DCIT, New Delhi V. M/s. Jagson Airlines Ltd., New Delhi

ITA 4715/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4068 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 28-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SUMANGALA SAXENA ADVS
• Keywords: Recovery proceedings; Question of law; Revenue expenditure; Capital expenditure
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: D , NEW DELHI BEFORE SHRI R .K. PANDA , ACCOUNTANT MEMBER AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA NO. 4 7 1 5 /DEL/201 4 A.Y. 20 10 - 11 D CIT VS. JAGSON AIRLINES LTD. CIRCLE 4(1) 3 RD FLOOR, VANDANA BUILDING NEW DELHI 11, TOLSTOY MARG NEW DELHI PAN: AAACJ0609F (APPELLANT) (RESPONDENT ) APPELLANT BY : SH.AMIT JAIN, SR.D.R. RESPONDENT BY : SH.RAJIV SAXENA, & MS.SUMANGALA SAXENA, ADVS DATE OF HEARING: 11/01/2018 DATE OF PRONOUNCEMENT : 22.0 1 .2018 ORDER PER BEENA A PILLAI, J.M . TH E PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAINST ORDER DATED 24/06/14 PASSED BY LD.CIT(A) - 8, NEW DELHI FOR ASSESSMENT YEAR 2010 - 11 ON THE FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.30,30,831/ - TREATED THE SAME CAPITAL IN NATURE? ITA 4715/DEL/2014 A.Y.2010 - 11 DCIT VS. JAGSON AIRLINES LTD., NEW DELHI PAGE 2 OF 13 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.1,06,14,806/ - MADE BY THE AO U/S 40(A)(IA)? 3. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 4. THAT THE O RDER OF THE LD.CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR FOREGO ANY GROUNDS OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 2. BRIEF FACTS OF THE CASE ARE AS UNDER : A SSESSEE FILED ITS RETURN OF INCOME ON 23/09/10 DECLARING LOSS OF RS.11,48,57,119/ - . THE CASE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (THE ACT) AND WAS SELECTED FOR SCRUTINY. NOTICES UNDER SECTION 143 (2) WAS ISSUED TO ASSESSEE. IN RE SPONSE TO THE STATUTORY NOTICES, REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD.AO AND FURNISHED WRITTEN REPLIES TO THE QUESTIONNAIRES AND PRODUCE D DOCUMENTS INCLUDING BOOKS OF ACCOUNTS, BILLS AND VOUCHERS, BANK STATEMENTS WHICH WERE PUT TO TEST CHECK BASI S. 2.1. DURING THE RELEVANT ASSESSMENT PROCEEDINGS LD. AO OBSERVED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF AVIATION AND HAD DEBITED A SUM OF RS.49,13,539/ - UNDER THE HEAD TRAINING EXPENSES. LD. AO CONSIDERED IT AS CAPITAL EXPENDITURE AS IT HAS ENDURING BENEFITS. HE MADE ADDITION OF RS. 39,30,8 3 1/ - IN THE HANDS OF ASSESSEE. 