIZ., THE EXPENDITURE CANNOT BE TREATED AS DEEMED INCOME IN THE HANDS OF THE ASSESSEE. THE LEARNED COUNSEL ALSO CONTENDED THAT SINCE THE RECIPIENT OF THE EXPENDITURE OF THE ASSESSEE I S ALSO TAXED, THE IMPOSITION OF TAX BY INVOKING S. 40(A)(IA) WOULD RESULT IN DOUBLE TAXATION WHICH CANNOT BE PERMITTED. 13 AT PARA 25 OF JUDGMENT: THE LEARNED COUNSEL BY POINT ING OUT SS. 205 AND 64 OF THE ACT CONTENDED THAT IN SIMILAR SITUA TIONS THE LEGISLATURE HAS MADE SPECIFIC EXONERATION OF DOUBLE TA XATION. THE LEARNED COUNSEL RELIED UPON: (I) CIT V. INDO NIPPON CHEMICALS CO. LTD. [2003] 182 CTR 291/[2003] 261 ITR 275 (SC); (II) K.P. VARGHESE V. CIT [1981] 24 CTR 358 [1981] 1 31 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 A N EXPENDITURE IS NOT AN INCOME AND CONSEQUENTLY THE CO LLECTION OF TAX AS ENVISAGED UNDER ART. 265 IS NOT PERMISSIBLE. IT W AS ALSO CONTENDED THAT S. 40(A)(IA) CONFLICTS WITH S. 145 OF THE ACT SINCE THE METHOD OF ACCOUNTING IS DISTURBED. AT PARA 41 OF JUDGMENT: AS AGAINST THE SUBMISSIONS OF TH E PETITIONERS THAT THE PROVISION IS ILLUSORY, THE LEARNED COUNSEL CONTENDED THAT THOUGH THE WORDS USED IN THE PROVISO AR E DEDUCT AND PAY, THERE IS NO PROHIBITION FOR THE ASSESSEE TO MAK E THE PAYMENT WITHOUT ANY DEDUCTION. IN THAT CONTEXT, THE LEARNED COUNSEL RELIED UPON S. 195A AND STATED THAT SUCH A SITU ATION IS ENVISAGED THEREIN. THE LEARNED STANDING COUNSEL ALSO RE LIED UPON ADDL CIT V. FARASOL LTD. [1987] 163 ITR 364 (RAJ.) W HERE 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 POCK ET BUT NOT DEDUCTED, HE WOULD BE ELIGIBLE FOR THE DEDUCTIO N. 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, WHEREI N IT WAS STATED THAT THE INTRODUCTION OF S.40(A)(IA) ALLOWS ADD ITIONAL TIME (TILL DUE DATE OF FILING RETURN OF INCOME) FOR DEPO SIT OF TDS PURSUANT TO THE DEDUCTION MADE FOR THE MONTH OF MARC H SO THAT THE DISALLOWANCE UNDER THE SUB-CLAUSE IS NOT ATTRACTED. THE LEARNED STANDING COUNSEL SUBMITTED A STATEMENT CONTAIN ING THE TDS COLLECTIONS FOR THE FINANCIAL YEAR 2008-09, WHIC H WAS RS.1,30,470.8 CRORES AS COMPARED TO OTHER FORMS OF TAX COLLECTIONS WHICH SHOWS THAT OUT OF THE NET COLLECTIO N, AT LEAST 1/3 IS BY WAY OF TDS. THE LEARNED STANDING COUNSEL THE REFORE CONTENDED THAT THE OBJECT FOR INTRODUCING S.40(A)(IA ) HAS REALLY WORKED VIZ., AUGMENTATION OF THE TDS PROVISION AND T HEREFORE THE PROVISION SHOULD BE UPHELD. IN THE BACKDROP OF THESE SUBMISSIONS, HONBLE MADRAS HI GH COURT UPHELD THE CONSTITUTIONAL VALIDITY OF THE PROV ISIONS OF SECTION 40(A)(IA) AND MADE VARIOUS OBSERVATIONS:- (I) HONBLE MADRAS HIGH COURT, INTER ALIA, NOTED THE OBSERVATIONS OF HONBLE SUPREME COURT IN THE CASE OF A.S.KRISHNA V . STATE OF MADRAS AIR 1957 SC 297 WHICH ARE AS UNDER:- 14 IT WOULD BE QUITE AN ERRONEOUS APPROACH TO THE QUEST ION TO VIEW SUCH A STATUTE NOT AS AN ORGANIC WHOLE, BUT AS A MERE C OLLECTION OF SECTIONS THEN DISINTEGRATE IT INTO PARTS, EXAMINE UN DER WHAT HEADS OF LEGISLATION THOSE PARTS WOULD SEVERALLY FALL, A ND BY THAT PROCESS DETERMINE WHAT PORTIONS THEREOF ARE INTER VIR ES AND WHAT ARE NOT. THUS, SECTION 40(A)(IA) COULD NOT BE VI EWED INDEPENDENTLY AND HAD TO BE CONSIDERED ALONG WITH OT HER PROVISIONS. (II) THE PROVISIONS OF SECTION 40(A)(IA) WERE COMPARE D WITH THE PROVISIONS OF SECTION 201 OF THE INCOME TAX ACT AND, I T WAS, INTER ALIA, OBSERVED THAT AS FAR AS SECTION 201 IS CONCERNED THAT 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 EXPE NDITURE AND THEREBY THE ENTIRE SUM EXPENDED WOULD ATTRACT THE LE VY OF TAX AT A PRESCRIBED RATE WITH ALL OTHER CONDITIONS SUCH AS SURC HARGE, ETC. THUS, HONBLE MADRAS HIGH COURT HAS ALSO HELD IN PARA 6 1 OF ITS JUDGMENT THAT WHOLE OF THE EXPENDITURE CLAIMED WIT HOUT MAKING TDS IS TO BE DISALLOWED AND NOT ONLY PART OF T HE EXPENDITURE. (III) THE FINANCE BILL NO.2 OF 2004 STATES THAT THE I NSERTION OF CLAUSE (IA) IN CLAUSE (A) TO SECTION 40 OF THE ACT WAS WITH A VIEW TO AUGMENT COMPLIANCE OF TDS PROVISIONS. (IV) WHEN THE PROVISIONS AND PROCEDURES RELATING TO TD S ARE SCRUPULOUSLY APPLIED, FIRST AND FOREMOST IT ENSURES THE IDENTIFICATION OF THE PAYEES AND THEREBY NETWORK OF ASSESSEES GETS CONFIRMED. WHEN ONCE SUCH IDENTITY OF ASSESSEES, WHO ARE IN RECEIPT OF THE INCOME CAN BE ASCERTAINED, IT WILL EN ABLE TAX COLLECTION MACHINERY TO BRING WITHIN ITS FOLD ALL SUC H PERSONS WHO ARE LIABLE TO COME WITHIN THE NETWORK OF TAXPAY ERS. THUS, IF IT IS HELD THAT THE PROVISIONS OF SECTION 40(A) (IA) ARE NOT APPLICABLE IN RESPECT OF THOSE PAYMENTS WHICH HAVE BEE N PAID WITHOUT MAKING TDS AND AT THE END OF THE YEAR NO AM OUNT IS OUTSTANDING THEN THE VERY OBJECT OF IDENTIFICATION O F PAYEES WILL GET FRUSTRATED. (V) THE LEGISLATIVE INTENT OF THE INTRODUCTION OF SEC TION 40(A)(IA) IS IN THE LARGER PERSPECTIVE OF AUGMENTING THE VERY T DS PROVISIONS THEMSELVES. IT IS NOT MERELY RELATED TO THE COLLECTION OF TDS ONLY. (VI) THE INTENTION OF THE LEGISLATURE IS NOT TO TAX T HE PAYER FOR ITS FAILURE TO DEDUCT THE TAX AT SOURCE. THE OBJECT OF I NTRODUCTION OF SECTION 40(A)(I) AS WELL AS SECTION 40(A)(IA) IS TO ENSUR E THAT ONE OF THE MODES OF RECOVERY AS PROVIDED IN CHAPTER XVII -B IS SCRUPULOUSLY IMPLEMENTED WITHOUT ANY DEFAULT, IN ORDE R TO AUGMENT THE SAID MODE 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 DEDUCTION IN THE SUBSEQUENT YEAR BY RECTIFYING THE DEFAULT COMMITT ED IN THE MATTER OF TDS IN THE PREVIOUS YEAR, A DEFAULT ING ASSESSEE CANNOT BE HEARD TO SAY THAT IRRESPECTIVE OF THE 15 DELIBERATE DEFAULT COMMITTED BY IT IN IMPLEMENTING THE PROVISION RELATING TO TDS, IT SHOULD BE HELD THAT A H IGHER 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 TO E NSURE THAT EVEN A DEFAULTER IS NOT PUT TO SERIOUS PREJUDICE, IN AS MUCH AS, BY OPERATION OF THE SUBSTANTIVE PROVISION, THE EXPENDITURE WHICH IS OTHERWISE ALLOWABLE AS A DEDUCTIO N IS DENIED ON THE GROUND THAT THE OBLIGATION OF TDS PROVISIONS IS VIOLATED. THE LAW MAKES WHILE IMPOSING SUCH A STRINGENT RESTRICTION WANTED TO SIMULTANEOUSLY PROVIDE SCOPE FOR THE DEFAULTER TO GAIN THE DEDUCTIO N BY COMPLYING WITH THE TDS PROVISION AT A LATER PINT OF TIME. THUS, IMPLIEDLY HONBLE MADRAS HIGH COURT, HAS, INTER ALIA, HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) WILL BE APPLI CABLE WITH RESPECT TO ENTIRE EXPENDITURE. IT IS TRUE THAT SPECIFI C ISSUE REGARDING PAID, CREDITED AND PAYABLE HAS NOT B EEN CONSIDERED BUT FROM THE JUDGMENT IT IS EVIDENT THAT IF ASSESSEES CO NTENTION IS ACCEPTED 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 TAX 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 DURIN G THE RELEVANT PREVIOUS YEAR AND WAS ACTUALLY PAID WITHIN T HE PREVIOUS YEAR. IN THE RESULT THE QUESTION IS DECIDED IN FAVOUR OF REVENUE AND AGAINST THE ASSESSEE. BEFORE DEALING WITH THE SUBMISSIONS OF THE LEARNED COUN SEL APPEARING FOR THE ASSESSEES IN BOTH THE APPEALS WE HAVE TO EXAMINE THE CORRECTNESS OF THE MAJORITY VIEWS IN THE C ASE OF MERILYN SHIPPING. WE ALREADY HAVE QUOTED EXTENSIVELY BOTH THE MAJORITY AND THE MINORITY VIEWS EXPRESSED IN THE AFORESAID CASE. THE MAIN THRUST OF THE MAJORITY VIEW IS BASED ON THE FACT THAT THE L EGISLATURE HAS REPLACED THE EXPRESSION AMOUNTS CREDITED OR PAID WIT H THE EXPRESSION PAYABLE IN THE FINAL ENACTMENT. COMPARISON BETWEEN THE PRE-AMENDMENT AND POST AMENDME NT LAW IS PERMISSIBLE FOR THE PURPOSE OF ASCERTAINING THE M ISCHIEF SOUGHT TO BE REMEDIED OR THE OBJECT SOUGHT TO BE ACHI EVED 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 SAME COMPARISON BETWEEN THE DRAFT AND THE EN ACTED LAW IS NOT PERMISSIBLE. NOR CAN THE DRAFT OR THE BILL BE U SED FOR THE PURPOSE OF REGULATING THE MEANING AND PURPORT OF THE ENACTED LAW. IT IS THE FINALLY ENACTED LAW WHICH IS THE WILL OF THE LEGISLATURE. 