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TMI Blog2012 (4) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to introduce this provision was brought to curb bogus payments by creating bogus liability. Therefore, following cardinal principle of interpretation, Special Bench in view of dissenting view expressed by one of its members hold in light of majority view of the Members 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 are already been paid during the previous year, without deducting tax at source – Decided in favor of assessee. - IT Appeal NO. 477 (VIZ.) of 2008 - - - Dated:- 9-4-2012 - D. Manmohan, S. V. Mehrotra And Mahavir Singh, JJ. ORDER Per S. K. Yadav, Judicial Member:- This appeal is preferred by the assessee against the order of the CIT(A) pertaining to the assessment year 2005-06. A reference u/s 255(3) of the Income-tax Act has been made to the Hon ble President to constitute a special bench to adjudicate an issue whether section 40a(ia) of the Incometax Act can be invoked only to disallow expenditure of the nature referred to therein which is shown as payable as on the date of balance sheet or it can be invoked also to disallow such expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ource. I therefore agree with the view taken by Shri Mahavir Singh, JM and answer the question accordingly. The matter may now be placed before the Division Bench for passing appropriate orders, in the above listed case in the light of the majority view of the Members consisting of the Special Bench. ORDER Mahavir Singh, Judicial Member I have gone through proposed order of Ld A.M., Brother Shri S.V.Mehrotra and could not persuade myself to the conclusion arrived at by my Brother. So, I am writing my own order on the basis of arguments of both the sides and material placed before us. As regards to arguments narrated by Ld Brother Shri Mehrotra, I have no difference because he has beautifully narrated every argument of both the sides. First, I have perused the question referred to the Special Bench by Hon'ble President, which is as under: Whether Sec. 40(a) (ia) of the Income Tax Act can be invoked only to disallow expenditure of the nature referred to therein which is shown as payable as on the date of the balance sheet or it can be invoked also to disallow such expenditure which become payable at any time during the relevant previous year and was actuall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge, fees for professional services or fees for technical services payable to a resident, or amount credited or paid to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax has not been deducted or, after deduction, has not been paid before the expiry of the time prescribed under sub-section (1) of section 200 and in accordance with the other provision of Chapter XVII-B: (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139,- Provided that where in respect of any such sum, tax has been deducted under Chapter XVII-B or paid in any subsequent year, such sum shall be allowed as a deduction in computing the income of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the term payable as per the dictionary meaning which is as under: 2.2. The word' payable' as per dictionary meaning is (a) that must be paid, (b) able to be paid. (a) Oxford dictionary defines the terms 'payable' and 'paid' as under:-Payable (pay-a-ble- adjective [predict.] 1. (of money) required to be paid; due : 2. able to be paid: Noun (payables) Debts owed by a business' liabilities. Paid: Past and past principal of PAY. (b) According to Black's Law Dictionary (Seventh Edition) at p. 1150-, the term 'payable' is defined as a sum of money that is to be paid. Another meaning to the term 'payable' is given as under :- An amount may be payable without being due. Debts are commonly payable long before they fall due . (c) According to West's Legal Thesaurus/ Dictionary Paid : means pay. To discharge a debt. Payable : means justly or legally due (payable immediately}. Uncollected (outstanding debts). Unpaid, undischarged, unsatisfied, unsettled, mature, owed, ripe, collectable, in arrears, redeemable. To support this, ld. Counsel for the assessee relied on the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statute must prima facie be given their ordinary meaning. It is yet another rule of construction that when the words of the statute are clear, plain and unambiguous, then the Courts are bound to give effect to that meaning, irrespective of the consequences. It is said that the words themselves best declare the intention of the law-giver. The Courts are adhered to the principle that efforts should be made to give meaning to each and every word used by the legislature and it is not a sound principle of construction to brush aside words in a statute as being inapposite surpluses, if they can have a proper application in circumstances conceivable within the contemplation of the statute . The same view has been taken by this Court in S. Mehta v. State of Maharashtra 2001 (8) SCC 257 (vide para 34) and Patangrao Kaddam v. Prithviraj Sajirao Yadav Deshmugh AIR 2001 SC 1121. The literal rule of interpretation really means that there should be no interpretation. In other words, we should read the statute as it is, without distorting or twisting its-language. We may mention here that the literal rule of interpretation is not only followed by Judges and lawyers, but it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no consequence. 