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TMI Blog2009 (9) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... for the petioners. Mrs. Pushya Sitaraman, K.S. Subramanian and J. Naresh Kumar for the respondents. JUDGMENT F. M. IBRAHIM KALIFULLA, J. - The petitioners in W.P.No.10750 of 2009, seek for the issuance of a Writ of Mandamus to direct the first and the second respondent to forbear from relying upon the provisions of Section 40(a)(ia) of the Income Tax Act, 1961 (herein after referred to as 'the Act') and to disallow the revenue expenditure of the petitioners incurred on the purchases of the printed stationery and packing materials for non-compliance of Section 194C of the Act. 2. In W.P.No.10751 of 2009, the very same petitioners seek for the issuance of a Writ of Declaration to declare Section 40(a)(ia) of the Act as beyond the legislative competence of the Union of India under Serial No.82 of List-I of the Seventh Schedule of the Constitution of India besides being void as infringing Articles 14, 19(1)(g), 265 and 300A of the Constitution and consequently unenforceable in law. 3. In all these writ petitions, the common challenge is to Section 40(a)(ia) of the Act to declare as ultra vires of the Constitution on the grounds stated therein. All the writ peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the proviso also does not provide for any obligation on the part of the contractor to make the recovery at any subsequent stage than the one set out under Section 194C. It was also contended that payment recognised under the proviso is not covered by Section 199 and thereby no benefit would be made available to the contractor. 9. It is further contended that the proviso is onerous since it shifts the business expenditure of the previous year to the subsequent year which when computed along with the regular expenses of the subsequent year exaggerating the expenditure to yield huge losses and thereby neutralises the profits with mere carry forward facility and that the tax recovered in the year of assessment can hardly be secured back, even if business is carried on for so long with profit to absorb the losses of the subsequent year. 10. It was lastly contended that every assessee has got a right to terminate his business and if the business is terminated in the subsequent year or thereafter, the tax recovered by virtue of Section 40(a)(ia) in the previous year can never be off set. 11. Mr. V. Ramachandran, learned senior counsel appearing for the petitioners in W.P.Nos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for certain specified circumstances under which the rigour of Section 40A(3) can be excluded, similar such benefit should be read down into Section 40(a)(ia) of the Act. 16. The learned senior counsel in his submissions also contended that the provision of reading down to the effect that if an assessee deducts and pay the TDS before the assessment is made or at any rate before the filling of the return, the said Section will not get attracted as is provided under Section 40D of the Act. One other contention was made for reading down a provision to the effect that where an assessee deducts and or pays the tax in any subsequent year, the assessment for the earlier year in which Section 40(a)(ia) was invoked can be reopened to withdraw the additions made. In support of his submissions, the learned senior counsel relied upon the decisions reported in : (i) AIR 2002 (SC) 2004 ( Rakesh Wadhawan Vs. M/s. Jagadamba Industrial Corporation ), (ii) 194 ITR 539 ( Commissioner of Wealth Tax Vs. S.Jindal ) (iii) 156 ITR 323 ( Commissioner of Income Tax, Bangalore Vs. J.H.Gotla ) (iv) (1994) 208 ITR 649 ( C.W.S. ( India ) Ltd., Vs. Commissioner of Income Tax ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his submissions pointed out that in the case of the petitioner, in the said writ petition, on account of the delay in remittance of TDS for the assessment year 2007-08, the income of the petitioner in respect of a sum of Rs.2,19,00,000/- was increased on account of disallowance by application of Section 40(a)(ia) and consequently the income which was at the level of Rs.52,00,000/- came to be hiked to Rs.2,71,00,000/- and as against the normal liability of Rs.16,00,000/- by way of income tax, the liability was assessed at Rs.89,43,000/-. 22. The learned counsel also contended that even by applying the proviso to Section 40(a)(ia), the assessee was entitled to claim the entire sum of Rs.2,19,00,000/- in the subsequent assessment year, the assessee could claim only to an extent of the total income available and since the available income itself was Rs.42,00,000/- as per book profits provided under the Companies Act, it would take five other financial years to adjust the whole of the additional tax paid which would result in a loss mounting in each of the subsequent years to the disadvantage of the petitioner. 