Asstt. Commissioner of Income Tax , Lucknow V. Shri Jasminder Singh , Lucknow

ITA 2/LKW/2013

• Counselvise Citation: 223714 RSA 2013
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 02-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALOK MITRA
• Assessee Lawyers: V B BHARGAVA
• Keywords: Question of law
• Section: 194C; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A , LUCKNOW BEFORE SHRI S UNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI. A. K. GARODIA , ACCOUNTANT MEMBER ITA NO. 02/LKW/201 3 ASSESSMENT YEAR: 2007 - 08 ASSTT. COMMISSIONER OF INCOME - TAX RANGE IV, LUCK NOW V. SHRI. JASMINDER SINGH 28, AAMIR NAGAR LUCKNOW PAN: ADWPS3346Q (APP ELL ANT) (RESPONDENT) APP ELL ANT BY: SHRI. ALOK MITRA, D.R. RESPONDENT BY: SHRI. V. B. BHARGAVA, FCA DATE OF HEARING: 11.04.2014 DATE OF PRONOUNCEMENT: 24 .04.2014 O R D E R PER SUNIL KUMAR YADAV: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) ON THE FOLLOWING THREE GROUNDS: - 1 . THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE ADDITION MADE BY A.O. OF RS.50,000/ - FROM 2,90,883/ - ON A CCOUNT OF DISALLOWANCE OF EXPANSES WHICH ARE NOT FULLY VERIFIABLE. HE FAILED TO APPRECIATE THAT THE ASSESSEE COULD NOT PROVIDE ANY EVIDENCE OF THESE EXPANSES. 2 . THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE BY THE A.O. OF RS.2,16,0 00/ - ON ACCOUNT OF LOW WITHDRAWAL FOR HOUSE HOLD EXPANSES. HE FAILED TO APPRECIATE THAT WITHDRAWALS OF RS.84,000/ - DISCLOSED BY THE ASSESSEE WERE VERY LOW AND COULD NOT BE ACCEPTED WITHOUT ANY JUSTIFICATION. PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 2 - : 3 . THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION MADE BY THE A.O. OF RS.22,65,257/ - U/S 40A(IA) AS THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE U/S 194J OF THE IT. ACT ON PAYMENTS MADE TO THE ARTISTES AND MODELS. HE FAILED TO APPRECIATE THAT THE WORD 'PAYABLE' USED IN THE SAID SUB - S ECTION INCLUDES CASES WHERE THE AMOUNTS WERE 'PAID' DURING THE YEAR. 2 . APROPOS GROUND NO.1, IT IS NOTICED THAT THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS.2,90,883/ - ON ACCOUNT OF DISALLOWANCE OF EXPENSES ON AD HOC BASIS AS THEY ARE NOT VERIFIABLE, BUT THE SAME WAS RESTRICTED TO RS.50,000/ - BY THE LD. CIT(A). 3 . NOW THE REVENUE IS BEFORE US AND PLACED HEAVY RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER. 4 . ON A CAREFUL PERUSAL OF THE ORDERS OF THE ASSESSING OFFICER AND THE LD. CIT(A), WE FIND THAT THE ASSE SSING OFFICER HAS MADE THE AFORESAID DISALLOWANCE ON AD HOC BASIS WITHOUT POINTING OUT ANY DEFECT IN THE MAINTENANCE OF THE ACCOUNTS OR THE VOUCHERS MAINTAINED BY THE ASSESSEE. THE LD. CIT(A) RESTRICTED THE SAME TO RS.50,000/ - HAVING CONSIDERED THE DISALL OWANCE MADE BY THE ASSESSING OFFICER AS UNREASONABLE. SINCE NOTHING HAS BEEN POINTED OUT BEFORE US WITH REGARD TO THE DEFECT IN THE MAINTENANCE OF ACCOUNTS BY THE ASSESSEE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY WE CONFIRM THE SAME. 5 . G ROUND NO.2 RELAT ES TO THE DELETION OF ADDITION OF RS.2,16,000/ - ON ACCOUNT OF LOW HOUSEHOLD WITHDRAWALS. 6 . ON A CAREFUL PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES, WE FIND THAT THE ASSESSING OFFICER HAS MADE ADDITION OF RS.2,16,000/ - HAVING CONSIDERED THE WITHDRAWAL DECLARED BY THE ASSESSEE AT RS.84,000/ - AT LOWER SIDE, WHICH WAS LATER ON DELETED BY THE LD. CIT(A). THE ASSESSING OFFICER HAS CONSIDERED THE HOUSEHOLD EXPENSES AT RS.25,000/ - PER MONTH AND PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 3 - : ESTIMATED THE TOTAL HOUSEHOLD WI THDRAWALS; WHEREAS THE LD. CIT(A) HAS ACCEPTED THE HOUSEHOLD WITHDRAWAL AT RS.84,000/ - AS REASONABLE. THE FINANCIAL YEAR INVOLVED IS 2006 - 07 AND KEEPING IN VIEW THE RATE OF INFLATION, THE AMOUNT OF RS.84,000/ - DECLARED AS HOUSEHOLD WITHDRAWAL FOR HIS ENTI RE FAMILY APPEARS TO BE AT LOWER SIDE. BUT THE ESTIMATION MADE BY THE ASSESSING OFFICER IS ALSO ON HIGHER SIDE. WE, THEREFORE, DO NOT AGREE WITH THE FINDINGS OF BOTH THE LOWER AUTHORITIES. KEEPING IN VIEW THE RATE OF INFLATION IN THE FINANCIAL YEAR 2006 - 07, WE CONSIDER THE HOUSEHOLD WITHDRAWAL AT RS.15,000/ - PER MONTH AS REASONABLE FOR THE FAMILY OF THE ASSESSEE. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO ESTIMATE THE HOUSEHOLD WITHDRAWAL AT RS.15,000/ - PER MONTH AND MAKE ADDITION OF THE DIFFERENCE. 