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Applicability of provision of Section 40 (a) (ia) – Calcutta High Court in Crescent Export Syndicate |
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Applicability of provision of Section 40 (a) (ia) – Calcutta High Court in Crescent Export Syndicate |
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IT : The provisions of section 40(a)(ia), 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. Issue before the High Court Whether Special Bench decision of ITAT in the case of Merilyn Shipping & Transports Versus Assistant Commissioner of Income-tax, Range-1, Visakhapatnam - 2012 (4) TMI 290 - ITAT VISAKHAPATNAM lays down the correct law in respect of interpretation of section 40(a)(ia)? [In that case, the Special Bench of ITAT held that disallowance u/s 40(a)(ia) applies only to amounts payable as of 31st March of the previous year on which TDS has not been deducted and no disallowance to be made in respect of sums paid during previous year without deducting TDS] Held • 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. • 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. • 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 comparing the wordings of the provisions of Finance Bill and Finance Act for interpretation purposes. • The key words used in Section 40(a)(ia) 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 an 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 or 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 "amounts credited or paid" were used only in relation to a contractor or sub-contractor. This differential treatment was not intended. Therefore, the legislature provided that the amounts, on which tax is deductible at source under Chapter 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 or sub-contractor shall not be deducted in computing the income of an assessee in case he has not deduced, 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. • Majority views expressed in the case of Merilyn Shipping & Transports Versus Assistant Commissioner of Income-tax, Range-1, Visakhapatnam - 2012 (4) TMI 290 - ITAT VISAKHAPATNAM are not acceptable. Related cases
By: CA DEV KUMAR KOTHARI - May 22, 2013
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