16 THE LEARNED TRIBUNAL FELL INTO AN ERROR IN NOT REAL IZING THIS ASPECT OF THE MATTER. THE LEARNED TRIBUNAL HELD THAT WHERE LANGUAGE IS CL EAR THE INTENTION OF THE LEGISLATURE IS TO BE GATHERED FROM T HE LANGUAGE USED. HAVING HELD SO, IT WAS NOT OPEN TO SEEK TO INTER PRET THE SECTION ON THE BASIS OF ANY COMPARISON BETWEEN THE DRA FT AND THE SECTION ACTUALLY ENACTED NOR WAS IT OPEN TO SPECUL ATE AS TO THE EFFECT OF THE SO-CALLED REPRESENTATIONS MADE BY TH E 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 AND ADMISSIBLE EXPENSES CLAIMED BY AN ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION IF THE ASSESSEE DOES N OT DEDUCT 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, TH EREFORE, CANNOT BE INVOKED BY ASSESSING OFFICER TO DISALLOW THE G ENUINE AND REASONABLE EXPENDITURE ON THE AMOUNTS OF EXPENDIT URE ALREADY PAID? DOES THIS NOT AMOUNT TO DELIBERATELY R EADING SOMETHING IN THE LAW WHICH IS NOT THERE? WE, AS SUCH, HAVE NO DOUBT IN OUR MIND THAT THE LEARN ED TRIBUNAL REALIZED THE MEANING AND PURPORT OF SECTIO N 40(A)(IA) CORRECTLY WHEN IT HELD THAT IN CASE OF OMISSION TO DED UCT TAX EVEN THE GENUINE AND ADMISSIBLE EXPENSES ARE TO BE DISALLOWED . BUT THEY SOUGHT TO REMOVE THE RIGOUR OF THE LAW BY HOLDI NG THAT THE DISALLOWANCE SHALL BE RESTRICTED TO THE MONEY WHICH IS YET TO BE PAID. WHAT THE TRIBUNAL BY MAJORITY DID WAS TO SUPPLY THE CASUS OMISSUS WHICH WAS NOT PERMISSIBLE AND COULD ONLY HAVE BEE N DONE BY THE SUPREME COURT IN AN APPROPRIATE CASE. RE FERENCE IN THIS REGARD MAY BE MADE TO THE JUDGMENT IN THE CASE OF BHUWALKA STEEL INDUSTRIES VS. BOMBAY IRON & STEEL LABO UR 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 EMPLOYMEN T. THE CONTENTION RAISED WITH REFERENCE TO WHAT WAS THER E 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 PROVIS IONS OF THIS ACT IS NOT ADEQUATELY PROTECTED BY LEGISLATION FOR WELFARE AND BENEFITS OF THE LABOUR FORCE IN THE STA TE, THESE PRECISE WORDS WERE REMOVED BY THE LEGISLATURE AND T HE DEFINITION WAS MADE 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 0 5-06- 1969 AND WAS FIRST PUBLISHED IN THE MAHARASHTRA GOVERNMENT GAZETTE EXTRAORDINARY, PART IV ON 13-06-1 969, THE AFOREMENTIONED WORDS WERE OMITTED. THEREFORE, T HIS WOULD BE A CLEAR POINTER TO THE LEGISLATIVE INTENT THAT THE LEGISLATURE BEING CONSCIOUS OF THE FACT AND BEING A RMED 17 WITH ALL THE COMMITTEE REPORTS AND ALSO BEING ARMED WITH THE FACTUAL DATA, DELIBERATELY AVOIDED THOSE WORDS. WHAT THE APPELLANTS ARE ASKING WAS TO READ IN THAT DEFIN ITION, THESE PRECISE WORDS, WHICH WERE CONSCIOUSLY AND DELIBERATELY OMITTED FROM THE DEFINITION. THAT WOUL D AMOUNT TO SUPPLYING THE CASUS OMISSUS AND WE DO NOT THINK THAT IT IS POSSIBLE, PARTICULARLY, IN THIS CASE. TH E LAW OF SUPPLYING THE CASUS OMISSUS BY THE COURTS IS EXTREME LY CLEAR AND SETTLED THAT THOUGH THIS COURT MAY SUPPLY THE C ASUS OMISSUS, IT WOULD BE IN THE RAREST OF THE RARE CASE AND THUS SUPPLYING OF THIS CASUS OMISSUS WOULD BE EXTREMELY NECESSARY DUE TO THE INADVERTENT OMISSION ON THE PA RT OF THE LEGISLATURE. BUT, THAT IS CERTAINLY NOT THE CAS E HERE. WE SHALL NOW ENDEAVOUR TO SHOW THAT NO OTHER INTERPR ETATION IS POSSIBLE. THE KEY WORDS USED IN SECTION 40(A)(IA), ACCO RDING TO US, ARE ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER C HAPTER XVII B. IF THE QUESTION IS WHICH EXPENSES ARE SOUGHT TO BE DISALLOWED? THE ANSWER IS BOUND TO BE THOSE EXPENSES ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII B. ONCE THIS IS REALIZED NOTHING TURNS ON THE BASIS OF THE FACT THAT THE LEGISLATURE USED THE WORD PAYABLE AND NOT PAID OR CREDITED. UNLESS ANY AMOUNT IS PAYABLE, IT CAN NEITHER BE PAID NOR CREDITED. IF AN AMOUNT HAS NEITHER BEEN PAID NOR CRE DITED, THERE CAN BE NO OCCASION FOR CLAIMING ANY DEDUCTION. THE LANGUAGE USED IN THE DRAFT WAS UNCLEAR AND SUSCEPTI BLE TO GIVING MORE THAN ONE MEANING. BY LOOKING AT THE DRA FT IT COULD BE SAID THAT THE LEGISLATURE WANTED TO TREAT THE PAYMENT S MADE OR CREDITED IN FAVOUR OF A CONTRACTOR OR SUB-CONTRACTOR DIFFERENTLY THAN THE PAYMENTS ON ACCOUNT OF INTEREST, COMMISSION OR BROKERAGE, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TEC HNICAL SERVICES BECAUSE THE WORDS AMOUNTS CREDITED OR PAID WE RE USED ONLY IN RELATION TO A CONTRACTOR OR SUB-CONTRACT OR. THIS DIFFERENTIAL TREATMENT WAS NOT INTENDED. THEREFORE, THE LEGISLATURE PROVIDED THAT THE AMOUNTS, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B PAYABLE ON ACCOUNT OF INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROF ESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES OR TO A CONTRACT OR OR SUB- CONTRACTOR SHALL NOT BE DEDUCTED IN COMPUTING THE IN COME OF AN ASSESSEE IN CASE HE HAS NOT DEDUCED, OR AFTER DEDUCTION HAS NOT PAID WITHIN THE SPECIFIED TIME. THE LANGUAGE USED BY THE LEGISLATURE IN THE FINALLY ENACTED LAW IS CLEAR AND U NAMBIGUOUS WHEREAS THE LANGUAGE USED IN THE BILL WAS AMBIGUOUS. A FEW WORDS ARE NOW NECESSARY TO DEAL WITH THE SUBMISSI ON OF MR. BAGCHI AND MS. ROYCHOWDHURI. THERE CAN BE NO DEN IAL THAT THE PROVISION IN QUESTION IS HARSH. BUT THAT IS NO GROUN D TO READ THE SAME IN A MANNER WHICH WAS NOT INTENDED BY THE LE GISLATURE. THIS IS OUR ANSWER TO THE SUBMISSION OF MR. BAGCHI. THE SUBMISSION OF MS. ROYCHOWDHURI THAT THE SECOND PROVISO S OUGHT TO BECOME EFFECTIVE FROM 1ST APRIL, 2013 SHOULD BE HE LD TO HAVE ALREADY BECOME OPERATIVE PRIOR TO THE APPOINTED DAT E CANNOT ALSO BE ACCEDED TO FOR THE SAME REASON INDICATED ABOVE . THE LAW WAS DELIBERATELY MADE HARSH TO SECURE COMPLIANCE OF T HE PROVISIONS REQUIRING DEDUCTIONS OF TAX AT SOURCE. IT IS NOT THE CASE OF AN INADVERTENT ERROR. 18 FOR THE REASONS DISCUSSED ABOVE, WE ARE OF THE OPINION T HAT THE MAJORITY VIEWS EXPRESSED IN THE CASE OF MERILYN SHIPPI NG & TRANSPORTS ARE NOT ACCEPTABLE. THE SUBMISSIONS ADVANCED B Y LEARNED ADVOCATES HAVE ALREADY BEEN DEALT WITH AND R EJECTED. THE APPEAL IS, THUS, ALLOWED IN FAVOUR OF THE REVENU E. 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- 2013 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 SH IPPING & TRANSPORTS VS. ACIT (SUPRA) AND DELETED THE DISALLOWAN CE ON THIS LIMITED GROUND. AS IN THE PRESENT CASE, OTHER GROUNDS OF CONTROVERSY BETWEEN THE PARTIES WITH RESPECT TO ALLOWABILITY OR OTHERWISE OF SUCH EXPENDITURE WAS NOT EXAMINED BY THE TRIBUNAL. FOR THE PURPOSE OF THESE APPEALS, THEREFOR E, WE FRAME FOLLOWING SUBSTANTIAL QUESTIONS OF LAW:- '1. WHETHER DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961 COULD BE MADE ONLY IN RESPECT O F SUCH AMOUNTS WHICH ARE PAYABLE AS ON 31ST MARCH OF TH E YEAR UNDER CONSIDERATION? 2. WHETHER DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S. MERILYN SHIPPING & TRANSPORTS VS. A CIT (SUPRA) LAYS DOWN CORRECT LAW?' 6. COUNSEL FOR THE REVENUE CONTENDED THAT THE TRIBUNAL HAS COMMITTED SERIOUS ERROR IN HOLDING THAT PROVISION OF S ECTION 40(A)(IA) OF THE ACT WOULD APPLY ONLY WHEN THE AMOU NT HAS REMAINED PAYABLE TILL THE END OF THE ACCOUNTING YEAR. THEY POINTED OUT THAT THE WORD 'PAYABLE' HAS NOT BEEN DEF INED UNDER THE ACT AND THE SAME WOULD, IN THE CONTEXT OF THE P ROVISION UNDER CONSIDERATION, INCLUDE THE EXPRESSION 'PAID'. AN Y OTHER INTERPRETATION WOULD LEAD TO ABSURD RESULTS. THEY CONTENDED THAT THE INTERPRETATION WHICH ADVANCES THE TRUE MEANING OF THE PROVISION SHOULD BE ADOPTED AND NOT ONE WHICH FRUSTRA TES THE PROVISION. 7. IN THIS RESPECT RELIANCE WAS PLACED ON THE FOLLOW ING DECISIONS:- (1) IN THE CASE OF K.P.VARGHESE VS. INCOME-TAX OFFI CER, ERNAKULAM, AND ANOTHER REPORTED IN [1981] 131 ITR 597 = (2O02-TIOL-128-SC-IT), IN WHICH IT WAS OBSERVED THAT 'IT IS A WELL RECOGNIZED RULE OF CONSTRUCTION THAT THE STATUTORY PROVISION MUST BE S O CONSTRUED, IF POSSIBLE, THAT ABSURDITY 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 INTERPRETATI ON OF A STATUTORY PROVISION PRODUCES A MANIFESTLY UNJU ST RESULT, WHICH COULD NEVER HAVE BEEN INTENDED BY THE LEGISLATURE, THE COURT MIGHT MODIFY THE LANGUAGE US ED 19 BY THE LEGISLATURE SO AS TO ACHIEVE THE INTENTION O F THE LEGISLATURE AND PRODUCE 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 ADOPTED EVEN IF IT LEADS TO A DISCRIMINAT ORY OR INCONGRUOUS RESULT. INTERPRETATION OF STATUTES CANNOT BE A MECHANICAL EXERCISE.' 8. COUNSEL ALSO CONTENDED THAT INTERPRETATION MADE B Y THE TRIBUNAL LEADS TO RESULTS WHOLLY UNINTENDED BY THE LEGISLATURE. IF DISALLOWANCE UNDER SECTION 40(A)(IA) IS APPLIED ONLY IN CASE OF AMOUNTS PAYABLE AS ON 31ST MARCH OF THE YEAR UNDER CONSIDERATION, IN LARGE NUMBER OF CASES WHERE TH E ASSESSEES MIGHT HAVE ACTUALLY PAID THE AMOUNTS BUT MIGHT NOT HAVE EITHER DEDUCTED TAX AT SOURCE THOUGH REQUIRED UNDER THE ACT 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 NO T PERMIT SUCH INTERPRETATION ADOPTED BY THE TRIBUNAL IN T HE CASE OF M/S. MERILYN SHIPPING & TRANSPORTS VS. ACIT(SUPRA). EVEN ON THE PREMISE OF LITERAL CONSTRUCTION, THE VIEW AD OPTED BY THE TRIBUNAL SHOULD BE REJECTED. 