7 . APROPOS GROUND NO.3, OUR ATTENTION WAS INVITED THAT THE LD. CIT(A) HAS DELETED THE ADDITION MADE ON ACCOUNT OF NON - DEDUCTION OF TDS ON PAYMENT MADE TO ARTISTS AND MODELS AS PER SECTION 194J OF THE INCOME - TAX ACT, 1961. THE ASSESSING OFFICER MADE ADDITION OF RS.22,65,257/ - ON PAYMENT MADE TO ARTISTS AND MODELS WITHOUT DEDUCTION OF TDS UNDER SECTION 194J OF THE ACT HAVING INVOKED PROVISIONS OF SECTION 40 ( A ) (IA) OF THE ACT. 8 . THE LD. CIT(A) DELETED THE ADDITION FOLLOWING THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S MERLYN SHIPPING & TRANSPORTS VS. ACIT, VISHAKHAPATNAM IN I TA NO.477/VIS/2008 (70 DTR 81). THE LD. CIT(A) HAS NOT EXAMINED THE ISSUE WITH REGARD TO THE APPLICABILITY OF PROVISIONS OF SECTION 194J OF THE ACT. 9 . DURING THE COURSE OF HEARING BEFORE US , OUR ATTENTION WAS INVITED THAT THE ISSUE WAS EXAMINED BY THE TRIBUNAL IN THE CASE OF DCIT VS. M/S AMA MEDICAL & DIAGNOSTIC CENTRE IN ITA NO.119/LKW/2013, IN WHICH THE TRIBUNAL HAS TAKEN A VIEW THAT THE ORDER OF THE SPECIAL BENCH IN T HE CASE OF M/S MERLYN SHIPPING & TRANSPORTS VS. ACIT, VISHAKHAPATNAM DOES NOT HOLD PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 4 - : GOOD, THEREFORE, IT CANNOT BE FOLLOWED AND FOLLOWING THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT AND CALCUTTA HIGH COURT , THE TRIBUNAL HAS HELD THAT PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WOULD COVER NOT ONLY TO THE AMOUNTS WHICH ARE PAYABLE ON 31 ST MARCH O F A PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. COPY OF THE ORDER OF THE TRIBUNAL IS ALSO PLACED ON RECORD. THE LD. COUNSEL FOR THE ASS ESSEE HAS FURTHER PLACED RELIANCE UPON THE JUDGMENT OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. VECTOR SHIPPING SERVICES (P) LTD. IN ITA NO.122 OF 2013. 10 . THE LD. D.R. HAS ALSO CONTENDED THAT THIS JUDGMENT WAS EXAMINED BY THE TRIBUNAL IN THE A FORESAID ORDER. 11 . HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE ORDER OF THE LD. CIT(A), WE FIND THAT THE LD. CIT(A) HAS DELETED THE ADDITION FOLLOWING THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S MERLYN SHIPPING & TRANSPORTS VS. ACIT, VISHAKHAPATNAM (SUPRA). THE TRIBUNAL HAS EXAMINED THIS ISSUE AND THE IMPACT OF THE CASE OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. VECTOR SHIPPING SERVICES (P) LTD. (SUPRA) IN THE CASE OF DC IT VS. M/S AMA MEDICAL & DIAGNOSTIC CENTRE (SUPRA) AND FINALLY CONCLUDED THAT THE PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT WOULD COVER NOT ONLY TO THE AMOUNTS WHICH ARE PAYABLE ON 31 ST MARCH O F A PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DU RING THE YEAR. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THIS REGARD ARE EXTRACTED HEREUNDER: - 7. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS IN THE LIGHT OF THE ORDERS OF THE AUTHORITIES BELOW AND THE JUDGMENTS REFERRED TO BY TH E PARTIES, WE FIND THAT THE CIT(A) HAS ADJUDICATED THE ISSUE IN THE LIGHT OF ORDER OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS (SUPRA) AND DELETED THE ADDITION. THE ORDER OF THE SPECIAL BENCH WAS CHALLENGED BEFORE HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 5 - : MERILYN SHIPPING & TRANSPORTS IN I.T.A. NO. 384 OF 2012 AND VIDE ORDER DATED 8 TH OCTOBER, 2012, THE HON'BLE HIGH COURT HAS SUSPENDED THE OPERATION OF THE ORDER OF THE TRIBUNAL. DESPITE THE SUSPENSION OF T HE ORDER OF THE TRIBUNAL BY THE CONCERNED HON'BLE JURISDICTIONAL HIGH COURT, THE CIT(A) HAS FOLLOWED THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AS THE CIT(A) HAS PASSED AN ORDER ON 03/12/2012. 7.1 DURING THE COURSE OF HEARING, IT WAS EMPHATICALLY ARGUED ON BEHALF OF THE ASSESSEE THAT WHEN THE HON'BLE ALLAHABAD HIGH COURT HAS APPROVED THE VIEW TAKEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS , THIS BENCH OF THE TRIBUN AL BEING SUBORDINATE TO THE HIGH COURT OF ALLAHABAD IS BOUND TO FOLLOW THE SAME AND DECIDE THE ISSUE ACCORDINGLY EVEN WITHOUT TAKING COGNIZANCE OF THE JUDGMENT OF OTHER HIGH COURTS IN THIS REGARD. THE SUBORDINATE AUTHORITY HAS NO JURISDICTION TO QUESTION THE WISDOM OF THE HIGHER AUTHORITY AND THEY ARE REQUIRED TO FOLLOWS THE VERDICT IN ITS LETTER AND SPIRIT GIVEN BY HIGHER AUTHORITY. 7.2 SINCE THE SOLE CONTROVERSY IS RAISED WITH REGARD TO THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT, WE HAVE TO EXAMI NE THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT WHETHER THERE HAVE LAID DOWN ANY LAW ON THE IMPUGNED ISSUE OR A PASSING REFERENCE WAS MADE WITH REGARD TO THE AFORESAID ORDER IN THE CASE OF MERILYN SHIPPING & TRANSPORTS . 