ITO, CHENNAI vs. D.UMAPATHY, CHENNAI

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER: This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-IV, Chennai, dated

2 I.T.A. No.2435/Mds/14 30.04.2014 and pertains to assessment year 2008-09. The only

issue arises for consideration is with regard to disallowance under

Section 40(a)(ia) of the Income-tax Act, 1961 (in short 'the Act').

submitted that the CIT(Appeals), by following the order of the

Tribunal in ITO v. Theekathir Press in I.T.A. No.2076/Mds/2012

dated 18.09.2013, found that the assessee was to deduct tax only

on the amount remaining payable on the last date of financial year. Since the amount of transport charges of `15,02,082/- was already

paid, the CIT(Appeals) found that there is no question of

disallowance under Section 40(a)(ia) of the Act. According to the

Ld. D.R., tax has to be deducted on the amount paid by the

assessee and not only the amount payable by the assessee.

the assessee, submitted that this Tribunal by interpreting Section

40(a)(ia) of the Act found that tax has to be deducted only on the

amount remaining payable on the last date of financial year. Since

the entire amount was already paid, according to the Ld. counsel,

there is no question of deducting any tax. The Ld.counsel placed

his reliance on the decision of this Tribunal in ITO v. Theekathir

Press in I.T.A. No.2076/Mds/2012 dated 18.09.2013.

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perused the relevant material on record. It is an admitted fact that

the point of deduction of tax at source is at the time of payment or

credit of the amount to the account of the payee. No provision of

Income-tax Act requires the assessee to deduct tax at source in

respect of the amount which was not paid. In other words, in

respect of the amount which remains payable or to be credited, the

Income-tax Act does not require deduction of tax. Therefore, if the

assessee has not paid or credited any amount to the account, then

there is no question of deduction of tax under any of the provision of

the Income-tax Act. The contention of the assessee that the tax has

to be deducted only on the amount remains payable on the last date

of financial year and the deduction need not be made on the

amount already paid, is contrary to provisions of Income-tax Act

which requires deduction of tax. If the contention of the assessee is

accepted, this Tribunal is of the considered opinion that the entire

provisions of Income-tax Act which require the assessee to deduct

tax would be meaningless. In fact, this Tribunal examined the issue

elaborately in I.T.A. Nos.336 & 337/Mds/2015 in Shri V.

Pandarinathan v. ITO dated 29.05.2015 and observed as follows:-

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“11. We have considered the rival submissions on either side and perused the relevant material on record. The first contention of the assessee is that the assessee had already paid on or before 31.03.2010 and nothing remained to be paid. The Ld. representative placed reliance on the judgment of Allahabad High Court in Vector Shipping Services (P) Ltd. (supra) and on the decision of this Bench of the Tribunal in Theekathir Press (supra). We have carefully gone through the judgment of Allahabad High Court in Vector Shipping Services (P) Ltd. (supra). The Allahabad High Court, while considering the decision of the Special Bench of this Tribunal in Merilyn Shipping and Transport (supra), made a passing reference about the decision taken by the Special Bench of this Tribunal. The Allahabad High Court had no occasion to examine the legality and otherwise of the Special Bench of this Tribunal. We find that that Calcutta High Court in CIT v. Crescent Export Syndicates and Gujarat High Court in CIT v. Sikandarkhan N. Tunvar had an occasion to examine the legality or otherwise of the decision of the Special Bench of this Tribunal. The Calcutta High Court and the Gujarat High Court have examined the matter in detail and found that the decision of the Special Bench of this Tribunal is not sustainable in law. However, the Allahabad High Court by way of passing reference decided the matter in favour of the assessee. The Special Leave Petition filed by the Revenue against the judgment of Allahabad High Court in Vector Shipping Services (P) Ltd. (supra) was rejected by the Apex Court at the admission state. Therefore, the Apex Court has not laid down any law. In other words, mere dismissal of the Special Leave Petition by the Apex Court at the admission stage does not amount to laying down any law on the elaborate judgments on the ground Calcutta High Court and Gujarat High Court available on the same subject. On identical circumstances, the Cochin Bench of this Tribunal in Thomas George Muthoot v. ACIT in I.T.A. No.63 & 64/Coch/2014 had an occasion to consider an identical issue. The Cochin Bench has observed as follows:- “12. We have also carefully gone through the judgment of the Allahabad High Court in CIT vs M/s Vector Shipping Services (P) Ltd (supra), copy of which is filed by the assessee. The Allahabad High Court, after reproducing the relevant paragraph