23. Mr. V. S. Jayakumar, learned counsel appearing for the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atha Sastry ) (iv) 35 ITR 190 (SC) ( Bashirnath Vs. CIT ) and (v) 52 ITR 637 ( Seinaram Doongarmal Agency Vs. K.E.Johnson Others ). 27. The further submission placed on violation of Article 14 of the Constitution by the learned counsel was that in respect of persons covered under Chapter XVII-B, while the employer paying salary to his employees and the contractual payments to outsiders are treated differently even though both the recipients are liable to income tax on their receipts and fall within Chapter XVII-B, in as much as, it picks out some persons and leaving out others and thereby a discriminatory treatment is meted out. 28. The learned counsel then contended that since the citizen is entitled to retain his income ascertained after deduction of tax payable under the Act, any provision which authorizes the taking by the Government of the retained income of the citizen would be confiscatory in nature and thereby violative of Article 19(1)(g) of the Constitution. The learned counsel relied upon (i) 27 STC 1 (SC) ( K.P.Abdullah Vs. State of Tamil Nadu ) (ii) 22 STC 552 (MAD) 29. Lastly, it was contended by the learned counsel that even if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the petitioners, Mrs. Pushya Sitaraman, Mr. K. Subramaniam and Mr. J. Naresh Kumar learned standing counsel for the Income Tax made their submissions. 36. Mrs. Pushya Sitaraman, learned standing counsel in her submissions contended that it is well settled that a statute is always presumed to be constitutionally valid and the burden is upon the person questioning the validity. In support of her submissions, she relied upon the following decisions. (i) 286 ITR 89 ( Arun Kumar Vs. Union of India ) (ii) 1982 (1) S.C.R. 947 ( R.K.Garg Vs. Union of India ) (iii) (2005) 274 ITR 194 ( Gujarat Ambuja Cements case ). 37. By relying upon the decision of the Hon'ble Supreme Court reported in (2002) 255 ITR 258 (Asst. Director of Inspection (Investigation) vs. A.B.Shanthi) the learned standing counsel contended that the legislation which is intended to achieve the collection of income tax and to make it easier and systematic is enacted, such legislation would certainly be within the competence of Parliament. She also relied upon the decision reported in 215 ITR 371 (K.M.Vijayan Vs. Union of India). 38. To meet the contention of the petitioners that Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s illusory, the learned counsel contended that though the words used in the proviso are deduct and pay, there is no prohibition for the assessee to make the payment without any deduction. In that context, the learned counsel relied upon Section 195A and stated that such a situation is envisaged therein. The learned standing counsel also relied upon 163 ITR 364 ( Addl. CIT Vs. Farasol Ltd. ) where in the context 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. 42. The learned standing counsel also pointed out that similar provision under Section 40(a)(i) is holding the field for more than 40 years which has stood the test of time which relates to payment to non-residents, while Section 40(a)(ia) relates to payment to residents. The learned standing counsel pointed out that in the case of non-resident when the provision can be scrupulously followed, there is no reason why in the case of a resident, the assessee should make a hue and cry. 43. The learned standing counsel contended that after the introduction of Section 40(a)(ia) the TDS provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acted. The learned standing counsel submitted a statement containing the TDS collections for the financial year 2008-09, which was Rs.1,30,470.8 crores as compared to other forms of tax collections which shows that out of the net collection, atleast 1/3 is by way of TDS. The learned standing counsel therefore contended that the object for introducing Section 40(a)(ia) has really worked viz., augmentation of the TDS provision and therefore the provision should be upheld. 47. As the challenge in all these writ petitions is to the vires of Section 40(a)(ia) of the Act, it will be appropriate to extract the provision as it stood as on the date of the challenge: "Section 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession- (a) in the case of an assessee- (i)..... (A)..... (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 (in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atute 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" 50. In the decision reported in (2003) 4 SCC 104 ( Public Services Tribunal Bar Assn. Vs. State of U.P. ) the Hon'ble Supreme Court has held as under in paragraph 26 : "26. The Constitutional Validity of an Act can be challenged only on two grounds viz. (i) lack of legislative competence; and (ii) violation of any of the fundamental rights guaranteed in Part III of the Constitution or of any other constitutional provisions. In State of A.P. v. McDowell Co. this Court has opined that except the above two grounds there is no third ground on the basis of which the law made by the competent legislature can be invalidated and that the ground of invalidation must necessarily fall within the four corners of the aforementioned two grounds." 