2.2. LD. AO FURTHER OBSERVED THAT ASSESSEE HAD NOT DEDUCTED TDS UNDER SECTION 194 I AND 194 J OF THE ACT FOR PARKING CHARGES AND PASSENGER SERVICE FEES FOR THE YEAR UNDER CONSIDERATION. ITA 4715/DEL/2014 A.Y.2010 - 11 DCIT VS. JAGSON AIRLINES LTD., NEW DELHI PAGE 3 OF 13 2.3. LD. AO THEREFORE MADE ADDITIONS TO AN EXTENT OF RS. 1,06,14,806/ - UNDER SECTION 40 (A) (IA) OF THE A CT. 2.4. AGGRIEVED BY THE ORDER OF LD.AO ASSESSEE PREFERRED APPEAL BEFORE THE LD.CIT(A) WHO DELETED THE ADDITIONS MADE BY LD. AO. 3 . AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS IN APPEAL BEFORE US NOW. 3.1. GROUND NO. 1 LD.D R PLACED RELIANCE UPON THE ORDER PASSED BY LD.AO . LD. AR ON THE CONTRARY PLACING RELIANCE UPON THE FINDINGS OF LD.CIT (A) SUBMITTED THAT THE PAYMENTS WERE MADE TO VARIOUS CONCE RNS FOR THE PURPOSES OF TRAINING EMPLOYEES IN CONNECTION WITH FIRE DRILL, THE REFRESHER TRAINING , FOR REVALIDATION OF CABIN, CONVERSION TRAINING TO CABIN CREW , FOR DANGEROUS GOODS TRAINING, SIMULATOR TYPE RATING TRAINING ETC. HE SUBMITTED THAT THESE TRAININGS ARE TO BE PROVIDED TO THE EMPLOYEES AS PER THE REQUIREMENT OF AIRPORT AUTHORITY AND VARIOUS OTHER GOVERNMENT AUTHORITIES IN ORDER TO COMPLY WITH THE LEGAL INSTRUCTIONS UNDER VARIOUS CONVENTIONS FOR SAFETY AND SECURITY OF PASSENGERS. LD. AR SUBMITT ED THAT THE EMPLOYEES WORKING WITH ASSESSEE ARE NOT PERMANENT AND KEEP CHANGING JOBS AND THEREFORE THE TRAINING PROVIDED T O ALL THE EMPLOYEES DO NOT CREATE AN ENDURING BENEFITS TO ASSESSEE IN ANY MANNER WHATSOEVER. HOWEVER SUCH TRAININGS ARE TO BE PROVIDED COMPULSORILY AS PER THE NORMS OF AIRPORT AUTHORITIES. 3.2. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. ITA 4715/DEL/2014 A.Y.2010 - 11 DCIT VS. JAGSON AIRLINES LTD., NEW DELHI PAGE 4 OF 13 3.3. IT IS OBSERVED THAT LD.CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER: 5.4 HAVE GONE THROUGH THE DETAILS OF EXPENDITURE INCURRED BY THE ASSESSEE UNDER TWO HEADS ONE AS TRAINING EXPENSE PAID TO EVIBALITKA AVIATION LTD. FOR SIMULATOR TRAINING TO R.K. MAKAR AND MR.N.PANDEY, THE COMMANDER AND CO - PILOT RESPECTIVELY AMO UNTING TO RS. 7,23,981/ - THE FINDINGS OF AO IN PARA - 3/PAGE - 2 OF HIS ASSESSMENT IS WRONG/CONTAINS TYPOGRAPHICAL ERROR. ANOTHER HEAD OF ACCOUNT IN THE BOOKS OF ACCOUNT RELATES TO TRAINING FEE PAID. THESE PAYMENTS WERE MADE TO VARIOUS CONCERNS FOR THE PURPOSE OF TRAINING EMPLOYEES IN CONNECTION WITH FIRE DRILL, REFRESHER TRAINING FOR REVALIDATION OF CABIN, CONVERSION TRAINING TO CABIN CREW FOR DANGEROUS GOODS TRAINING, SIMULATOR TYPE RATING TRAINING, FIRST AID TRAINING, ROUTE CHECK TRAINING, D G R TRAINING ETC. TO VARIOUS EMPLOYEES AS PER REQUIREMENT OF AIRPORT AUTHORITY AND VARIOUS OTHER GOVT . AUTHORITIES IN ORDER TO COMPLY THE LEGAL INSTRUCTIONS UNDER VARIOUS CONVENTIONS FOR SAFETY & SECURITY OF PASSENGERS. THE EMPLOYEES WHO MAY BE EDUCATED OTHERWISE DO NOT HAV E BACK GROUND OF AIRLINES EXCEPT IN SOME CASES THEY HAVE TAKEN UP CERTAIN COURSES BUT TRAINING WAS