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from the order of CIT(A) and referring to the decision of the Special Bench of this Tribunal in Merilyin Shipping & Transports (supra) found that the Tribunal has not committed an error. It is obvious that there is no discussion about the correctness or otherwise of the decision rendered by the Special Bench of this Tribunal in Merilyn Shipping & Transports (supra). However, we find that the Gujarat High Court in the case of CIT vs Sikandarkhan N Tunvar ITA Nos 905 of 2012, 709 & 710 of 2012, 333 of 2013, 832 of 2012, 857 of 2012, 894 of 2012, 928 of 2012, 12 of 2013, 51 of 2013, 58 of 2013 and 218 of 2013 judgment dated 02-05-2013 considered the decision of the Special Bench of this Tribunal in Merilyn Shipping & Transports (supra) and specifically disagreed with the principles laid down by the Special of this Tribunal in Merilyn Shipping & Transports (supra). The Calcutta High Court also in the case of Crescent Exports Syndicate & Another in ITAT 20 of 2013 and GA 190 of 2013 judgment dated 03-04-2013 considered elaborately the judgment of the Special Bench of this Tribunal in Merilyn Shipping & Transports (supra) and found that the decision rendered by the Special Bench of this Tribunal is not the correct law. It is well settled principles of law that when different High Courts expressed different opinions on a point of law, then, normally, the benefit of doubt under the taxation law would go to the assessee. It is also equally settled principles of law that the judgment which discusses the point in issue elaborately and gives an elaborate reasoning has to be preferred when compared to the judgment which has no reasoning and discussion. Admittedly, the Calcutta High Court and Gujarat High Court have discussed the issue elaborately and the specific reasoning has also been recorded as to why the Special Bench is not correct. Therefore, this Tribunal is of the considered opinion that the judgments of the Calcutta High Court Crescent Exports Syndicate & Another (supra) and Gujarat High Court in Sikandarkhan N Tunvar (supra) have to be preferred when compared to the Allahabad High Court in M/s Vector Shipping Services (P) Ltd (supra).

Calcutta High Court in Crescent Exports Syndicate & Another (supra)

“Before dealing with the submissions of the learned Counsel appearing for the assessees in both the appeals we have to examine the correctness of the majority views in the case of Merilyn Shipping. We already have quoted extensively both the majority and the minority views expressed in the aforesaid

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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. 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 enacted law is not permissible. Nor can the draft or the bill be used 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. The Learned Tribunal fell into an error in not realizing this aspect of the matter. The Learned Tribunal held “that where language is clear the intention of the legislature is to be gathered from the language used”. Having held so, it was not open to seek to interpret the section on the basis of any comparison between the draft and the section actually enacted nor was it open to speculate as to the effect of the so-called representations made by the professional bodies. The Learned Tribunal held that “Section 40(a)(ia) of the Act creates a legal fiction by virtue of which even the 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, therefore, 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 doubt in our mind that the Learned Tribunal realized the meaning and purport of Section 40(a)(ia) correctly when it held that in case of omission to deduct tax even the genuine and admissible expenses are to be disallowed. But they sought to remove the rigour of the law by holding that the disallowance shall be restricted to the money which is yet to be paid. What the Tribunal by majority did was to supply the casus omissus which was not permissible and could only have been done by the Supreme Court in an appropriate case. Reference in this regard may be made to the judgment in the case of Bhuwalka Steel Industries vs. Bombay Iron & Steel Labour Board reported in 2010(2) SCC 273.

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‘Unprotected worker’ was finally defined in Section 2(11) of the Mathadi Act as follows:- ‘’unprotected worker’ means a manual worker who is engaged or to be engaged in any scheduled employment.” The contention raised with reference to what was there in the bill was rejected by the Supreme Court by holding as follows: “It must, at this juncture, be noted that in spite of Section 2(11), which included the words “but for the provisions of this Act is not adequately protected by legislation for welfare and benefits of the labour force in the State”, these precise words were removed by the legislature and the 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 05-06-1969 and was first published in the Maharashtra Government Gazette Extraordinary, Part IV on 13-06-1969, 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 armed 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 definition, these precise words, which were consciously and deliberately omitted from the definition. That would amount to supplying the casus omissus and we do not think that it is possible, particularly, in this case. The law of supplying the casus omissus by the courts is extremely clear and settled that though this Court may supply the casus omissus, it would be in the rarest of the rate case and thus supplying of this casus omissus would be extremely necessary due to the inadvertent omission on the part of the legislature. But, that is certainly not the case here. We shall now endeavour to show that no other interpretation is possible. The key words used in Section 40(a)(ia), according to us, are “on which tax is deductible at source under Chapter XVII-B”. If the question is “which expenses are sought to be 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 n 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 of subcontractor differently than the payments

8 I.T.A. No.2435/Mds/14

on account of interest, commission or brokerage, fees for professional services or fees for technical services because the words “mounts credited or paid” were used only in relation to a contractor of sub-contractor. This differential treatment was not intended. Therefore, the legislature provided that the amounts, on which tax is deductible at source under XVII-B payable on account of interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services or to a contractor of sub-contractor shall not be deducted in com putting the income of an assessee in case he has not deducted, or after deduction has not paid within the specified time. The language used by the legislature in the finally enacted law is clear and unambiguous whereas the language used in the bill was ambiguous. A few words are now necessary to deal with the submission of Mr. Bagchi and Ms. Roychowdhuri. There can be no denial that the provision in question is harsh. But that is no ground to read the same in a manner which was not intended by the legislature. This is our answer to the submission of Mr. Bagchi. The submission of Mr. Roychowdhuri that the second proviso sought to become effective from 1st April, 2013 should be held to have already become operative prior to the appointed date cannot also be acceded to for the same reason indicated above. The law was deliberately made harsh to secure compliance of the provisions requiring deductions of tax at source. It is not the case of an inadvertent error. For the reasons discussed above, we are of the opinion that the majority views expressed in the case of Merilyn Shipping & Transports are not acceptable. The submissions advanced by learned advocates have already been dealt with and rejected.”