9. ON THE OTHER HAND, COUNSEL APPEARING FOR THE ASSESSEES 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. A CCORDING TO THEM ONLY MEANING THAT CAN BE ASCRIBED TO SECTION 40(A)(IA) OF THE ACT IS THAT THE DISALLOWANCE CAN BE M ADE IN RESPECT OF AMOUNTS, WHICH ARE PAYABLE BUT NOT YET PA ID TILL 31ST MARCH OF THE YEAR UNDER CONSIDERATION AND NO OTH ER. 10. IT WAS CONTENDED THAT THE PROVISION IN QUESTION IS EXPROPRIETARY SINCE IT DISALLOWS ENTIRE EXPENDITURE FOR NOT DEDUCTING A SMALL PORTION OF TAX AT SOURCE. IT IS THUS IN A NATURE OF PENALTY. IT WAS CONTENDED THAT IN ANY CASE, SECTIO N 40(A)(IA) CREATES DEEMING FICTION WHERE 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 INTENTIO N OF THE LEGISLATURE MAY NOT HAVE BEEN TO LIMIT SUCH PROVISI ON, IF THE PLAIN LANGUAGE OF THE SECTION PERMITS NO OTHER MEAN ING, THIS COURT CANNOT AND WOULD NOT EXPAND THE MEANING OF THE 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), THEREFO RE, WHEN USES THE EXPRESSION 'PAYABLE', SUCH TERM MUST BE GIVEN ITS ORDINARY MEANING 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 LANGUAGE. IN PLACE OF THE WORD 'PAYABLE' E XPRESSION USED WAS 'AMOUNT CREDITED OR PAID'. IN THE AMENDMENT, WHICH WAS ULTIMATELY BROUGHT ABOUT, THE SAID EXPRESSION WAS 20 CONSCIOUSLY DROPPED. THUS, THERE WAS CONSCIOUS OMISSION ON THE PART OF THE LEGISLATURE. THEY, THEREFORE, CONTENDED WI TH ALL THE MORE FORCE THAT THE TERM 'PAYABLE' USED IN SECTI ON 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 'PAYABLE' HAS NOT BEEN DEFINED IN THE ACT. 12. IN SUPPORT OF THE CONTENTIONS THEY RELIED ON THE FOLLOWING DECISION:- IN THE CASE OF MUGAT DYEING AND PRINTING MILLS VS. ASSI STANT COMMISSIONER OF INCOME-TAX REPORTED IN [2007] 290 ITR 282 (GUJ), IN WHICH THE DIVISION BENCH OF THIS COURT IN THE C ONTEXT OF SECTION 43B OF THE ACT OBSERVED THAT THE EXPRESS ION EMPLOYED IN THE SAID SECTION IS 'ACTUALLY PAID' AND IN V IEW OF THE NON-OBSTANTE CLAUSE CONTAINED IN THE SAID SECTION, IT WOULD NOT BE PERMISSIBLE TO REFER TO THE EXPRESSION 'PAID' AS DEFINED UNDER SECTION 43(2) OF THE ACT. THIS DECISION, HOWEVER, WAS RENDERED IN THE BACKGROUND OF SECTION 43 B OF THE ACT, WHICH USED THE EXPRESSION 'ACTUALLY PAID'. RELIANCE WAS PLACED IN THE CASE OF COMMISSIONER OF INC OME- TAX VS. UPNISHAD INVESTMENT P. LTD AND OTHERS REPORT ED IN [2003] 260 ITR 532, WHEREIN THE DIVISION BENCH OF THIS C OURT HAD AN OCCASION TO INTERPRET EXPRESSIONS 'RECEIVABLE' AND 'DUE'. IT WAS OBSERVED THAT EXPRESSIONS 'RECEIVABLE' IS USED WITH REFERENCE TO THE RECIPIENT 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 IT R 42, WHEREIN WHILE EXPLAINING THE CONCEPT OF TAXABILITY OF INCOME, WHEN IT ACCRUES, ARISES OR IS RECEIVED, IT WAS OB SERVED THAT THE RECEIPT IS NOT THE ONLY TEST OF CHARGEABILITY TO TAX AND IF INCOME ACCRUES OR ARISES, IT MAY BECOME LIABLE TO TA X. IN THIS CONTEXT, IT WAS OBSERVED THAT 'WORKING OF COMPANY FR OM DAY TO DAY WOULD CERTAINLY NOT INDICATE ANY PROFIT OR LOSS , EVEN WORKING OF THE COMPANY FROM MONTH TO MONTH COULD NOT BE TAKEN AS A RELIABLE GUIDE FOR THIS PURPOSE. IF THE PR OFIT OR LOSS HAS TO BE ASCERTAINED BY COMPARISON OF THE ASSETS AT TWO STATED POINTS, THE MOST BUSINESSLIKE WAY WOULD BE TO D O SO AT STATED INTERVALS OF ONE YEAR AND THAT WOULD BE A REA SONABLE PERIOD TO BE ADOPTED FOR THE PURPOSE.' ON THE BASIS OF SUCH OBSERVATIONS IT WAS CANVASSED THAT THE PAYABILITY OF TH E 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 JUDGMENTS IN SUPPORT OF THE CONTENTION THAT IN THE PRESENT CASE, STRICT INTERPRETATION IS CALLED FOR. IT IS NOT NECESSARY TO REFER T O SUCH DECISIONS. 15. CHAPTER XVII-A OF THE ACT PERTAINS TO COLLECTION AND RECOVERY OF THE TAX. PART-A THEREOF IS GENERAL. PART-B OF CHAPTER XVII PERTAINS TO DEDUCTION AT SOURCE. SEVERAL PROVISIONS HAVE BEEN MADE IN THE SAID CHAPTER FASTENING THE LIABILITY ON THE PAYEE TO DEDUCT TAX AT SOURCE AND DEP OSIT WITH THE GOVERNMENT. FOR EXAMPLE, SUB-SECTION (1) OF SECT ION 194A OF THE ACT PROVIDES THAT ANY PERSON, NOT BEING AN 21 INDIVIDUAL OR AN HINDU UNDIVIDED FAMILY, WHO IS RESPONSIB LE FOR PAYING TO A RESIDENT ANY INCOME BY WAY OF INTERE ST OTHER THAN THE INCOME BY WAY OF INTEREST ON SECURITIES, SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE P AYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A C HEQUE OR DRAFT OR BY ANY OTHER MODE WHICHEVER IS EARLIER, DEDU CT INCOME TAX AT THE RATES IN FORCE. LIKEWISE SECTION 194 C OF THE ACT PROVIDES THAT ANY PERSON RESPONSIBLE FOR PAYING AN Y SUM TO ANY RESIDENT (REFERRED TO AS A CONTRACTOR) FOR CARRYING OUT ANY WORK INCLUDING SUPPLY OF LABOUR IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND THE SPECIFIED PERSON , SHALL AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF T HE 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 THE AMOUNT SPECIFIED IN THE SAID PROVISION AS INCOME-TAX ON INCOME COMPRISED THEREIN. SECTION 200 OF T HE ACT PERTAINS TO DUTY OF PERSON DEDUCTING TAX. SUB-SECTION (1) THEREOF PROVIDES THAT ANY PERSON DEDUCTING ANY SUM IN ACCORDANCE WITH THE FOREGOING PROVISIONS OF THE CHAPTE R, SHALL PAY WITHIN THE PRESCRIBED TIME, THE SUM SO DEDUCT ED TO THE CREDIT OF THE CENTRAL GOVERNMENT OR AS THE BOARD DIRECTS. SECTION 201 PROVIDES FOR CONSEQUENCES OF FAILURE TO D EDUCT OR PAY TAX AT SOURCE. SUB-SECTION (1) THEREOF, IN ESSENC E, PROVIDES THAT ANY PERSON, WHO IS REQUIRED TO DEDUCT AN Y SUM IN ACCORDANCE 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 FAIL S TO PAY WHOLE OR PART OF THE TAX AS REQUIRED UNDER THE ACT, THEN SUCH PERSON SHALL, WITHOUT PREJUDICE TO ANY OTHER CONSEQUE NCES WHICH HE MAY INCUR, BE DEEMED TO BE AN ASSESSEE IN DEF AULT IN RESPECT OF THE SAID TAX. SECTION 271C OF THE ACT P ROVIDES FOR PENALTY FOR FAILURE TO DEDUCT TAX AT SOURCE. 16. IN ADDITION TO SUCH PROVISIONS ALREADY EXISTING, THE LEGISLATURE INTRODUCED YET ANOTHER PROVISION FOR ENSURIN G COMPLIANCE WITH THE REQUIREMENT OF DEDUCING TAX AT SOUR CE AND DEPOSITING IT WITH THE CENTRAL GOVERNMENT. SECTION 40(A) (IA) RELEVANT FOR OUR PURPOSE READS AS UNDER:- '(IA) ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICA L SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONT RACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT A NY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CH APTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE D ATE SPECIFIED IN SUBSECTION (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, SU CH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE IN COME OF THE 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, ROYA LTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVIC ES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR S UB- CONTRACTOR FOR CARRYING OUT ANY WORK ON WHICH TAX IS 22 DEDUCTIBLE AT SOURCE AND SUCH TAX HAS NOT BEEN DEDUCTE D OR AFTER DEDUCTION HAS NOT BEEN PAID BEFORE THE DUE DAT E, SUCH AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINE SS OR PROFESSION' IRRESPECTIVE OF THE PROVISIONS CONTAINED IN SECTIONS 30 TO 38 OF THE ACT. PROVISO TO SECTION 40(A)( IA), HOWEVER, ENABLES THE ASSESSEE TO TAKE SUCH DEDUCTION IN SUBSEQUENT YEAR, IF TAX IS DEDUCTED IN SUCH YEAR OR THOUGH DEDUCTED 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 ARISES WHETHER UNDER SECTION 40(A)(IA) OF THE ACT DISALLOWANCE OF THE EXPENDITURE PAYMENT OF WHICH, THOUGH REQUIRED DEDUCTION OF TAX AT SOURCE HAS NOT BEEN MADE WOULD BE CONFINED ONLY TO THOSE CASES WHERE THE AMOUNT REMAINS PAYABLE TILL THE END OF THE PREVIOUS YEAR OR WOULD IN CLUDE ALL AMOUNTS 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 SPECI AL BENCH BY A SPLIT OPINION. LEARNED ACCOUNTANT MEMBER WHO WAS IN MINORITY, PLACED HEAVY RELIANCE ON A DECISION OF MADRAS HIGH COURT IN THE CASE OF TUBE INVESTMENTS OF INDIA LTD. AND ANOTHER VS. ASSISTANT COMMISSIONER OF INCOME-TAX (TD S) AND OTHERS REPORTED IN [2010] 325 ITR 610 (MAD) = (2O09- TIOL- 529-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 APPLICABLE. LEARNE D JUDGE REJECTED THE THEORY OF NARROW INTERPRETATION OF TERM 'PAYABLE' AND OBSERVED AS UNDER: '12.4 IN OUR CONSIDERED OPINION, THERE IS NO AMBIGU ITY IN THE SECTION AND TERM 'PAYABLE' CANNOT BE ASCRIBE D NARROW INTERPRETATION AS CONTENDED BY ASSESSEE. HAD THE INTENTIONS OF THE LEGISLATURE WERE TO DISALLOW ONLY ITEMS OUTSTANDING AS ON 31ST MARCH, THEN 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, THEREFOR E, THE SAME CANNOT BE READ INTO THE SECTION AS CONTENDED B Y THE ASSESSEE.' 