STILL REQUIRED IN ORDER TO EMPLOY THEM FOR THE PURPOSE OF AVIATION BUSINESS. THESE EMPLOYEES ARE NOT PERMANENT AND USED TO CHANGE JOBS AT THE BEST AVAILABL E OPPORTUNITY AND SO IT CANNOT BE TREATED AS BENEFIT OF ENDURING NATURE. THE TRAINING MAY BENEFIT ASSESSEE'S BUSINESS BUT IT IS DONE DUE TO STATUTORY PROVISIONS AND REQUIREMENTS WITHOUT WHICH ASSESSEE CANNOT UTILIZE THEIR SERVICES. THE AR DRAWN MY ATTENTIO N TO THE DECISION OF ITAT DELHI BENCH IN THE MATTER OF DCIT VS. SAPIENT ITA 4715/DEL/2014 A.Y.2010 - 11 DCIT VS. JAGSON AIRLINES LTD., NEW DELHI PAGE 5 OF 13 CORPORATION PVT. LTD. WHICH WAS SUBSEQUENTLY CHALLENGED BEFORE HON'BLE DELHI HIGH COURT HOWEVER THE REVENUE AUTHORITIES HAVE ACCEPTED THAT TRAINING EXPENSES ARE REVENUE IN NATURE AND S O THEY DID NOT APPEAL ON THAT ISSUE. 5.5. I THEREFORE HOLD THAT THESE TRAINING EXPENSES ARE REVENUE IN NATURE AND CANNOT BE TREATED AS CAPITAL IN NATURE. THE EXPENDITURE OF RS.39,30,831/ - IS ALLOWED AS REVENUE EXPENDITURE. 3.4. WE AGREE WITH THE SUBMISSIONS ADVANCED BY LD.AR AS WELL AS DETAILED FINDINGS RECORDED BY LD.CIT(A) THAT THE TRAINING PROVIDED BY THE ASSESSEE TO ITS EMPLOYEES WOULD NOT AMOUNT TO AN ENDURING BENEFIT. ACCORDINGLY WE DISMISS THIS GROUND RAISED BY REVENUE. 4. GROUND NO. 2 4.1. R EVENUE HAS RAISED THIS GROUND IN RESPECT OF THE DISALLOWANCE BEING DELETED ON ACCOUNT OF TDS NOT DEDUCTED BY ASSESSEE ON PARKING CHARGES AND PASSENGER SERVICE FEE. 4.2. LD.DR SUBMITTED THAT ASSESSEE IS LIABLE TO DEDUCT TDS UNDER S ECTION 194 I AND 194 J ON THE PARKING CHARGES AND PASSENGER SERVICE FEE PROVIDED AT THE AIRPORT. 4.3. LD. AR ON THE OTHER HAND SUBMITTED THAT THESE PAYMENTS WERE MADE TO A IRPORT A UTHORITY OF INDIA WH ICH IS CONSIDERED TO BE A LOCAL AUTHORITY AS DESCRIBED UNDER SECTION 10 (20) AND HENCE WAS NOT SUBJECTED TO TDS PROVISIONS. LD. AR HOWEVER SUBMITTED THAT SUBSEQUENTLY THE CONTROVERSY CAME TO REST AND ASSESSEE STARTED DEDUCTING TDS ON THE SUBSEQUENT PAYMENTS M ADE TO A IRPORT A UTHORITY OF INDIA. HE SUBMITTED THAT IT WAS UNDER A BONA FIDE BELIEF THAT TDS WAS NOT TO BE DEDUCTED BY ASSESSEE. LD.AR BY ITA 4715/DEL/2014 A.Y.2010 - 11 DCIT VS. JAGSON AIRLINES LTD., NEW DELHI PAGE 6 OF 13 PLACING RELIANCE UPON THE DECISION OF ITAT VIZAG BENCH IN THE CASE OF MERLYN SHIPPING & TRANSPORT V. ADDL. CIT [2012] 136 ITD 23 , SUBMITTED THAT 40 (A) (IA) RELATED TO PAYMENTS WHICH ARE PAYABLE BUT DOES NOT INCLUDE PAYMENTS ALREADY PAID AND HENCE THE PAYMENTS ALREADY MADE FALL OUT S IDE THE PURVIEW OF SECTION 40 (A) (IA) OF THE ACT . 4.4. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. 