Income Tax Appellate Tribunal - Cochin
M/S.Hameed & Co.(Engineers) P.Ltd, ... vs Assessee on 17 October, 2014
1
ITA No. 767/Coch/2013
ITA No.235/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. 767/Coch/2013
(Assessment year 2007-08)
&
I.T.A No.235/Coch/2014
(Assessment year 2007-08)
M/s Hameed & Company (Engineers) vs ACIT, Cir.2(2)
Pvt Ltd, Kadalundi Nagaram (PO) Tirur
Malappuram
PAN : AAACH8652E
(Appellant) (Respondent)
Appellant by : Shri CBM Warrier
Respondent by : Shri M Anil Kumar, CIT
Date of hearing : 19-08-2014
Date of pronouncement : 17-10-2014
ORDER
Per N.R.S. Ganesan (JM) Both the appeals of the assessee are directed against the respective orders of the CIT(A) for the assessment year 2007-08. ITA No.767/Coch/2013 arises out of the order passed u/s 143(3) whereas ITA No.235/Coch/2014 arises out of the order passed by the assessing officer on re-assessment u/s 147 of the Act.
2ITA No. 767/Coch/2013 ITA No.235/Coch/2014
2. Shri CBM Warrier, the ld.representative for the assessee submitted that the only issue arises for consideration is with regard to disallowance made u/s 40(a)(ia) of the Act. The ld.representative submitted that the assessee is not disputing the liability to deduct tax. According to the ld.representative, provisions of section 40(a)(ia) are not applicable in respect of the amount already paid. Referring to section 40(a)(ia), the ld.representative submitted that only in respect of the amount payable as on the last date of the financial year; the provisions of section 40(a)(ia) could be invoked. In these cases, admittedly, the amount was paid without making any deduction of tax, therefore, according to the ld.representative, no disallowance is called for. The ld.representative placed his reliance on the decision of the Special Bench of this Tribunal in Merilyn Shipping & Transports vs Addl CIT (2012) 70 DTR 81 (Vizag) and submitted that a similar view was taken by the Allahabad High Court in CIT vs M/s Vector Shipping Services (P) Ltd I.T.A No.122 of 2013 judgment dated 09-07- 2013. On appeal by the revenue, according to the ld.representative, the Apex Court dismissed the Special Leave Petition and thereby the judgment of the Allahabad High Court was confirmed.
3. We heard Shri M Anil Kumar, the ld.DR also. According to the ld.DR, section 40(a)(ia) is applicable in respect of amounts paid and 3 ITA No. 767/Coch/2013 ITA No.235/Coch/2014 payable, therefore, the CIT(A) has rightly confirmed the disallowance made by the assessing officer.
4. We have considered the rival submissions on either side and also perused the material available on record. The liability to deduct tax on the payment made by the assessee is not in dispute. It is also not in dispute that the assessee has not made any deduction of tax at the time of payment. The only objection of the assessee is that since the amount has already been paid, the provisions of section 40(a)(ia) are not applicable. The contention of the assessee appears to be by referring to the word "payable" in section 40(a)(ia) of the Act. No doubt, the Special Bench at Vishakhapatnam in Merilyn Shipping & Transports (supra) considered this issue and by majority opinion found that section 40(a)(ia) is applicable only in respect of the amount which remains to be payable on the last date of the financial year and is not applicable in respect of the amount which was already paid.
5. The Calcutta High Court in the case of Crescent Exports Syndicate & Another in ITA No 20 of 2013 and GA 190 of 2013 judgment dated 03- 04-2013 had an occasion to examine the correctness of the decision of the Special Bench of this Tribunal in Merilyn Shipping & Transports (supra). 4 ITA No. 767/Coch/2013 ITA No.235/Coch/2014 After considering the decision of the Special Bench in Merilyn Shipping & Transports (supra), the Calcutta High Court found that the Special Bench is not correct in confining the disallowance only to the amounts remained to be paid. The Calcutta High Court specifically found that section 40(a)(ia) is applicable in respect of the amounts paid and payable. Therefore, the decision of the Special Bench of this Tribunal was found to be not correct.
6. 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 also had examined the correctness of the Special Bench decision in Merilyn Shipping & Transports (supra). The Gujarat High Court after considering all the relevant facts and the reasoning given by the Special Bench in Merilyn Shipping & Transports (supra) found that the decision of the Special Bench of this Tribunal in Merilyn Shipping & Transports (supra) does not express the correct position of law.
