Income Tax Appellate Tribunal - Cochin
M/S.Termo Penpol Ltd, Trivandrum vs Assessee on 12 December, 2014
1
ITA No.410/Coch/2014
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
Before Shri N.R.S. Ganesan (JM) and Shri Chandra Poojari (AM)
I.T.A No. 410/Coch/2014
(Assessment year 2006-07)
M/s Termo Penpol Limited vs ACIT, Cir.1
1-2, Jawahar Nagar Thiruvnanthapuram
Kowdiar PO, Trivandrum 695 003
PAN : AABCT2319K
(Appellant) (Respondent)
Appellant by : Shri Anand
Respondent by : Shri K.K. John
Date of hearing : 04-12-2014
Date of pronouncement : 12-12-2014
ORDER
Per N.R.S. Ganesan (JM) This appeal of the assessee is directed against the order of the CIT(A), Thiruvananthapuram dated 31-07-2014 for the assessment year 2006-07.
2. Shri Anand, the ld.counsel for the assessee submitted that the only issue arises for consideration is disallowance of Rs. 23,03,617 and Rs.
35,63,645 being the ECB interest and royalty payment for non deduction of tax u/s 40(a)(ia) of the Act. According to the ld.counsel, the Allahabad 2 ITA No.410/Coch/2014 High Court in the case of CIT vs Vector Shipping Services (P) Ltd vide judgment dated 31-07-2013 found that what is to be disallowed is only in respect of the amount remains to be payable on the last day of the financial year. In respect of amount already paid, according to the ld.counsel, the provisions of section 40(a)(ia) are not applicable.
Alternatively, the ld.counsel submitted that the assessee has paid the amount in the subsequent year, therefore, in view of Provisos to section 40(a)(ia) and Proviso to section 40(a)(i) the same has to be allowed in the previous year in which the tax has been paid. Since admittedly, the assessee has paid tax in subsequent financial year, according to the ld.counsel, the same has to be allowed in the subsequent assessment year.
3. We heard Shri K.K. John, the ld.DR also. The ld.DR very fairly conceded that if the assessee paid the tax in the subsequent assessment year the same has to be allowed in the year in which it was actually paid.
Therefore, the department may not have any objection to allow the claim of the assessee in the subsequent year provided the assessee actually paid the tax.
4. We have considered the rival submissions on either side and also perused the material available on record. The issue whether the amount paid by the assessee has to be disallowed or the amount remains to be 3 ITA No.410/Coch/2014 paid as on the last day of the financial year has to be allowed was the issue before the Visakhapatnam Special Bench of this Tribunal in Merlyn Shipping & Transporters vs ACIT 146 TTJ 1 (Vizag). The Special Bench found that the provisions of section 40(a)(ia) is applicable only in respect of the amount remains to be payable on the last day of the financial year.
This decision of the Special Bench of this Tribunal in Merlyn Shipping & Transporters (supra) was referred in the judgment of the Allahabad High Court in Vector Shipping Services (P) Ltd (supra). The Special Leave Petition filed by the revenue against the judgment of the Allahabad High Court in Vector Shipping Services (P) Ltd (supra) is dismissed at the admission stage. Therefore, the Supreme Court has not gone into the merit of the issue. The Supreme Court has not laid down any law.
Therefore, the dismissal of the Special Leave Petition at the admission stage cannot be treated as declaration of law under Article 141 of the Constitution of India. However, the Gujarat High Court in CIT vs Sikandarkhan N Tunvar [357 ITR 312 (Guj) and the Calcutta High Court in Crescent Export Syndicate (ITA No.23 of 2013) examined the issue elaborately and found that the decision of the Special Bench in Merlyn Shipping & Transporters (supra) is not a good law. For the purpose of clarity we are reproducing the observations made by the Calcutta High Court and Gujarat High Court below:
4 ITA No.410/Coch/2014Calcutta 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 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 5 ITA No.410/Coch/2014 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.
'Unprotected worker' was finally defined in Section 2(11) of the Mathadi Act as follows:-6 ITA No.410/Coch/2014
''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 7 ITA No.410/Coch/2014 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 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 "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 8 ITA No.410/Coch/2014 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 9 ITA No.410/Coch/2014 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 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.
24. 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 not 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 10 ITA No.410/Coch/2014 before the unpleasant consequences envisaged 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 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 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 s advanced by the assessees is accepted, it would lead to a situation where the assessee 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. 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 the Parliament conveyed such a meaning, we would not have hesitated in adopting 11 ITA No.410/Coch/2014 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 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 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 12 ITA No.410/Coch/2014 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.
38. In the result, we are of the opinion that 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 requirement of the said provision exist. In that context, in our opinion the decision of the Special Bench of the Tribunal in the case of M/s Merilyn Shipping & Transports vs ACIT (supra), does not lay down correct law."
5. In view of the above, this Tribunal is of the considered opinion that the CIT(A) has rightly confirmed the disallowance since the assessee has not admittedly deducted tax at the time of making payment.
13 ITA No.410/Coch/20146. Now coming to the alternative contention of the ld.counsel for the assessee that it has to be allowed in the year in which the tax was paid, this Tribunal is of the considered opinion that in view of Provisos to section 40(a)(ia) and 40(a)(i) the deduction claimed by the assessee has to be allowed in the year in which the tax was actually paid by the assessee.
The ld.DR also has no objection to allow the claim of the assessee in the year in which the tax was actually paid by the assessee. In view of the above, the assessing officer shall verify the actual payment of tax by the assessee on the expenditure claimed and thereafter allow the claim in the year in which the tax was actually paid.
7. In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on this 12th December, 2014.
Sd/- sd/- (Chandra Poojari) (N.R.S. Ganesan) ACCOUNTANT MEMBER JUDICIAL MEMBER Cochin, Dt : 12th December, 2014 pk/- copy to:
1. M/s Terumo Penpol Limited 1-2, Jawahar Nagar, Kowdiar PO, Trivandrum 695 003
2. The ACIT, Cir.1, Thiruvananthapuram
3. The Commissioner of Income-tax, Thiruvananthapuram
4. The Commissioner of Income-tax(A), Kowdiar, Thiruvananthapuram
5. The DR (True copy) By order Asstt. Registrar, Income-tax Appellate Tribunal, Cochin Bench