STCI COMMODITIES LTD, MUMBAI v. ACIT RG 10(1), MUMBAI

ITA 5353/MUM/2011 | 2008-2009
Pronouncement Date: 23-10-2013 | Result: Partly Allowed

Appeal Details

RSA Number 535319914 RSA 2011
Assessee PAN AAACU7440H
Bench Mumbai
Appeal Number ITA 5353/MUM/2011
Duration Of Justice 2 year(s) 3 month(s) 8 day(s)
Appellant STCI COMMODITIES LTD, MUMBAI
Respondent ACIT RG 10(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-10-2013
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 23-10-2013
Date Of Final Hearing 07-08-2013
Next Hearing Date 07-08-2013
Assessment Year 2008-2009
Appeal Filed On 15-07-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'E' BENCH MUMBAI BEFORE SHRI P.M. JAGTAP ACCOUNTANT MEMBER AND SHRI SANJAY GARG JUDICIAL MEMBER ITA NO.5353.MUM/2011 (ASSESSMENT YEAR:2008-09) STCI COMMODITIES LIMITED A/B1-802-8 TH FLOOR MARATHON INNOVA BUILDING-A WING MARATHON NEXTGEN COMPOUND OPP. GANPATRAO KADAM MARG LOWER PAREL (W) MUMBAI-400 013. VS. ACIT RANGE-10(1) ROOM NO.455 AAYAKAR BHAVAN MUMBAI-400 020. (APPELLANT) (RESPONDENT) P.A. NUMBER : AAACU 7440 H ASSESSEE BY : SHRI NITESH JOSHI REVENUE BY : SHRI JAVED AKHTAR DATE OF HEARING : 07/08/2013 DATE OF PRONOUNCEMENT : 23/10/2013 O R D E R PER SANJAY GARG JM: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER OF THE CIT(A) DATED 6.5.2011 RELEVANT TO ASSESSMENT YE AR 2008-09. THE GROUNDS OF APPEAL ARE REPRODUCED AS UNDER: IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT APPEAL- 21 MUMBAI ERRED IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF THE FOLLOWING: ITA NO.5353/M/11 A.Y.08-09 2 SR.NO. PARTICULARS AMOUNT(RS.) A. ADDITIONS ON ACCOUNT OF PAYMENTS UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT 1961. (A) SERVICE CHARGES 3 01 272/- (B) DEPUTATION CHARGES 83 08 647/- C)ADMINISTRATIVE EXPENSE 25 96 253/- 1 12 06 172/- 2. THE BRIEF FACTS OF THE CASE ARE THAT FROM THE AUDIT REPORT THE A.O. NOTICED THAT THE APPELLANT HAD MADE PAYMENTS OF RS. 1 12 06 172/- TO ITS HOLDING COMPANY FOR THE SERVICES PROVIDED TO IT BY THE HOLDING COMPANY AS DETAILED ABOVE IN THE GROUNDS OF APPEAL. NO TAX WA S DEDUCTED AT SOURCE BY THE ASSESSEE/APPELLANT ON THE ABOVE PAYMENTS TO ITS HOLDING COMPANY. THE AO FURTHER OBSERVED THAT AS PER SEC. 194C OF THE IN COME TAX ACT 1961 THE APPELLANT WAS RESPONSIBLE FOR DEDUCTION OF TAX AT S OURCE ON PAYING SUCH SUM TO ANY RESIDENT I.E. TO ITS HOLDING COMPANY. SIMILA R PROVISIONS WERE THERE U/S. 194J OF THE ACT IN RESPECT OF FEES PAID FOR PROFESS IONAL OR TECHNICAL SERVICES. THE