6. No doubt the dispute before us is whether the term payable in section 40(a)(ia) of the Act refers to entire payment on which the TDS was required to be made in terms of various provisions referred to in this section contained in chapter XVII-B or it refers only to amount payable with reference to those sections, which, as per the assessee, remain outstanding as on 31st March of every year. The contention that a particular amount is covered under chapter XVII-B and therefore TDS was required to be made from that amount but the amount has also been paid without TDS, therefore, disallowance to this extent should not be made under section 40(a)(ia) of the Act. The provision of section 40(a)(ia) of the Act was introduced in order to ensure compliance of TDS but assigned the term payable in the provision of section 40(a)(ia) of the Act. On a comparison between the proposed and enacted provision, the only conclusion, which can be reached, is that Legislature consistently replaced the words amount credited or paid with the word payable in the final enactment and such change was not done without any purpose. It is a basic presumption that an enactment was b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intention of the Legislature is to be gathered from the language used. What is to be borne in mind is as to what has been said in the statute as also what has not been said. A construction which requires, for its support, addition or substitution of words or which results in rejection of words, has to be avoided, unless it is covered by the rule of exception, including that of necessity. In the present provision of section 40(a)(ia) of the Act there is no such exception and the only word provided by Legislature is payable . 7. The Revenue's argument does not have any merit that payment of earlier years outstanding expenses cannot be allowed in subsequent year unless specifically provided in the Statute. Proviso to section 40(a)(ia) of the Act lays down that earlier year's provision can be allowed in subsequent years only if TDS is deducted and deposited. Hence, revenue's fear is unfounded and the provision of section 40(a)(ia) of the Act covers the situation. Another argument of the revenue as regards to maintaining of books of account from cash and no amount claimed as expense being outstanding or payable, when the assessee itself has not claimed expense which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but the same is not paid within the time allowed such amount shall be disallowed while computing the income. The sub-section speaks of the amount payable on which the tax is not deducted and therefore it should apply only if any amount is payable , but if the amount is already paid the provisions of this section should not apply. The crucial word is payable. The question arises whether payable means payable at the end of the year or payable at any time during the year though paid during the year itself? If one looks into the TDS Provisions from section 194A to 194 K, it will be apparent that as per the language of those sections, tax is to be deducted at the time the amount is paid or at the time when the amount is credited, i.e. when the liability is admitted and it becomes payable. Therefore wherever the payment is covered by aforesaid sections whether paid or credited, tax has to be deducted. Section 194 L and 194LA may also be looked into which says that tax has to be deducted only at the time of payment. The language in these sections therefore shows that the legislature has used different language in different sections. It is trite law that each and every word of the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act has been enacted for the purposes of augment of tax through the mechanism of TDS and was in furtherance to the said objective. This is a deeming provision. How to interpret the deeming provision or what is the meaning of word deem . As verb transitive, the word 'deem' means to treat something as if (i) it is really something else, or (ii) it has qualities that it does not have. 'Deem' is a useful word when it is necessary to establish a legal fiction either positively by 'deeming' something to be something it is not or negatively by 'deeming' something not to be something which it is. Legal fiction is an assumption that something is true even though it may be untrue. Such an assumption is especially made in judicially reasoning to alter how a legal rule operates. When the law creates a legal fiction such fiction should be carried to its logical end. There should be no hesitation in giving full effect to it. The proposition that legal fiction must be carried to its logical conclusion does not, however, mean that it should be carried to an illogical length. By catena of decisions, three rules are fairly well settled for interpreting a pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fiction the court should ascertain the purpose for which it was created and after doing so assume all facts which are logical to give effect to the fiction. Further, Hon'ble Supreme Court in CIT v Mother India Refrigeration Pvt. Ltd. [1985] 155 ITR 711 (SC) held that legal fictions are created only for some definite purpose and they must be limited to that purpose and should not be extended beyond that legitimate field. In CIT v. Bharani Pictures [1981] 129 ITR 244 (Mad.) it is held that legal fictions are for a definite purpose and are limited to the purpose for which they are created and should not be extended beyond its legitimate field. The statutory fiction introduced in one enactment cannot be incorporated in another enactment. The point that legal fiction cannot be extended to a new field was highlighted by Hon'ble Madras High Court in CIT v Rajam T.S [1988] 125 ITR 207(Mad.) wherein it is held that section 41(2) of