Commissioner of Income Tax v. Sikandarkhan N. Tunvar

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The Tax Publishers2013 TaxPub(DT) 1379 (Guj-HC) : (2013) 051 (I) ITCL 0306 : (2013) 357 ITR 0312 : (2013) 259 CTR 0057 : (2014) 220 TAXMAN 0256 : (2013) 087 DTR 0137 Income Tax Act, 1961 --Business disallowance under section 40(a)(ia)--Payment to residents without deduction of tax Applicability of provision--Assessee was engaged in the business of transport contractor and commission agent. He provided the service of transportation through trucks. The assessing officer scrutinized the expenditure in the nature of payments made by the assessee to its sub-contractors. Assessing officer called upon assessee to explain the total payment of Rs. 8.74 crores (rounded off) made by him to the sub-contractors without deducting tax at source. Assessing officer disallowed the entire expenditure on the ground that the assessee had admittedly not deducted the tax at source, though payments were made to transporters which exceeded to Rs. 20,000 in a single trip and aggregated above Rs. 50,000 in the year. He observed that the assessee had obtained Form No. 15-I from such contractors. However, such forms were not furnished along with necessary particulars in Form 15J to the Commissioner before due date. Commissioner (A) confirmed the view of the assessing officer. The Tribunal allowed the assessee's appeal. Relying on the decision of Special Bench of the Tribunal (Visakhapatnam) in the case of Merilyn Shipping & Transports v. ACIT, the Tribunal deleted the entire disallowance. The Tribunal believed that the word 'payable' used in section 40(a)(ia) would make the provision applicable only in respect of expenditure payable on 31st March of a particular year and that such provision cannot be invoked to disallow the amounts which had already been paid during such year, even though tax may not have been deducted at source. *Held :* Section 40(a)(ia) would cover not only to the amounts which are payable as on 31st 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. For the purpose of the section 40(a)(ia) this court is 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 according 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 otherwise requires. In contrast, term 'payable' has not been defined. The word 'payable' has been described in Webster's Third New International Unabridged Dictionary as requiring to be paid: capable of being paid: specifying payment to a particular payee at a specified time or occasion or any specified manner. In the context of section 40(a)(ia), the word 'payable' would 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 already paid. When the Act uses terms 'paid' and 'payable' at different places in different context differently, for the purpose of section 40(a)(ia) of the Act, term 'payable' cannot be seen to be including the expression 'paid'. The term 'paid' and 'payable' in the context of section 40(a)(ia) are not used interchangeably. In the case of Birla Cement Works & Anr. v. State of Rajasthan & Anr. AIR 1994 SC 2393, the Apex Court observed that 'the word payable is a descriptive word, which ordinarily means 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 understood to mean that which may, can or should be paid and is held equivalent to 'due'. [Para 22] What section 40(a)(ia), therefore, requires is that there should be an amount payable in the nature described above, which is such on which tax is deductible at source under Chapter XVII-B but such tax has not been deducted or if deducted not paid before the due date. This provision no where 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 envisaged therein can be applied. This court as prepared to and this Court is 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 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 payable 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 justified because in court's 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 made 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. This court simply does not see any logic why the legislature would have desired to bring about such irreconcilable and diverse consequences. [Para 24] Section 40(a) (ia) would cover not only to the amounts which are payable as on 31st 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. [Para 38] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 1379 (Guj-HC) : (2013) 051 (I) ITCL 0306 : (2013) 357 ITR 0312 : (2013) 259 CTR 0057 : (2014) 220 TAXMAN 0256 : (2013) 087 DTR 0137

Income Tax Act, 1961

--Business disallowance under section 40(a)(ia)--Payment to residents without deduction of tax Applicability of provision--Assessee was engaged in the business of transport contractor and commission agent. He provided the service of transportation through trucks. The assessing officer scrutinized the expenditure in the nature of payments made by the assessee to its sub-contractors. Assessing officer called upon assessee to explain the total payment of Rs. 8.74 crores (rounded off) made by him to the sub-contractors without deducting tax at source. Assessing officer disallowed the entire expenditure on the ground that the assessee had admittedly not deducted the tax at source, though payments were made to transporters which exceeded to Rs. 20,000 in a single trip and aggregated above Rs. 50,000 in the year. He observed that the assessee had obtained Form No. 15-I from such contractors. However, such forms were not furnished along with necessary particulars in Form 15J to the Commissioner before due date. Commissioner (A) confirmed the view of the assessing officer. The Tribunal allowed the assessee's appeal. Relying on the decision of Special Bench of the Tribunal (Visakhapatnam) in the case of Merilyn Shipping & Transports v. ACIT, the Tribunal deleted the entire disallowance. The Tribunal believed that the word 'payable' used in section 40(a)(ia) would make the provision applicable only in respect of expenditure payable on 31st March of a particular year and that such provision cannot be invoked to disallow the amounts which had already been paid during such year, even though tax may not have been deducted at source. Held : Section 40(a)(ia) would cover not only to the amounts which are payable as on 31st 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.

For the purpose of the section 40(a)(ia) this court is 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 according 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 otherwise requires. In contrast, term 'payable' has not been defined. The word 'payable' has been described in Webster's Third New International Unabridged Dictionary as requiring to be paid: capable of being paid: specifying payment to a particular payee at a specified time or occasion or any specified manner. In the context of section 40(a)(ia), the word 'payable' would 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 already paid. When the Act uses terms 'paid' and 'payable' at different places in different context differently, for the purpose of section 40(a)(ia) of the Act, term 'payable' cannot be seen to be including the expression 'paid'. The term 'paid' and 'payable' in the context of section 40(a)(ia) are not used interchangeably. In the case of Birla Cement Works & Anr. v. State of Rajasthan & Anr. AIR 1994 SC 2393, the Apex Court observed that 'the word payable is a descriptive word, which ordinarily means 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 understood to mean that which may, can or should be paid and is held equivalent to 'due'. [Para 22] What section 40(a)(ia), therefore, requires is that there should be an amount payable in the nature described above, which is such on which tax is deductible at source under Chapter XVII-B but such tax has not been deducted or if deducted not paid before the due date. This provision no where 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 envisaged therein can be applied. This court as prepared to and this Court is 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 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 payable 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 justified because in court's 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 made 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. This court simply does not see any logic why the legislature would have desired to bring about such irreconcilable and diverse consequences. [Para 24] Section 40(a) (ia) would cover not only to the amounts which are payable as on 31st 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. [Para 38]