7.3 HAVING CAREFULLY EXAMINED THE JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF VECTOR SHIPPING SERVICES P. LTD. (SUPRA), WE FIND THAT THOUGH THERE WAS DISPUTE WITH REGARD TO THE DISALLOWANCE OF PAYMENT OF SALARIES ON ACCOUNT OF NON DEDUCTION OF TDS AS REQUIRED U/S 40(A)(IA) OF THE ACT BUT NO QUESTION OF LAW WITH REGARD TO THE RATIO LAID DOWN BY THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS WAS RAISED BEFORE THE HON'BLE HIGH COURT. THE QUESTION OF LAW BEFORE THE HON'BLE HIGH COURT IS AS UNDER: '(A) WHETHER ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HON'BLE ITAT HAS RIGHTLY CONFIRMED THE ORDER OF THE CIT(A) AND THEREBY DELETING THE DISALLOWANCE OF RS.1,17,68,621/ - MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(IA ) OF THE I.T. ACT, 1961 BY IGNORING THE FACT THAT THE COMPANY M/S MERCATOR LINES LTD. HAD PERFORMED SHIP MANAGEMENT WORK ON BEHALF OF THE ASSESSEE M/S. VECTOR SHIPPING SERVICES (P) LTD. AND THERE WAS A MEMORANDUM OF UNDERSTANDING SIGNED PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 6 - : BETWEEN BOTH THE COMPANIES AND AS PER THE DEFINITION OF MEMORANDUM OF UNDERSTANDING, IT INCLUDED CONTRACT ALSO. 7.4 THE MAIN THRUST OF THE ARGUMENT BEFORE THE HON'BLE HIGH COURT WAS THAT M/S MERCATOR LINES LTD. HAD DEDUCTED TDS ON SALARIES PAID BY IT ON BEHALF OF THE ASSESSEE. UNDER SUCH CIRCUMSTANCES, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS ON REIMBURSEMENT BEING MADE BY IT TO M/S MERCATOR LINES LTD. BESIDES REFERENCE WAS ALSO MADE ABOUT THE ORDER OF THE SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING & TRANSPORTS WHEREIN IT HAS BEEN HELD THAT IF NO AMO UNT REMAINED PAYABLE AT THE YEAR END, THERE WOULD NOT BE ANY DISALLOWANCE AS THE PROVISION OF SECTION 40(A)(IA) ARE NOT APPLICABLE. AFTER RECORDING THE FINDING OF THE TRIBUNAL AND THE CIT(A), THE HON'BLE HIGH COURT HAS OBSERVED IN LAST TWO PARAS THAT THE PROVISION OF 40(A)(IA) WAS BROUGHT ON STATUTE TO DISALLOW THE CLAIM OF EVEN GENUINE AND ADMISSIBLE EXPENSES OF THE ASSESSEE UNDER THE HEAD 'INCOME FROM BUSINESS AND PROFESSION' IN CASE THE ASSESSEE DOES NOT DEDUCT TDS ON SUCH EXPENSES AND THE DEFAULT IN DE DUCTION OF TDS WOULD RESULT IN DISALLOWANCE OF EXPENDITURE ON WHICH SUCH TDS WAS DEDUCTIBLE. THEIR LIRDSHIPS HAVE FURTHER OBSERVED THAT IN THE PRESENT CASE TAX WAS DEDUCTED AS TDS FROM THE SALARIES OF THE EMPLOYEES PAID BY M/S. MERCATOR LINES LTD. AND THE CIRCUMSTANCES UNDER WHICH SUCH SALARIES WERE PAID BY M/S. MERCATOR LINES LTD., FOR M/S. VECTOR SHIPPING SERVICES, THE ASSESSEE WERE SUFFICIENTLY EXPLAINED. IN LAST FEW LINES, THE HON'BLE HIGH COURT HAS MADE A REFERENCE TO THE RATIO LAID DOWN BY THE SPECIA L BENCH OF THE TRIBUNAL AND OBSERVED THAT IT IS NOTED THAT FOR DISALLOWING EXPENSES FROM BUSINESS AND PROFESSION ON THE GROUND THAT TDS HAS NOT BEEN DEDUCTED, THE AMOUNT SHOULD BE PAYABLE AND NOT WHICH HAS BEEN PAID BY THE END OF THE YEAR. EXCEPT THESE OB SERVATIONS, THE HON'BLE HIGH COURT HAS NOT ADVERTED TO THE LEGAL PROPOSITION LAID DOWN BY THE SPECIAL BENCH OF THE TRIBUNAL. FOR THE SAKE OF REFERENCE, WE EXTRACT THE FINDING OF THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THIS REGARD AS UNDER: WE DO NOT FIND THAT THE REVENUE CAN TAKE ANY BENEFIT FROM THE OBSERVATIONS MADE BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORT LTD. (136 ITD. 23) (SB) QUOTED AS ABOVE TO THE EFFECT SECTION 40(A)(IA) WAS INTRODUCED IN THE ACT BY THE FINANCE ACT, 2004 WITH EFFECT FROM 1.4.2005 WITH A VIEW TO AUGMENT THE REVENUE THROUGH THE MECHANISM OF TAX DEDUCTED AT SOURCE. THIS PROVISION WAS BROUGHT ON STATUTE TO DISALLOW THE CLAIM OF EVEN GENUINE AND PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 7 - : ADMISSIBLE EXPENSES OF THE ASSESSEE UNDER THE HEAD 'INCOME FROM BUSINESS AND PROFESSION' IN CASE THE ASSESSEE DOES NOT DEDUCT TDS ON SUCH EXPENSES. THE DEFAULT IN DEDUCTION OF TDS WOULD RESULT IN DISALLOWANCE OF EXPENDITURE OR WHICH SUCH TDS WAS DEDUCTIBLE. IN THE PRESENT CASE TAX WAS DEDUCT ED AS TDS FROM THE SALARIES OF THE EMPLOYEES PAID BY M/S. MERCATOR LINES LTD. AND THE CIRCUMSTANCES UNDER WHICH SUCH SALARIES WERE PAID BY M/S. MERCATOR LINES LTD., FOR M/S. VECTOR SHIPPING SERVICES, THE ASSESSEE WERE SUFFICIENTLY EXPLAINED. IT IS TO BE N OTED THAT FOR DISALLOWING EXPENSES FROM BUSINESS AND PROFESSION ON THE GROUND THAT TDS HAS NOT BEEN DEDUCTED, THE AMOUNT SHOULD BE PAYABLE AND NOT WHICH HAS BEEN PAID BY THE END OF THE YEAR. WE DO NOT FIND THAT THE TRIBUNAL HAS COMMITTED ANY ERROR IN RE CORDING THE FINDING ON THE FACTS, WHICH WERE NOT CONTROVERTED BY THE DEPARTMENT AND THUS THE QUESTION OF LAW AS FRAMED DOES NOT ARISE FOR CONSIDERATION IN THE APPEAL. 7.5 THE IMPACT OF THE JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT AND OTHER HIGH COURTS WA S ALSO EXAMINED BY THE DIFFERENT BENCHES OF THE TRIBUNAL AND THEY HAVE CATEGORICALLY HELD THAT THE HON'BLE ALLAHABAD HIGH COURT HAS DECIDED THE ISSUE REFERRED TO IT ON DIFFERENT FOOTING AND HAS MADE A PASSING REFERENCE ABOUT THE DECISION RENDERED BY THE SP ECIAL BENCH. THEREFORE, WE ARE OF THE VIEW THAT THE HON'BLE JURISDICTIONAL HIGH COURT HAS NOT EXAMINED THE IMPUGNED ISSUE I.E. WHETHER DISALLOWANCE U/S 40(A)(IA) OF THE ACT COULD BE MADE ONLY IN RESPECT OF SUCH AMOUNT WHICH ARE PAYABLE AS ON 31 ST MARCH OF EVERY YEAR UNDER CONSIDERATION WHEREAS THE HON'BLE GUJARAT HIGH COURT AND HON'BLE CALCUTTA HIGH COURT HAVE DEALT WITH THE ISSUE IN DETAIL IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENT AND HAVE CATEGORICALLY HELD THAT SECTION 40(A)(IA) WOULD COVER NOT ONL Y TO THE AMOUNT WHICH ARE PAYABLE AS ON 31 ST MARCH OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. 