5ITA No. 767/Coch/2013 ITA No.235/Coch/2014
7. In view of the above, the decision of the Special Bench of this Tribunal at Visakhapatnam in Merilyn Shipping & Transports (supra) may not be applicable to the facts of the case.
8. The Allahabad High Court in CIT vs M/s Vector Shipping Services (P) Ltd I.T.A No.122 of 2013 judgment dated 09-07-2013 considered this issue. However, without much of discussion, referring to the decision of the Special Bench of this Tribunal at Visakhapatnam in Merilyn Shipping & Transports (supra), the Allahabad High Court upheld the contention of the assessee. The Mumbai Bench of this Tribunal in ACIT vs Rishti Stock & Share Pvt Ltd ITA No.112/Mum/2012 dated 02-08-2013 examined all the three judgments of the High Courts, viz. Gujarat High Court in Sikandarkhan N Tunvar (supra), Calcutta High Court in Crescent Exports Syndicate & Another (supra) and the Allahabad High Court in M/s Vector Shipping Services (P) Ltd (supra) and found that the judgment of the Allahabad High Court in M/s Vector Shipping Services (P) Ltd (supra) is an obiter dicta, therefore, it is not a ratio decidendi. Now it is apparent that there are conflicting judicial opinions amongst the Calcutta High Court and Gujarat High Court on one side and the Allahabad High Court on the other side. Under normal circumstances, when there are conflicting judicial opinions, it is a practice to follow the view which is favourable to the 6 ITA No. 767/Coch/2013 ITA No.235/Coch/2014 assessee. It is also settled principles of law that when there are conflicting judgments, the judgment which gives more reasons has to be preferred than the one which does not give reasons. In this case, Gujarat High Court in Sikandarkhan N Tunvar (supra), Calcutta High Court in Crescent Exports Syndicate & Another (supra) give more elaborate reasons. For the purpose of convenience we are reproducing below the relevant paragraphs of the judgments of Gujarat High Court in Sikandarkhan N Tunvar (supra), and the Calcutta High Court in Crescent Exports Syndicate & Another (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 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 7 ITA No. 767/Coch/2013 ITA No.235/Coch/2014 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 8 ITA No. 767/Coch/2013 ITA No.235/Coch/2014 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:-
''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 9 ITA No. 767/Coch/2013 ITA No.235/Coch/2014 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.10 ITA No. 767/Coch/2013 ITA No.235/Coch/2014
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 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 11 ITA No. 767/Coch/2013 ITA No.235/Coch/2014 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 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 12 ITA No. 767/Coch/2013 ITA No.235/Coch/2014 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 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 13 ITA No. 767/Coch/2013 ITA No.235/Coch/2014 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 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. 14 ITA No. 767/Coch/2013 ITA No.235/Coch/2014 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 15 ITA No. 767/Coch/2013 ITA No.235/Coch/2014 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, w 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."
9. In view of the above, this Tribunal has to necessarily follow the judgments rendered by the Gujarat High Court in Sikandarkhan N Tunvar (supra), Calcutta High Court in Crescent Exports Syndicate & Another (supra).
10. Now coming to the dismissal of Special Leave Petition by the Supreme Court, it is well settled principles of law that dismissal of Special Leave Petition is not the law laid down by the Apex Court. What is binding is the law laid down by the Apex Court under Article 141 of the Constitution of India. A mere dismissal by one word, the Apex Court does not lay down 16 ITA No. 767/Coch/2013 ITA No.235/Coch/2014 any law. Therefore, the contention of the assessee that the Apex Court approved the judgment of the Allahabad High Court in M/s Vector Shipping Services (P) Ltd (supra) is not correct. Accordingly, by following the judgments rendered by the Gujarat High Court in Sikandarkhan N Tunvar (supra), Calcutta High Court in Crescent Exports Syndicate & Another (supra), the orders of the lower authorities are confirmed.
11. In the result, the appeals filed by the assessee stand dismissed.
Order pronounced in the open court on this 17th October, 2014.
Sd/- sd/- (Chandra Poojari) (N.R.S. Ganesan) ACCOUNTANT MEMBER JUDICIAL MEMBER Cochin, Dt : 17th October, 2014 pk/- copy to:
1. M/s Hameed & Co (Engineers) Pvt Ltd, Kadalundi Nagaram (PO), Malappuram
2. The ACIT, Cir.2(2), Tirur
3. The Commissioner of Income-tax, Kozhikode
4. The Commissioner of Income-tax(A), Kozhikode
5. The DR (True copy) By order Asstt. Registrar, Income-tax Appellate Tribunal, Cochin Bench