4.5. WE HAVE PERUSED THE DECISION OF THIS T RIBUNAL IN THE CASE OF MERLYN SHIPPING & TRANSPORT V. ADDL. CIT (SUPRA) RELIED UPON BY LD. AR AS WELL AS LD. CIT (A). LD. CIT (A) CATEGORICALLY OBSERVE D THAT ASSESSEE HAD DEDUCTED TDS ON PAYMENTS AT VARIOUS AIRPORTS DETAILS OF WHICH WERE FILED BEFORE THE AUTHORITIES BELOW , H OWEVER DUE TO THE CONTROVERSY RE GARDING DEDUCT EE BEING AN AUTHORITY UNDER SECTION 10 (20) OF THE A CT , FOR CERTAIN PAYMENTS ASSESSEE FAILED TO DEDUCT TD S AND HAS TAKEN SHELTER UNDER THE DECISION OF THIS T RIBUNAL IN THE CASE OF MERLYN SHIPPING & TRANSPORT V. ADDL. CIT(SUPRA) . DECISION OF HON BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. VECTOR SHIPPING REPORTED IN (2013 357 ITR 642), WAS ALSO ON THE SIMILAR ISSUE. HON BLE HIGH COURT THEREIN HELD THAT 40(A)(IA) OF THE A CT DOES NOT INCLUDE AMOUNT THAT IS ALREADY PAID. 4.6. NOW HON BLE SUPREME COURT HAS OVERRULED THE OBSERVATIONS OF HON BLE ALLAHABAD HIGH COURT IN CIT VS. VECTOR SHIPPING (SUPRA) , IN RESPECT OF PAID AND PAYABLE WHILE DECIDING THE CASE OF PALAM G AS ITA 4715/DEL/2014 A.Y.2010 - 11 DCIT VS. JAGSON AIRLINES LTD., NEW DELHI PAGE 7 OF 13 S ERVICES VERSUS CIT REPORTED IN 394 ITR 300 , WHERE HON BLE C OURT OBSERVED AND HELD AS UNDER: 14. IN THE AFORESAID BACKDROP, LET US NOW DEAL WITH THE ISSUE, NAMELY, THE WORD 'PAYABLE' IN SECTION 40(A) (IA) WOULD MEAN ONLY WHEN THE AMOUNT IS PAYABLE AND NOT WHEN IT IS ACTUALLY PAID. GRAMMATICALLY, IT MAY BE ACCEPTED THAT THE TWO WORDS, I.E. 'PAYABLE' AND 'PAID' , DENOTE DIFFERENT MEANINGS. THE PUNJAB & HARYANA HIGH COURT, IN P.M.S. DIESELS (SUPRA) REFERRED TO ABOVE, RIGHTLY REMARKED THAT THE WORD 'PAYABLE' IS, IN FACT, AN ANTONYM OF THE WORD 'PAID' . AT THE SAM E TIME, IT TOOK THE VIEW THAT IT WAS NOT SIGNIFICANT TO THE INTERPRETATION OF SECTION 40(A) (IA) . DISCUSSING THIS ASPECT FURTHER, THE PUNJAB & HARYANA HIGH COURT FIRST DEALT WITH THE CONTENTION OF THE ASSESSEE THAT SECTION 40(A) (IA) RELATES ONLY TO THOSE ASSESSEES WHO FOLLOW THE MERCANTILE SYSTEM AND DOES NOT COVER THE CASES WHERE THE ASSESSEES FOLLOW THE CASH SYSTEM. THOSE CONTENTION WAS REJECTED IN THE FOLLOWING MANNER: '19. THERE IS NOTHING THAT PERSUADES US TO ACCEPT THIS SUBMISSION. THE PURPOSE OF THE SECTION IS TO ENSURE THE RECOVERY OF TAX. WE SEE NO INDICATION IN THE SECTION THAT THIS OBJECT WAS CONFINED TO THE RECOVERY OF TAX FROM A PARTICULAR TYPE OF ASSESSEE OR ASSESSEES FOLLOWING A PARTICULAR ACCOUNTING PRACTICE. AS FAR AS THIS PROVISION IS CONC ERNED, IT APPEARS TO MAKE NO DIFFERENCE TO THE GOVERNMENT AS TO THE ACCOUNTING SYSTEM FOLLOWED BY THE ASSESSEES. THE GOVERNMENT IS INTERESTED IN THE RECOVERY OF TAXES. IF FOR SOME REASON, THE GOVERNMENT WAS INTERESTED IN ENSURING THE RECOVERY OF TAXES ONLY FROM ASSESSEES FOLLOWING THE MERCANTILE SYSTEM, WE WOULD HAVE EXPECTED THE PROVISION TO SO STIPULATE CLEARLY, IF NOT EXPRESSLY. IT IS NOT SUGGESTED THAT ASSESSEES FOLLOWING THE CASH SYSTEM ARE NOT LIABLE TO DEDUCT TAX AT SOURCE. IT IS NOT SUGGESTED THAT T HE PROVISIONS OF CHAPTER XVII - B DO NOT APPLY TO ASSESSEES FOLLOWING THE CASH SYSTEM. THERE IS NOTHING IN CHAPTER XVII - B EITHER THAT SUGGESTS OTHERWISE. 