51. In the decision reported in (1996) 3 SCC 709 ( State of A.P. Vs. Mcdowell Co ) at page 737 in paragraph 43 44 the Hon'ble Supreme Court has held as under: "43....In I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or general pattern of reasonableness can be laid down as applicable to all cases. The nature of the right alleged to have been infringed, the underlying purpose of the restrictions imposed, the extent and urgency of the evil sought to be remedied thereby, the disproportion of the imposition, the prevailing conditions at the time, should all enter into the judicial verdict." 54. In (2008) 4 SCC 720 ( Government of A.P. Vs. P.Laxmi Devi ) at page 744, the Hon'ble Supreme Court held as under in paragraph 56 57: "56. In our opinion adjudication must be done within the system of historically validated restraints and conscious minimisation of the judges personal preferences. The court must not invalidate a statute lightly, for, as observed above, invalidation of a statute made by the legislature elected by the people is a grave step.As observed by this Court in State of Bihar v. Kameshwar Singh(AIR p.274, para 52) "52. The legislature is the best judge of what is good for the community, by whose suffrage it comes into existence." x x x x x 57. In our opinion, the court should, therefore, ordinarily defer to the wisdom of the legislature unless it enacts a law about which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud where Frankfurter, J., said in his inimitable style: "In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: "When Government and Parliament found that the system had led to large scale abuse by many taxpayers, we cannot say that Parliament was not competent or unjustified in intervening and recognising only the actual payments. If the Parliament decides that an evil should be curbed without in any way affecting the rights of the parties, then the Court cannot condemn the same as violative of Article 14 of the Constitution. Even otherwise, Parliament had treated all alike and has not made any invidious distinction or discrimination and has not picked up anybody for a hostile and discriminatory treatment. When that is so, it is difficult to hold that Section 43B of the Act contravenes Article 14 of the Constitution." 57. With the above principles in mind we proceed to examine the various contentions of the learned counsel for the petitioners. The contentions are three fold. In the first place it is contended that the implication of Section 40(a)(ia) is arbitrary, unreasonable and in violation of Article 14 of the Constitution; it imposes unreasonable restrictions in violation of Article 19(1)(g) of the Constitution and it lacks legislative competence and is in violation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure was really incurred. 61. When we consider the said submission, we find that there is no demur in so far as the various procedure prescribed for making the deduction at source as prescribed under Chapter XVII-B. Therefore, it has now come to stay that the provisions contained under Chapter XVII-B is one form of recovery of tax by way of TDS at the point where the payment is made or credited to a third party. It is also true that in the event of failure to deduct or pay as prescribed in the said Chapter, Section 201 automatically comes into play, by which, the person who is obligated upon to make the deduction himself will be deemed to be an assessee in default in respect of such deduction which is liable to deduction at source. The proviso to the said Section however makes the said provision less rigourous by stating that the Assessing Officer if satisfied with such persons with good and sufficient reasons failed to deduct and pay, no penalty as could be levied under Section 221 need be charged. The said provision at best would only relate to the amount of tax that could be deducted by way of TDS as compared to Section 40(a)(ia) which would result in the disallowance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of assesses who are in receipt of the income can be ascertained, it will enable tax collection machinery to bring within its fold all such persons who are liable to come within the network of tax payers. 