20. ON THE OTHER HAND, LEARNED JUDICIAL MEMBER SPEAK ING FOR MAJORITY ADOPTED A STRICTER INTERPRETATION. HEAVY R ELIANCE WAS PLACED ON THE FINANCE BILL OF 2004, WHICH INCLUDE D THE DRAFT OF THE AMENDMENT IN SECTION 40 AND THE ULTIMATE AMENDMENT WHICH ACTUALLY WAS PASSED BY THE PARLIAMENT . IT WAS OBSERVED THAT FROM THE COMPARISON BETWEEN THE PROPOSED AND THE ENACTED PROVISION IT CAN BE SEEN THAT THE LEGISLATURE HAS REPLACED THE WORDS 'AMOUNTS CREDITED OR PAID' WITH THE WORD 'PAYABLE' IN THE ENACTMENT. ON SUCH BAS IS, IT WAS HELD THAT THIS IS A CASE OF CONSCIOUS OMISSION AND W HEN THE LANGUAGE WAS CLEAR THE INTENTION OF THE LEGISLATUR E HAD TO BE GATHERED FROM LANGUAGE USED. IN THEIR OPINION THE PROVISION WOULD APPLY ONLY TO AMOUNTS WHICH ARE PAYABL E AT THE END OF THE YEAR. HAVING SAID SO, CURIOUSLY, IT WAS OBSERVED THAT THE PROVISO TO SECTION 40(A)(IA) OF THE ACT LAYS DOWN THAT 23 EARLIER YEAR'S PROVISION CAN BE ALLOWED IN SUBSEQUENT YEARS ONLY IF IDS IS DEDUCTED AND DEPOSITED AND, THEREFORE, 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 STRICTLY. 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 CONSEQUENCE S. WE HAVE NOTICED THAT THE PROVISION MAKES DISALLOWANCE OF AN EXPENDITURE WHICH HAS OTHERWISE BEEN INCURRED AND IS E LIGIBLE FOR DEDUCTION, ON THE GROUND THAT THOUGH TAX WAS REQ UIRED TO BE DEDUCTED AT SOURCE IT WAS NOT DEDUCTED OR IF DEDUC TED, HAD NOT BEEN DEPOSITED BEFORE THE DUE DATE. BY ANY INTEN DMENT OR LIBERAL CONSTRUCTION OF SUCH PROVISION, THE LIABILITY CANNOT BE FASTENED IF THE PLAIN MEANING OF THE SECTION DOES NOT SO PERMIT. 22. FOR THE PURPOSE OF THE SAID SECTION, WE ARE ALS O 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 ACTUALLY PAID OR INCURRED ACCORDIN G TO THE METHOD OF ACCOUNTING, UPON THE BASIS OF WHICH PROFITS AND GAINS ARE COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. SUCH DEFINITION IS APPLICABLE FOR THE PURPOSE OF SECTIONS 28 TO 41 UNLESS THE CONTEXT OTHE RWISE REQUIRES. IN CONTRAST, TERM 'PAYABLE' HAS NOT BEEN D EFINED. THE WORD 'PAYABLE' HAS BEEN DESCRIBED IN WEBSTER'S TH IRD NEW INTERNATIONAL UNABRIDGED DICTIONARY AS REQUIRING TO B E PAID: CAPABLE OF BEING PAID: SPECIFYING PAYMENT TO A PAR TICULAR PAYEE AT A SPECIFIED TIME OR OCCASION OR ANY SPECIFIED MANNER. IN THE CONTEXT OF SECTION 40(A)(IA), THE WORD 'PAYABLE' W OULD NOT INCLUDE 'PAID'. IN OTHER WORDS, THEREFORE, AN AMOUNT WHICH IS ALREADY PAID OVER CEASES TO BE PAYABLE AND CONVERSELY WHAT IS PAYABLE CANNOT BE ONE THAT IS ALRE ADY 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 S ECTION 40(A)(IA) OF THE ACT, TERM 'PAYABLE' CANNOT BE SEEN TO BE INCLUDING THE EXPRESSION 'PAID'. THE TERM 'PAID' AND 'PAYABLE' IN THE CONTEXT OF SECTION 40(A)(IA) ARE NOT USED INTERCHANGABLY. IN THE CASE OF BIRLA CEMENT WORKS AND ANOTHER VS. STATE OF RAJASTHAN AND ANOTHER REPORTED IN AIR 1994 (SC) 2393, THE APEX COURT OBSERVED THAT 'THE WORD PAYABLE IS A DESCRIPTIVE WORD, WHICH ORDINARILY MEAN S THAT WHICH MUST BE PAID OR IS DUE OR MAY BE PAID BUT ITS CORRECT MEANING CAN ONLY BE DETERMINED IF THE CONTEXT IN WHICH IT IS USED IS KEPT IN VIEW. THE WORD HAS BEEN FREQUENTLY UN DERSTOOD TO MEAN THAT WHICH MAY, CAN OR SHOULD BE PAID AND IS H ELD 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 & TRANSPORTS VS. ACIT (SUPRA) WA S 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 24 SUCH UNDERSTANDING OF THE LANGUAGE USED BY THE LEGISLATURE SHOULD WAVER ON THE PREMISE THAT AS PROPOUNDED BY THE TRIBUNAL, THIS WAS A CASE OF CONSCIOUS OMISSION ON PART OF THE PARLIAMENT. BOTH THESE ASPECTS WE WOULD ADDRESS ONE AFT ER ANOTHER. IF ONE LOOKS CLOSELY TO THE PROVISION, IN QUE STION, ADVERSE CONSEQUENCES OF NOT BEING ABLE TO CLAIM DEDUCT ION ON CERTAIN PAYMENTS IRRESPECTIVE OF THE PROVISIONS CONTAIN ED IN SECTIONS 30 TO 38 OF THE ACT WOULD FLOW IF THE FOLLO WING REQUIREMENTS ARE SATISFIED:- (A) THERE IS INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES 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 DEDUCTIBLE 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 SU B- SECTION (1) OF SECTION 39. FOR THE PURPOSE OF CURRENT DISCUSSION REFERENCE TO THE P ROVISO IS NOT NECESSARY. 24. WHAT THIS SUB-SECTION, THEREFORE, REQUIRES IS THAT THERE SHOULD BE AN AMOUNT PAYABLE IN THE NATURE DESCRIBED AB OVE, WHICH IS SUCH ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B BUT SUCH TAX HAS NOT BEEN DEDUCTED OR IF DED UCTED NOT PAID BEFORE THE DUE DATE. THIS PROVISION NOWHERE REQUIRES THAT THE AMOUNT WHICH IS PAYABLE MUST REMAIN SO PAYA BLE THROUGHOUT DURING THE YEAR. TO REITERATE THE PROVISION H AS CERTAIN STRICT AND STRINGENT REQUIREMENTS BEFORE THE UNPLEASANT CONSEQUENCES ENVISAGED THEREIN CAN BE APPLIED. WE A RE PREPARED TO AND WE ARE DUTY BOUND TO INTERPRET SUCH REQUIREMENTS STRICTLY. SUCH REQUIREMENTS, HOWEVER, CANNOT BE ENLARGED BY ANY ADDITION OR SUBTRACTION OF WORDS NO T USED BY THE LEGISLATURE. THE TERM USED IS INTEREST, COMMISSION, BROKERAGE ETC. IS PAYABLE TO A RESIDENT OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR FOR CARRYING OUT ANY WORK. THE LANGUAGE USED IS NOT THAT SUCH AMOUNT MUST CONTINUE TO REMAIN PAYABL E TILL THE END OF THE ACCOUNTING YEAR. ANY SUCH INTERPRETATION WOULD REQUIRE READING WORDS WHICH THE LEGISLATURE HAS NOT USED. NO SUCH INTERPRETATION WOULD EVEN OTHERWISE BE JUSTIFI ED BECAUSE IN OUR OPINION, THE LEGISLATURE COULD NOT HAVE INTENDED TO BRING ABOUT ANY SUCH DISTINCTION NOR THE LANGUAGE USED IN THE SECTION BRINGS ABOUT ANY SUCH MEANING. IF THE INTERPRETATIO N AS ADVANCED BY THE ASSESSEES IS ACCEPTED, IT WOULD LEAD TO A SI TUATION WHERE THE ASSESSEE WHO THOUGH WAS REQUIRED TO DEDUCT THE TAX AT SOURCE BUT NO SUCH DEDUCTION WAS MADE OR MORE FLAGR ANTLY DEDUCTION THOUGH MADE IS NOT PAID TO THE GOVERNMENT, WOULD ESCAPE THE CONSEQUENCE ONLY BECAUSE THE AMOUNT WAS A LREADY PAID OVER BEFORE THE END OF THE YEAR IN CONTRAST TO ANOTHER 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 DIVE RSE 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 CONVE YED SUCH A 25 MEANING, WE WOULD NOT HAVE HESITATED IN ADOPTING SUC H AN INTERPRETATION. WE ONLY HIGHLIGHT THAT WE WOULD NOT READIL Y ACCEPT THAT THE LEGISLATURE DESIRED TO BRING ABOUT AN INCONGRUOUS AND SEEMINGLY IRRECONCILABLE CONSEQUENCES. THE DECI SION OF THE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME -TAX, GUJARAT VS. ASHOKBHAI CHIMANBHAI (SUPRA), WOULD NOT ALTER THIS SITUATION. THE SAID DECISION, 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, LAST DATE OF SUCH ACCOUNTING PERIOD WOULD ASSUME CONSIDERABLE SIGNIFICANCE. HOWEVER, THIS DECISION NOWHE RE INDICATES THAT THE EVENTS WHICH TAKE PLACE DURING THE ACCOUNTING PERIOD SHOULD BE IGNORED AND THE ASCERTAINMENT OF FULFILLING A CERTAIN CONDITION PROVIDED UNDER THE STATUTE MUST BE JUDGED WITH REFERENCE TO LAST DATE OF THE ACCOUNTING PERIOD. PARTICULARLY, 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 31 ST MARCH OF THE YEAR UNDER CONSIDERATION. MERELY BECAUSE, ACCOUNTS ARE CLOSED ON THAT DATE AND THE COMPUTATION OF PROFIT AND LOSS IS TO BE JUDGED WITH REFERENCE TO SUCH DATE, DOES NOT MEAN T HAT WHETHER AN AMOUNT IS PAYABLE OR NOT MUST BE ASCERTAINED ON THE STRENGTH OF THE POSITION EMERGING ON 31ST MARCH. 25. THIS BRINGS US TO THE SECOND ASPECT OF THIS DI SCUSSION, NAMELY, WHETHER THIS IS A CASE OF CONSCIOUS OMISSIO N AND THEREFORE, THE LEGISLATURE MUST BE SEEN TO HAVE DEL IBERATELY BROUGHT ABOUT A CERTAIN SITUATION WHICH DOES NOT REQUIRE ANY FURTHER INTERPRETATION. THIS IS THE FUNDAMENTAL ARGUMENT OF THE TRIBUNAL IN THE CASE OF M/S. MERILYN SHIPPING & TRA NSPORTS VS. ACIT(SUPRA) TO ADOPT A PARTICULAR VIEW. 26. WHILE INTERPRETING A STATUTORY PROVISION THE C OURTS HAVE OFTEN APPLIED HYDEN'S RULE OR THE MISCHIEF RULE AND ASCERTAINED WHAT WAS THE POSITION BEFORE THE AMENDMENT, WHAT TH E AMENDMENT SOUGHT TO REMEDY AND WHAT WAS THE EFFECT OF THE CHANGES. 