20. OUR VIEW IS FORTIFIED BY THE EXPLANATORY NOTE TO FINANCE BILL (NO. 2) OF 2004. SUB - CLAUSE ( IA ) OF CL AUSE ( A ) OF SECTION 40 WAS INTRODUCED BY THE FINANCE BILL (NO. 2) OF 2004 WITH EFFECT FROM 01.04.2005. THE EXPLANATORY NOTE TO FINANCE BILL - 2004 STATED: - ITA 4715/DEL/2014 A.Y.2010 - 11 DCIT VS. JAGSON AIRLINES LTD., NEW DELHI PAGE 8 OF 13 ' ** ** ** WITH A VIEW TO AUGMENT COMPLIANCE OF TDS PROVISIONS, IT IS PROPOSED TO EXTEND THE PROVISIONS OF SECTION 40(A) (IA) TO PAYMENTS OF INTEREST, COMMISSION OR BROKERAGE, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES TO RESIDENTS, AND PAYMENTS TO A RESIDENT CONTRACTOR OR SUB - CONTRACTOR FOR CARRYING OUT ANY WORK (INCLUDING SUPP LY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION, HAS NOT BEEN PAID BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB - SECTION(1) OF SECTION 200 AND IN ACCORDANCE WITH THE OTHER PROVISIONS OF CHAPTER XVII - B. ' 21. THE ADHERENCE TO THE PROVISIONS ENSURES NOT MERELY THE COLLECTION OF TAX BUT ALSO ENABLES THE AUTHORITIES TO BRING WITHIN THEIR FOLD ALL SUCH PERSONS WHO ARE LIABLE TO COME WITHIN THE NETWORK OF TAX PAYERS. THE INTENTION WAS TO ENSURE THE COLLECTION OF TAX IRRESPECTIVE OF THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEES. WE DO NOT SEE HOW THIS DUAL PURPOSE OF AUGMENTING THE COMPLIANCE OF CHAPTER XVII AND BRINGING WITHIN THE DEPARTMENT'S FOLD TAX PAYERS IS SERVED BY CONFINING THE PROVISIONS OF SECTIO N 40(A) (IA) TO ASSESSEES WHO FOLLOW THE MERCANTILE SYSTEM. NOR DO WE FIND ANYTHING THAT INDICATES THAT FOR SOME REASON THE LEGISLATURE INTENDED ACHIEVING THESE OBJECTIVES ONLY BY CONFINING THE OPERATION OF SECTION 40(A) (IA) TO ASSESSEES WHO FOLLOW THE ME RCANTILE SYSTEM. 22. THE SAME VIEW WAS TAKEN BY A DIVISION BENCH OF THE CALCUTTA HIGH COURT IN COMMISSIONER OF INCOME TAX V. CRESCENT EXPORT SYNDICATE , ( SUPRA ). IT WAS HELD: - '12.3. IT IS NOTICEABLE THAT SECTION 40 (A) IS APPLICABLE IRRESPECTIVE OF THE METHOD OF ACCOUNTING FOLLOWED BY AN ASSESSEE. THEREFORE, 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 THE ACCOUNT OF PAYEE ON ACCRUAL OF LIABILITY, TDS WAS REQUIRED TO BE MADE BUT IF ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING, THEN ON MAKING PAYMENT TDS WAS TO BE MADE AS THE LIABILITY WAS DISCHARGED BY MAKING PAYMENT. THE TDS PROVISIO NS ARE APPLICABLE BOTH IN THE SITUATION OF ACTUAL PAYMENT AS WELL OF THE ITA 4715/DEL/2014 A.Y.2010 - 11 DCIT VS. JAGSON AIRLINES LTD., NEW DELHI PAGE 9 OF 13 CREDIT OF THE AMOUNT. IT BECOMES VERY CLEAR FROM THE FACT THAT THE PHRASE, 'ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B', WAS NOT THERE IN THE BILL BUT INCORPORATED IN T HE ACT. THIS WAS NOT WITHOUT ANY PURPOSE.' 