- (1.) THE subject matter of challenge in ITAT No.30 of 2013 is a judgment and order dated July 18, 2012, by which the learned Tribunal, relying on the decision of a Special bench in the case of Merilyn Shipping & Transports (ITA 477/viz/2008, dated March 29, 2012) held as follows: "If all the amounts have been paid, then obviously following the principles laid down by the Hon'ble Special Bench of this Tribunal in the case of Merilyn Shipping and 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".
(2.) ITAT No.20 of 2013 is directed against a judgment and order dated May 24, 2012, by which the learned Tribunal, following the aforesaid judgment in the case of Merilyn Shipping & Transports, passed the following order: "As the issue claimed by the assessee is that there is nothing payable as on 31.03.2006 and this expenditure of Rs.1,08,80,559/ - is paid during the year and nothing remains payable, it means that the issue is covered. Principally, we have agreement with the assessee's counsel and are of the view that the issue is squarely covered in favour of the assessee. Principally, we allow this issue of the assessee but subject to the verification by AO that these expenses are paid within the year i.e. up to 31.03.2006 and nothing remains payable. Hence, this appeal of assessee in principle is allowed in favour of the assessee but subject to verification." The revenue has come up in appeal in both the matters.
(3.) MR . Bagchi, learned Advocate appearing for the assessee in ITAT No.30 of 2013, drew our attention to the judgment in the case of Merilyn Shipping & Transports. The reasons why the Tribunal was of the opinion that clause (ia) of section 40 of the I.T. Act, 1961 did not apply to the amounts already paid, according to the aforesaid judgment of the Tribunal, are as follows: "Now, I have to look at how this provision was proposed in the Finance Bill 2004 and compare it with what was finally enacted after the assent of the President. The comparative provision is as under: Finance (N0.2) Bill, 2004 : ( 268 Finance Act 2004: Actual Enactment ITR(st.) 40 -41) Amendment of section 40. - In such "40(a)(ia 40 of )with the Income -tax Act, in clause (a), after sub -clause (i), the following shall be inserted effect from the 1st day of April, 2005, namely: (ia) any interest, commission or brokerage, fees for (ia) any interest, commission or brokerage, rent, professional services of fees for technical services royalty, fees for professional services or fees for payable to a resident,or amount credited or paid to a technical services payable to a contractor or or amounts contractor or sub -contractor, being resident, for payable to a contractor or sub -contractor, being carrying out any work (including supply of labour for resident, for carrying out any work (including supply of carrying out any work), on which tax has not been labour for carrying out any work), on which tax is deducted or, after deduction, has not been paid deductible at source under Chapter XVII -B and such tax before the expiry of the time prescribed under sub - has not been deducted or, after deduction, has not been section (1) of section 200 and in accordance with the paid on or before the due date specified in sub -section other provision of Chapter XVII -B: (1) of section 139, - Provided that where in respect of any Such sum, tax Provided that where in respect of any such sum, tax has been deducted under has been deducted in any Chapter XVII -B or paid in any Subsequent year, subsequent year, or has been deducted during the such sum shall be allowed as a deduction in previous year but paid after the due date specified computing the income of the previous year in in sub -section (1) of section 139, such sum shall which such tax has been paid." be allowed as a deduction in computing the income of the previous year in which such tax has been paid." "From the above comparison between the proposed and enacted provision, I find that the Legislature has replaced the word "amounts credited or paid" with the word 'payable" in the final enactment. As argued by ld. Counsel for assessee as well as for the Interveners, a question arises as to why the Legislature dropped the words "credited" and "paid" under section 40(a) (ia) as proposed in the Finance Bill, 2004." "The provision of section 40(a)(ia) of the Act was introduced in order to ensure compliance of TDS but assigned the term "payable" in the provision of section 40(a)(ia) of the Act. On a comparison between the term "payable" in the provision the only conclusion, which can be reached, is that Legislature consistently replaced the words "amount credited" or "paid" with the word "payable" in the final enactment and such change was not done without any purpose. It is a basic presumption that an enactment was brought in by the Legislature is well -thought of and properly worded in order to give meaning to its intent by changing the words from "credited" or "paid" or to "payable". The legislative intent has been made clear that only the outstanding amount or the provision for expense liable for TDS is sought to be disallowed in the event there is a default of TDS." "This proposition is also explained by Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561/187 Taxman 312 wherein it is held 'Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion". However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament reintroduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the AO.' And further Hon'ble Supreme Court quoted the relevant portion of circular No.549 dated October 31, 1989 (1990) 182 ITR (St.) 1, 29), which reads as under:" "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression 'reason to believe' in section 147. -A number of representations were received against the omission of the words 'reason to believe' from section 147 and their substitution by the 'opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe' in place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same." "From the above, I am of the view that similar is the situation here that after receiving representations from professional bodies (copy of which is filed before us also), the Legislature in this provision replaced the word from "credited" or "paid" to "payable". I am of the view that where the language is clear, the intention of the Legislature is to be gathered from the language used. What is to be borne in mind is as to what has been said in the statute as also what has not been said. A construction which requires, for its support, addition or substitution of words or which results in rejection of words, has to be avoided, unless it is covered by the rule of exception, including that of necessity. In the present provision of Section 40 (a)(ia) of the Act there is no such exception and the only word provided by Legislature is "payable". "In the present case, the only word put in the provision of section 40(a)(ia) of the Act is "payable" and not "paid" or "credited", rather Legislature consciously replaced the words "amounts credited or paid" with the word "payable" in the final enactment and such change was done with a purpose. I am of the view that presumption that enactment brought in by the Legislature is well -thought off and properly worded in order to give meaning to its intent. The Legislature by consciously replacing the words from "credited" or "paid" or "payable", the intent has been made clear that only the outstanding amount or the provision for expenses are liable for TDS are to be disallowed in the event there is default in not following the TDS provisions under Chapter XVII -B of the Act. No doubt the object of section 40(a)(ia) of the Act is to ensure that the TDS provision as provided in Chapter XVII -B is implemented without any default. As per section 40(a)(ia) of the Act any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services "payable" on which tax is not deducted or the tax is deducted but the same is not paid within the time allowed such amount shall be disallowed while computing the income. The sub -section speaks of the amount "payable" on which the tax is not deducted and therefore it should apply only if any amount is "payable", but if the amount is already paid the provisions of this section should not apply. The crucial word is "payable". The question arises "whether payable means payable at the end of the year or payable at any time during the year though paid during the year itself? If one looks into the TDS Provisions from sections 194A to 194K, it will be apparent that as per the language of those sections, tax is to be deducted at the time the amount is paid or at the time when the amount is credited, i.e. when the liability is admitted and it becomes payable. Therefore wherever the payment is covered by aforesaid sections whether paid or credited, tax has to be deducted. Sections 194 L and 194 LA may also be looked into which says that tax has to be deducted only at the time of payment. The language in these sections therefore shows that the Legislature has used different language in different sections. It is trite law that each and every word of the section has its own meaning and while drafting section 40(a)(ia) was meant to be applicable only if the amounts covered therein was "payable" at the end of the year. Reference may be made, for the scope and effect of section 40(a)(ia) as clarified by CBDT in Circular No.5 of 2005, date 15th July, 2005 to show that the intention to introduce this provision was brought to curb bogus payments by creating bogus liability." "In the present case, Section 40(a)(ia) of the Act creates a legal fiction for the amounts outstanding or remains payable i.e. at the end of every year as on 31st March and it cannot be extended for taxing the amounts already paid. In fact, Section 201 of the Act itself take care of tax to be collected in the hands of the payee and other TDS provisions under Chapter XVIIB of the Act. No further legal fiction from elsewhere in the statute can be borrowed to extend the field of Section 40(a)(ia) of the Act. 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." "On comparison between the proposed and enacted provision, the only conclusion which I can reach is that the Legislature consciously replaced the words "amounts credited or paid" with the word "payable" in the final enactment. By changing the words from "credited" or "paid" to "payable", the legislative intent has been made clear that only outstanding amounts or the provisions for expenses liable for TDS under Chapter XVII -B of the Act is sought to be disallowed in the event there is a default in following the obligations casted upon the assessee under Chapter XVII -B of the Act." ;