65. In fact in the submission of the Department, it was pointed out that normally TDS is to be deposited to the Government Accounts by the 7th of the following month and if any delay is caused beyond that, Section 201 would come into operation and thereby interest would become payable. It was also stated that Section 40(a)(ia) grants time till 31st March next following and that any tax deducted in April of that year can be paid into the Government accounts on 31st March of the subsequent year to avail the deduction while the deduction to be made in March of that year could be paid in the Government accounts before the end of September of the subsequent year and thereby sufficient time is available to correct any errors in tax deduction during the year. 66. One other contention of the learned counsel appearing for the petitioners was that going by the specific provision contained under Section 194C, where it stipulate that the deduction is to be made at the point of eithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequence of failure to deduct or pay, in which event, the payer by virtue of the default could be deemed to be an assessee in default of the TDS amount and nothing more. As far as the implication of Section 221 is concerned, by virtue of the deemed to be an assessee as provided under Section 201, the scope for imposition of penalty is provided. As is the usual stipulations, Section 221 creates an obligation on the Authority to give necessary opportunity etc., before imposing any penalty. Further under the proviso to Section 201, it is specifically provided that if the payer satisfies the Assessing Officer, the failure to make the deduction or payment was for good and sufficient reasons no penalty need be imposed. 68. All the above consequence are all related and restricted to the amount of TDS to be deducted under Chapter XVII-B. The purport and intent of the above said provision are only to ensure that in the event of any default in making the deduction, the required amount to be deducted is ultimately collected. As compared to those provisions, the legislative intent of the introduction of Section 40(a)(ia) is in the larger perspective of augmenting the very TDS provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction in the subsequent year by rectifying the default committed in the matter of TDS in the previous year, a defaulting assessee cannot be heard to say that irrespective of the deliberate default committed by it in implementing the provision relating to TDS, it should be held that a higher tax liability is mulcted on it. In other words, when there is a provision inbuilt in the impugned Section itself providing for rectification of any default and thereby restore the financial implications suffered, it will have to be held that by virtue of such a procedural safeguard provided in the provision, it would be well within the Legislative competence of the Parliament in having set out a provision as contained in Section 40(a)(ia) of the Act. 70. One other submission made is on the ground that the provision seeks to tax the income of the payee in the hands of the payer and therefore it imposes an arbitrary and unreasonable restriction. According to the learned counsel for the petitioners while under Chapter XVII-B, the TDS is only to the prescribed percentage of the payment to be made to the payee by the payer, the consequence of default in compliance of TDS would result in ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l not only come to the rescue for those who failed to pay after deduction but to also those who though not made any deduction were prepared to make the payment on their own and thereby rectify the defect who can validly take umbrage under the proviso and consequently claim the benefit of allowance in the subsequent year. The submission of the learned standing counsel is in consonance with what is stipulated in the proviso and therefore there is every justification in accepting the said submission. When the said submission can be validly accepted, it will have to be held that the effect or the rigour of restriction of disallowance made under Section 40(a)(ia) can be rectified by the assessee himself by resorting to the benefits contained in the proviso to that Section. Therefore, when Section 40(a)(ia) is read along with its proviso, there is no scope to hold that the said provision is so very harsh or creates any insurmountable situation for the assessee to claim the deduction of expenditure actually made. We therefore hold that Section 40(a)(ia) cannot be read in isolation but must be read along with its proviso and when it is read in that manner, there would be no scope to hold t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would be on a later date while a provision is made in the books of accounts on accural basis. The learned standing counsel relied upon a Division Bench decision of the Andhra Pradesh High Court reported in (1988) 173 ITR 708 ( S.Subba Rao Co. Vs. Union of India ). At page 714 the Division Bench rejected the contention by holding as under: ".....The taxes and duties collected but remaining unpaid to the Government on account of orders of stay, etc., were claimed as a deduction for income-tax purposes setting up an attractive plea that the accounts are made up on mercantile system and , consequently, the disputed taxes and duties constituted legitimate deductions as the liability to pay the same was incurred in the accounting years concerned, albeit the amounts were not actually paid. The Revenue was told that in a system of mercantile accounting, actual payment is unnecessary and the profits and gains under the head "Profits and gains of business or profession" would have, therefore, to be computed deducting these taxes and duties. Thus, on the one hand, the businessmen had free use of the funds collected from the public by way of taxes for the ostensible purpose of making t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision came into force w.e.f. 01.04.1984. The said provision came up for interpretation before the Delhi High Court and a Division Bench of the Delhi High Court in the decision reported in (1991) 187 ITR 703 ( Sanghi Motors Vs. Union of India ) has held that Section 43B as it stood then is clear and unambiguous and all that it provides is deduction on account of sales tax would be allowed when the money is actually paid and not when the liability is incurred. In fact following the Division Bench decision of the Andhra Pradesh High Court upholding the Constitutional validity of Section 43B, when notice came to be issued under Section 153 of the Act, the challenge came to be made to the said notice before the Division Bench of the Delhi High Court and the Division Bench in the decision reported in (1991) 189 ITR 81 ( Escorts Ltd., Vs. Union of India and others ) upheld the said notice as valid in law. 75. The said provision along with Sections 37(3A), 40A (8), (9) (10) came to be challenged before the Karnataka High Court also. The Division Bench of the Karnataka High Court in the decision reported in (1986) 160 ITR 50 ( Mysore Kirloskar Ltd. And Others Vs. Union of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eads as under: "The petitioner have challenged the validity of section 37(3A), 40A(8), (9), (10) and 43B of the Act either separately or cumulatively on three substantial grounds and they are--(i) the provisions do not relate to entry No.82 of List I of the Seventh Schedule to the Constitution and were beyond the legislative competence of the Union Parliament; (ii) that the provisions suffer from the vice of impermissible classification or were irrational, unconscionable, arbitrary and were violative of article 14 of the Constitution; and (iii) that the provisions unreasonably interfere with their freedom of trade and business guaranteed to them under article 19(1)(g) of the Constitution and were not saved by sub-article (6) of article 19 of the Constitution." 77. The above reasoning of the Division Bench decisions of the Andhra Pradesh High Court and Karnataka High Court are well founded. We have no hesitation to follow the same while rejecting the challenge made by the petitioners on the above grounds. 78. One other argument made on behalf of the petitioners is that it is a hostile scheme of taxation, in which on the ground of default of tax recovery from a con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith interest under the provisions contained under Chapter XVII itself. This contention also does not merit any consideration, in as much as, the contention fails to take note of the fact that Section 40(a)(ia) has got an inbuilt safety valve in the form of a proviso which would entitle the petitioner to seek for an adjustment of the entire amount by rectifying the default in implementing the TDS provision prescribed under Chapter XVII-B of the Act. In fact the petitioners failed to realise that while the various recovery procedure prescribed under Chapter XVII-B would ensure the recovery of the defaulted TDS under the said Chapter, the moment the recoveries are effected under the said Chapter, the same would automatically entitle the assessee to fall back upon the proviso to Section 40(a)(ia) and thereby the disallowance will get reversed in any of the subsequent year in which such recoveries are made. Therefore the said contention also does not merit acceptance. 81. The other contentions made on behalf of the petitioner that the proviso is illusory cannot be accepted, in as much as, it proceeds on the footing that unless the TDS deducted from the payment made to the contractor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rejected. Such a submission made on hypothetical basis cannot invalidate the provision. 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 are 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. Therefore such a remedial measure provided in the form of a proviso cannot be tested in the anvil of the grievance which is sought to be demonstrated by stating that in order to get the adjustments one has to survive in the business and that in the course of such survival, he should also make a profit. On the basis of such extreme imaginary consideration, which in our opinion are farfetched, the vires of a provision cannot be tested. We are therefore rejecting such a contention at the very outset. 