the Act creates a legal fiction under which the balancing charge is treated as business income chargeable to tax but when this amount is distributed to shareholders then it would not become deemed dividend and it would be only a capital recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounts 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 XVII-B 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 of the Act. I agree with the arguments made by ld. Counsel for the assessee and other Counsels for the Interveners that while interpreting the word payable in this provision, the word of a statute must be understood in its natural, ordinary or popular sense and construed according to its grammatical meaning. According to me, such construction would not lead to absurdity because there is nothing in this context or in the object of this statute to suggest to the contrary. It is a cardinal principle of interpretation that the words of a statute must be prima facie given their ordinary meaning, when the words of the statute are clear, plain and unambiguous then the courts are bound to give effect to that meaning. The literal rule of interpretation really means that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006. In the course of assessment proceedings, the Assessing Officer noticed that the assessee had claimed certain expenditure in Profit Loss A/c, i.e. brokerage expenses of ₹ 38,75,000/- and commission ₹ 2,43,253/-without deducting TDS on payment of these amounts as required under section 40(a)(ia) of the Income Tax Act. The Assessing Officer intimated the defaults. In response assessee's representative accepted his failure for non-deduction of TDS at the time of making payment and agreed for the disallowance. Accordingly, Assessing Officer disallowed brokerage of ₹ 38,75,000/- and commission of ₹ 2,43,253/-. Before ld. CIT(Appeals), it was submitted that at the time of assessment, the assessee was under bona fide belief that the provisions of section 40(a)(ia) of the Act were applicable for both the amounts 'paid' as well as 'payable'. However, on careful reading of the said provision and after going through the expert opinion, it was found that the said provisions were applicable for the amounts 'payable' only. It was, thus, submitted that since in the assessee's case the outstanding brokerage and commission as on 31.03. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot deductible. The proposed amendment seeks to insert a new sub-clause (ia) in clause (a) of the said section so as to provide that any interest, commission or brokerage, fees for professional services or fees for technical services, payable to a resident or amount credited or paid to a contractor or sub-contractor being a resident for carrying out any work (including supply of labour for carrying out any work) on which tax has not been deducted or, after deduction, has not been paid before the expiry of the time prescribed under sub-section (1) of section 200 and in accordance with the other provisions of Chapter XVII-B shall not be allowed as deduction in computing the income chargeable under the head profits and gains of business or profession . It is further proposed to provide that where in respect of any such sum, tax has been deducted under Chapter XVII-B or paid in any subsequent year, such sum shall be allowed as deduction in computing the income of the previous year in which such tax has been paid. It is also proposed to define the expressions commission or brokerage, fees for technical services , professional services and work used in the proposed new clause (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (vi) royalty shall have the same meaning as in Explanation 2 to clause ( vi ) of sub-section (1) of section 9;] 4.2 Ld. counsel submitted that in the back drop of above, the question arises as to why the legislature dropped 'credited' and 'paid' under section 40(a)(ia). He submitted that 'paid' was not incorporated because legislature knew that if amount is already paid, TDS cannot be made. Ld. counsel submitted that section 201 takes care of a situation where assessee fails to deduct tax. He further pointed out that proviso to section 40(a)(ia) gives leverage in respect of 'payable' amount to assessee to pay the amount after making TDS and avail deduction in subsequent year. Ld. counsel referred to Rule 30 of Income Tax Rules, which, inter alia, deals with time and mode of payment of tax deducted at source. He pointed out that Rule 30 prior to its substitution by the Income Tax (Sixth Amendment) Rules, 2010 with retrospective effect from 1st April, 2010 allowed two months period of time for depositing of TDS if the amount is credited by a person to the account of the payee and one week time in any other case. The said Rule reads as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of sums deducted in accordance with the other provisions within one week from the last day of the month in which the deduction is made. With reference to this Rule, ld. counsel submitted that the words 'paid' and 'payable' have different connotations and, accordingly, different time periods have been prescribed for depositing of TDS. Ld. counsel further referred to section 43, which deals with definition of certain terms relating to income from profits and gains of business or profession and pointed out that sub-section (2) defines the term 'paid' as under :- (2) paid means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head profits and gains of business or profession . Ld. counsel submitted that though word 'paid' has been defined, but the word 'payable' has not been defined in the