7.6 BEFORE THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIKANDARKHAN N. TUNVAR (SUPRA), THE FOLLOWING QUESTION OF LAW WAS RAISED: PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 8 - : (I) WHETHER THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT WOULD BE MADE ONLY IN RESPECT OF SUCH AMOUNTS WHICH ARE PAYABLE ON 31 ST OF MARCH? (II) WHETHER THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS LAYS DOWN CORRECT LAW? 7.7 THE HON'BLE HIGH COURT HAVE ADJUDICATED THE ISSUE IN THE DETAIL IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS AND HAVE CONCLUDED THAT THE SECTION 40(A)(IA) WOULD COVER NOT ONLY THE AMOUNTS WHICH ARE PAYABLE ON 31 ST MARCH OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. THE RELEVANT OBSERVATIONS OF HON'BLE HIGH COURT ARE EXTRACTED AS UNDER: IN ADDITION TO SUCH PROVISIONS ALREADY EXISTING, THE LEGISLATURE INTRODUCED YET ANOTHER PROVISION FOR ENSUR ING COMPLIANCE WITH THE REQUIREMENT OF DEDUCING TAX AT SOURCE AND DEPOSITING IT WITH THE CENTRAL GOVERNMENT. SECTION 40(A)(IA), RELEVANT FOR OUR PURPOSE, READS AS UNDER : '(IA) ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB - CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE U NDER CHAPTER XVII - B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB - SECTION (1) OF SECTION 139 : PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCTED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB - SECTION (1) OF SECTION 139, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID.' PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 9 - : 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 M ADE WOULD BE CONFINED ONLY TO THOSE CASES WHERE THE AMOUNT REMAINS PAYABLE TILL THE END OF THE PREVIOUS YEAR OR WOULD INCLUDE ALL AMOUNTS WHICH BECAME PAYABLE DURING THE ENTIRE PREVIOUS YEAR. THE DECISION IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS V . ADDL. CIT WAS RENDERED BY THE SPECIAL BENCH BY A SPLIT OPINION. LEARNED ACCOUNTANT MEMBER WHO WAS IN MINORITY, PLACED HEAVY RELIANCE ON A DECISION OF THE MADRAS HIGH COURT IN THE CASE OF TUBE INVESTMENTS OF INDIA LTD. V. ASST. CIT (TDS) REPORTED IN [ 2010] 325 ITR 610 (MAD). THE LEARNED JUDGE DID NOTICE THAT THE HIGH COURT IN SUCH CASE WAS CONCERNED WITH THE VIRES OF THE STATUTORY PROVISION BUT FOUND SOME OF THE OBSERVATIONS MADE BY THE COURT IN THE PROCESS USEFUL AND APPLICABLE. THE LEARNED JUDGE REJECTED THE THEORY OF NARROW INTERPRETATION OF THE TERM 'PAYABLE' AND OBSERVED AS UNDER (PAGE 21 OF 16 ITR (TRIB)) : '12.4 IN OUR CONSIDERED OPINION, THERE IS NO AMBIGUITY IN THE SECTION AND THE TERM 'PAYABLE' CANNOT BE ASCRIBED A NARROW INTERPRETATION AS CONTENDED BY THE ASSESSEE. HAD THE INTENTIONS OF THE LEGISLATURE WERE TO DISALLOW ONLY ITEMS OUTSTANDING AS ON MARCH 31, THEN THE TERM 'PAYABLE' WOULD HAVE BEEN QUALIFIED BY THE PHRASE AS OUTSTANDING ON MARCH 31. HOWEVER, NO SUCH QUALIFICATION IS THER E IN THE SECTION AND, THEREFORE, THE SAME CANNOT BE READ INTO THE SECTION AS CONTENDED BY THE ASSESSEE.' ON THE OTHER HAND, THE LEARNED JUDICIAL MEMBER, SPEAKING FOR MAJORITY, ADOPTED A STRICTER INTERPRETATION. HEAVY RELIANCE WAS PLACED ON THE FINANCE BILL OF 2004, WHICH INCLUDED THE DRAFT OF THE AMENDMENT IN SECTION 40 AND THE ULTIMATE AMENDMENT WHICH ACTUALLY WAS PASSED BY PARLIAMENT. IT WAS OBSERVED THAT FROM THE COMPARISON BETWEEN THE PROPOSED AND THE ENACTED PROVISION IT CAN BE SEEN THAT THE LEG ISLATURE HAS REPLACED THE WORDS 'AMOUNTS CREDITED OR PAID' WITH THE WORD 'PAYABLE' IN PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 10 - : THE ENACTMENT. ON SUCH BASIS, IT WAS HELD THAT THIS IS A CASE OF CONSCIOUS OMISSION AND WHEN THE LANGUAGE WAS CLEAR THE INTENTION OF THE LEGISLATURE HAD TO BE GATHERED FROM LANGUAGE USED. IN THEIR OPINION, THE PROVISION WOULD APPLY ONLY TO AMOUNTS WHICH ARE PAYABLE AT THE END OF THE YEAR. HAVING SAID SO, CURIOUSLY, IT WAS OBSERVED THAT THE PROVISO TO SECTION 40(A)(IA) OF THE ACT LAYS DOWN THAT EARLIER YEARS PROVISION CAN BE ALLOWED IN SUBSEQUENT YEARS ONLY IF TAX AT SOURCE IS DEDUCTED AND DEPOSITED AND, THEREFORE, THE REVENUE'S FEAR IS UNFOUNDED AS THE PROVISION OF SECTION 40(A)(IA) OF THE ACT COVERS THE SITUATION. WHAT THIS SUB - SECTION, THEREFORE, REQUIRES IS THAT THERE SHOULD BE AN AMOUNT PAYABLE IN THE NATURE DESCRIBED ABOVE, WHICH IS SUCH ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B BUT SUCH TAX HAS NOT BEEN DEDUCTED OR IF DEDUCTED N OT PAID BEFORE THE DUE DATE. THIS PROVISION NOWHERE REQUIRES THAT THE AMOUNT WHICH IS PAYABLE MUST REMAIN SO PAYABLE THROUGHOUT DURING THE YEAR. TO REITERATE THE PROVISION HAS CERTAIN STRICT AND STRINGENT REQUIREMENTS BEFORE THE UNPLEASANT CONSEQUENCES E NVISAGED THEREIN CAN BE APPLIED. WE ARE PREPARED TO AND WE ARE DUTY BOUND TO INTERPRET SUCH REQUIREMENTS STRICTLY. SUCH REQUIREMENTS, HOWEVER, CANNOT BE ENLARGED BY ANY ADDITION OR SUBTRACTION OF WORDS NOT USED BY THE LEGISLATURE. THE TERM USED IS INTERE ST, COMMISSION, BROKERAGE, ETC., IS PAYABLE TO A RESIDENT OR AMOUNTS PAYABLE TO A CONTRACTOR OR A SUB - CONTRACTOR FOR CARRYING OUT ANY WORK. THE LANGUAGE USED IS NOT THAT SUCH AMOUNT MUST CONTINUE TO REMAIN PAYABLE TILL THE END OF THE ACCOUNTING YEAR. AN Y SUCH INTERPRETATION WOULD REQUIRE READING WORDS WHICH THE LEGISLATURE HAS NOT USED. NO SUCH INTERPRETATION WOULD EVEN OTHERWISE BE JUSTIFIED BECAUSE, IN OUR OPINION, THE LEGISLATURE COULD NOT HAVE INTENDED TO BRING ABOUT ANY SUCH DISTINCTION NOR THE LANGUAGE USED IN THE SECTION BRINGS ABOUT ANY SUCH MEANING. IF THE INTERPRETATION, AS ADVANCED BY THE ASSESSEES IS ACCEPTED, IT WOULD LEAD TO A SITUATION WHERE THE ASSESSEE WHO THOUGH WAS REQUIRED TO DEDUCT THE TAX AT SOURCE BUT NO SUCH DEDUCTION WAS PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 11 - : MA DE OR MORE FLAGRANTLY DEDUCTION THOUGH MADE IS NOT PAID TO THE GOVERNMENT, WOULD ESCAPE THE CONSEQUENCE ONLY BECAUSE THE AMOUNT WAS ALREADY PAID OVER BEFORE THE END OF THE YEAR IN CONTRAST TO ANOTHER ASSESSEE WHO WOULD OTHERWISE BE IN SIMILAR SITUATION BUT IN WHOSE CASE THE AMOUNT REMAINED PAYABLE TILL THE END OF THE YEAR. WE SIMPLY DO NOT SEE ANY LOGIC WHY THE LEGISLATURE WOULD HAVE DESIRED TO BRING ABOUT SUCH IRRECONCILABLE AND DIVERSE CONSEQUENCES. WE HASTEN TO ADD THAT THIS IS NOT THE PRIME BASIS ON WHICH WE HAVE ADOPTED THE INTERPRETATION WHICH WE HAVE GIVEN. IF THE LANGUAGE USED BY PARLIAMENT CONVEYED SUCH A MEANING, WE WOULD NOT HAVE HESITATED IN ADOPTING SUCH AN INTERPRETATION. WE ONLY HIGHLIGHT THAT WE WOULD NOT READILY ACCEPT THAT THE LEGI SLATURE DESIRED TO BRING ABOUT AN INCONGRUOUS AND SEEMINGLY IRRECONCILABLE CONSEQUENCES. THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. ASHOKBHAI CHIMANBHAI (SUPRA), WOULD NOT ALTER THIS SITUATION. THE SAID DECISION, OF COURSE, RECOGNIZES THE CONCEPT OF ASCERTAINING THE PROFIT AND LOSS FROM THE BUSINESS OR PROFESSION WITH REFERENCE TO A CERTAIN PERIOD, I.E., THE ACCOUNTING YEAR. IN THIS CONTEXT, THE LAST DATE OF SUCH ACCOUNTING PERIOD WOULD ASSUME CONSIDERABLE SIGNIFICANCE. HOWEVER, THIS DECI SION NOWHERE 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 THE LAST DATE OF THE ACCOUNTING PER IOD. 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 MARCH 31, OF THE YEAR UNDER CONSIDERATION. MERELY BECAUSE, ACCOUNTS ARE CLOSED ON THAT DATE AND THE COMPUTATION OF PROFIT AND LOSS IS TO BE JUDGED WITH REFERENCE TO SUCH DATE, DOES NOT MEAN THAT WHETHER AN AMOUNT IS PAYABLE OR NOT MUST BE ASCERTAINED ON THE STRENGTH OF THE POSITION EMERGING ON MARCH 31. 7.8 BEFORE HON 'BLE CALCUTTA HIGH COURT IN THE CASE OF CRESCENT EXPORT SYNDICATE (SUPRA), THE FOLLOWING QUESTION OF LAW WAS RAISED: IF ALL THE AMOUNTS HAVE BEEN PAID, THEN OBVIOUSLY FOLLOWING THE PRINCIPLES LAID DOWN BY THE HONBLE SPECIAL PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 12 - : BENCH OF THIS TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS, NO ADDITION SHALL BE MADE. IF ANY AMOUNT IS FOUND TO BE PAYABLE AS ON THE YEAR END, THEN THE ASSESSING OFFICER SHALL GIVE THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE HIS CASE AS TO WHY THE DISALLOWANCE, IF ANY , SHOULD NOT BE MADE BY INVOKING THE PROVISIONS OF SECTION 40(1)(IA) OF THE ACT. 7.9 THE HON'BLE HIGH COURT HAS EXAMINED THE ISSUE IN THE LIGHT OF THE FINANCE BILL 2004, RELEVANT PROVISIONS OF THE ACT AND VARIOUS JUDICIAL PRONOUNCEMENTS AND THE DETAILED ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS AND HAVE FINALLY CONCLUDED THAT MAJORITY VIEW EXPRESSED IN THE MERILYN SHIPPING & TRANSPORTS ARE NOT ACCEPTABLE. 