| COURT: | |
| CORAM: | |
| SECTION(S): | |
| GENRE: | |
| CATCH WORDS: | |
| COUNSEL: | |
| DATE: | (Date of pronouncement) |
| DATE: | July 31, 2013 (Date of publication) |
| AY: | |
| FILE: | |
| CITATION: | |
| Click here to download the judgement (Vector_Merilyn_40_a_ia_TDS.pdf) |
S. 40(a)(ia) disallowance applies only to amounts “payable” as of 31st March and not to amounts already “paid” during the year. Merilyn Shipping (SB) approved
The assessee engaged Mercator Lines Ltd to perform ship management work on behalf of the assessee for which it paid an amount of Rs. 1.17 crore. The assessee claimed that the amount paid by it to Mercator was a ‘reimbursement of salaries’ and that as Mercator had deducted TDS on the payments made by it to the employees, the assessee was not required to deduct TDS. The AO disagreed and disallowed the entire payment u/s 40(a)(ia). The Tribunal upheld the assessee’s claim and held that no TDS was required to be deducted on a reimbursement. It also relied on Merilyn Shipping and Transport Ltd 136 ITD 23 (SB) where it was held that s. 40(a)(ia) applied only to amounts that were “payable” as at the end of the year and not to amounts that had already been “paid” during the year. On appeal by the department, HELD dismissing the appeal:
The revenue cannot take any benefit from the observations made by the Special Bench of the Tribunal in Merilyn Shipping and Transport Ltd 136 ITD 23 (SB) to the effect that s. 40 (a) (ia) was introduced by the Finance Act, 2004 w.e.f. 1.4.2005 with a view to augment the revenue through the mechanism of tax deduction at source. S. 40(a)(ia) was brought on the statute to disallow the claim of even genuine and admissible expenses of the assessee under the head ‘Income from Business and Profession’ in case the assessee does not deduct TDS on such expenses. The default in deduction of TDS would result in disallowance of expenditure on which such TDS was deductible. On facts, tax was deducted as TDS from the salaries of the employees paid by Mercator Lines and the circumstances in which such salaries were paid by Mercator Lines for the assessee were sufficiently explained. It is to be noted that for disallowing expenses from business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year.
Even while reading but before getting to the bottom of it, one is left with an emotional lump in the throat; and provoked so much as to rush out into the public road, and keep run shouting – eureka , but for wrong reason !
Whither simplification ? Whither understanding , let alone an enactment, of even such basic and rudimentary principles of ‘taxation’ ? Whither the end of the tunnel – the mindless litigation, simply for its sake- at best, for satisfying own whims and fancies to litigate , with no end or conclusion thereto in sight.
Time for introspection > In all such matters, is it not high time that everyone really concerned and worried about the larger interests of the tax paying public, to ponder- why the ‘tax gatherer’,- the whole lot of them – should be rightly regarded to have acted “in the performance of his duties”, so as to rightly escape own personal responsibility /answer-ability in the realm of administration / implementation of ‘law’ in its profound sense ?
The tax administration should put an end to this mindless & hairsplitting exercise on the highly irrational penal consequences for the payer / deductor contained in Sec.40a(ia) and bring in clarity with minimal penal consequence in case of default which could be linked to TDS itself and not as disallowance of expenditure itself.
I have another view on the matter.
Section 40a(ia) provides that the deduction of the expenditure on which tax has not been deducted shall be allowed in the year in which the tax deductible is paid into government account.
If we take a case where the relevant amount on which tax was deductible has already been paid without deduction, then as per the decision of Supreme Court in Hindustan Coca Cola case there is no obligation to pay the tax amount that should have been deducted once again. This has been accepted by suitably amending the Act.
In this scenario there is no chance for “deduction” of tax once again from the amount that has already been paid.
The assessee therfore does not have the option of excercising the benefit that is given for payment of the tax amount subsequently. Thus section 40a(ia) fails in such a case where the main amount has already been paid without deduction of tax and it cannot be invoked. I am not sure if this argument is taken in any case.
Pls notify me of recent decisions
Supreme Court Gave a contrary view in case of Palam Gas Service v/s CIT. Though, there is a difference between “paid” and “payable”, s. 40(a)(ia) covers not only those cases where the amount is payable but also when it is paid. The contrary interpretation that s. 40(a)(ia) applies only to cases where amounts are “payable” will result in defaulters going scot free