84. One other argument of the learned counsel appearing for the petitioners is that Section 2(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led by the assessee. When once the assessee is able to resort to such a measure and rectify itself, there would be no question of the expenditure partaking the character of income as made in the said contention. Therefore the said contention also fails. 86. The argument of the petitioners that Section 40(a)(ia) does not serve any socio-economic cause. Even assuming to be true, it cannot be a ground for striking down the said provision. It is besides the fact that after the introduction of Section 40(a)(ia), the object with which the provision came to be introduced was nearly achieved, in as much as, the statistical data of collection and refund for the financial year 2008-09 upto 01.08.2009, discloses that at least 50% of such collection was by way of TDS. It is common knowledge that the revenue set up of the Country is substantially supported by the fiscal Statutes and even amongst them in the recent past due to wide spread network of the income tax coverage, the economy of the State is substantially supported by the tax revenue. Viewed in that respect, such economic support to the State will enable the State to concentrate on other welfare activities catering to the needs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer is satisfied that the total income of the recipient justifies deduction of income tax at any lower rate or nil deduction on an application made by the assessee, the Assessing Officer can issue appropriate certificate. Therefore, the said submission does not deserve any consideration. 90. The contention raised on behalf of the petitioners that Section 40(a)(ia) fails to cover all assessee in all situation and thereby it is highly inequitable and unreasonable is to be stated only to be rejected. Section 40(a)(ia) will apply wherever Chapter XVII-B gets attracted. Therefore, in respect of all those assessee who are governed by Chapter XVII-B would be equally governed by Section 40(a)(ia). We are unable to understand as to how there could be any inequality or unreasonableness in such a situation. On the other hand, in respect of assessees who are governed by Chapter XVII-B of the Act, Section 40(a)(ia) does not make any discrimination and consequently the said contention has no legs to stand. 91. The argument based on Section 10A/10B and those availing deduction under Section 80(ia) cannot be accepted for the reason that in the first place it is not the case of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovide for the required machinery, it shall be open to the respondent-Union of India or designated authority as the case may be to work out or quantify and determine the liability in the manner so prescribed or provided for in any liability thereof and recover the same in accordance with law........." In so far as implication of Section 40(a)(ia), it is not the case of the petitioners that they would be deprived of taking the stand that after complying with the requirement of TDS provisions under Chapter XVII-B and to put forth their stand, they are deprived of any such machinery and thereby prevent the Department from invoking Section 40(a)(ia). In other words, when the petitioners can vindicate their stand in the assessment proceedings as regards the non-applicability of Section 40(a)(ia) under Chapter XIV of the Act, we do not find any support to the petitioners in relying upon the above decision. In other words, in the said decision, this Court noted that though the provision impugned therein did not suffer from any Constitutional vires, yet, the absence of a machinery for an assessee to agitate the justifiability of a disputed right needed rectification. In the case on hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention that there cannot be a double taxation under the guise of disallowance, reliance was placed upon the decision of the Hon'ble Supreme Court reported in (2007) 293 ITR 226 (SC) ( Hindustan Coca Cola Beverage P. Ltd. Vs. Commissioner of Income Tax ). That was a case where the assessee deducted 2% on the warehousing charges treating them as one falling under Section 143C. The Assessing Authority however held the said payment as rent and passed orders for recovery of difference in tax and interest under Section 194-I and 201(1A). Subsequently the deductee paid tax on the entire sum received by it. In the above stated background the Appellate Tribunal held that there cannot be a recovery once again from the assessee considering the fact that the deductee had already paid the tax on the amount received from the assessee. In the special facts of that case, the High Court reversed the order of the Tribunal on a different ground. The Hon'ble Supreme Court went into the merits of the case and upheld the ultimate order of the Tribunal. In the first place the question of invocation of Section 40(a)(ia) did not arise in that case. Secondly in the special facts of that case, the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase price and at an earlier point is nevertheless the income liable to be taxed under the Income Tax Act. The plea of the assessee to the contrary was repelled. However, on the plea of discrimination based on Article 14 of the Constitution, the Hon'ble Supreme Court held that the denial of relief provided by Sections 28 to 43C to particular businesses or trades dealt with under Section 44AC had no nexus to the object sought to be achieved by the Legislature, in as much as, there was a discrimination to a particular business and trade covered by Section 44AC of the Act, in so far as it denied the relief provided under Sections 28 to 43C to those business or trade dealt with in the said Section. In other words, the Hon'ble Supreme Court held that Section 44AC read with Section 206C is wholly hit by the Constitution. The said decision of the Hon'ble Supreme Court was in the peculiar nature of the provisions viz., Sections 44AC and 206C which came to be enacted to enable the Revenue to collect the legitimate dues of the State from the persons carrying on particular trade in view of the peculiar difficulties expressed in the past and the measure was so enacted to check evasion of subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , arbitrary and against all cannons of reasonableness. It is relevant to note that the provision in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SRFAESI Act) after the issuance of notice under Section 13(4) of the SRFAESI Act. While an Appeal remedy is provided under Section 17 of the Act, the said provision as it stood prior to its striking down imposed a condition that the debtor in order to work out such appellate remedy should deposit 75% of the amount claimed in the notice issued under Section 13(4) of the SRFAESI Act. It is also relevant to note that barring the only remedy provided immediately after the issuance of notice under Section 13(4) of the SRFAESI Act by way of appeal under Section 17, the debtor was not provided with any other remedy at that stage. Therefore, the said decision of the Hon'ble Supreme Court in striking down that part of the provision contained under Section 17(2) of the SRFAESI Act cannot be taken to have laid down a general proposition of law applicable to all situations in order to apply the said principle to a case falling under Section 40(a)(ia) of the Act. 99. As far as the relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported in (2009) 5 SCC 342 to the case on hand. 100. Similar is the case, with the one reported in (2009) 5 SCC 608 ( V.Subramaniam Vs. Rajesh Raghuvandra Rao ). That was a case where the challenge was to the vires of Section (2-A) and (3-a) of Section 69 of the Partnership Act, 1932 introduced by the Maharashtra Amendment Act, 29 of 1984. While countenancing the challenge made to the sub-section (2-A) of Section 69, the Hon'ble Supreme Court held as under in paragraph 25 and 26: "25. The effect of the 1984 Amendment is that a partnership firm is allowed to come into existence and function without registration but it cannot go out of existence (with certain exceptions). This can result into a situation where in case of disputes amongst the partners the relationship of partnership cannot be put to an end by approaching a court of law. A dishonest partner, if in control of the business, or if simply stronger, can successfully deprive the other partner of his dues from the partnership. It could result in extreme hardship and injustice. Might would be right. An aggrieved partner is left without any remedy whatsoever. He can neither file a suit to compel the mischievous partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of buildings and lands the annual letting value of which does not exceed Rs.1,800/- was brought within the charging section without providing for the rate at which the tax is to be levied. Applying the well settled principle that the fiscal Statute should clearly and unambiguously convey the three condition of the tax law viz., (i) the subject of the tax, (ii) the person who is liable to pay the tax and (iii) the rate at which the tax is to be paid, the Hon'ble Supreme Court on finding that there was a lacunae in the provision which did not provide for the rate of tax to be applied to such an exempted provision rendered the proviso invalid and ultra vires of the Constitution. The ratio of the said decision was exclusively applicable to the nature of provision dealt with therein and we do not find any scope to apply the said ratio to the provision impugned in these writ petitions. We do not find any ambiguity in the language used in Section 40(a)(ia), where it seeks to disallow the expenditure for the stated reasons. The settled principles in the said decision viz., the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of 20% sought to be imposed would be wholly unreasonable which may result in extinguishment of that person from the business and therefore the provision was liable to be struck down. The said reasoning which weighed with the High Court and the Hon'ble Supreme Court cannot be applied to the impugned provision viz., Section 40(a)(ia) is as much as the two provisions are not comparable in any manner. We are not therefore in a position to apply the said decision to the facts of these cases. 