7.10 THE RELEVANT OBSERVATIONS OF THEIR LORDSHIPS A RE AS UNDER: WE ALREADY HAVE QUOTED EXTENSIVELY BOTH THE MAJORITY AND THE MINORITY VIEWS EXPRESSED IN THE AFORESAID CASE. THE MAIN THRUST OF THE MAJORITY VIEW IS BASED ON THE FACT THAT THE LEGISLATURE HAS REPLACED THE EXPRESSION AMOUNTS CREDITED OR PAID WITH THE EXPRESSION PAYABLE IN THE FINAL ENACTMENT. COMPARISON BETWEEN THE PRE - AMENDMENT AND POST AMENDMENT LAW IS PERMISSIBLE FOR THE PURPOSE OF ASCERTAINING THE MISCHIEF SOUGHT TO BE REMEDIED OR THE OBJECT SOUGHT TO BE ACHIEVED BY AN AMENDMENT. TH IS 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 ENACTED LAW IS NOT PERMISSIBLE. NOR CAN THE DRAFT OR THE BILL BE USED FOR THE PURPOSE OF REGU LATING THE MEANING AND PURPORT OF THE ENACTED LAW. IT IS THE FINALLY ENACTED LAW WHICH IS THE WILL OF THE LEGISLATURE. THE LEARNED TRIBUNAL FELL INTO AN ERROR IN NOT REALIZING THIS ASPECT OF THE MATTER. THE LEARNED TRIBUNAL HELD THAT WHERE LANGUA GE IS CLEAR THE INTENTION OF THE LEGISLATURE IS TO BE GATHERED FROM THE LANGUAGE USED. HAVING HELD SO, IT WAS NOT OPEN TO SEEK TO INTERPRET THE SECTION ON THE BASIS OF ANY COMPARISON BETWEEN THE DRAFT AND THE SECTION ACTUALLY ENACTED NOR WAS IT OPEN TO SPECULATE AS TO THE EFFECT OF PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 13 - : THE SO - CALLED REPRESENTATIONS MADE BY THE PROFESSIONAL BODIES. THE LEARNED TRIBUNAL HELD THAT SECTION 40(A)(IA) OF THE ACT CREATES A LEGAL FICTION BY VIRTUE OF WHICH EVEN THE GENUINE AND ADMISSIBLE EXPENSES CLAIMED BY AN ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION IF THE ASSESSEE DOES NOT DEDUCT TDS ON SUCH EXPENSES ARE DISALLOWED. HAVING HELD SO WAS IT OPEN TO THE TRIBUNAL TO SEEK TO JUSTIFY THAT THIS FICTION CANNOT BE EXTENDED ANY FURTHER AND, THE REFORE, CANNOT BE INVOKED BY ASSESSING OFFICER TO DISALLOW THE GENUINE AND REASONABLE EXPENDITURE ON THE AMOUNTS OF EXPENDITURE ALREADY PAID? DOES THIS NOT AMOUNT TO DELIBERATELY READING SOMETHING IN THE LAW WHICH IS NOT THERE? WE, AS SUCH, HAVE NO DO UBT IN OUR MIND THAT THE LEARNED TRIBUNAL REALIZED THE MEANING AND PURPORT OF SECTION 40(A)(IA) CORRECTLY WHEN IT HELD THAT IN CASE OF OMISSION TO DEDUCT TAX EVEN THE GENUINE AND ADMISSIBLE EXPENSES ARE TO BE DISALLOWED. BUT THEY SOUGHT TO REMOVE THE RIG OUR OF THE LAW BY HOLDING THAT THE DISALLOWANCE SHALL BE RESTRICTED TO THE MONEY WHICH IS YET TO BE PAID. WHAT THE TRIBUNAL BY MAJORITY DID WAS TO SUPPLY THE CASUS OMISSUS WHICH WAS NOT PERMISSIBLE AND COULD ONLY HAVE BEEN DONE BY THE SUPREME COURT IN AN A PPROPRIATE CASE. REFERENCE IN THIS REGARD MAY BE MADE TO THE JUDGMENT IN THE CASE OF BHUWALKA STEEL INDUSTRIES VS. BOMBAY IRON & STEEL LABOUR BOARD REPORTED IN 2010 (2) SCC 273. THE KEY WO RDS USED IN SECTION 40(A)(IA), ACCORDING TO US, ARE ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII B. IF THE QUESTION IS WHICH EXPENSES ARE SOUGHT TO BE DISALLOWED? THE ANSWER IS BOUND TO BE THOSE EXPENSES ON WHICH TAX IS DEDUCTIBLE AT SOURC E 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 PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 14 - : ANY AMOUNT IS PAYABLE, IT CAN NEITHER BE PAID NOR CREDITED. IF AN AMOUNT HAS NEITHER BEEN PAID NOR CREDITED, THERE CAN BE NO OCCASION FOR CLAIMING ANY DEDUCTION. THE LANGUAGE USED IN THE DRAFT WAS UNCLEAR AND SUSCEPTIBLE TO GIVING MORE THAN ONE MEANING. BY LOOKING AT THE DRAFT IT COULD BE SAID THAT THE LEGISLATURE WANTED TO TREAT THE PAYMENTS MADE OR CREDITED IN FAVOUR OF A CONTRACTOR OR SUB - CONTRACTOR DIFFERENTLY THAN THE PAYMENTS ON ACCOUNT OF INTEREST, COMMISSION OR BROKERAGE, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES BECAUSE THE WORDS AMOUNTS CREDITED OR PAID WERE USE D ONLY IN RELATION TO A CONTRACTOR OR SUB - CONTRACTOR. THIS DIFFERENTIAL TREATMENT WAS NOT INTENDED. THEREFORE, THE LEGISLATURE PROVIDED THAT THE AMOUNTS, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B PAYABLE ON ACCOUNT OF INTEREST, COMMISSION O R BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES OR TO A CONTRACTOR OR SUB - CONTRACTOR SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME OF AN ASSESSEE IN CASE HE HAS NOT DEDUCED, OR AFTER DEDUCTION HAS NOT PAID WITHIN T HE SPECIFIED TIME. THE LANGUAGE USED BY THE LEGISLATURE IN THE FINALLY ENACTED LAW IS CLEAR AND UNAMBIGUOUS WHEREAS THE LANGUAGE USED IN THE BILL WAS AMBIGUOUS. A FEW WORDS ARE NOW NECESSARY TO DEAL WITH THE SUBMISSION OF MR. BAGCHI AND MS. ROYCHOWDHURI. THERE CAN BE NO DENIAL THAT THE PROVISION IN QUESTION IS HARSH. BUT THAT IS NO GROUND TO READ THE SAME IN A MANNER WHICH WAS NOT INTENDED BY THE LEGISLATURE. THIS IS OUR ANSWER TO THE SUBMISSION OF MR. BAGCHI. THE SUBMISSION OF MS. ROYCHOWDHURI THAT THE S ECOND PROVISO SOUGHT TO BECOME EFFECTIVE FROM 1ST APRIL, 2013 SHOULD BE HELD TO HAVE ALREADY BECOME OPERATIVE PRIOR TO THE APPOINTED DATE CANNOT ALSO BE ACCEDED TO FOR THE SAME REASON INDICATED ABOVE. THE LAW WAS DELIBERATELY MADE HARSH TO SECURE COMPLIANC E OF THE PROVISIONS REQUIRING DEDUCTIONS OF TAX AT SOURCE. IT IS NOT THE CASE OF AN INADVERTENT ERROR. FOR THE REASONS DISCUSSED ABOVE, WE ARE OF THE OPINION THAT THE MAJORITY VIEWS EXPRESSED IN THE CASE OF PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 15 - : MERILYN SHIPPING & TRANSPORTS ARE NOT ACCEPTAB LE. THE SUBMISSIONS ADVANCED BY LEARNED ADVOCATES HAVE ALREADY BEEN DEALT WITH AND REJECTED. THE APPEAL IS, THUS, ALLOWED IN FAVOUR OF THE REVENUE. 