A.O. HELD THAT THE PAYMENT MADE BY THE APPELLAN T COMPANY TO ITS ITA NO.5353/M/11 A.Y.08-09 3 HOLDING COMPANY WERE IN THE NATURE OF PAYMENTS COVE RED U/S. 194C/ 194J OF THE ACT. THE A.O. FURTHER OBSERVED THAT THAT SIMILA R ISSUE WAS THERE IN THE CASE OF THE ASSESSE FOR A.Y. 2007-08 WHEREIN ALSO T HE ENTIRE PAYMENT WAS DISALLOWED FOR WANT OF DEDUCTION OF TAX AT SOURCE. SINCE THE APPELLANT FAILED TO DEDUCT TAX AT SOURCE ON SUCH PAYMENTS MADE UNDE R DIFFERENT HEADS AS MENTIONED ABOVE TOTALING RS. 1 12 06 172/- HENCE THE SAID EXPENDITURE WAS DISALLOWED BY THE A.O. U/S. 40(A)(IA) OF THE ACT. I N APPEAL THE LD. CIT(A) CONFIRMED THE ADDITIONS SO MADE BY THE A.O. ON THE ABOVE NOTED ISSUES. THE ASSESSEE IS THUS IN APPEAL BEFORE US. 3. LD. AR OF THE ASSESSEE BEFORE US HAS SUBMITTE D THAT ASSESSEE IS A WHOLLY OWNED SUBSIDIARY. THE ABOVE EXPENSES WERE PA ID BY APPELLANT TO ITS HOLDING COMPANY AS PER TERMS AND CONDITION OF MOU E NTERED WITH THE HOLDING COMPANY. IN TERMS OF MOU THE HOLDING COMPA NY WAS TO MAKE AVAILABLE TO THE APPELLANT STAFF INFRASTRUCTURE A DMINISTRATIVE SUPPORT AND SUPPORT SERVICES. THE COST RELATING TO THESE ACTIVI TIES ACTUALLY INCURRED BY THE HOLDING COMPANY WAS REIMBURSED BY THE APPELLANT. IN RESPECT OF SERVICE FEE PAID TDS WAS DEDUCTED AT SOURCE AND DEPOSITED IN C ENTRAL GOVT. ACCOUNT. AS REGARDS SERVICES OF STAFF AND INFRASTRUCTURE TH E HOLDING COMPANY HAD TO PROVIDE STAFF SOFTWARE AND HARDWARE SERVICES AND I NFRASTRUCTURE SERVICES ETC. FOR SMOOTH FUNCTIONING OF THE DAY TO DAY OPERA TION OF ITS SUBSIDIARY COMPANY. FOR THIS PURPOSE THE HOLDING COMPANY DEPU TED SUCH STAFF AND EMPLOYEES ON THEIR PAY ROLL TO THE APPELLANT FOR BA CK OFFICE OPERATIONS. THE HOLDING COMPANY WAS TO CONTINUE TO PAY THEIR SALARY AND ALLOWANCE AS PER THE TERMS OF EMPLOYMENT. THE APPELLANT SUBMITTED TH AT THE REIMBURSEMENT WAS DONE ON ACTUAL BASIS TO ITS HOLDING COMPANY. TH EREFORE WHEN NO PAYMENT WAS MADE BY THE APPELLANT DIRECTLY TO ANY O UTSIDE SERVICE PROVIDER ITA NO.5353/M/11 A.Y.08-09 4 THE QUESTION FOR DEDUCTION OF ANY TAX DID NOT ARISE AND THAT THE AGREEMENT WAS FOR REIMBURSEMENT OF SUCH EXPENSES ACTUALLY INC URRED BY ITS HOLDING COMPANY WHICH WAS NOT IN THE NATURE OF WORK CONTRAC T AS ENVISAGED IN SEC. 194C OF THE ACT. HIS CONTENTION HAS BEEN THAT THE D ISALLOWANCE MADE BY A.O. U/S. 40(A)(IA) IS LIABLE TO BE DELETED. ON THE OTHER HAND THE LD. DR HAS RELIED UPON THE AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. R EPRESENTATIVES OF THE PARTIES AND HAVE ALSO GONE THROUGH