15. WE APPROVE THE AFORESAID VIEW AS WELL. AS A CER TIORARI, IT FOLLOWS THAT SECTION 40(A) (IA) COVERS NOT ONLY THOSE CASES WHERE THE AMOUNT IS PAYABLE BUT ALSO WHEN IT IS PAID. IN THIS BEHALF, ONE HAS TO KEEP IN M IND THE PURPOSE WITH WHICH SECTION 40 WAS ENACTED AND THAT HAS ALREADY BEEN NOTED ABOVE. WE HAVE ALSO TO KEEP IN MIND THE PROVISIONS OF SECTIONS 194C AND 200. ONCE IT IS FOUND THAT THE AFORESAID SECTIONS MANDATE A PERSON TO DEDUCT TAX AT SOURCE NOT ONLY ON THE AMOUNTS PAYABLE BUT ALSO WHEN THE SUMS ARE ACTUALLY PAID TO THE CONTRACTOR, ANY PERSON WHO DOES NOT ADHERE TO THIS STATUTORY OBLIGATION HAS TO SUFFER THE CONSEQUENCES WHICH ARE STIPULATED IN THE ACT ITSELF. CERTAIN CONSEQUENCES OF FAILURE TO DEDUCT TA X AT SOURCE FROM THE PAYMENTS MADE, WHERE TAX WAS TO BE DEDUCTED AT SOURCE OR FAILURE TO PAY THE SAME TO THE CREDIT OF THE CENTRAL GOVERNMENT, ARE STIPULATED IN SECTION 201 OF THE ACT. THIS SECTION PROVIDES THAT IN THAT CONTINGENCY, SUCH A PERSON WOULD BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX. WHILE STIPULATING THIS CONSEQUENCE, SECTION 201 CATEGORICALLY STATES THAT THE AFORESAID SECTIONS WOULD BE WITHOUT PREJUDICE TO ANY OTHER CONSEQUENCES WHICH THAT DEFAULTER MAY INCUR. OTHER CONSEQUE NCES ARE PROVIDED UNDER SECTION 40(A) (IA) OF THE ACT, NAMELY, PAYMENTS MADE BY SUCH A PERSON TO A CONTRACTOR SHALL NOT BE TREATED AS DEDUCTIBLE EXPENDITURE. WHEN READ IN THIS CONTEXT, IT IS CLEAR THAT SECTION 40(A) (IA) DEALS WITH THE NATURE OF DEFAULT AND THE CONSEQUENCES THEREOF. DEFAULT IS RELATABLE TO CHAPTER XVIIB (IN THE INSTANT CASE SECTIONS 194C AND 200, WHICH PROVISIONS ARE IN THE AFORESAID CHAPTER). WHEN THE ENTIRE SCHEME OF OBLIGATION TO DEDUCT THE TAX AT SOURCE AND PAYING IT OVER TO THE CENTRAL G OVERNMENT IS READ HOLISTICALLY, IT CANNOT BE HELD THAT THE WORD 'PAYABLE' OCCURRING IN SECTION 40(A) (IA) REFERS TO ONLY THOSE CASES WHERE THE AMOUNT IS YET TO BE PAID AND DOES NOT COVER THE CASES WHERE THE AMOUNT IS ACTUALLY PAID. IF THE PROVISION IS INTER PRETED IN THE MANNER SUGGESTED BY THE APPELLANT HEREIN, THEN EVEN WHEN IT IS FOUND THAT A PERSON, LIKE THE APPELLANT, HAS VIOLATED THE PROVISIONS OF CHAPTER XVIIB (OR SPECIFICALLY SECTIONS 194C AND 200 IN THE INSTANT CASE), HE WOULD STILL GO SCOT FREE, WIT HOUT SUFFERING THE CONSEQUENCES ITA 4715/DEL/2014 A.Y.2010 - 11 DCIT VS. JAGSON AIRLINES LTD., NEW DELHI PAGE 10 OF 13 OF SUCH MONETARY DEFAULT IN SPITE OF SPECIFIC PROVISIONS