27. IN THE CASE OF BENGAL IMMUNITY CO. LTD. VS. STA TE 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 ARE TO BE CONSIDERED, (1) WHAT WAS THE COMMON LAW BEFORE MAKING OF THE ACT (2) WHAT WAS THE MISCHIEF AND DEFECT IN WHICH THE COMMON LAW DID NOT PROVIDE. (3) WHAT REMEDY THE PARLIAMENT HAD RESOLVED AND ADOPTED TO C URE THE DISEASE 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 PA RLIAMENT, ITS DEBATES AND EVEN THE SPEECHES MADE BY THE PROPOSER OF A BILL A RE ORDINARILY NOT CONSIDERED AS RELEVANT OR SAFE TOOLS FOR INTERPRETATION OF A STATUTE. IN THE CASE OF ASWINI KUMAR CH OSE AND ANOTHER VS. ARABINDA BOSE AND ANOTHER REPORTED IN A. I.R. 1952 SC 369 IN A CONSTITUTION BENCH DECISION OF (CORAM: PATANJALI SASTRI, CJ.), OBSERVED THAT:- '33. .....IT WAS URGED THAT ACCEPTANCE OR REJECTION OF AMENDMENTS TO A BILL IN THE COURSE OF PARLIAMENTARY PROCEEDINGS FORMS PART OF THE PRE-ENACTMENT HISTORY OF A 26 STATUTE AND AS SUCH MIGHT THROW VALUABLE LIGHT ON T HE INTENTION OF THE LEGISLATURE WHEN THE LANGUAGE USED IN THE STATUE ADMITTED OF MORE THAN ONE CONSTRUCTION. WE A RE 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 A ID SOUGHT TO BE RESORTED TO BY THE PARTIES IN THE CASE MUST BE E XCLUDED FROM CONSIDERATION IN ASCERTAINING THE TRUE OBJECT AND I NTENTION OF THE LEGISLATURE.' 29. IN YET ANOTHER CONSTITUTION BENCH JUDGMENT IN TH E 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 MEMBE RS OF PARLIAMENT OR CONVENTION TO CONSTRUE THE MEANING OF THE PARTICULAR CLAUSE, WHEN A QUESTION IS RAISED WHETHE R A CERTAIN PHRASE OR EXPRESSION WAS UP FOR CONSIDERATION AT AL L 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 ELABORAT E DISCUSSION ON THE QUESTION WHETHER IT WOULD BE COMP ETENT TO US IN ARRIVING AT A PROPER CONSTRUCTION OF THE EXPRESS ION 'FIXING RATES OF WAGES' TO LOOK INTO THE STATEMENT OF OBJEC TS AND REASONS ATTACHED TO THE BILL NO. 13 OF 1955 AS INTR ODUCED IN THE RAJYA SABHA OR THE CIRCUMSTANCES UNDER WHICH THE WO RD 'MINIMUM' CAME TO BE DELETED FROM THE PROVISIONS OF THE BILL RELATING TO RATES OF WAGES AND THE WAGE BOARD AND T HE FACT OF SUCH DELETION WHEN THE ACT CAME TO BE PASSED IN ITS PRESENT FORM. THERE IS A CONSENSUS OF OPINION THAT THESE AR E NOT AIDS TO THE CONSTRUCTION OF THE TERMS OF THE STATUTE 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 O F THE LEGISLATURE .' 31. IT CAN THUS BE SEEN THAT THE DEBATES IN THE PARLI AMENT ARE ORDINARILY NOT CONSIDERED AS THE AIDS FOR INTERPRETATION OF THE ULTIMATE PROVISION WHICH MAY BE BROUGHT INTO THE STATU TE. THE DEBATES AT BEST INDICATE THE OPINION OF THE INDIVIDUAL MEM BERS AND ARE ORDINARILY NOT RELIED UPON FOR INTERPRETING THE PROVISIONS, PARTICULARLY WHEN THE PROVISIONS ARE PLAIN. WE ARE CO NSCIOUS THAT DEPARTURE IS MADE IN TWO EXCEPTIONAL CASES, NAMEL Y, THE DEBATES IN THE CONSTITUENT ASSEMBLY AND IN CASE OF FINANCE MINISTER'S SPEECH EXPLAINING THE REASON FOR INTRODU CTION OF A CERTAIN PROVISION. THE REASON WHY A CERTAIN LANGUAG E WAS USED IN 27 A DRAFT BILL AND WHY THE PROVISION ULTIMATELY ENACTED CARRIED A DIFFERENT EXPRESSION CANNOT BE GATHERED FROM MERE COM PARISON OF THE TWO SETS OF PROVISIONS. THERE MAY BE VARIETY OF RE ASONS WHY THE ULTIMATE PROVISION MAY VARY FROM THE ORIGINAL D RAFT. IN THE PARLIAMENTARY SYSTEM, TWO HOUSES SEPARATELY DEBA TE THE LEGISLATIONS UNDER CONSIDERATION. IT WOULD ALL THE MOR E BE UNSAFE TO REFER TO OR RELY UPON THE DRAFTS, AMENDMENTS, DEBATES ETC FOR INTERPRETATION OF A STATUTORY PROVISION WHEN THE LANGUAG E USED IS NOT CAPABLE OF SEVERAL MEANINGS. IN THE PRESENT CASE THE 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 INDIA H AVE BEEN APPLYING THE PRINCIPLE OF DELIBERATE OR CONSCIOUS OMISSION. SUCH PRINCIPLE IS APPLIED MAINLY WHEN AN EXISTING PROVISIO N IS AMENDED AND A CHANGE IS BROUGHT ABOUT. WHILE INTERPRETING S UCH AN AMENDED PROVISION, THE COURTS WOULD IMMEDIATELY INQUI RE WHAT WAS THE STATUTORY PROVISION BEFORE AND WHAT CHANGES TH E LEGISLATURE BROUGHT ABOUT AND COMPARE THE EFFECT OF THE TWO. THE OTHER OCCASION FOR APPLYING THE PRINCIPLE, WE NOTICE FROM VARIOUS DECISIONS OF THE SUPREME COURT, HAS BEEN WHEN THE LANG UAGE OF THE LEGISLATURE IS COMPARED WITH SOME OTHER ANALOGOUS ST ATUTE OR OTHER PROVISIONS OF THE SAME STATUTE OR WITH EXPRESSION W HICH COULD APPARENTLY OR OBVIOUSLY BEEN USED IF THE LEGISLA TURE HAD DIFFERENT INTENTION IN MIND, WHILE FRAMING THE PROV ISION. 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 AP EX 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 PROTECTION TO ALL THE LABOURERS OR WORKERS, WHO WER E THE MANUAL WORKERS AND WERE ENGAGED OR TO BE ENGAGED IN ANY SCHEDULED EMPLOYMENT. THEREFORE, THERE WAS A SPECIFIC ACT ON THE PART OF THE LEGISLATURE TO ENLA RGE THE SCOPE OF THE DEFINITION AND ONCE WE ACCEPT THIS, AL L THE ARGUMENTS REGARDING THE OBJECTS AND REASONS, THE COMMITTEE REPORTS, THE LEGISLATIVE HISTORY BEING CO NTRARY TO THE EXPRESS LANGUAGE, ARE RELEGATED TO THE BACKG ROUND AND ARE LIABLE TO BE IGNORED.' 33. IN THE CASE OF AGRICULTURAL PRODUCE MARKET COMMITTEE, NARELA, DELHI VS. COMMISSIONER OF INCOME TAX AND ANR. REPORTED 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 W ORD CAME TO BE DEFINED FOR THE FIRST TIME BY THE FINANCE AC T OF 2002 BY EXPLANATION/ 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 COMPARED TO THE DEFINITION - CLAUSE INSERTED IN SECTION 10(20) OF THE INCOME TAX ACT, 1961 VIDE FINANCE ACT , OF 2002. IN THIS CONTEXT IT WAS OBSERVED THAT:- 28 ' 27. CERTAIN GLARING FEATURES CAN BE DECIPHERED FROM THE ABOVE COMPARATIVE CHART. UNDER SECTION 3(31) OF THE GENERAL CLAUSES ACT, 1897, 'LOCAL AUTHORITY' WA S DEFINED TO MEAN ' A MUNICIPAL COMMITTEE, DISTRICT BOARD, BODY OF PORT COMMISSIONERS OR OTHER AUTHORIT Y LEGALLY ENTITLED TO THE CONTROL OR MANAGEMENT OF A MUNICIPAL OR LOCAL FUND. THE WORDS ' OTHER AUTHORIT Y' IN SECTION 3(31) OF THE 1897 ACT HAS BEEN OMITTED B Y PARLIAMENT IN THE EXPLANATION/ DEFINITION CLAUSE INSERTED IN SECTION 10(20) OF THE 1961 ACT VIDE FIN ANCE ACT, 2002. THEREFORE, IN OUR VIEW, IT WOULD NOT BE CORRECT TO SAY THAT THE ENTIRE DEFINITION OF THE WO RD 'LOCAL AUTHORITY' IS BODILY LIFTED FROM SECTION 3(3 1) OF THE 1897 ACT AND INCORPORATED, BY PARLIAMENT, IN TH E SAID EXPLANATION TO SECTION 10(20) OF THE 1961 ACT. THIS DELIBERATE OMISSION IS IMPORTANT.' 34. THE APEX COURT IN THE CASE OF GREATER BOMBAY COOPERATIVE BANK LTD. VS. M/S. UNITED YARN TEX. PVT . LTD & ORS. REPORTED IN AIR 2007 SC 1584, IN THE CONTEXT O F QUESTION WHETHER THE COOPERATIVE BANKS TRANSACTING BUSINESS OF BANKING FALL WITHIN THE MEANING OF 'BAN KING COMPANY' DEFINED IN THE BANKING REGULATION ACT, 1949, OBSERVED AS UNDER:- '59. THE RDB ACT WAS PASSED IN 1993 WHEN PARLIAMENT HAD BEFORE IT THE PROVISIONS OF THE BR A CT AS AMENDED BY ACT NO.23 OF 1965 BY ADDITION OF SOME MORE CLAUSES IN SECTION 56 OF THE ACT. THE PARLIAME NT WAS FULLY AWARE THAT THE PROVISIONS OF THE BR ACT A PPLY TO CO-OPERATIVE SOCIETIES AS THEY APPLY TO BANKING COMPANIES. THE PARLIAMENT WAS ALSO AWARE THAT THE DEFINITION OF 'BANKING COMPANY' IN SECTION 5(C) HAD NOT BEEN ALTERED BY ACT NO.23 OF 1965 AND IT WAS KE PT INTACT, AND IN FACT ADDITIONAL DEFINITIONS WERE ADD ED BY SECTION 56(C).'CO-OPERATIVE BANK' WAS SEPARATELY DEFINED BY THE NEWLY INSERTED CLAUSE (CCI) AND 'PRIMARY CO-OPERATIVE BANK' WAS SIMILARLY SEPARATEL Y 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 CONFINED TO THE WORDS USED IN SECTION 5(C) OF THE B R ACT, IT WOULD HAVE BEEN THE EASIEST THING FOR PARLIAMENT TO SAY THAT 'BANKING COMPANY' SHALL MEAN 'BANKING COMPANY' AS DEFINED IN SECTION 5(C) AND SH ALL INCLUDE 'CO-OPERATIVE BANK' AS DEFINED IN SECTION 5 (CCI) AND 'PRIMARY CO-OPERATIVE BANK' AS DEFINED IN SECTI ON 5(CCV). HOWEVER, THE PARLIAMENT DID NOT DO SO. THER E WAS THUS A CONSCIOUS EXCLUSION AND DELIBERATE COMMISSION OF CO-OPERATIVE BANKS FROM THE PURVIEW O F THE RDB ACT. THE REASON FOR 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, W HILE OTHER BANKS AND FINANCIAL INSTITUTIONS DID NOT HAVE SUCH SPEEDY REMEDIES AND THEY HAD TO FILE SUITS IN CIVIL COURTS.' 29 35. IN THE CASE OF NATIONAL MINERAL DEVELOPMENT CORPORATION LTD. VS. STATE OF M.P AND ANOTHER REPORTE D IN AIR 2004 SC 2456, 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 EMERGENCE OF LUMPS, FINES, CONCENTRATES AND SLIMES CHOSE TO MAKE PROVISION FOR QUANTIFICATION OF ROYAL TY ONLY BY REFERENCE TO THE QUANTITY OF LUMPS, FINES A ND CONCENTRATES. IT LEFT SLIMES OUT OF CONSIDERATION. NOTHING PREVENTED THE PARLIAMENT FROM EITHER PROVIDING FOR THE QUANTITY OF IRON ORE AS SUCH AS T HE BASIS FOR QUANTIFICATION OF ROYALTY. IT CHOSE TO MA KE PROVISION FOR THE QUANTIFICATION BEING AWAITED UNTI L THE EMERGENCE OF LUMPS, FINES AND CONCENTRATES. HAVING DONE SO THE PARLIAMENT HAS NOT SAID 'FINES INCLUDIN G SLIMES'. THOUGH 'SLIMES' ARE NOT 'FINES' THE PARLIA MENT COULD HAVE ASSIGNED AN ARTIFICIAL OR EXTENDED MEANI NG TO 'FINES' FOR THE PURPOSE OF LEVY OF ROYALTY WHICH IT HAS CHOSEN NOT TO DO. IT IS CLEARLY SUGGESTIVE OF ITS I NTENTION NOT TO TAKE INTO CONSIDERATION 'SLIMES' FOR QUANTIF YING THE AMOUNT OF ROYALTY. THIS DELIBERATE OMISSION OF PARLIAMENT CANNOT BE MADE GOOD BY INTERPRETATIVE PROCESS SO AS TO CHARGE ROYALTY ON 'SLIMES' BY READ ING SECTION 9 OF THE ACT DIVORCED FROM THE PROVISIONS O F THE SECOND SCHEDULE. EVEN IF SLIMES WERE TO BE HELD LIA BLE TO CHARGE OF ROYALTY, THE QUESTION WOULD STILL HAVE REMAINED AT WHAT RATE AND ON WHAT QUANTITY WHICH QUESTIONS CANNOT BE ANSWERED BY SECTION 9.' 