THE RECORD. THE APPELLANT WAS SUBSIDIARY OF UTI SECURITIES LTD. THE APPELLANT ENTERED INTO A MOU DATED 4.4.2006 WITH THE HOLDING COMPANY COPY OF WHICH HAS BEEN PL ACED ON THE FILE BY THE APPELLANT. AS PER MOU THE APPELLANT NEITHER HAD AN Y EMPLOYEE ON ITS ROLL NOR ANY SEPARATE OFFICE SPACE/INFRASTRUCTURE. AS PE R CLAUSE (3) OF THE MOU TO ENSURE SMOOTH FUNCTIONING OF THE DAY TO DAY OPER ATIONS OF THE COMPANY THE APPELLANT REQUIRED SERVICES OF VARIED SKILLED P ERSONNEL BACK OFFICE SUPPORT SOFTWARE HARDWARE AND OTHER INFRASTRUCTUR E FOR WHICH THE APPELLANT HAD TO PAY THE SERVICE CHARGES AS PER THE AGREEMENT /MOU. 4.1 NOW THE ISSUE FOR CONSIDERATION BEFORE US IS W HETHER SUCH SERVICES PROVIDED BY THE HOLDING COMPANY IN THE LIGHT OF THE TERMS AND CONDITIONS OF THE MOU CONSTITUTED WORK CONTRACT U/S 194C AND PR OVIDING OF PROFESSIONAL AND TECHNICAL SERVICES TO THE APPELLAN T FALLING U/S194J OF THE ACT OR OTHERWISE. THE REAL INTENTIONS OF THE PARTIES TO THE AGREEMENT CAN BE GATHERED FROM GOING THROUGH THE TERMS AND CONDITION S OF THE AGREEMENT. WE HAVE GONE THROUGH THE VARIOUS CLAUSES OF THE SAMPLE AGREEMENT PLACED IN FILE BEFORE US AND A HARMONIOUS READING OF THE WHOLE AGR EEMENT REVEALS THAT THE SAID AGREEMENT IS ESSENTIALLY AN AGREEMENT OF CONTR ACT FOR WORK AND SERVICES. ITA NO.5353/M/11 A.Y.08-09 5 THE RELEVANT CLAUSES OF THE SAMPLE AGREEMENT PLACED IN FILE BEFORE US FOR THE SAKE OF CONVENIENCE ARE REPRODUCED AS UNDER: NOW THEREFORE THIS MOU WITNESSETH AS FOLLOWS (1) DEFINITIONS IN THIS MOU: A) FACILITIES MEANS THE FIXED ASSETS INCLUDING BU T NOT LIMITED TO LAND AND BUILDINGS (OFFICE PREMISES) CAPITALIZE D FURNITURE AND FITTINGS COMPUTER HARDWARE AND SOFTWARE SYSTE MS NETWORK CONNECTIVITY AND SUCH OTHER ASSETS HELD BY UTISEL A ND TO BE PROVIDED IN ACCORDANCE WITH THE TERMS OF THIS MOU F OR USE BY UTISEC COM; B) SERVICE FEE SHALL HAVE THE MEANING ASCRIBED TO IT IN SECTION 3.2 OF THIS MOU; C) SUPPORT SERVICES MEANS ALL SERVICES INCLUDING BUT NOT LIMITED TO THE PROVISION OF ACCOUNTING SERVICES IN VESTMENT AND OTHER RESEARCH LEGAL AND SECRETARIAL DEALING ROOM AND DEALER SERVICES ELECTRONIC SUPPORT INFORMATION BACK OFF ICE SUPPORT SUCH AS BOOK AND RECORD KEEPING GENERATION OF REPO RTS AND ADMINISTRATIVE SUPPORT AND SUCH OTHER SERVICES AS M AY BE MUTUALLY AGREED TO BY AND BETWEEN THE PARTIES. (2) COMMENCEMENT OF MOU THE TERMS OF THIS MOU SHALL BE DEEMED TO HAVE COME INTO EFFECT FROM JUNE 1 2005. (3)SERVICES TO BE PROVIDED BY UTISEL TO UTISEC COM 3.1 SERVICES ITA NO.5353/M/11 