LAYING DOWN THESE CONSEQUENCES. THE PUNJAB & HARYANA HIGH COURT HAS EXHAUSTIVELY INTERPRETED SECTION 40(A) (IA) KEEPING IN MIND DIFFERENT ASPECTS. WE WOULD AGAIN QUOTE THE FOLLOWING PARAGRAPHS FROM THE SAID JUDGMENT, WITH OUR COMPLETE APPROVAL THERETO: '26. FURTHER, THE MERE INCURRING OF A LIABILITY DOES NOT REQUIRE AN ASSESSEE TO DEDUCT THE TAX AT SOURCE EVEN IF SUCH PAYMENTS, IF MADE, WOULD REQUIRE AN ASSESSEE TO DEDU CT THE TAX AT SOURCE. THE LIABILITY TO DEDUCT TAX AT SOURCE UNDER CHAPTER XVII - B ARISES ONLY UPON PAYMENTS BEING MADE OR WHERE SO SPECIFIED UNDER THE SECTIONS IN CHAPTER XVII, THE AMOUNT IS CREDITED TO THE ACCOUNT OF THE PAYEE. IN OTHER WORDS, THE LIABILIT Y TO DEDUCT TAX AT SOURCE ARISES NOT ON ACCOUNT OF THE ASSESSEE BEING LIABLE TO THE PAYEE BUT ONLY UPON THE LIABILITY BEING DISCHARGED IN THE CASE OF AN ASSESSEE FOLLOWING THE CASH SYSTEM AND UPON CREDIT BEING GIVEN BY AN ASSESSEE FOLLOWING THE MERCANTILE SYSTEM. THIS IS CLEAR FROM EVERY SECTION IN CHAPTER XVII. 27. TAKE FOR INSTANCE, THE CASE OF AN ASSESSEE, WHO FOLLOWS THE CASH SYSTEM OF ACCOUNTING AND WHERE THE ASSESSEE WHO THOUGH LIABLE TO PAY THE CONTRACTOR, FAILS TO DO SO FOR ANY REASON. THE ASSESSEE IS NOT THEN LIABLE TO DEDUCT TAX AT SOURCE. TAKE ALSO THE CASE OF AN ASSESSEE, WHO FOLLOWS THE MERCANTILE SYSTEM. SUCH AN ASSESSEE MAY HAVE INCURRED THE LIABILITY TO PAY AMOUNTS TO A PARTY. SUCH AN ASSESSEE IS ALSO NOT BOUND TO DEDUCT TAX AT SOURCE UNLESS HE CREDITS SUCH SUMS TO THE ACCOUNT OF THE PARTY/PAYEE, SUCH AS, A CONTRACTOR. THIS IS CLEAR FROM SECTION 194C SET OUT EARLIER. THE LIABILITY TO DEDUCT TAX AT SOURCE, IN THE CASE OF AN ASSESSEE FOLLOWING THE CASH SYSTEM, ARISES ONLY WHEN THE PAYMENT IS MAD E AND IN THE CASE OF AN ASSESSEE FOLLOWING THE MERCANTILE SYSTEM, WHEN HE CREDITS SUCH SUM TO THE ACCOUNT OF THE PARTY ENTITLED TO RECEIVE THE PAYMENT. 28. THE GOVERNMENT HAS NOTHING TO DO WITH THE DISPUTE BETWEEN THE ASSESSEE AND THE PAYEE SUCH AS A CONTR ACTOR. THE PROVISIONS OF THE ACT INCLUDING SECTION 40 AND THE PROVISIONS OF CHAPTER XVII DO NOT ENTITLE THE TAX AUTHORITIES TO ADJUDICATE THE LIABILITY OF AN ASSESSEE TO MAKE PAYMENT TO THE PAYEE/OTHER CONTRACTING PARTY. THE APPELLANT'S SUBMISSION, IF ACC EPTED, WOULD REQUIRE AN ITA 4715/DEL/2014 A.Y.2010 - 11 DCIT VS. JAGSON AIRLINES LTD., NEW DELHI PAGE 11 OF 13 ADJUDICATION BY THE TAX AUTHORITIES AS TO THE LIABILITY OF THE ASSESSEE TO MAKE PAYMENT. THEY WOULD THEN BE REQUIRED TO INVESTIGATE ALL THE RECORDS OF AN ASSESSEE TO ASCERTAIN ITS LIABILITY TO THIRD PARTIES. THIS COULD IN MANY CASES BE AN EXTREMELY COMPLICATED TASK ESPECIALLY IN THE ABSENCE OF THE THIRD PARTY. THE THIRD PARTY MAY NOT PRESS THE CLAIM. THE PARTIES MAY SETTLE THE DISPUTE, IF ANY. THIS IS AN EXERCISE NOT EVEN REMOTELY REQUIRED OR EVEN CONTEMPLATED BY THE SECTION.' 