2013 (11) TMI 1243 - AT - Income Tax

Disallowance on account of non deduction of TDS u/s 40(a)(ia) - payment to various sub-contractors - It was strongly contended that terms payable and paid are not synonymous. - held that - provisions of section 40(a)(ia) would apply when the amount is payable and where the expenditure is paid. - Decided against the assessee.

Issues Involved:
1. Non-deduction of tax at source (TDS) on payments to sub-contractors and interest payments.
2. Applicability of Section 40(a)(ia) of the Income Tax Act, 1961.
3. Interpretation of the term "payable" within the context of Section 40(a)(ia).
4. Reliance on judicial precedents and conflicting judicial decisions.

Issue-wise Detailed Analysis:

1. Non-deduction of tax at source (TDS) on payments to sub-contractors and interest payments:
The assessee, engaged in civil construction, failed to deduct TDS on payments made to various sub-contractors and on interest payments to M/s. Poona Petroleum Company. The Assessing Officer (AO) disallowed an amount of Rs. 7,20,252/- under Section 40(a)(ia) for non-deduction of TDS. The details of payments were as follows:
- D.H. Shaikh: Rs. 1,12,000
- K.T. Construction (Damania): Rs. 4,55,835
- Chander Rathod: Rs. 1,05,000
- Poona Petroleum Co.: Rs. 47,397

2. Applicability of Section 40(a)(ia) of the Income Tax Act, 1961:
The assessee argued before the CIT(A) that since the expenditure had already been paid and not remained payable at the year-end, the provisions of Section 40(a)(ia) were not applicable. The CIT(A) rejected this explanation and upheld the AO's disallowance. The assessee appealed, citing the decision of the Hyderabad Bench of the Tribunal in Teja Construction Vs. ACIT and the Hon'ble Allahabad High Court in CIT Vs. M/s. Vector Shipping Service Pvt. Ltd., which held that no disallowance under Section 40(a)(ia) can be made when no amount is payable at the end of the year.

3. Interpretation of the term "payable" within the context of Section 40(a)(ia):
The Tribunal examined the interpretation of "payable" in Section 40(a)(ia). The assessee relied on the Special Bench decision in Merilyn Shipping and Transport Ltd., which suggested that the term "payable" should be narrowly interpreted to mean only amounts outstanding at the year-end. However, the Tribunal noted that this decision was reversed by the Hon'ble Calcutta High Court in CIT Vs. Crescent Export Syndicate, which held that the term "payable" includes amounts paid during the year. The Hon'ble Gujarat High Court in CIT Vs. Sikandarkhan N. Tunvar also held that Section 40(a)(ia) applies to amounts payable at any time during the year, not just those outstanding at year-end.

4. Reliance on judicial precedents and conflicting judicial decisions:
The Tribunal considered the conflicting judicial decisions. The Hon'ble Calcutta and Gujarat High Courts' decisions, which were subsequent to the Special Bench decision, prevailed. The Tribunal emphasized that when there are conflicting decisions, the one favoring the assessee should be followed, as per the Hon'ble Supreme Court in CIT Vs. Vegetable Products Ltd. However, in this case, the Tribunal found the decisions of the Calcutta and Gujarat High Courts more persuasive and upheld the CIT(A)'s order sustaining the disallowance made by the AO.

Conclusion:
The Tribunal dismissed the assessee's appeal, upholding the CIT(A)'s order sustaining the disallowance under Section 40(a)(ia) for non-deduction of TDS. The Tribunal relied on the decisions of the Hon'ble Calcutta and Gujarat High Courts, which interpreted the term "payable" to include amounts paid during the year, thus rejecting the narrower interpretation suggested by the Special Bench in Merilyn Shipping and Transport Ltd.

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