A.Y.08-09 6 (A) UTISEL WILL DEPUTE/SECOND SUCH OF ITS OFFICERS AND EMPLOYEES TO UTISEC COM AS MAY BE REQUIRED IN RELAT ION TO THE CONDUCT OF THE FOLLOWING FUNCTIONS/ACTIVITIES O F UTISEC COM:- (I) BUSINESS DEVELOPMENT; (II) DEALING; (III) BACK OFFICE ETC. THESE EMPLOYEES WILL REPORT SOLELY TO A DIRECT OR OF UTISEC COM AS SPECIFIED BY UTISEC COM FROM TIME TO TIME. T HE NUMBER OF EMPLOYEES TO BE INITIALLY DEPUTED BY UTIS EL TO UTISEC COM SHALL BE 3. THE NUMBER OF EMPLOYEES DEP UTED /SECONDED MAY BE REDUCED OR INCREASED BY MUTUAL AGR EEMENT BETWEEN UTISEL AND UTISEC COM. UTISEL SHALL HAVE TH E RIGHT TO RECALL AND SUBSTITUTE SUCH EMPLOYEES WITH OTHER EMPLOYEES OF SIMILAR CAPABILITIES AND QUALIFICATION S AT ITS SOLE AND UNFETTERED DISCRETION. B) UTISEL WILL CONTINUE TO PAY THEIR SALARIES AND A LLOWANCES AS PER THEIR EXISTING TERMS OF EMPLOYMENT AND THE P ERIOD OF THEIR SERVICE WITH UTISEC COM SHALL BE CONSIDERED A S SERVICE WITH UITSEL FOR ALL RELEVANT PURPOSES INCLUDING BUT NOT LIMITED TO THE DETERMINING SENIORITY AND COMPUTING BENEFITS DUE TO SUCH OFFICERS AND EMPLOYEES C)UTISEL WILL PROVIDE THE SUPPORT SERVICES TO UTISE C COM FOR THE DAY TO DAY OPERATIONS OF THE COMPANY AS MEN TIONED IN CLAUSE 1(C) (AS MAY BE AMENDED FROM TIME TO TIME). THE SERVICE FEE AS SET OUT IN SECTION. 3.2 BELOW HAS BEEN AGREE D TO BY UTISEL ON THE BASIS OF THE SCOPE OF SUPPORT SERVICE S AS CONTEMPLATED BY THIS MOU. ANY MODIFICATION IN SUCH SCOPE MAY BE SUBJECT TO AN APPROPRIATE MODIFICATION IN TH E SERVICE FEE TO BE MUTUALLY AGREED TO BETWEEN UTISEL AND UTI SEC COM. 3.2 SERVICE FEE IN CONSIDERATION FOR THE PROVISION OF SUPPORT SERVI CES BY UTISEL AS AFORESAID UTISEC COM SHALL PAY TO UTISEL AS FOLLOWS: ITA NO.5353/M/11 A.Y.08-09 7 A) TOWARDS ANY DIRECT IDENTIFIABLE COST INCLUDING B UT NOT LIMITED TO EXCLUSIVE TELEPHONE CONNECTIONS VSAT CHARGES I NTERNET CONNECTIONS DEPUTATION; THE ACTUAL AMOUNT PAID BY UTISEL TO THE THIRD PARTY; I.E. B)TOWARDS SERVICES PROVIDED BY THE STAFF OF UTISEL RENDERING SUPPORT SERVICESTO UTISEC COM (INCLUDING BUT NOT LI MITED TO ACCOUNTS FINANCE HR &ADMINISTRATION LEGAL & SECR ETARIAL COMPLIANCE) RS.10 000/- PER MONTH(RUPEES TEN THOUS AND ONLY). C)THE SERVICE FEE WOULD BE APPLICABLE FROM JULY 1 2005 TO JUNE 30 2006. IT MAY BE REVIEWED PERIODICALLY AND SHALL BE SUBJECT TO SUCH MODIFICATION AS MAY BE MUTUALLY SETTLED. D)HOWEVER OTHER RELATED EXPENDITURE E.G. PRINTING & STATIONERY CONVEYANCE LEGAL EXPENSES STAMP DUTY ADVERTISEMENT ETC. SHALL BE BORNE BY UTISEC COM ON ACTUAL BASIS. 5. THE LD. AR HAS SUBMITTED THAT IN THE MOU THE N AME OF THE SECOND PARTY I.E. UTISEC COM REFERS TO THE ASSESSEE AND TH E NAME OF THE FIRST PARTY I.E. UTISEL REFERS TO THE HOLDING COMPANY OF THE AS SESSEE. NOW COMING TO THE CLAUSES OF THE AGREEMENT A PERUSAL OF THE CLAU SE (1) A REVEALS THAT THE WORD FACILITIES INCLUDES ALL TYPE OF INFRASTRUCTURA L FACILITIES INCLUDING COMPUTER HARDWARE AND SOFTWARE SYSTEMS AND OTHER VA RIOUS ASSETS AND FACILITIES. THE DEFINITION GIVEN IS WIDE AND INCLUS IVE DEFINITION WHICH INCLUDES ALSO ANY OTHER INFRASTRUCTURAL FACILITY WH ICH HAS NOT BEEN SPECIFICALLY MENTIONED THEREIN. SIMILARLY THE DEFIN ITION OF SUPPORT SERVICES AS MENTIONED UNDER CLAUSE 1(C) IS ALSO WIDE ENOUGH TO INCLUDE EVERY TYPE OF ITA NO.5353/M/11 A.Y.08-09 8 SERVICES INCLUDING SKILLED AND TECHNICAL SERVICES. THESE SERVICES AS PER THE MOU HAVE BEEN AGREED TO BE PROVIDED BY THE HOLDING COMPANY TO THE ASSESSEE ON PAYMENT OF SERVICE FEE AS MENTIONED UND ER CLAUSE3.2 OF THE MOU. AGAIN THE CLAUSE 3.2 OF THE AGREEMENT DEFINING SERVICE FEES IS WIDE ENOUGH TO COVER THE PAYMENT OF CONSIDERATION NOT ON LY FOR DAY TO DAY BUSINESS OF THE ASSESSEE COMPANY BUT ALSO FOR EVERY TYPE OF TECHNICAL AND SKILLED SERVICES SUCH AS RELATING TO ACCOUNTS FINA NCE LEGAL AND ADMINISTRATIVE SERVICES ETC. THERE IS NO MENTION IN THE MOU THAT THE ASSESSEE WILL REIMBURSE THE ACTUAL SALARY OR ACTUAL COST OF THE SERVICES TO THE FIRST PARTY. THE AGREEMENT IS A COMPOSITE AGREEMENT FOR PROVIDING OF ALL TYPE OF SERVICES FOR WHICH THE CONSIDERATION HAS BEEN SE TTLED EXCEPT THE EXPENDITURE RELATING TO PRINTING & STATIONERY CONV EYANCE LEGAL EXPENSES STAMP DUTY ADVERTISEMENT ETC. WHICH HAS BEEN AGREE D TO BE BORNE BY THE ASSESSEE ON ACTUAL BASIS. HENCE THE CONTENTION OF T HE LD. AR THAT THE EXPENDITURE FOR WHICH THE DISALLOWANCE HAS BEEN MAD E WAS ACTUAL REIMBURSEMENT OF THE EXPENDITURE IS NOT TENABLE. SU CH AN INFERENCE IS NOT MADE OUT FROM THE CLAUSES OF THE MOU PLACED BEFORE US. THE HOLDING COMPANY THUS FALLS WITHIN THE DEFINITION OF SERVICE PROVIDER I.E. CONTRACTOR AS DEFINED UNDER SECTION 194 C OF THE ACT. THOUGH TECH NICAL SERVICES HAVE ALSO BEEN AGREED TO BE PROVIDED UNDER THE MOU BUT SINCE IT IS A COMPOSITE AGREEMENT PROVIDING ALL TYPE OF SERVICES BY THE SER VICE PROVIDER HENCE IN OUR VIEW THE PROVISIONS OF SECTION 194 C ARE ATTRAC TED IN THIS CASE. 6. THE NEXT CONTENTION OF THE LD. AUTHORIZED REPRES ENTATIVE HAS BEEN THAT THE HOLDING COMPANY DID NOT EARN ANY INCOME HENCE PROFIT ELEMENT WAS NOT INVOLVED. SO THE DISALLOWANCE U/S.40(A)(IA) WAS NOT LIABLE TO BE MADE IN THE CASE OF THE ASSESSEEE. WE DO NOT AGREE WITH THIS CO NTENTION OF THE LD. ITA NO.5353/M/11 A.Y.08-09 9 COUNSEL FOR THE ASSESSEE . AS OBSERVED ABOVE THE AGREEMENT IN QUESTION IS A COMPOSITE AGREEMENT. A PERUSAL OF THE CLAUSES OF THE AGREEMENT REVEALS THAT THERE IS NO SUCH CLAUSE IN THE AGREEMENT FROM WHICH IT CAN BE GATHERED THAT THE SERVICES PROVIDER I.E. THE FIRST PARTY IN THE AGREEMENT WILL PROVIDE SERVICES ON ACTUAL COST BASIS OR THAT NO PROFIT ELE MENT IS INVOLVED AS HAS BEEN ALLEGED BY THE LD. AUTHORIZED REPRESENTATIVE. RATHE R IT MAY BE OBSERVED THAT THERE IS A SPECIFIC CLAUSE IN THE AGREEMENT REGARDI NG PAYMENT ON SERVICE CHARGES. EVEN THE ASSESSEE HAS CLAIMED THAT IT HAS DEDUCTED THE TAX IN RELATION TO SERVICE FEE. IT MAY BE OBSERVED THAT TH E SUM PAYABLE OR PAID TO A CONTRACTOR FOR THE WORK AS PROVIDED UNDER SECTION 194C REFERS TO THE ENTIRE PAYMENT AND NOT THE PROFIT ELEMENT ONLY. SUCH PAYME NT U/S 194C REFERS TO THE ENTIRE PAYMENT I.E. THE COST TO THE CONTRACTOR FOR THE WORK CARRIED OUT PLUS PROFIT ELEMENT IF ANY. 6.1 THE RELATED EXPENDITURE THE COST OF WHICH WAS TO BE BORNE BY THE ASSESSEE ON ACTUAL BASIS HAVE BEEN SPECIFICALLY ME NTIONED UNDER CLAUSE 3(D) OF THE AGREEMENT E.G. PRINTING STATIONERY CONVEYA NCE STAMP DUTY ETC. THERE REMAINS NO DOUBT IN OUR MIND AFTER GOING THR OUGH THE VARIOUS CLAUSES OF THE AGREEMENT THAT THERE WAS AN AGREED CONSIDER ATION FOR THE SERVICES AND INFRASTRUCTURAL FACILITIES PROVIDED BY THE FIRST PA RTY TO THE SECOND PARTY AND FURTHER NOTHING HAS BEEN MENTIONED THEREIN THAT THO SE SERVICES WOULD BE PROVIDED ON ACTUAL COST BASIS. HENCE THIS CONTENTI ON OF THE LD. AUTHORIZED REPRESENTATIVE IS HEREBY REJECTED. 7. THE LD. AUTHORIZED REPRESENTATIVE HAS FURTHER SU BMITTED THAT AS PER THE PROVISIONS OF SECTION 194C OF THE INCOME TAX AC T THE TDS HAS TO BE DEDUCTED FOR PAYING ANY SUM FOR CARRYING OUT ANY WO RK. THE LD. AUTHORIZED ITA NO.5353/M/11 A.Y.08-09 10 REPRESENTATIVE WHILE STRESSING ON THE WORD WORK H AS CONTENDED THAT IT REFERS TO THE WORK WHICH PRODUCES SOMETHING TANGIBL E. WE AGAIN ARE UNABLE TO AGREE WITH THE CONTENTIONS OF THE LD. AUTHORIZED REPRESENTATIVE. THE RELEVANT PART OF SECTION 194C OF THE ACT FOR THE SA KE OF CONVENIENCE IS REPRODUCED BELOW: 194C. PAYMENTS TO CONTRACTORS.- (1) ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT (HEREAFTER IN THIS S ECTION REFERRED TO AS THE CONTRACTOR) FOR CARRYING OUT ANY WORK (INCLU DING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND A SPECIFIED PERSON SHALL AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE CONTRACTOR 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 . 