16. AS MENTIONED ABOVE, THE PUNJAB & HARYANA HIGH COURT FOUND SUPPORT FROM THE JUDGMENTS OF THE MADRAS AND CALCUTTA HIGH COURTS TAKING IDENTICAL VIEW AND BY EXTENSIVELY QUOTING FROM THE SAID JUDGMENTS. 17. INSOFAR AS JUDGMENT OF THE ALLAHABAD HIGH COURT IS CONCE RNED, READING THEREOF WOULD REFLECT THAT THE HIGH COURT, AFTER NOTICING THE FACT THAT SINCE THE AMOUNTS HAD ALREADY BEEN PAID, IT STRAIGHTAWAY CONCLUDED, WITHOUT ANY DISCUSSION, THAT SECTION 40(A) (IA) WOULD APPLY ONLY WHEN THE AMOUNT IS 'PAYABLE' AND DISM ISSED THE APPEAL OF THE DEPARTMENT STATING THAT THE QUESTION OF LAW FRAMED DID NOT ARISE FOR CONSIDERATION. NO DOUBT, THE SPECIAL LEAVE PETITION THERE AGAINST WAS DISMISSED BY THIS COURT IN LIMINE . HOWEVER, THAT WOULD NOT AMOUNT TO CONFIRMING THE VIEW OF THE ALLAHABAD HIGH COURT (SEE V.M. SALGAOCAR & BROS. (P.) LTD. V. CIT [2000] 243 ITR 383/110 TAXMAN 67 (SC) AND SUPREME COURT EMPLOYEES WELFARE ASSOCIATION V. UNION OF IND IA [1989] 4 SCC 187 . 18. IN VIEW OF THE AFORESAID DISCUSSION, WE HOLD THAT THE VIEW TAKEN BY THE HIGH COURTS OF PUNJAB & HARYANA, MADRAS AND CALCUTTA IS THE CORRECT VIEW AND THE JUDGMENT OF THE ALLAHABAD HIGH COURT IN VECTOR SHIPPING SERVICES (P) LTD. ( SUPRA ) DID NOT DECIDE THE QUESTION OF LAW CORRECTLY. THUS, INSOFAR AS THE JUDGMENT OF THE ALLAHABAD HIGH COURT IS CONCERNED, WE OVERRULE THE SAME. CONSEQUENCES OF THE AFORESAID DISCUSSION WILL BE TO ANSWER THE QUESTION AGAINST THE APPELLANT/ASSESSEE THEREB Y APPROVING THE VIEW TAKEN BY THE HIGH COURT. 4.6 . IN VIEW OF THE ABOVE OBSERVATIONS BY HON BLE SUPREME COURT WE ARE OF THE CONSIDERED OPINION THAT LD.CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY LD.A.O. U/S40(A)(IA) OF THE ACT. WE THEREFORE ITA 4715/DEL/2014 A.Y.2010 - 11 DCIT VS. JAGSON AIRLINES LTD., NEW DELHI PAGE 12 OF 13 HOLD THA T ADDITION MADE BY LD.AO DESERVES TO BE UPHELD. ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS ALLOWED. 5. IN THE RESULT APPEAL FILED BY THE REVENUE STANDS ALLOWED PARTLY. ORDER PRONOUNCED IN THE O PEN C OURT ON 22 ND JANUARY, 2018. SD/ - SD/ - ( R .K. PANDA ) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 22 ND JANUARY, 2018 *MV COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER ASST. REGISTRAR ITAT, DELHI BENCHES, NEW DELHI ITA 4715/DEL/2014 A.Y.2010 - 11 DCIT VS. JAGSON AIRLINES LTD., NEW DELHI PAGE 13 OF 13 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON DRAGON 1 9 .01.2018 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 22. 01.2018 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 2 2 . 0 1 . 2 0 1 8 SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER