2012 (3) TMI 402 - AT - Income Tax

Addition u/s 40(a)(ia) - Term Payable in section 40(a)(ia) refers to entire payment on which TDS is to be made or not? - Whether the term payable in section 40(a)(ia) refers to the entire payment on which TDS was required to be made in terms of various sections referred to in this section contained in Chapter XVII-B or it refers only to amounts payable with reference to those sections which, as per assessee, remain outstanding as on the 31st March - HELD THAT - S. V. Mehrotra (Accountant Member) - In our considered opinion, there is no ambiguity in the section and term payable cannot be ascribed narrow interpretation as contended by the assessee. Had the intention of the Legislature were to disallow only items outstanding as on the 31st March, then the term payable would have been qualified by the phrase as outstanding on the 31st March. The provisions of section 40(a)(ia) of the Income-tax Act, 1961, are applicable not only to the amount which is shown as payable on the date of balance-sheet, but it is applicable to such expenditure, which become payable at any time during the relevant previous year and was actually paid within the previous year - Decision against Assessee. Mahavir Singh (Judicial Member) - Having different opinion from the learned Accountant Member, Shri S. V. Mehrotra he concluded 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 XVIIB 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. In the present dispute before us, the word payable used in section 40(a)(ia) is to be assigned strict interpretation, in view of the object of legislation, which is intended from the replacement of the words in the proposed and enacted provision from the words amount credited or paid to payable - Decision in favour of Assessee. According to him, the provisions of section 40(a)(ia) are applicable only to the amounts of expenditure which are payable as on the dated 31st March of every year and it cannot be invoked to disallow which had been actually paid during the previous year, without deduction of TDS. Order of third member - D. Manmohan (Vice-President) - Disagreeing with the view taken by Shri S. V. Mehrotra, Accountant Member, he has gone through the detailed reasons given by Shri Mahavir Singh while coming to the conclusion that the word payable used in section 40(a)(ia) has to be given its natural meaning and, going by strict interpretation, he said that section 40(a)(ia) is applicable only to expenditure which is payable as on 31st March of every year and cannot be invoked to disallow the amounts which have already been paid during the previous year, without deducting tax at source. He therefore agreed with the view taken by Shri Mahavir Singh, Judicial Member and answer the question accordingly. - Decision in favour of Assessee.

Issues Involved:
1. Interpretation of the term "payable" in Section 40(a)(ia) of the Income-tax Act.
2. Applicability of Section 40(a)(ia) to amounts paid versus amounts payable.
3. Legislative intent behind the usage of "payable" in Section 40(a)(ia).
4. Harmonious construction of Section 40(a)(ia) with TDS provisions.
5. Legal fiction and its application in Section 40(a)(ia).

Issue-wise Detailed Analysis:

1. Interpretation of the term "payable" in Section 40(a)(ia) of the Income-tax Act:

The primary issue was whether the term "payable" in Section 40(a)(ia) refers solely to amounts outstanding as of the balance sheet date or includes amounts that were payable at any time during the relevant previous year and were actually paid within the year. The term "payable" was analyzed in the context of its dictionary meaning and judicial interpretations. The appellant argued that "payable" should be interpreted strictly to mean amounts outstanding as of the balance sheet date, citing dictionary definitions and judicial precedents.

2. Applicability of Section 40(a)(ia) to amounts paid versus amounts payable:

The appellant contended that Section 40(a)(ia) should apply only to amounts that are outstanding as "payable" on the balance sheet date and not to amounts that have already been paid during the year. The Revenue argued that the section should apply to both paid and payable amounts to ensure compliance with TDS provisions. The Tribunal examined the legislative history, including changes from the Finance Bill to the final Act, noting the deliberate replacement of "amounts credited or paid" with "payable."

3. Legislative intent behind the usage of "payable" in Section 40(a)(ia):

The Tribunal considered the legislative intent behind the usage of "payable" by comparing the proposed and enacted provisions. The final enactment used "payable," suggesting a specific intent to target only outstanding amounts. The Tribunal emphasized that legislative changes are presumed to be well-thought-out and should be interpreted based on the language used in the statute.

4. Harmonious construction of Section 40(a)(ia) with TDS provisions:

The Tribunal highlighted that Section 40(a)(ia) should be interpreted harmoniously with TDS provisions under Chapter XVII-B. The context of TDS provisions, which require deduction at the time of credit or payment, was considered. The Tribunal concluded that the term "payable" in Section 40(a)(ia) should be interpreted in light of the TDS provisions, meaning it applies to amounts on which TDS was required to be deducted, whether paid or payable.

5. Legal fiction and its application in Section 40(a)(ia):

The Tribunal discussed the concept of legal fiction, emphasizing that it should be limited to the purpose for which it was created. Section 40(a)(ia) creates a legal fiction by disallowing expenses if TDS is not deducted. The Tribunal noted that legal fiction should not be extended beyond its intended purpose. Therefore, the term "payable" should be interpreted strictly, and the section should apply only to amounts outstanding as of the balance sheet date.

Conclusion:

The Tribunal concluded that Section 40(a)(ia) applies only to amounts that are payable as of the balance sheet date and not to amounts that were paid during the year. The term "payable" was given its natural meaning, and the section was interpreted in line with the legislative intent and the context of TDS provisions. The Tribunal emphasized that the provision should not be extended to disallow amounts that have already been paid, as it would go beyond the intended scope of the legal fiction created by Section 40(a)(ia).

← Previous Next →