Gujarat High Court in Sikandarkhan N Tunvar(supra)

“23. Despite this narrow interpretation of section 40(a)(ia), the question still survives if the Tribunal in case of M/s Merilyn Shipping & Transpors vs. ACIT (supra) was accurate in its opinion. In this context, we would like to examine two aspects. Firstly, what would be the correct interpretation of the said provision. Secondly, whether our such 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 the part of the Parliament. Both these aspects we would address one after another. If one looks closely to the provision, in question, adverse consequences of not being able to claim deduction on certain payments irrespective of the provisions contained in Sections 30 to

9 I.T.A. No.2435/Mds/14

38 of the Act would flow if the following 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 sub-contractor being resident for carrying out any work. (b) These amounts are such on which tax is deductible at source under XVIII-B. (c) Such tax has not been deducted or after deduction has not been paid on or before due date specified in sub- Section (1) of Section 39. For the purpose of current discussion reference to the proviso is not necessary.

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add that this is not the prime basis on which we have adopted the interpretation which we have given. If the language used by the Parliament conveyed such a meaning, we would not have hesitated in adopting such an interpretation. We only highlight tht we would not readily accept that the legislature desired to bring about an incongruous and seemingly irreconcilable consequences. The decision of he Supreme Court in the case of Commissioner of Income-Tax, Gujarat vs. Ashokbhai Chimanbhai (supra), would no6t 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 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 last date of the accounting period. Particularly, in the context of requirements f Section 40(a)(ia) of the Act, we see no warrant in the said decision of the Supreme Court to apply the test of payability only as on 31st March of the year under consideration. Merely 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 31t March. 25. This brings us to the second aspect of this discussion, namely, whether this is a case of conscious omission and therefore, the legislature must be seen to have deliberately 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 & Transports vs. ACIT (supra) to adopt a particular view. 26. While interpreting a statutory provision the Courts have often applied Hyden’s rule or the mischief rule and ascertained what was the position before the amendment, what the amendment sought to remedy and what was the effect of the changes. 27 to 36……………….. 37. In our opinion, the Tribunal committed an error in applying the principle of conscious omission in the present case. Firstly, as already observed, we have serious doubt whether such principle can be applied by comparing the draft presented in Parliament and ultimate legislation which may be passed. Secondly, the statutory provisions is amply clear.

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Court in Sikandarkhan N. Tunvar (supra) for the reasons stated therein, we uphold the order of the CIT(Appeals).”

The assessee before the Cochin Bench of the Tribunal in Thomas

George Muthoot (supra) filed appeal before the High Court of

Kerala. The High Court of Kerala in Thomas George Muthoot v.

CIT in ITA No.278 of 2014 dated 3.7.2015, while confirming the

order of the Cochin Bench, observed as follows:-

“17. Another contention that was pressed into service was that the appellants had already paid the amount and therefore, the provisions of Section 40(a)(ia), applicable only in respect of the amount which remains to be payable on the last day of the financial year, is not attracted. Therefore, according to the appellants, disallowance cannot be sustained. This contention was sought to be substantiated by relying on the judgment of the Allahabad High Court in Commissioner of Income Tax v. Vector Shipping Services (P) [2013] 357 ITR 642 (All)]. Primarily, this contention should be answered with reference to the language used in the statutory provision. Section 40(a)(ia) makes it clear that the consequence of disallowance is attracted when an individual, who is liable to deduct tax on any interest payable to a resident on which tax is deductible at source, commits default. The language of the Section does not warrant an interpretation that it is attracted only if he in remains payable on the last day of the financial year. If this contention is to be accepted, this Court will have to alter the language of Section 40(a)(ia) and such an interpretation is not permissible. This view that we have taken is supported by judgments of the Calcutta High Court in Crescent Exports Syndicate and another [ITAT 20 of 2013] and the Gujarat High Court in the case of Commissioner of Income Tax v. Sikandadarkhan N. Tunvar [ITA Nos.905 of 2012 & connected cases], which have been relied on by the Tribunal.”

13 I.T.A. No.2435/Mds/14 5. In view of the above decision of this Bench of the Tribunal, the order of the CIT(Appeals) allowing the claim of the assessee is not justified. Accordingly, the order of the CIT(Appeals) is set aside and that of the Assessing Officer is restored.

Order pronounced on 14th August, 2015 at Chennai.

sd/- sd/- (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) (A. Mohan Alankamony) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 14th August, 2015.

Kri. आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A)-IV, Chennai 4. आयकर आयु�त/CIT-IX, Chennai 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.