7.11 OUR ATTENTION WAS ALSO INVITED TO A CIRCULAR DATED 16/12/2013 ISSUED BY THE CBDT CLARIFYING THE STAND OF THE DEPARTMENT IN THE LIGHT OF THE AFORESAID JUDGMENTS OF DIFFERENT HIGH COURTS AND IT HAS BEEN CLARIFIED THAT STATUTORY PROVISIONS ARE AMPLY CLEAR AND IN THE CONTEXT OF SECTION 40(A)(IA) OF THE ACT, THE TERM PAYABLE WOULD INCLUDE AMOUNTS WHIC H ARE PAID DURING THE PREVIOUS YEAR. FOR THE SAKE OF REFERENCE, WE EXTRACT THE CIRCULAR AS UNDER: CIRCULAR NO. 10/DV/2013 (DEPARTMENTAL VIEW) F. NO. 279/MISC./M - 61/2012 - ITJ (VOL. - II) GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL B OARD OF DIRECT TAXES NEW DELHI, THE DECEMBER 16TH 2013 SUBJECT: CIRCULAR ON SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961 - REG. IT HAS BEEN BROUGHT TO THE NOTICE OF THE BOARD THAT THERE ARE CONFLICTING INTERPRETATIONS BY J UDICIAL AUTHORITIES REGARDING THE APPLICABILITY OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME - TAX ACT, 1961 (`THE ACT') WITH REGARD TO THE AMOUNT NOT DEDUCTIBLE IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROF ESSION'. 2. SECTION 40(A)(IA) OF THE ACT READS AS UNDER: '.....ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB CONTRACT OR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B AND SUCH TAX HAS NOT BEEN PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 16 - : DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE D ATE SPECIFIED IN SUB - SECTION (1) OF SECTION 139...' 3. IN THE CASE OF MERILYN SHIPPING & TRANSPORTS V. ADDL. CIT , IT WAS HELD BY SPECIAL BENCH OF ITAT, VISHAKHAPATNAM, THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WOULD APPLY ONLY TO THE AMOUNT W HICH REMAINED PAYABLE AT THE END OF THE RELEVANT FINANCIAL YEAR AND COULD NOT BE INVOKED TO DISALLOW THE AMOUNT WHICH HAD ACTUALLY BEEN PAID DURING THE PREVIOUS YEAR WITHOUT DEDUCTION OF TAX AT SOURCE. THE ORDER OF THE SPECIAL BENCH HAS SINCE BEEN PUT UNDE R INTERIM SUSPENSION BY THE ANDHRA PRADESH HIGH COURT. 3.1 THE HON'BLE CALCUTTA HIGH COURT AND HON'BLE GUJARAT HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX, KOLKATA - XI V. CRESCENT EXPORTS SYNDICATE AND COMMISSIONER OF INCOME - TAX - IV V. SIKANDARKH AN N TUNVAR RESPECTIVELY, HAVE HELD THAT SECTION 40(A)(IA) OF THE ACT WOULD COVER NOT ONLY THE AMOUNTS WHICH ARE PAYABLE AT THE END OF THE PREVIOUS YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. 3.2 THE HON'BLE HIGH COURTS HAVE FURTHER HEL D THAT THE INTENTION OF THE LEGISLATION WAS TO DISALLOW CERTAIN TYPES OF EXPENSE, SUBJECT TO PROVISIONS OF CHAPTER XVII - B, WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR BUT NO TAX WAS DEDUCTED AT SOURCE OR IF DEDUCTED WAS NOT PAID WITHIN THE STIPULATED TIM E. THERE IS NO SUCH CONDITION THAT AMOUNT SHOULD REMAIN PAYABLE AT THE END OF THE YEAR. 3.3 THE HON'BLE ALLAHABAD HIGH COURT IN CIT V. VECTOR SHIPPING SERVICE (P) LTD . HAS AFFIRMED THE DECISION OF THE SPECIAL BENCH IN MERILYN SHIPPING THAT FOR DISALLOW ANCE UNDER SECTION 40(A) (IA) OFTHE ACT, THE AMOUNT SHOULD BE PAYABLE AND NOT WHICH HAS BEEN PAID DURING THE YEAR. HOWEVER, THE DECISIONS OF THE HON'BLE GUJARAT AND CALCUTTA HIGH COURTS (SUPRA) WERE NOT BROUGHT TO THE ATTENTION OF THE HON'BLE ALLAHABAD HIG H COURT. PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 17 - : 3.4 IN THE CASE OF ACIT, CIRCLE 4(2), MUMBAI V. RISHTI STOCK AND SHARES PVT. LTD. IN ITA NO. 112/MUM/2012, HON'BLE ITAT, MUMBAI IN ITS ORDER DATED 02 - 08 - 2013 HAS EXAMINED THE DECISION OF THE HON'BLE ALLAHABAD HIGH COURT (SUPRA) AS REGARDS TO SE CTION 40(A)(IA) OF THE ACT AND CONCLUDED THAT THE SAME WAS AN 'ORBITER DICTA' WHILE THE DECISIONS OF THE HON'BLE GUJARAT AND CALCUTTA HIGH COURT (SUPRA) WERE 'RATIO DECIDENDI'. THE ITAT ACCORDINGLY APPLIED THE VIEW TAKEN BY THE HON'BLE GUJARAT AND CALCUTTA HIGH COURT AS RATIO DECIDENDI PREVAILS OVER AN ORBITER DICTA. 4. AFTER CAREFUL EXAMINATION OF THE ISSUE, THE BOARD IS OF THE CONSIDERED VIEW THAT THE PROVISION OF SECTION 40(A) (IA) OF THE ACT WOULD COVER NOT ONLY THE AMOUNTS WHICH ARC PAYABLE AS ON 31 ST MARCH OF A PREVIOUS YEAR BUT ALSO AMOUNTS WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. THE STATUTORY PROVISIONS ARE AMPLY CLEAR AND IN THE CONTEXT OF SECTION 40(A) (IA) OF THE ACT THE TERM 'PAYABLE' WOULD INCLUDE 'AMOUNTS WHICH ARE PAID DURING THE PRE VIOUS YEAR'. 