Act. Ld. counsel for the assessee referred to page 6 at para 2.2 of written submissions, wherein the term 'payable' as per dictionary meaning has been mentioned. The submissions are as under :- 2.2. The word' payable' as per dictionary mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make his book 'go true' he would inevitably lose the battle with what might be called linguistic indeterminacy. Since indeterminacy will be the prima facie of his professional life, he will often be tempted to deny and resent, like the grammarians of the 17th 18th centuries, the radical instability of languages . It is thus clear that the court can always take aid of the dictionaries . Thus, ld. counsel submitted that keeping in view the conflicting views, dictionary meaning of the word 'payable' should be given preference. Ld. counsel further submitted that taxing provisions must receive strict construction as held by the Hon'ble Supreme Court in the case of CWT v. Kripashankar Dayashanker Worah reported in [1971] 81 ITR 763 (SC) and in the case of Federation of Andhra Pradesh Chamber of Commerce and Industry and Others v. State of Andhra Pradesh Others reported in 247 ITR at page 36 (SC). He further referred to the decision of the Hon'ble Apex Court in the case of Smt. Tarulatha Shyam Others v. CIT reported in (1977) 108 ITR 345 (SC), wherein it has been held that it is a fundamental rule of taxation that where there is no scope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(a)(ia), otherwise being a legal fiction, needs to be construed strictly in view of the decision of the Hon'ble Supreme Court in the case of CIT -vs.- Mother India Refrigeration Industries (P) Ltd. (1985) 155 ITR 711 (SC). 5. On behalf of Intervener M/s. Blue Marine Logistics Pvt. Ltd., Chennai, Shri B. Ramakrishnan, C.A. advanced similar contentions as advanced in the main appeal and further submitted that the words 'paid' and 'payable' are distinct and two different words having 'separate' meaning of their 'own' and, therefore, cannot be used interchangeably. He submitted that two events take place in the case of payments covered by TDS provision - first is TDS and second is payment Both events either simultaneously take place or payment can be made later on. He submitted that separate consequences have been provided in the Act for both the events separately. Like section 200 deals with duty of person deducting tax. Section 201 prescribes consequences of failure to deduct or pay. Section 271C prescribes penalty for failure to deduct tax at source and section 276B prescribes failure to pay tax to the credit of Central Government under Chap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he control of the payer or because payee has already paid advance tax on such amounts. In the second case, the liability of the payer u/s 201 ceases as it was rightly explained in the department circular and upheld by the Hon'ble Apex Court in the case of Hindustan Coco Cola Beverages. 12. The mischief caused by initially using the words 'paid' is that it results in a permanent disallowance, which was not the intention of the legislation while introducing S. 40(a) (ia). 13. When this mischief was brought to the notice of the Parliament by apex professional bodies like 'ICAI', wise sense prevailed and the word 'payable' is substituted. 14. Also, when S. 40(a)(ia) is read in comparison with S.43B one can notice the conspicuous absence of the words 'irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him' in section 40(a) (ia). 15. The only reason that can be drawn for such omission is that for a person following cash system of accounting, any expenditure can be claimed only at the time of payment. Since, no disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad something into it which is not there even if there is a defect or any omission in the words used in the legislation. He, therefore, submitted that the word 'payable' is to be strictly construed and cannot include the term 'paid' within its ambit. He further referred to page 67 of the paper book, wherein the decision of the Hon'ble Supreme Court in the case of Raghunath Rai Bareja and Others v. Punjab National Bank and Others [135 Com Cas 163] is contained, in which it has been observed as under :- It is a cardinal principle of interpretation of statute that the words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless such construction leads to some absurdity or unless there is something in the context or in the object of the statute to suggest to the contrary. The golden rule is that the words of a statute must prima facie be given their ordinary meaning. It is yet another rule of construction that when the words of the statute are clear, plain and unambiguous, then the Courts are bound to give effect to that meaning, irrespective of the consequences. It is said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he extent to which tax has been deducted from that income. With reference to these provisions, ld. counsel submitted that once tax has been paid by the payee as per the provisions of section 191, the disallowance is called for under section 40( a )( ia ) of the Act. 7. On behalf of Third Intervener - Srinivasa Rao, Shri Y. Suryachandra Rao, C.A. appeared and adopted earlier submissions made by the ld. counsel for the assessee and interveners. 8. Learned Departmental Representative submitted that section 40( a )( ia ) covers the disallowance in respect of all payments made whether paid without TDS or payable on which TDS has not been deducted. Ld. DR submitted that the intention of legislature is very clear that if a particular payment is covered by the provisions contained under Chapter XVII relating to TDS, then the assessee's claim would be disallowed under section 40( a )( ia ) of the Act. Learned Departmental Representative submitted that in sections from 192 to 194LB all TDS provisions are contained under Chapter XVII, which includes section 194C also and, therefore, legislative intention is same for all the sections. Ld. DR referred to the following case laws ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gwala ( P. ) Ltd. v. ACIT reported in [2011] 330 ITR 243 (Delhi) (FB), wherein it has been held as under :- A judgment has to be read in context, and discerning of factual background is necessary to understand the statement of principles laid down therein. It is obligatory to ascertain the true principle laid down in the decision and it is inappropriate to expand the principle to include what has not been stated therein. A decision is only an authority for what it actually decides and it is the duty to ascertain the real concrete or ratio decidendi which has binding effect. Mechanical application of a decision treating as a precedent without appreciating the underlying principle is not allowable 11. We have considered the submissions of both the parties and have perused the records of the case. The dispute before us is whether the term 'payable' in section 40( a )( ia ) refers to 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 31 st March. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that cases in which the meaning is plain present small difficulty, it does sometimes happen that the meaning is plain, but the application of it to the particular case yields so extravagant a result as to cause one to hesitate. It might even raise doubts as to whether Parliament did 'intend' so strange a result. 12.1. The contention is that though a particular amount is covered by the Chapter XVII-B and, therefore, TDS was required to be made from that amount but since the amount has been paid without TDS, therefore, disallowance to this extent should not be made under section 40( a )( ia ) of the Act. The contention is that consequences of non-deduction are contemplated under Chapter XVII itself and, therefore, further disallowance contemplated under section 40( a )( ia ) for non-deduction of tax did not contemplate the amounts, which were paid without TDS. A close scrutiny for insertion of section 40( a )( ia ) reveals that section 40( a )( ia ) was inserted in order to ensure a scrupulous adherence to the TDS provision. The object of section 40( a )( ia ) is to ensure that one of the modes of recovery as provided in Chapter XVII-B is scrupulously implemented withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose. 12.4 In our considered opinion, 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 31 st March, then the term 'payable' would have been qualified by the phrase as outstanding on 31 st 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. 13. Section 40( a )( ia ) is to be interpreted harmoniously with the TDS provision as its operation solely depends on the provisions contained under Chapter XVII-B. It contemplates one of the consequences of non-deduction of tax and, therefore, has to be interpreted in the light of mandatory provisions contained under Chapter XVII-B. It would be appropriate to reproduce section 40( a )( ia ), which reads as under :- Section 40( a )( ia ) :- any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax is deductible at source under Chapter XVII-B in respect of amounts payable in respect of aforementioned items. ( v ) Tax has not been deducted as per requirement of Chapter XVII-B. ( vi ) After deduction of tax, amount has not been paid. Therefore, if aforementioned conditions are not fulfilled then deduction would not be allowed. However, proviso to this section further gives leverage to assessee to deduct tax in subsequent year or pay tax deducted during the previous year after the due date specified in section 139(1). In such a situation, deduction would be allowed in the year in which such tax has been deducted. The explanation to this section defines various amounts contemplated in this section. The relevant sections in Chapter XVII-B are re-produced hereunder :- Interest on securities. 193. The person responsible for paying [to a resident] any income [by way of interest on securities] shall, [at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier], deduct income-tax [***] at the rates in force on the amount of the interest p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is responsible for paying to a resident any sum by way of- ( a ) fees for professional services, or ( b ) fees for technical services, [or] [( c ) royalty, or ( d ) any sum referred to in clause ( va ) of section 28,] shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to [ten] per cent of such sum as income-tax on income comprised therein : ** ** ** Explanation .-For the purposes of this section,- ( a ) professional services means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section; ( b ) fees for technical services shall have the same meaning as in Explanation 2 to clause ( vii ) of sub-section (1) of section 9; [( ba ) royalty shall have the same meaning as in Explanation 2 to clause ( vi ) of sub-section (1) of section 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monious construction of the word 'payable' leads to inevitable conclusion that the said word also includes the 'paid' amount. 14. Ld. Counsel has relied on the dictionary meaning of term 'payable' which, in our opinion, cannot be resorted to in view of discussion in foregoing paras. The context in which term 'payable' has been used in section 40(a)(ia) is to be taken into consideration. The context is various sections of Chapter XVII-B. 15. The next argument of ld. counsel is based on the definition of term 'paid' as contemplated under section 43(2) which reads as under :- 43(2) : 'paid' means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head 'profits and gains of business or profession . 16. A bare reading of the above provision would make it very clear that the term 'paid' does not only mean actual payment but if the liability has been incurred according to the method of accounting followed by the assessee, then the same also comes within the purview of term 'paid'. If the assessee is following mercantile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proviso to section 40(a)(ia) does not make any provision in regard to this contingency. This may be a case of casus omisus but the Court cannot fill this gap. Hon'ble Allahabad High Court in the case of Dey's Medicals (UP) (P) Ltd. v. Union of India Others [216 CTR 83(Alld.) observed as under :- Once a deduction of a particular amount is not allowable under the Act, it is liable to be taxed and merely because some other person may also be liable to tax after receiving the said amount in one or the other manner, it cannot be said that former assessee is entitled for exemption and cannot be taxed. No authority is shown providing that such taxation is not permissible in law and is bad even otherwise . 19. Ld. CIT, DR has strongly relied on the decision of the Hon'ble Madras High Court in the case of Tube Investments of India Ltd. Anr. v. ACIT Others . The contention of ld. counsel for the assessee is that this decision was rendered in the context of constitutional validity of the provisions of section 40(a)(ia) and, therefore, in view of the decision of Hon'ble Delhi High Court in the case of Lachman Dass Bhatia Hingwala (P) Ltd. ( supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he whole of the actual expenditure is highly onerous and thereby it becomes arbitrary, unreasonable warranting declaration of the provision as ultra vires of the Constitution. At para 20 of judgment : According to the learned counsel, the proviso to s. 40(a)(ia) does not in any way mitigate the damage caused under the main provision. It was also contended that under s. 195(5) of the Act relating to non-residents, where on production of a certificate as per the IT Rules, the requirement of TDS is exempted, such a safety valve measure not being available in respect of a resident recipient, s. 40(a)(ia) is unreasonable and unjustifiable. At para 24 of judgment : According to the learned counsel a comparative reading of s. 40(a)(ia) and s. 198 would show that while under s. 198, the non-deduction of TDS would result in deemed income in the hands of the assessee, there is no such expression in s. 40(a)(ia) and consequently the non-income viz., the expenditure cannot be treated as deemed income in the hands of the assessee. The learned counsel also contended that since the recipient of the expenditure of the assessee is also taxed, the imposition of tax by invoking s. 40(a)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net collection, at least 1/3 is by way of TDS. The learned standing counsel therefore contended that the object for introducing s. 40(a)(ia) has really worked viz., augmentation of the TDS provision and therefore the provision should be upheld. In the backdrop of these submissions, Hon'ble Madras High Court upheld the constitutional validity of the provisions of section 40(a)(ia) and made various observations:- ( i ) Hon'ble Madras High Court, inter-alia , noted the observations of Hon'ble Supreme Court in the case of A.S. Krishna v. State of Madras AIR 1957 SC 297 which are as under:- 'It would be quite an erroneous approach to the question to view such a statute not as an organic whole, but as a mere collection of sections then disintegrate it into parts, examine under what heads of legislation those parts would severally fall, and by that process determine what portions thereof are intra vires and what are not. Thus, section 40(a)(ia) could not be viewed independently and had to be considered along with other provisions. ( ii ) The provisions of section 40(a)(ia) were compared with the provisions of section 201 of the Income Tax Act and, it was, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it in implementing the provision relating to TDS, it should be held that a higher tax liability is mulcted on it . Hon'ble Madras High Court, inter alia, observed in para 83 of its judgment as under :- After all the proviso has been inserted in order to ensure that even a defaulter is not put to serious prejudice, in as much as, by operation of the substantive provision, the expenditure which is otherwise allowable as a deduction is denied on the ground that the obligation of TDS provisions is violated. The law makers while imposing such a stringent restriction wanted to simultaneously provide scope for the defaulter to gain the deduction by complying with the TDS provision at a later point of time . Thus, impliedly Hon'ble Madras High Court, has, inter alia, held that the provisions of section 40(a)(ia) will be applicable with respect to entire expenditure. It is true that specific issue regarding 'paid', 'credited' and 'payable' has not been considered but from the judgment it is evident that if assessee's contention is accepted then the very object of incorporation of section 40(a)(ia) would be frustrated. 21. In view of abo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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