36. IN THE CASE OF GOPAL SARDAR, VS. KARUNA SARDAR REP ORTED IN AIR 2004 SC 3068, THE APEX . COURT IN THE CONTEXT OF LIMITATION WITHIN WHICH RIGHT OF PREEMPTION MUST BE EXERCISED A ND WHETHER IN THE CONTEXT OF THE RELEVANT PROVISIONS CON TAINED IN WEST BENGAL LAND REFORMS AND LIMITATION ACT, 1963 APP LIED 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 THIS BEHALF.' THIS PHRASE WAS SUBSTITUTED BY THE PH RASE 'MUNSIF HAVING TERRITORIAL JURISDICTION' BY THE AFOREMENTIONED AMENDMENT. EVEN AFTER THIS AMENDMENT WHEN AN APPLICATION IS REQUIRED TO BE MADE TO SECTION 8 OF THE ACT EITHER TO APPLY SECTIO N 5 OF THE LIMITATION ACT OR ITS PRINCIPLES SO AS TO EN ABLE A PARTY TO MAKE AN APPLICATION AFTER THE EXPIRY OF TH E PERIOD OF LIMITATION PRESCRIBED ON SHOWING SUFFICIE NT CAUSE FOR NOT MAKING AN APPLICATION WITHIN TIME. TH E ACT IS OF 1955 AND FOR ALL THESE YEARS, NO PROVISIO N IS MADE UNDER SECTION 8 OF THE ACT PROVIDING FOR CONDONATION OF DELAY. THUS, WHEN SECTION 5 OF THE LIMITATION ACT IS NOT MADE APPLICABLE TO THE PROCEEDINGS UNDER SECTION 8 OF THE ACT UNLIKE TO TH E OTHER PROCEEDINGS UNDER THE ACT, AS ALREADY STATED ABOVE, IT IS APPROPRIATE TO CONSTRUE THAT THE PERIO D OF LIMITATION PRESCRIBED UNDER SECTION 8 OF THE ACT SPECIFICALLY AND EXPRESSLY GOVERNS AN APPLICATION T O BE MADE UNDER THE SAID SECTION AND NOT THE PERIOD PRESCRIBED UNDER ARTICLE 137 OF THE LIMITATION ACT. ' 30 37. IN OUR OPINION, THE TRIBUNAL COMMITTED AN ERRO R IN APPLYING THE PRINCIPLE OF CONSCIOUS OMISSION IN THE PRE SENT CASE. FIRSTLY, AS ALREADY OBSERVED, WE HAVE SERIOUS DOUB T WHETHER SUCH PRINCIPLE CAN BE APPLIED BY COMPARING THE DRAFT PRESENTED IN PARLIAMENT AND ULTIMATE LEGISLATION WHICH MAY BE PASSED. SECONDLY, THE STATUTORY PROVISION IS AMPLY CL EAR. 38. IN THE RESULT, WE ARE OF THE OPINION THAT SECTION 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 SAID PROVISION ' EXIST. IN TH AT CONTEXT, IN OUR OPINION THE DECISION OF THE SPECIAL BEN CH OF THE TRIBUNAL IN THE CASE OF M/S. MERILYN SHIPPING & TRANSPORTS VS. ACIT (SUPRA), DOES NOT LAY DOWN CORR ECT LAW. 39. WE ANSWER THE QUESTIONS AS UNDER:- QUESTION (1) IN THE NEGATIVE I.E. IN FAVOUR OF THE REVE NUE 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 TR IBUNAL UNDER CHALLENGE ARE REVERSED. IN THE EARLIER PORTION OF THE JUDGMENT, WE HAD RECORDED THAT THE TRIBUNAL IN ALL CA SES HAD PROCEEDED ONLY ON THIS SHORT BASIS WITHOUT ADDRESSING OTHER ISSUES. WE, THEREFORE, PLACE ALL THESE MATTERS BACK BEFORE THE TRIBUNAL FOR FRESH CONSIDERATION OF OTHER ISSUES, IF AN Y, REGARDING DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE A CT. ALL APPEALS ARE DISPOSED OF ACCORDINGLY. 8.3 HOWEVER, WE FIND ALTHOUGH THE ABOVE 2 DECISIONS WE RE RENDERED PRIOR TO THE HEARING BEFORE THE HONBLE ALLAHABAD 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 DECISIO N OF THE TRIBUNAL. UNDER THESE CIRCUMSTANCES, FOLLOWING THE DE CISION OF THE HONBLE GUJARAT HIGH COURT AND HONBLE CALCUTTA HIGH COURT (SUPRA) WE UPHOLD THE ORDER OF THE CIT(A) SUSTAINING THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER. WE FURTHER FIND THE CO-ORDINATE BEN CH OF THE TRIBUNAL IN THE CASE OF ACIT VS. SHRI BHARAT DHANPAL P ATIL VIDE ITA NO.600/PN/2012 ORDER DATED 30-07-2013 FOLLOWING THE DECISION OF HONBLE CALCUTTA HIGH COURT AND GUJARAT HIGH COURT CIT ED (SUPRA) HAD ALLOWED THE APPEAL FILED BY THE REVENUE WHEREIN THE C IT(A) HAD HELD THAT PROVISIONS OF SECTION 40(A)(IA) WOULD APPLY WHEN THE AMOUNT IS PAYABLE AND WHERE THE EXPENDITURE IS PAID. THE ARGUME NT 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. VEG ETABLE PRODUCTS LTD.(SUPRA) IS NOT APPLICABLE TO THE FACTS AND CIRCUMS TANCES OF THE PRESENT CASE. IN THIS VIEW OF THE MATTER, WE UPHOLD THE ORDER OF THE CIT(A) AND THE GROUNDS RAISED BY THE ASSESSEE ARE DIS MISSED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. 31 11. FOLLOWING THE SAME PARTY OF REASONING, WE ARE IN CONFOR MITY WITH THE ORDER OF THE CIT(A) IN DISALLOWING THE ADVERTISEMENT EXPENSES FOR NON-DEDUCTION OF TAX AT SOURCE UNDER THE PROVISIONS OF SECTION 194C OF THE ACT. CONSEQUENTLY, EXPENDITURE IS NO T ALLOWABLE IN THE HANDS OF THE ASSESSEE FOR THE INSTANT ASSESSMEN T YEAR IN VIEW OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE GROUN D OF APPEAL NO.1 RAISED BY ASSESSEE IS THUS DISMISSED. 12. THE ISSUE IN GROUND OF APPEAL NO.2 BY THE ASSESSEE IS AGAINST THE ADDITION OF RS.40,71,516/-. 13. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE AS SESSING OFFICER NOTED THAT THERE WAS ADDITION TO PROCESS, PROJECT AND RESEARCH FUND OF RS.44,93,125/-. OUT OF THIS, A SUM OF RS.4,21,809/- WAS DEBITED ON ACCOUNT OF APPROPRIATION OF PR OFIT FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE WAS UNABLE TO EXPLAIN THE SOURCE OF ADDITION TO THE SAID FUND AND CONSEQUENTLY A SUM OF RS.40,71,516/- WAS TREATED AS INCOME OF THE ASSESSEE SOCIETY. 14. BEFORE THE CIT(A) THE EXPLANATION OF THE ASSESSEE WAS THAT IT WAS A FEDERAL MILK SOCIETY AND IT DEDUCTED 0.40 PAISE PER LIT RE FROM THE MILK PURCHASED FROM PRIMARY SOCIETIES AND THE SAME WA S TRANSFERRED TO PROCESS, PROJECT AND RESEARCH FUND. TH E DEDUCTION AND TRANSFER OF THE SAID AMOUNT TO THE SAID FUND WAS AUT HORIZED AND SUPPORTED BY THE RESOLUTION PASSED BY THE BOARD OF DIRE CTORS AS WELL AS BY THE MANAGING DIRECTOR IN THE GENERAL BODY MEETING OF THE SOCIETY. THE ASSESSEE ALSO FURNISHED THE LIST OF PRIMARY CO OPERATIVE SOCIETIES AND AMOUNT COLLECTED FROM EACH SOCIETY AFTER DED UCTION FROM THE MILK PURCHASE PRICE, WHICH IN TURN WAS PAYABLE TO EACH OF THEM. THE TOTAL OF THE SAID AMOUNT AS ON 31-03-2007 W AS 32 RS.3,22,24,186/-. THE PURPOSE FOR SUCH CREATION OF THE SAID FUND WAS CLAIMED TO PROVIDE MILK TESTING MACHINES AND MILKING MAC HINES TO ALL THE MEMBERS OF THE PRIMARY COOPERATIVE SOCIETIES. T HE PLEA OF THE ASSESSEE WAS THAT TAKING INTO CONSIDERATION THE TOT AL NUMBER OF PRIMARY COOPERATIVE SOCIETY, THE NECESSARY AMOUNT WOULD BE COLLECTED BY 31-03-2012 AND THEREAFTER THE MILK TESTING MACHINES AND MILKING MACHINES WOULD BE PROVIDED TO EACH OF THE MEMB ER. THE CIT(A) VIDE PARA 2.1.3.7 HELD AS UNDER : 2.1.3.7 IT CAN BE SEEN FROM THE ABOVE RESOLUTION TH AT THE MEMBERS HAVE DECIDED TO CONTRIBUTE THE AMOUNT OF 0.40 PAISE PER LITRE TO THE SOCIETY ON IRREVOCABLE BASIS. FURTHER, THE RESOLUTI ON STATES THAT 'THE AMOUNT OF SUCH CHARGES ACCUMULATED AT THE CREDIT OF THE SOCIETY MAY BE REPAID TO THE BENEFICIARY SOCIETIES AT THE TIME OF DI SMEMBERSHIP'. THE USE OF THE WORD MAY IN THE RESOLUTION INDICATE THAT THE MEMBER'S CHARGE ON THE CONTRIBUTIONS MADE BY IT IS NOT ABSOLUTE. TH E REPAYMENT OF MEMBERS' CONTRIBUTION ON THEIR DISMEMBERSHIP IS AT THE DISCRETION OF THE SOCIETY. IN THESE CIRCUMSTANCES, IN MY CONSIDERED V IEW, THIS AMOUNT WOULD CONSTITUTE INCOME OF THE SOCIETY. FOR THIS CONCLUSI ON, I DERIVE SUPPORT FROM THE DECISIONS IN THE CASE OF SIDDESHWAR SAHKARI SAKHARKARKHANA LIMITED VS CIT(2009) 270ITR 1 (SC). IN THIS CASE, THE SUPREME COURT HELD THAT, CONTRIBUTED BY MEMBERS FOR CANE DEVELOPMENT FUND CONSTITUTE INCOME OF THE ASSESSEE. ACCORDINGLY, I CONFIRM THE ADDITION OF RS.40,71,516/-. 15. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESS EE POINTED OUT THAT THE AMOUNT WAS COLLECTED FROM THE IDENT IFIED PRIMARY COOPERATIVE SOCIETIES, WHICH IN TURN WAS AUTHORIZED BY THE RESOLUTION PASSED BY THE BOARD OF DIRECTORS IN THE GENE RAL BODY MEETING. THE TOTAL ACCUMULATED AMOUNT IN THE SAID FUNDS A S ON 31- 03-2007 WAS RS.3,22,24,184/- AND THE AMOUNT COLLECTED DUR ING THE YEAR WAS RS.44,93,125/-, OUT OF WHICH SUM OF RS.4,21,809/- WA S ATTRIBUTED TO THE APPROPRIATION OF PROFIT. THE LEARNED AU THORISED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT IT WAS NOT AGAINST THE SAID APPROPRIATION. THE SOURCE OF THE BALANCE EXPENDITURE WAS IDENTIFIED AND THE CREDIT WORTHINESS OF THE PARTIES STOOD ESTABLISHED SINCE THE AMOUNT WAS COLLECTED FROM THE MILK PAYMENTS. IT WAS FURTHER POINTED OUT BY THE LEARNED A UTHORISED 33 REPRESENTATIVE FOR THE ASSESSEE THAT SIMILAR CLAIMS WERE M ADE IN ASSESSMENT YEARS 2008-09 AND 200910 AND NO DELETION WAS MAD E IN THE SUCCEEDING YEARS. FURTHER, RELIANCE WAS PLACED UPON THE RATIO LAID DOWN BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE O F LOKNETE BALASAHEB DESAI SAHAKARI SAKHAR KARKAHANA LTD. VS. DCIT, SATARA IN ITA NOS. 2060 TO 2075/PN/2012 AND 5 TO 11/PN/2013 FOR ASSESSMENT YEARS 1991-92 TO 2001-02 & 2008-09 TO 20 09-10, ORDER DATED 28-02-2014. 16. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW WITH SPECIAL REFERENCE TO THE ORDER OF THE CIT(A). 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE BOARD OF DIRECTORS OF THE ASSESSEE SOCIETY VIDE ITS M EETING HELD ON 29-04-2005 HAD PASSED A RESOLUTION IN RELATION TO PUR CHASE OF MILK TESTING MACHINES AND MILKING MACHINES. THE RESOLUTION RE ADS AS UNDER : RESOLUTION: 27 IT IS RESOLVED THAT THE MEMBER SO CIETIES ARE TO BE SUPPLIED TESTING MACHINES FOR TESTING OF MILK AND M ILKING MACHINE AT VILLAGE CENTRE. THE ESTIMATED EXPENSES A RE EXPECTED UP TO RS 5 CR. IT IS DECIDED TO PURCHASE THESE MACH INES BY THE SANGH AND COST OF SUCH MACHINES SUPPLIED TO PRIMARI ES BY THE SANGH AND COST OF SUCH MACHINES SUPPLIED TO PRIMARI ES ARE TO BE RECOVERED FROM MILK PAYMENT OF THE PRIMARIES AT THE RATE RS.00.40 PAISA PER LITRE. THE AMOUNT OF SUCH CHARGE S ACCUMULATED AT THE CREDIT OF THE SOCIETY MAY BE REP AID TO THE BENEFICIARY SOCIETIES AT THE TIME OF DISMEMBER SHIP . PURSUANT TO THE SAID RESOLUTION, THE ASSESSEE DEBITED 0.4 0 PS PER LITRE FROM THE MILK PURCHASED FROM THE PRIMARY COOPERATIVE SOCIETY AND TRANSFERRED THE SAME TO PROCESS, PROJECT AND RESE ARCH FUND. THE CLAIM OF THE ASSESSEE WAS THAT THE AMOUNT SO DEDUC TED WAS SEPARATELY IDENTIFIED IN THE NAMES OF THE RESPECTIVE COOPE RATIVE MILK SOCIETIES. THE TOTAL COLLECTION MADE BY THE ASSESSEE UNDE R THE 34 PROCESS, PROJECT AND RESEARCH FUND AS ON 31-03-2007 WAS RS.3,22,24,186.88. THE ASSESSEE HAD FURNISHED THE LIST OF ME MBERS OF PRIMARY COOPERATIVE SOCIETIES FROM WHOM THE SAID AMOUN TS WERE COLLECTED AND THE COPY OF THE SAME IS AVAILABLE AT PAGES 1 4 TO 17 OF THE PAPER BOOK. THE AMOUNTS WERE COLLECTED FROM THE P RIMARY COOPERATIVE SOCIETIES IN ORDER TO PROVIDE MILK TESTING MACH INES AND MILKING MACHINES TO ALL THE MEMBERS. THE PURPOSE OF THE CR EATION OF THE SAID FUND WAS THAT IN VIEW OF THE TOTAL NUMBER OF PR IMARY COOPERATIVE SOCIETIES, WHICH WERE MEMBERS OF THE ASSESSEE SOCIETY, THE ESTIMATED EXPENDITURE OF THE MILK TESTING MACHINES AND MILKING MACHINES COULD BE COLLECTED BY 31-03-2012. DURING THE YE AR UNDER CONSIDERATION, THE ASSESSEE HAD COLLECTED A SUM OF RS.44,93 ,125/- AND ADDITION TO THE EXTENT OF RS.40,71,516/- WAS MADE IN T HE HANDS OF THE ASSESSEE ON THE SURMISES THAT THE ASSESSEE WAS UNABLE TO EXPLAIN THE SOURCE OF ADDITION OF THE ABOVE FUND. 18. WE FIND NO MERIT IN THE ORDER OF THE AO AND THE CIT(A ) IN THIS REGARD. THE ASSESSEE HAD GIVEN THE BIFURCATION OF THE AM OUNTS COLLECTED MEMBER-WISE IN THE LIST WHICH IS AVAILABLE ON RECORD . IN VIEW THEREOF, THE SOURCE OF THE SAID AMOUNT STANDS ESTAB LISHED AND FURTHER THE CREDIT WORTHINESS OF THE SAID PERSONS, WHO HA D ADVANCED THE AMOUNT ALSO STOOD ESTABLISHED SINCE THE AMOUNT WAS COLLECTED BY WAY OF DEDUCTION FROM THE MILK PURCHASED, I.E. FROM THE A MOUNT DUE TO THE SAID PARTIES, FROM WHOM THE ASSESSEE HAD PU RCHASED THE MILK IN THE PROCESS OF CARRYING ON ITS BUSINESS. THE RESOLU TION PASSED BY THE BOARD OF DIRECTORS IN ITS MEETING HELD ON 2 1-04-2005 VERY CLEARLY STATED THAT THE EXPENDITURE EXPECTED TO BE INCURRED WAS RS.5 CRORES IN SUPPLYING THE MILK TESTING MACHINES AND MILK ING MACHINES AT VILLAGE CENTRES. THE RESOLUTION WAS PASSED TO PURCHASE THE MACHINES BY SANGH AND COST OF SUCH MACHINES WAS TO BE 35 RECOVERED FROM THE MILK PAYMENTS OF THE PRIMARY SOCIETY @ 0.40 PS. PER LITRE. ANOTHER RESOLUTION WAS PASSED THAT AMOUNT OF SUCH CHARGE ACCUMULATED TO THE CREDIT OF THE SOCIETY MAY BE REPAID TO THE BENEFICIAL SOCIETY AT THE TIME OF DISMEMBERSHIP. THOUGH THE WORD MAY HAS BEEN USED FOR REPAYMENT OF THE AMOUNTS COLLEC TED FROM THE PRIMARY COOPERATIVE SOCIETIES, TH LIABILITY HAS BEEN REFLEC TED BY THE ASSESSEE IN THE NAMES OF EACH OF THE PRIMARY SOCIETIE S AS IS EVIDENT FROM THE DETAILS FURNISHED BY THE ASSESSEE. THE T OTAL COLLECTION MADE BY THE ASSESSEE AS ON 31-03-2007 WAS RS.3,22,24,186/-. 19. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSE SSEE HAS POINTED OUT THAT THOUGH THE AMOUNTS WERE BEING COLLECTE D FROM YEAR TO YEAR BUT NO ADDITION IN ANY OF THE YEARS WERE MADE IN THE HANDS OF THE ASSESSEE. IN THE TOTALITY OF THE FACTS AND CIRCUMS TANCES, WE ARE OF THE VIEW THAT THE MONEY HELD BY THE ASSESSEE UN DER THE PROCESS, PROJECT AND RESEARCH FUND WAS WITH A SPECIFIC O BLIGATION TO PURCHASE MILK TESTING MACHINES AND MILKING MACHINES FOR ITS PRIMARY COOPERATIVE SOCIETIES WHO IN TURN WERE CONTRIBUT ING TO THE COST OF THE PURCHASE OF THE SAID MACHINES. THE AMOUNT C OLLECTED BY THE ASSESSEE DO NOT CONSTITUTE THE INCOME OF THE ASSES SEE AS THE SAID COLLECTION HAS BEEN MADE FOR THE SPECIFIC PURPOSE OF PU RCHASING THE MILK TESTING MACHINES AND MILKING MACHINES AT VILLAGE CENT RE LEVEL. ACCORDINGLY, WE HOLD THAT THE AMOUNT REFLECTED IN TH E PROCESS, PROJECT AND RESEARCH FUND IS NOT THE INCOME OF THE ASS ESSEE AND THERE IS NO MERIT IN HOLDING THE SAME AS INCOME OF THE ASS ESSEE. WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE PUNE BENCH O F THE TRIBUNAL IN THE CASE OF LOKNETE BALASAHEB DESAI SAHAKARI SAKHAR KARKHANA (SUPRA). ACCORDINGLY, WE DIRECT THE AO TO DELE TE THE 36 ADDITION OF RS.40,71,516/-. GROUND OF APPEAL NO.2 RAISED BY T HE ASSESSEE IS THUS ALLOWED. 20. THE ISSUE IN GROUND OF APPEAL NO.3 RAISED BY THE ASSE SSEE IS WITH REGARD TO THE TREATMENT OF THE SUBSIDY RECEIVED F ROM THE CENTRAL GOVERNMENT. 21 THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE AS SESSEE HAD RECEIVED A SUM OF RS.1.35 CRORES AS GRANT FROM CENTRAL GO VERNMENT. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD PURCH ASED BULK COOLERS OF RS.2,48,11,010/- AFTER SEPTEMBER 2006 ON WHICH THE ASSESSEE CLAIMED DEPRECIATION @7.5%. THE CASE OF THE ASSE SSING OFFICER WAS THAT THE COST OF BULK COOLERS SHOULD HAVE BEEN REDUCED BY THE SUBSIDY OF RS.1.35 CRORES RECEIVED FROM CENTRAL GOV ERNMENT AND THE DEPRECIATION ON THE BALANCE VALUE SHOULD BE ALLOWE D IN THE HANDS OF THE ASSESSEE. THE ASSESSING OFFICER THUS DISALLO WED THE EXCESS CLAIM OF DEPRECIATION AT RS.10,12,500/- AS PER THE R E- COMPUTATION OF DEPRECIATION WORKED OUT UNDER PARA 10 OF PAGE 6 OF THE ASSESSMENT ORDER. 22. THE CIT(A) WAS OF THE VIEW THAT IN VIEW OF THE PROVISIO NS OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT IT WAS CLEAR THA T THE AMOUNT OF SUBSIDY RECEIVED OF RS.1.35 CRORES WAS PART OF THE TOTAL SUBSIDY OF RS.3.36 CRORES AND THE SAME WAS DIRECTLY RELAT ABLE TO THE PURCHASE OF BULK COOLERS. IN VIEW THEREOF THE ORDER OF TH E ASSESSING OFFICER WAS UPHELD BY THE CIT(A). 23. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSE SSEE TOOK US THROUGH THE SCHEME OF GOVERNMENT OF INDIA WHICH IS PL ACED ON PAGES 39 TO 43 OF THE PAPER BOOK. IT IS POINTED OUT TH AT THE AMOUNT WAS RECEIVED FOR ACHIEVING THE FINANCIAL TARGETS AND WAS AN INCENTIVE. SUCH INCENTIVE RECEIVED BY THE ASSESSEE WAS C APITAL 37 RECEIPT. RELIANCE IN THIS REGARD WAS PLACED UPON THE RATIO LAID DOWN BY THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF SASISRI EXTRACTIONS LTD. VS. ACIT IN ITA NO.10/VIZAG/2007 RELATING TO ASSESSMENT YEAR 2003-04, ORDER DATED 07-01-2008 AND CIT VS. P.J. CHEMICALS LTD. 210 ITR 830 (SC). 24. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE PLACING RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW POIN TED OUT THAT THE AMOUNT WAS SPECIFICALLY RECEIVED AGAINST THE PUR CHASE OF BULK COOLERS AND THE AMOUNT OF SUBSIDY WAS RECEIVED TO B E DEDUCTED FROM THE COST OF BULK COOLERS PURCHASED BY THE ASSESSEE. 25. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE GOVERNMENT OF INDIA VIDE LETTER DATED 30-03-2005 HA D RELEASED THE FUND TO THE GOVERNMENT OF MAHARASHTRA FOR IMPLEMENTA TION OF APPROVED PROJECT IN SANGAMNER TALUKA IN AHMEDNAGAR DIS TRICT BY ASSESSEE AND OTHER CONCERNS UNDER CENTRALLY SPONSORE D SCHEME NAMED STRENGTHENING INFRASTRUCTURE FOR QUALITY AND CLEAN MILK PRODUCTION DURING THE YEAR 2004-05. THE TOTAL COST OF THE PROJECT WAS RS.433.82 LAKHS OUT OF WHICH RS.336.82 LAKHS WAS TO BE FUNDED BY THE CENTRAL GOVERNMENT AND THE REMAINING RS.99 LAKHS WAS TO BE BORNE BY THE ASSESSEE. THE GOVT. OF INDIA VIDE LETTER DA TED 30-03- 2005 SANCTIONED PAYMENT OF RS.31,75,000/-. VIDE ITS EARLIER LETTER DATED 30-03-2005 ADMINISTRATIVE APPROVAL FOR IMPLEMENTATION OF CENTRAL SPONSORED SCHEME, I.E. STRENGTHENING INFRASTRUCTU RE FOR QUALITY AND CLEAN MILK PRODUCTION IN SANGAMNER TALUKA IN AHMEDNAGAR DISTRICT OF MAHARASHTRA STATE BY THE ASSESS EE AND PRAKRIYA SANGH LTD. SANGAMNER, WAS GIVEN BY THE GOVT. O F INDIA. THE STATE GOVERNMENT WAS DIRECTED TO SET UP A TECHNIC AL MANAGEMENT COMMITTEE. AS PER THE ANNEXURE TO THE SAID LETTER, BOTH PHYSICAL TARGETS AND FINANCIAL TARGETS WERE ENLISTED. THE 38 ASSESSEE WAS TO TRAIN THE FARMER MEMBERS IN ITS DISTRICT AND ALSO TO INSTALL BULK COOLERS. FURTHER LABORATORIES HAD TO BE STRE NGTHENED. THE ASSESSEE IN VIEW THEREOF RECEIVED RS.1.35 CRORES DURIN G THE YEAR UNDER CONSIDERATION WHICH WAS SHOWN AS CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEE. 26. THE ISSUE ARISING IN THE PRESENT APPEAL IS WHETHER T HE SAID AMOUNT IS A CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEE. THE PERUSAL OF THE TERMS OF SCHEME REFLECTS THAT THE SAME W AS PROPOSED FOR STRENGTHENING INFRASTRUCTURE FOR QUALITY AND CLEAN MILK PRODUCTION IN SANGAMNER TALUKA IN AHMEDNAGAR DISTRICT OF MAHARASHTRA STATE, WHICH IN TURN WAS TO BE IMPLEMENTED BY THE ASSESSEE SOCIETY AND ANOTHER SOCIETY KNOWN AS PRAKRIY A SANGH LTD., SANGAMNER. UNDER THE SCHEME, THE DISTRICT COVERED WAS SANGAMNER TAUKA IN AHMEDNAGAR DISTRICT, WHEREIN TOTAL NU MBER OF FARMERS WERE TO BE TRAINED OVER A PERIOD OF 3 YEARS, I.E. 1 250 FARMERS AT A TOTAL COST OF RS.3,12,000/-. FURTHER, UNDER THE SAID SCHEME BULK MILK COOLING FACILITIES WITH ACCESSORIES HAD TO BE PURCHASED AND INSTALLED, I.E. 49 NOS. OF 20001 LEAP @6.00 LAKH/UNIT AND 51 NOS. OF 400 LEAP @2.00 LAKH/UNIT INSTALLED AT A TOTAL COST OF RS.2,97,00,000/-. THE OTHER PURPOSES FOR WHICH THE SAID SCHEME WAS MEANT AND INTENDED TO BE IMPLEMENTED WERE AS UNDER : I. DETERGENTS, ANTISEPTIC SOLUTION, MUSLIN CLOTH ETC. II. UTENSILS AND ACCESSORIES III. STRENGTHENING OF EXISTING 180 DCS LAB AND DAIR Y LAB IV. PLANNING AND MONITORING 27. THE TOTAL COST OF THE PROJECT RS.453.82 LAKHS OUT O F WHICH THE SHARE OF THE GOVERNMENT OF INDIA WAS RS.336.82 LAKHS AND THE SHARE OF THE ASSESSEE WAS RS.99 LAKHS. THE PERUSAL OF T HE PURPOSE OF THE SCHEME REFLECTS THAT THE GRANT WAS RELEASED UNDE R THE CENTRAL SPONSORED STRENGTHENING INFRASTRUCTURE FOR QUALITY AND C LEAN MILK 39 PRODUCTION IN SANGAMNER TALUKA IN AHMEDNAGAR DISTRICT AND THERE WAS NOT SPECIFIC DIRECTION TO UTILIZE THE SAID GRANT FOR MEET ING THE COST OF CAPITAL ASSET, I.E. BULK COOLERS TO BE PURCHASED BY THE ASSESSEE. WHERE THE SAME HAS NOT BEEN RELEASED TO ME ET THE COST OF THE CAPITAL ASSET, I.E. BULK COOLERS IN THE CASE OF THE ASSE SSEE, THE AMOUNT RELEASED UNDER THE SCHEME THUS CANNOT BE SET OFF AGAINST THE COST OF THE BULK COOLERS. 28. THE EXPLANATION 10 TO SECTION 43(1) OF THE ACT PROVIDE S THAT WHERE PORTION OF THE COST OF AN ASSET ACQUIRED BY THE A SSESSEE HAD BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNME NT OR THE STATE GOVERNMENT OR ANY AUTHORITY ESTABLISHED UNDER LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SUBSIDY GRANT OR REIMBURSE MENT, THEN SO MUCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR G RANT OR REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL COST OF T HE ASSET OF THE ASSESSEE. THE REQUIREMENT OF THE SECTION IS THAT THE COST OF AN ASSET OR ANY PORTION OF IT SHOULD BE DIRECTLY OR INDIRECTL Y MET BY THE CENTRAL OR STATE OR ANY AUTHORITY IN THE FORM OF A SUBSID Y OR GRANT, THEN WHILE COMPUTING THE VALUE OF SUCH ASSET FOR THE PURP OSE OF ALLOWING DEPRECIATION THEREOF, THE COST OF SUCH SUBSIDY GR ANT OR REIMBURSEMENT IS TO BE REDUCED FROM THE COST OF SUCH AS SET. HOWEVER, WHERE UNDER THE SCHEME THE AMOUNT IS NOT RELE ASED FOR A SPECIFIC PURPOSE, I.E. FOR MEETING THE COST OF AN ASSET THEN SUCH GRANT CANNOT BE CONSIDERED AS A PAYMENT DIRECTLY OR IN DIRECTLY MADE AGAINST COST OF AN ASSET AND THE SAME FALLS OUTSIDE THE PURVIEW OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT. 29. WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF SASISR I EXTRACTIONS LTD. VS. ACIT (SUPRA) WHEREIN IT WAS HELD AS UNDER : 40 EVEN AFTER INSERTION OF EXPLN. 10 TO S. 43(1) OF THE ACT, THE BASIC PRINCIPLE UNDERLYING IN THE DECISION OF THE APEX COU RT IN THE CASE OF P.J. CHEMICALS LTD. STILL HOLDS THE FIELD. ONLY IN A C ASE WHERE A SUBSIDY OR OTHER GRANT WAS GIVEN TO OFFSET THE COST OF A N ASSET, SUCH PAYMENT/GRANT WOULD FALL WITHIN THE EXPRESSION 'MET', WHEREAS THE SUBSIDY RECEIVED MERELY TO ACCELERATE THE INDUSTRIAL D EVELOPMENT OF THE STATE CANNOT BE CONSIDERED AS PAYMENTS MADE SPECIFI CALLY TO MEET A PORTION OF THE COST OF THE ASSETS. A CAREFUL PE RUSAL OF TARGET 2000' SCHEME SHOWS THAT THE SCHEME WAS INTENDED TO ACCEL ERATE INDUSTRIAL DEVELOPMENT OF THE STATE AND THE INCENTIV E WAS GIVEN FOR SETTING UP OF INDUSTRIES IN ANDHRA PRADESH AND FOR THE PURPOSE OF DETERMINING THE AMOUNT OF SUBSIDY TO BE GIVEN, COST OF ELIGIBLE INVESTMENT WAS TAKEN AS THE BASIS, THOUGH IT WAS NOT SPEC IFICALLY INTENDED TO SUBSIDISE THE COST OF THE CAPITAL. UNDER T HE CIRCUMSTANCES, THE INCENTIVE IN THE FORM OF SUBSIDY CAN NOT BE CONSIDERED AS A PAYMENT DIRECTLY OR INDIRECTLY TO MEE T ANY PORTION OF THE ACTUAL COST AND THUS IT FALLS OUTSIDE THE KEN O F EXPLN. 10 TO S. 43(1). IN THE LIGHT OF THE ABOVE DISCUSSION, FOR THE P URPOSE OF COMPUTING DEPRECITION ALLOWABLE TO THE ASSESSEE, THE SU BSIDY AMOUNT CANNOT BE REDUCED FROM THE COST OF THE CAPITA L ASSET. 30. IN THE FACTS OF PRESENT CASE, THE SUBSIDY RECEIVED B Y THE ASSESSEE IS CAPITAL SUBSIDY. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEPRECIATION ON THE BULK COOLERS PURCHASED BY THE ASSES SEE WITHOUT REDUCING THE AMOUNT OF SUBSIDY FROM THE COST OF THE ASSE T FOR COMPUTING THE DEPRECIATION UNDER SECTION 32(1) OF THE ACT . GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS THUS ALLOWED. 31. NOW COMING TO THE LAST GROUND OF APPEAL RAISED BY THE ASSESSEE, THE ISSUE IS VIS--VIS REJECTION OF EXEMPTION UN DER SECTION 80P(2)(D) OF THE ACT. 32. THE BRIEF FACTS ARE THAT THE ASSESSEE HAD RECEIVED INTEREST ON INVESTMENT MADE IN COOPERATIVE BANKS TOTALING TO RS.56,37,3 10/- AGAINST WHICH IT HAD CLAIMED THE EXEMPTION UNDER SECTION 8 0P(2)(D) OF THE ACT. HOWEVER, THE ASSESSEE HAD ALSO PAID INTEREST OF RS.8,24,156/- ON THE SECURED LOAN AVAILED FROM ADCC BANK WHICH WAS CLAIMED AS A BUSINESS EXPENDITURE. THE ASSESSING OFFICE R WHILE ALLOWING THE DEDUCTION UNDER SECTION 80P(2)(D) OF THE ACT RED UCED 41 THE INTEREST EXPENDITURE FROM INTEREST RECEIVED AND ALLOWED THE CLAIM ON THE NET INTEREST INCOME. THE CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER AGAINST WHICH THE ASSESSEE IS IN APPEAL. 33. ON THE PERUSAL OF THE RECORD, WE FIND THAT DURING THE YEAR UNDER CONSIDERATION AS AGAINST INTEREST INCOME OF RS.56,37,3 10/- THE ASSESSEE HAD ALSO INCURRED INTEREST EXPENDITURE OF RS.8,24,156/-. THE CLAIM OF THE ASSESSEE IS THAT IT IS TO BE ALLOWED DEDUCTION UNDER SECTION 80P(2)(D) ON THE GROSS AMOUNT OF INTEREST RECEIVED AND NOT ON THE NET AMOUNT OF INCOME RECEIVED. RELIANCE IN THIS REGARD WAS PLACED ON THE RATIO LAID DOWN BY THE HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. DAOBA COOPE RATIVE SUGAR MILLS LTD. 230 ITR 774 (P&H). WE FIND THE ISSUE STANDS COVERED BY THE RATIO LAID DOWN BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE ABOVE SAID CASE CITED (SUPRA) AND FOLLOWIN G THE SAME REASONING, WE DIRECT THE ASSESSING OFFICER TO ALLOW TH E DEDUCTION UNDER SECTION 80P(2)(D) OF THE ACT ON THE GROSS AMOUNT OF INTEREST INCOME. GROUND OF APPEAL NO.4 BY THE ASSESSEE IS THUS ALLOWED. 34. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF FEBRUARY, 2015. SD/- SD/- (G.S.PANNU) (SUSHM A CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED: 20 TH FEBRUARY, 2015 SATISH 42 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-IT/TP, PUNE 4. THE CIT-IT/TP, PUNE 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE