2015 (3) TMI 451 - AT - Income Tax

Addition u/s.40(a)(ia) - disallowance of expenditure on hiring of tanker - non deduction of tds - whether expenditure, which is not payable at the year end, as the same has been paid during the year, cannot be disallowed u/s.40(a)(ia) of the Act? - Held that - There is no ambiguity in the Section and term 'payable' cannot be ascribed narrow interpretation as contended by assessee. Had the intentions of the legislature were to disallow only items outstanding as on 31st March, then the term 'payable' would have been qualified by the phrase as outstanding on 31st March. However, no such qualification is there in the section and, therefore, the same cannot be read into the section as contended by the assessee. The terms payable and paid are not synonymous. Word paid has been defined in Section 43(2) of the Act to mean actually paid or incurred according to the method of accounting, upon the basis of which profits and gains are computed under the head Profits and Gains of Business or Profession . In contrast, term payable has not been defined. The word payable has been described in Webster s Third New International Unabridged Dictionary as requiring to be paid capable of being paid specifying payment to a particular payee at a specified time or occasion or any specified manner. In the context of section 40(a)(ia), the word payable would not include paid . The provisions of section 40(a)(ia) 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. In the result the question is decided in favour of revenue and against the assessee.the majority views expressed in the case of Merilyn Shipping & Transports 2012 (4) TMI 290 - ITAT VISAKHAPATNAM are not acceptable as it does not concludes the correct law in stating that section 40(a)(ia) would be applicable only to expenditure which is payable as on March 31 of every year and can not be invoked to disallow amount which have already been paid during the previous year. See Commissioner of Income-tax, Kolkata - XI Versus Crescent Export Syndicate & Park International 2013 (5) TMI 510 - CALCUTTA HIGH COURT and COMMISSIONER OF INCOME TAX-IV Versus SIKANDARKHAN N TUNVAR 2013 (5) TMI 457 - GUJARAT HIGH COURT - Decided in favour of revenue.

Summary

Issues Involved:
1. Disallowance of expenditure under Section 40(a)(ia) of the Income Tax Act.
2. Interpretation of the term "payable" in Section 40(a)(ia).
3. Applicability of judicial precedents from other High Courts and the Supreme Court.
4. Relevance of the decision in CIT Vs. M/s. Vector Shipping Services Pvt. Ltd.

Detailed Analysis:

1. Disallowance of Expenditure under Section 40(a)(ia):
The primary issue in this appeal is the disallowance of Rs. 6,23,861/- under Section 40(a)(ia) of the Income Tax Act due to the assessee's failure to deduct TDS on payments made for hiring tankers. The CIT(A) upheld the disallowance, reasoning that the assessee was liable to deduct TDS under Chapter XVII-B of the Act, regardless of whether the amount was paid during the year or remained outstanding at the year-end.

2. Interpretation of the Term "Payable" in Section 40(a)(ia):
The CIT(A) and the Tribunal both emphasized that the term "payable" in Section 40(a)(ia) includes amounts that are paid during the year, not just those outstanding at the year-end. This interpretation aligns with the decisions of the Kolkata High Court in CIT Vs. Crescent Export Syndicate and CIT Vs. Md. Jakir Hossain Mondal, as well as the Gujarat High Court in CIT Vs. Sikandarkhan N. Tunvar. These courts held that Section 40(a)(ia) covers all amounts on which TDS is deductible, whether they are paid or payable at any time during the year.

3. Applicability of Judicial Precedents from Other High Courts and the Supreme Court:
The assessee argued that when there are conflicting decisions from various High Courts, the decision favorable to the assessee should be followed. However, the Tribunal noted that the decisions of the Kolkata and Gujarat High Courts, which support the disallowance under Section 40(a)(ia) for both paid and payable amounts, are detailed and well-reasoned. These decisions were not considered by the Allahabad High Court in CIT Vs. M/s. Vector Shipping Services Pvt. Ltd., which the assessee relied upon.

4. Relevance of the Decision in CIT Vs. M/s. Vector Shipping Services Pvt. Ltd.:
The Tribunal acknowledged the decision of the Allahabad High Court in CIT Vs. M/s. Vector Shipping Services Pvt. Ltd., which held that amounts paid during the year and not outstanding at the year-end cannot be disallowed under Section 40(a)(ia). However, the Tribunal noted that this decision did not consider the detailed judgments of other High Courts. Consequently, the Tribunal followed the decisions of the Kolkata and Gujarat High Courts, which provide a more comprehensive analysis of the issue.

Conclusion:
The Tribunal upheld the CIT(A)'s order sustaining the disallowance of Rs. 6,23,861/- under Section 40(a)(ia) due to the assessee's failure to deduct TDS. The Tribunal's decision is based on the interpretation that Section 40(a)(ia) applies to both paid and payable amounts during the year, aligning with the judgments of the Kolkata and Gujarat High Courts. The Tribunal dismissed the appeal of the assessee, affirming the disallowance.