5. WHERE ANY HIGH COURT DECIDES AN ISSUE CONTRARY TO THE 'DEPARTMENTAL VIEW', THE `DEPARTMENTAL VIEW' THEREON SHALL NOT BE OPERATIVE IN THE AREA FALLING IN THE JURISDICTION OF THE RELEVANT HIGH COURT. HOWEVER, THE CCIT CONCERNED SHOULD IMME DIATELY BRING THE JUDGEMENT TO THE NOTICE OF THE CTC. THE CTC SHALL EXAMINE THE SAID JUDGEMENT ON PRIORITY TO DECIDE AS TO WHETHER FILING OF SLP TO THE SUPREME COURT WILL BE ADEQUATE RESPONSE FOR THE TIME BEING OR SOME LEGISLATIVE AMENDMENT IS CALLED FOR. 6. THE ABOVE CLARIFICATION MAY BE BROUGHT TO THE NOTICE OF ALL OFFICERS. 8. KEEPING IN VIEW THE AFORESAID JUDGMENTS OF VARIOUS HIGH COURTS AND THE TRIBUNAL, WE ARE OF THE CONSIDERED OPINION THAT THE VIEW EXPRESSED OR THE RATIO LAID DOWN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS HAS BEEN OVERRULED. THEREFORE, IT CANNOT BE SAID THAT SINCE THE HON'BLE JURISDICTIONAL HIGH COURT HAS APPROVED THE VIEW TAKEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN S HIPPING & TRANSPORTS , THE SAME HAS TO BE FOLLOWED BY THE TRIBUNAL SITUATED WITHIN THE PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 18 - : JURISDICTION OF HON'BLE ALLAHABAD HIGH COURT. HAD THE IMPUGNED ISSUE BEEN EXAMINED AND ADJUDICATED BY THE JURISDICTIONAL HIGH COURT, IT WOULD HAVE BEEN RESPECTFULLY FOL LOWED BY THE TRIBUNAL IRRESPECTIVE OF THE FACT THAT CONTRARY VIEW HAVE BEEN EXPRESSED BY THE DIFFERENT HIGH COURTS. THE HON'BLE JURISDICTIONAL HIGH COURT HAS NOT EXAMINED THE IMPUGNED ISSUE AT ALL AND SIMPLE PASSING REFERENCE WAS MADE WITH REGARD TO THE O RDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS AND THE RELIEF WAS GRANTED TO THE ASSESSEE ON MERIT. THEREFORE, THE RATIO LAID DOWN IN THE CASE OF MERILYN SHIPPING & TRANSPORTS, WHICH HAS BEEN SUSPENDED BY HON'BLE A NDHRA PRADESH HIGH COURT HAS NOT BEEN APPROVED BY THE HON'BLE ALLAHABAD HIGH COURT. THEREFORE, SUBORDINATE JUDICIAL FORUM ARE NOT REQUIRED TO FOLLOW THE RATIO ORDER LAID DOWN IN THE CASE OF MERILYN SHIPPING & TRANSPORTS (SUPRA), AS IT WAS OVERRULED BY TH E OTHER HIGH COURT. 9. IN THE INSTANT CASE, THE CIT(A) HAS ADJUDICATED THE ISSUE FOLLOWING THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE WITHOUT ADJUDICATING THE APPEAL ON MERIT, THOUGH SPECIFIC GROUNDS WERE RAISED BEFORE CIT(A). THOUGH THE REVENUE HAS CHALLENGED THE ORDER OF CIT(A) ON MERIT ALSO BUT NO FINDING WAS GIVEN BY THE CIT(A) ON MERIT WITH REGARD TO THE NATURE OF PAYMENTS. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND REVERSE THE FINDING OF CIT(A) GIVEN FOLLOWING THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS. SINCE THE CIT(A) HAS NOT GIVEN ANY FINDING ON MERIT, WE RESTORE THE MATTER TO HIS FILE WITH THE DIRECTION TO ADJUDICATE THE ISSUE ON MERIT AS TO WHETHER THE PROVISIONS OF SECTION 194C ARE APPLICABLE TO THE PRESENT CASE AND FOR THE REMAINING ISSUE, WHETHER THE PROVISION OF SECTION 40(A)(IA) IS APPLICABLE IN RESPECT OF SUCH AMOUNTS, WHICH ARE PAYABLE A S ON 31 ST OF MARCH OF THE YEAR UNDER CONSIDERATION, WE HOLD THAT THE PROVISION OF SECTION 40(A)(IA) WOULD COVER NOT ONLY TO THE AMOUNTS WHICH ARE PAYABLE AS ON 31 ST MARCH OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. ACCORDI NGLY, THE MATTER IS RESTORED TO THE FILE OF THE CIT(A) FOR ADJUDICATION ON MERIT. 12 . SINCE THE TRIBUNAL HAS TAKEN A SPECIFIC VIEW IN THIS REGARD, WE FIND NO JUSTIFICATION TO TAKE A CONTRARY VIEW IN THIS APPEAL. ACCORDINGLY FOLLOWING THE SAME , WE HOLD THAT PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT WOULD PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 19 - : COVER NOT ONLY THE AMOUNTS WHICH ARE PAYABLE AS ON 31 ST MARCH OF A PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. 13 . ON A CAREFUL PERUSAL OF THE ORDER OF THE LD. CIT(A), WE FIND THAT T HE LD. CIT(A) HAS NOT EXAMINED THE ISSUE ON ME RIT WITH REGARD TO THE APPLICABILITY OF PROVISIONS OF SECTION 194J OF THE ACT ON PAYM ENT TO LOCAL ARTISTS AND MODELS. WE, THEREFORE, RESTORE THE MATTER TO THE FILE OF THE LD. CIT(A) TO RE - ADJUDICATE THE ISSUE ON MERIT AND IF HE COMES TO THE CONCLUSION THAT THE PAYMENT MADE TO THE LOCAL ARTISTS AND MODELS ATTRACT PROVISIONS OF SECTION 194J OF THE ACT, DISALLOWANCE OF PAYMENT BE MADE ON ACCOUNT OF NON - DEDUCTION OF TDS AS PER PROVISIONS OF SECTION 40 (A)(IA) OF TH E ACT. ACCORDINGLY THE MATTER IS RESTORED TO THE FILE OF THE LD. CIT(A) FOR RE - ADJUDICATION. 14 . IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24.4.2014. SD/ - SD/ - [ A. K. GARODIA ] [ S UNIL KUMAR Y ADAV ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 24 TH APRIL, 2014 JJ: 1104 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT 5 . DR ASSISTANT REGISTRAR PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ )