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TMI Blog2012 (3) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... visions 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 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 actually paid within the previous year ?" 3. The brief facts of the case are that the assessee, a partnership firm, in the relevant assessment year, derived income from business of ship containers transport and handling, customs clearing and as forwarding agents. It filed its return of income for the assessment year 2005-06 declaring total income of ₹ 15,24,710 on March 29, 2006. In the course of the assessment proceedings, the Assessing Officer noticed that the assessee had claimed certain expenditure in the profit and loss account, 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 the assessee's representative accepted his failure for non-deduction of TDS at the time of making payment and agreed for the disallowance. Accordingly, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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-sec tion (1) of section 200 and in accordance with the other provisions of Chapter XVII-B : 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 previous year in which such tax has been paid." 7. Learned counsel for the assessee further referred to clause 11 of Notes on Clauses to the Finance (No. 2) Bill, 2004, which reads as under (page 121 of 268 ITR (St.)) : "Clause 11 of the Bill seeks to amend section 40 of the Income-tax Act relating to amounts not 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 (incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after the said due date ; or (B) during any other month of the previous year but paid after the end of the said previous year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation.-For the purposes of this sub-clause,- (i) 'commission or brokerage' shall have the same meaning as in clause (i) of the Explanation to section 194H ; (ii) 'fees for technical services' shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9 ; (iii) 'professional services' shall have the same meaning as in clause (a) of the Explanation to section 194J ; (iv) 'work' shall have the same meaning as in Explanation III to section 194C ; (v) 'rent' shall have the same meaning as in clause (i) to the Explanation to section 194-I ; (vi) 'royalty' shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9 ;" 9. Learned counsel submitted that in the back drop of the above, the question arises as to why the Legislature dropped "credited" and "paid" under section 40(a)(ia). He submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by way of commission or brokerage referred to in section 194H or the income by way of rent referred to in section 194-I or the income by way of fees for professional or technical services referred to in section 194J or the interest or any other sum referred to in section 195 or the income of a foreign company referred to in sub-section (2) of section 196A or the income from units referred to in section 196B or the income from foreign currency bonds or shares of an Indian company referred to in section 196C or the income of Foreign Institutional Investors from securities referred to in section 196D is credited by a person to the account of the payee as on the date up to which the accounts of such person are made, within two months of the expi ration of the month in which that date falls ; (2) in any other case, within one week from the last day of the month in which the deduction is made ; and (ii) in respect of sums deducted in accordance with the other pro visions within one week from the last day of the month in which the deduction is made :" 10. With reference to this rule, learned counsel submitted that the words "paid" and "payable" have different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id Act do not define the word 'goods' or 'merchandise'. In the absence of any statutory guidelines under the Act, the dictionaries can be consulted to find out the meaning of the particular word or phrase. It is well settled that in the absence of there being anything contrary to the context, the language of a statute should be interpreted according to the plain dictionary meaning of the terms used therein. Though the dictionaries are not to be taken as authoritative exponents of the meaning of the statutory language, it is permissible to seek instruction from these books to understand the ordinary sense of the words in an enactment. At this juncture we are reminded of what Samuel Johnson, a great English poet, critic, essa yist and dictionary maker, has stated : 'Dictionaries are like watches, the worst is better than none, and the best cannot be expected to go quite true. Every honest lexicographer agrees knowing that no matter how keenly he strives to 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong with section 40(a)(ia) of the Act. He submitted that in the following decisions of the Tribunal the word "payable" has been interpreted and it has been held that amount paid without TDS does not cover within the ambit of section 40(a)(ia) of the Act : (i) Jaipur Vidyut Vitaran Nigam Limited v. ACIT (Jaipur Bench) ; (ii) Teja Constructions v. ACIT (Hyderabad Bench) ; (iii) K. Srinivasa Naidu v. ACIT (Hyderabad Bench) ; (iv) Sanap Agroanimals P. Ltd. v. ACIT (Nasik-Pune Bench) ; (v) SRS Real Estate Ltd. v. Addl. CIT (Faridabad) ; (vi) Shah Charulatha Milind v. ITO (Pune Bench) ; (vii) Alishan Realcon Pvt. Ltd. v. ITO (Khurda-Cuttack Bench) ; (viii) Sri Narayanbhai Dahyabhi Prajapati v. ITO (Ahmedabad) ; and (ix) G. F. Securities v. Deputy CIT (ITA No. 1215/Mad./2009) (Chen nai Bench). 15. Learned counsel further referring to the decision in the case of Jaipur Vidyut Vitran Nigam Ltd. submitted that section 40(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 v. Mother India Refrigeration Industries P. Ltd. [1985] 155 ITR 711 (SC). 16. On behalf of the intervener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he words "one week from the last day of the month in which the deduction is made", while the governing provision of this category refer to "before making payment" or "at the time of payment thereof. Thus, for the second category of expense, rule did not provide for a situation of payments made without deduction of tax at source. He submitted that all the expenses referred to in section 40(a)(ia) are the expenses of the first category. The notable omission being section 194-I was rectified immediately within one year. He has made his arguments as under : 11. To sum up, the provisions of tax deduction at source do not con template a scenario of expenditure being paid out without deduction of tax at source. The reason is simple. Once payment is made without deduction of tax at source, it will render it impossible to effect deduction from such payment : (i) Technically because the whole of the amount is paid out. (ii) Practically because payee may not be any more in the control of the payer or because payee has already paid advance tax on such amounts. 18. In the second case, the liability of the payer under section 201 ceases as it was rightly explained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT v. Prem Bhai Parekh [1970] 77 ITR 27 (SC) for the proposition that section 16(3) creating artificial income must be strictly construed. He, therefore, submitted that since on account of disallowance being made under section 40(a)(ia), expenditure actually incurred by the assessee is converted into artificial income, therefore, this section should be strictly construed. 25. On behalf of the second intervener Rajamahendri Shipping and Oil Field Services Ltd., Shri Gun Hari, chartered accountant appeared and referred to the decision of the hon'ble Madras High Court in the case of CIT v. TVS Lean Logistics Ltd. [2007] 293 ITR 432 (Mad) contained at page 56 of the paper book, wherein the hon'ble Madras High Court has observed that where the words of a statute are absolutely clear and unambiguous, rule of literal construction has to be followed, even if literal interpretation results in hardship or inconvenience. The court cannot enlarge the scope of legislation when the language of the provision is plain and unambiguous. It cannot add or subtract words in a statute or read something into it which is not there even if there is a defect or any omission in the words u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we mean what we say and we say what we mean. If we do not follow the literal rule of interpretation, social life will become impossible, and we will not understand each other. If we say that a certain object is a book, then we mean it is a book. If we say it is a book, but we mean it is a horse, table or an elephant, then we will not be able to communicate with each other. Life will become impossible. Hence, the meaning of the literal rule of interpretation is simply that we mean what we say and we say what we mean." 27. He referred to section 191 of the Income-tax Act as per which where Income-tax has not been deducted in accordance with the provisions of Chapter-XVII, then Income-tax shall be payable by the assessee (payee) directly. He submitted that the primary object of TDS, the power to recover the tax referred to in section 202 is that deduction is only one mode of recovery, which is without prejudice to any other mode of recovery. He further referred to section 205, where tax is deductible at the source under the foregoing provisions of this Chapter, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... validity of section 40(a)(ia) of the Act. The learned Departmental representative further submitted that liability for TDS is a continuous liability and, therefore, it cannot be segregated between "paid" and "payable" amounts. 33. In regard to arguments with reference to rule 30, the learned Departmental representative submitted that the said rule only prescribes the procedure for remittance of TDS amount and that cannot override the Act. The learned Departmental representative further submitted that section 40(a)(ia) has been incorporated in the Act so that TDS provisions are strictly followed and, therefore, the word "payable" used in the section is to be assigned strict interpretation keeping in view the object of legislation. He further submitted that similar provisions contained in the section 40(a)(i) relating to foreign payments are being implemented without any difficulty for the last forty years, then why not the provisions of section 40(a)(ia) be also implemented effectively. 34. Learned counsel for the assessee in the rejoinder submitted that the proviso becomes inoperable in case of paid amount. He further submitted that the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d formula is that the judges seek to ascertain the "intention of the Legislature". The problem becomes apparent when one investigates whose intention it is that is thought to be relevant. Certainly it cannot be that is incorporated in the Bill presented before Parliament but the statute which is passed by Parliament. He observes that in the case of Inland Revenue Commissioner v. Hinchy [1960] AC 748 ; [1960] 1 All ER 505, Lord Reid observed as under : "What we must look for is the intention of Parliament, and I also find it difficult to believe that Parliament ever really intended the consequences which flow from the appellant's contention. But we can only take the intention of Parliament from the words which they have used in the Act." 38. An Act is the product of compromise and the interplay of many factors, the result of all this being expressed in a set form of words. It is further observed as under : "Moreover, the expression 'intention of the Legislature' is ambi guous. Does it connote meaning or purpose; or, putting it in another way, does the present case fall within what the Legislature 'meant' by these words, or does it fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot; or "paid" come within the ambit of term "payable" and, therefore, the two terms, viz., "credited" or "paid" were only superfluous and, therefore, were dropped in section 40(a)(ia) inserted in the Act. In the provisions relating to TDS, the relevance of these terms was with reference to timing of deduction but while making disallowance under section 40(a)(ia), these terms had no relevance and, therefore, the Legislature dropped these two terms, viz., "paid" or "credited" before insertion of section 40(a)(ia) in the statute. 42. It is noticeable that section 40(a) is applicable irrespective of the method of accounting followed by an assessee. Therefore, by using the term "payable" the Legislature included the entire accrued liability. If the assessee was following the mercantile system of accounting, then the moment the amount was credited to the account of payee on accrual of liability, TDS was required to be made but if the assessee was following the cash system of accounting, then on making payment TDS was to be made as the liability was discharged by making payment. The TDS provisions are applicable both i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmission or brokerage' shall have the same meaning as in clause (i) of the Explanation to section 194H ; (ii) 'fees for technical services' shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9 ; (iii) 'professional services' shall have the same meaning as in clause (a) of the Explanation to section 194J ; (iv) 'work' shall have the same meaning as in Explanation III to section 194C ; (v) 'rent' shall have the same meaning as in clause (i) to the Explanation to section 194-I ; (vi) 'royalty' shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9 ;" 45. Section 40 is contained in Chapter IV deals with computation of business income and lists out various amounts which are not deductible notwithstanding anything to the contrary in sections 30 to 38. This implies that even if a particular amount is allowable under sections 30 to 38 still, if it does not comply the provisions contained in section 40, then the same cannot be allowed. 46. The basic ingredients of section 40(a)(ia) are as under : (i) it applies to interest, commission or brokerage, rent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct Income-tax thereon at the rate of ten per cent : 194-I. Rent.-Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, 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 the issue of a cheque or draft or by any other mode, whichever is earlier, deduct Income-tax thereon at the rate of- (a) ten per cent. for the use of any machinery or plant or equipment ; (b) fifteen per cent. for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings where the payee is an individual or a Hindu undivided family ; and (c) twenty per cent. for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings where the payee is a person other than an individual or a Hindu undivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections. These sections do not give any leverage to the assessee to make the payment without making TDS. On the contrary, the intention of the Legislature is evident from the fact that timing of deduction of tax is the earliest possible opportunity to recover tax, either at the time of credit in the account of payee or at the time of payment to payee, whichever is earlier. 50. When we examine section 40(a)(ia) in the backdrop of these sections, we find that it refers to the amount "payable" "on which tax was deductible at source under Chapter XVII-B". Applying the principles of ejusdem generis, it can easily be inferred that term "payable" in section 40(a)(ia) has to be interpreted in the light of sum referred to in various sections contained in Chapter XVII-B noted above, on which tax was deductible and, therefore the term "payable" in section 40(a)(ia) refers to the entire amount on which tax was required to be deducted. Keeping in view the principles of harmonious construction, the term "payable" in section 40(a)(ia) cannot be read separately from the provisions relating to TDS as pleaded on behalf of the assessee. In our opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment account of tax deducted at source. In our opinion, this Rule merely contemplates the procedure of depositing the TDS amount and merely because different time limits are prescribed, it would not follow that different considerations would apply while considering the term "payable" under section 40(a)(ia) of the Act. Learned counsel has also referred to section 234B dealing with levy of interest to demonstrate that actual payment and payable amount are to be separately dealt with. However, these procedural sections cannot override the substantive provision of the Act. 55. The Tribunal in the case of Jaipur Vidyut Vitaran Nigam Ltd. (supra) has also observed that section 40(a)(ia) being a legal fiction needs to be construed strictly. There is no quarrel with this proposition but at the same time we have to take into consideration the context in which a particular word is used and the overall purpose sought to be achieved by inserting a section in the Act. 56. One more argument of the assessee is that if the amount has already been paid, then the assessee will not be able to be in a position to deduct and pay tax, because, under such circumstances, as per the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of the petitioner, sec tion 40(a)(ia) mutates itself to tax the petitioners at a disproportionate rate and quantum while purporting to the address section 194C and the cont ractors. According to him the effect of section 40(a)(ia) is so grossly unreasonable that it imposes tax liability on the business of the petitioners even if the contractor himself paid the tax in his returns in the absence of TDS effected by the petitioners. At paragraph 14 of the judgment : According to learned senior coun sel, the implication of section 40(a)(ia) is irrespective of the circumstances in which the deduction was failed to be made and therefore it is arbitrary. By relying upon the decisions of the hon'ble Supreme Court in the cases of Hindustan Coca Cola Beverage P. Ltd. v. CIT [2007] 293 ITR 226 (SC) and CIT v. Eli Lilly and Co. (India) P. Ltd. [2009] 312 ITR 225 (SC), learned senior counsel contended that when the hon'ble Supreme Court has held that the liability of an assessee under section 201 on failure to deduct or pay tax disappears once the recipient has paid the tax and even penalty cannot be levied if there was a reasonable cause for non-deduction, it should be hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC) in support of his submissions. At paragraph 33 of the judgment : It was then contended that an expenditure is not an income and consequently the collection of tax as envisaged under article 265 is not permissible. It was also contended that section 40(a)(ia) conflicts with section 145 of the Act since the method of accounting is disturbed. At paragraph 41 of the judgment : As against the submissions of the petitioners that the provision is illusory, learned counsel contended that though the words used in the proviso are deduct and pay, there is no pro hibition for the assessee to make the payment without any deduction. In that context, learned counsel relied upon section 195A and stated that such a situation is envisaged therein. The learned standing counsel also relied upon Addl. CIT v. Farasol Ltd. [1987] 163 ITR 364 (Raj) where in the con text of section 40(a) it was held by the Rajasthan High Court that even where the amount is paid out of the assessee's pocket but not deducted, he would be eligible for the deduction. At paragraph 46 of the judgment : Mr. K. Subramaniam, learned stan ding counsel for the Income-tax Department brought to our notice the CBDT circulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004 states that the insertion of clause (ia) in clause (a) to section 40 of the Act was with a view to augment compliance of the TDS provisions. (iv) When the provisions and procedures relating to TDS are scru pulously applied, first and foremost it ensures the identification of payees and thereby network of the assessees gets confirmed. When once such identity of the assessees, who are in receipt of the income can be ascertained, it will enable the tax collection machinery to bring within its fold all such persons who are liable to come within the network of taxpayers. Thus, if it is held that the provisions of section 40(a)(ia) are not applicable in respect of those payments which have been paid without making TDS and at the end of the year no amount is outstanding then the very object of identification of payees will get frustrated. (v) The legislative intent of the introduction of section 40(a)(ia) is in the larger perspective of augmenting the very TDS provisions them selves. It is not merely related to the collection of TDS only. (vi) The intention of the Legislature is not to tax the payer for its failure to deduct the tax at source. The object of introduction of sec t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides in deciding the question. 63. The appeal will now be placed before regular bench by the Registry. 64. Mahavir Singh (Judicial Member).-I have gone through proposed order of the learned Accountant Member, brother Shri S. V. Mehrotra and could not persuade myself to the conclusion arrived at by my Brother. So, Iam writing my own order on the basis of arguments of both sides and material placed before us. As regards to arguments narrated by learned brother Shri Mehrotra, I have no difference because he has beautifully narrated every argument of both sides. 65. First, I have perused the question referred to the Special Bench by the hon'ble President, which is as under : "Whether section 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 anytime during the relevant previous year and was actually paid within the previous year ?" 66. Section 40(a)(ia) of the Act was introduced in the Income-tax Act, 1961 by the Finance (No. 2) Act, 2004 with effect from Apri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been (ia) any interest, commission or broke-rage, fees for professional services or fees for technical services payable to a resident, or amounts credited or paid to a contractor or sub-contractor, being resident, for carrying out any work (including supply of Finance (No. 2) Bill, 2004 : ( Finance (No. 2) Act, 2004 : 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 : 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 in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduc-tion in computing the income of the previous year in which such tax has been paid." Provided that where in respect of any such sum, tax has been deducted under Chapter XVII-B or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder : "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 (payable- 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 participle of pay. (b) According to Black's Law Dictionary (Seventh edition) at page 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). Un collected (outstanding debts). Unpaid, undischarged, unsatisfied, un settled, mature, owed, ripe, collectable, in arrears, redeemable." 70. To support this, learned counsel for the assessee relied on the decision of the hon'ble Bombay High Court in the case of Abdulgafar A. Nad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 con ceivable within the contemplation of the statute.' The same view has been taken by this court in Harshad S. Mehta v. State of Maharashtra [2001] 8 SCC 257 (vide paragraph 34) and Patangrao Kadam v. Prithviraj Sajirao Yadav Deshmukh, 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 also followed by the lay man in his ordinary life. To give an ill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... according to the learned Commissioner of Income-tax-Departmental representative, this is because there would be no amount claimed as expenses from outstanding or from payable amount. For this, the learned Commissioner of Income-tax-Departmental representative referred to that the provision of section 43B of the Act will be of no consequence. 75. 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 the 31st March of every year. The contention was 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 sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to believe' in place 'for reason to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same." 76. From the above, I am of the view that similar is the situation here that after receiving representations from professional bodies (copy of which is filed before us also) the Legislature in this provision replaced the word from "credited or paid" to "payable". I am of the view that where the language is clear, the 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". 77. The Revenue's argument does not have any merit that payment of earlier year's outstanding expenses cannot be allowed in the subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid" to "payable", the intent has been made clear that only the outstanding amount or the provision for expenses are liable for TDS are to be disallowed in the event there is default in not following the TDS provisions under Chapter XVII-B of the Act. No doubt the object of section 40(a)(ia) of the Act is to ensure that the TDS provision as provided in Chapter XVII-B is implemented without any default. As per section 40(a)(ia) of the Act any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services "payable" on which tax is not deducted or the tax is deducted 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to find any substantial difference between the expression 'receivable' on the one hand and 'due' on the other hand. 'Receivable' and 'payable' are the same things (see Hayward v. James 29 Ch D 822). The expression 'receivable' is used with reference to the recipient and the 'adjective', 'due' means capable of being justly demanded, payable or owing and unpaid. The expression 'due' is defined by 'Webster' to mean that which is owed ; that which custom, statute or law requires to be paid." 81. Section 40(a)(ia) of the Act, creates a legal fiction by virtue of which even the genuine and admissible expenses claimed by an assessee under the head "Income from business or profession" if the assessee does not deduct TDS on such expenses are disallowed. Section 40(a)(ia) 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) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joint family shall be deemed to continue for the limited purpose of assessing cases of joint families which have been hitherto assessed as such. It is not possible to extend that fiction to other cases. Similar view was taken by the hon'ble Kerala High Court in CIT v. Kar Valves Ltd. [1987] 168 ITR 416 (Ker) wherein it is held that legal fiction is limited to the purpose for which they are created and could not be extended beyond that legitimate frame, the hon'ble Kerala High Court was dealing with the case where the assessee sought to take advantage of section 41(2) of the Act by submitting that if liabilities are not liquidated and outstandings are not collected, then business could be deemed to continue. The hon'ble Allahabad High Court in the case of CED v. Krishna Kumari Devi [1988] 173 ITR 561 (All) held that in interpreting the legal 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, the hon'ble Supreme Court in CIT v. Mother India Refrigeration Industries P. Ltd. [1985] 155 ITR 711 (SC) held that legal fictions are created only for some definite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of section 40(a)(ia) as constitutionally valid in the case of Dey's Medical (U. P.) P. Ltd. v. Union of India [2009] 316 ITR 445 (All). It is not in doubt that the hon'ble Madras High Court and the hon'ble Allahabad High Court have upheld the constitutional validity of this provision but it is also true that specific issue regarding "paid", "credited" or "payable" has not been considered and even it was not argued. Hence, these judgments will in no way affect this issue. 84. In view of the above judicial pronouncements of the hon'ble Supreme Court and the hon'ble High Courts, materials placed before us, arguments made by both sides and in view of the provisions of section 40(a)(ia) of the Act, on comparison between the proposed and the enacted provision, the only conclusion which I can reach is 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 expense ..... X X X X Extracts X X X X X X X X Extracts X X X X
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