104. Similar is the ratio laid down in the decisions reported in (1999) 2 SCC 253 (Tripura Goods Transport Association Vs. Commissioner of Taxes) and (2005) 6 SCC 424 (A.B.C.(India) Ltd. Vs. State of Assam) where more or less identical provisions under the Provisions of Tripura Sales Tax Act, 1976 and Assam General Sales Tax Act, 1993 respectively and the rules framed thereunder came up for challenge and for the very same reasons stated above, we do not find any scope to apply the said decisions to the facts of these cases. 105. As far as the reliance placed upon the decisions reported in (2008) 175 Taxman 77 (SC) ( Vijay Ship Breaking Corporation Vs. Commissioner of Income Tax, Ahmeda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity with the object of enactment. The legislation was enacted to protect the tenants from the hands of unscrupulous landlords and any interpretation to the contrary would give an upper hand to the landlords and provide a tool in their hands to be cracked like a whip on weaker tenants. Secondly, such an interpretation would bring the provision in conformity with the several other legislations of the times such as Section 13 of the M.P. Accommodation Control Act, 1961, Section 11 of A.P. Buildings (Lease and Eviction) Control Act, 1960, Section 11(4) of Bombay Rents, Hotels and Lodging House Rates Control Act, 1947, Section 15 of Delhi Rent Control Act, 1958 and so on. Thirdly, the provision suffers from ambiguity. In the absence of any in-built indication enabling determination of the quantum of arrears, if disputed, and the period for which interest at six per cent per annum is to be calculated, the provision would become unworkable and hence liable to be struck down under Article 14 of the Constitution. An obligation is case on the Court to interpret it in such a manner as to make it workable and save it from the vice of being rendered unconstitutional." (ii) In the decision rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... criminatory or incongruous result. Interpretation of statutes cannot be a mechanical exercise. The object of all the rules of interpretation is to give effect to the object of the enactment having regard to the language used. The intention of Parliament in enacting section 40(a)(v) can be gleaned from the memorandum explaining the provisions of the Finance Bill, 1968, which sets out the object behind this clause. The Full Bench of the Kerala High Court has set out the memorandum in the judgment under appeal. In this connection, we may refer to the well-recognised rule of interpretation of statutes that where a literal interpretation leads to an absurd or unintended result, the language of the statute can be modified to accord with the intention of Parliament and to avoid absurdity......." (v) In the decision reported in (2002) 254 ITR 337 the Gujarat High Court has held as under at page 352: ".....The doctrine of reading down, as one of the principles of interpretation of the statute, cannot be applied to add and read additional words into a statutory order as would transgress the limits of such order and the Scheme. The doctrine of reading down as a permissible means of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considers to be necessarily implied by words which are already in the statute and he has a limited power to add to, alter or ignore statutory words in order to prevent a provision from being unintelligible, absurd or totally unreasonable, unworkable or totally irreconcilable with the rest of the statute."" 111. A conjoined reading of the various principles laid down in the above decisions, boils down to the position viz., (a) That so far as it is reasonably possible to read down a provision in order to construe the legislation as being within its power. (b) By applying the doctrine of Reading Down, no additional words into a statutory order which would transgress the limits of such order or the scheme. It can only be resorted to to give the statute a reasonable meaning in order to make it constitutionally valid. (c) Under the guise of Reading Down a provision nothing can be supplemented. Where a literal interpretation leads to an absurd or intended result, the language of the statute can be modified to accord with the intention of Parliament and to avoid absurdity. (d) The Doctrine of Reading Down a statutory provision is to make it a valid provision and prevents its ..... X X X X Extracts X X X X X X X X Extracts X X X X
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