7.1 A PERUSAL OF THE ABOVE REPRODUCED EXTRACT OF SE CTION 194C REVEALS THAT THERE CAN BE NO INFERENCE OR SUGGESTIONS EITHER DIR ECT OR INDIRECT FROM THE WORDING THAT THE WORK IS RELATED TO PRODUCTION OF S OMETHING TANGIBLE. THERE IS NO MERIT IN THIS CONTENTION OF THE LD. AUTHORIZE D REPRESENTATIVE OF THE ASSESSEE. 8. THE NEXT CONTENTION OF THE LD. AR HAS BEEN THAT THE DISALLOWANCE FOR NON-DEDUCTION OF TDS SHOULD HAVE BEEN MADE ON THE S UM WHICH WAS PAYABLE AS ON 31 ST MARCH OF THE RELEVANT FINANCIAL YEAR. NO DISALLOWA NCE COULD HAVE BEEN MADE ON THE SUMS WHICH WERE ALREADY PAID BY THE ASSESSEE AS ON 31 ST MARCH OF THE SAID FINANCIAL YEAR. IN THIS REGARD H E HAS RELIED UPON THE SPECIAL BENCH VERDICT OF ITAT IN THE CASE OF MERLYN SHIPPING AND TRANSPORTS IN ITA NO.477/VIZ./2008 DATED 29.03.2013 WHEREIN IT HAS BEEN SO HELD BY THE SPECIAL BENCH OF THE ITAT. ITA NO.5353/M/11 A.Y.08-09 11 HE HAS FURTHER RELIED UPON AN AUTHORITY OF THE HON' BLE ALLAHABAD HIGH COURT STYLED AS CIT VS. M/S. VECTOR SHIPPING SERVICES (P) LTD. MUZAFFARNAGAR (ITA NO.122 OF 2013 DECIDED ON 9.7.13) 9. WE HAVE GONE THROUGH THE JUDGMENT OF HON'BLE AL LAHABAD HIGH COURT IN THE CASE OF M/S. VECTOR SHIPPING SERVICES )P) LTD. MUZAFFARNAGAR (SUPRA). THE QUESTION OF LAW FRAMED BY THE HON'BLE HIGH COURT FOR ADJUDICATION IN THE SAID APPEAL WAS AS UNDER :- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE HONBLE ITAT HAS RIGHTLY CONFIRMED THE ORDER OF THE CIT(A) AND THEREBY DELETING THE DISALLOWANCE OF RS.1 17 68 621 /- MADE BY AO UNDER SECTION 40(A)(IA) OF THE I.T. ACT 1961 BY IG NORING THE FACT THAT THE COMPANY M/S. MERCATOR LINES LTD. HAD PERFORMED SHIP MANAGEMENT WORK ON BEHALF OF ASSESSEE. M/S. VECTOR SHIPPING SERVICES (P) LTD. AND THERE WAS A MEMORANDUM OF UND ERSTANDING SIGNED BETWEEN THE COMPANIES AND AS PER THE DEFINIT ION OF MEMORANDUM OF UNDERSTANDING IT INCLUDED CONTRACT A LSO. 9.1 WHILE ANSWERING THE SAID QUESTION THE HON'BLE A LLAHABAD HIGH COURT IN THE CONCLUDING PARAS OF THE JUDGMENT HAS OBSERV ED AS UNDER :- WE DO NOT FIND THAT THE REVENUE CAN TAKE ANY BENEF IT FROM THE OBSERVATIONS MADE BY THE SPECIAL BENCH OF THE TRIBU NAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORT LTD. (136 ITD 23) (SB) QUOTED AS ABOVE TO THE EFFECT SECTION 40(A) (IA) WAS INTRODUC ED IN THE ACT BY THE FINANCE ACT 2004 WITH EFFECT FROM 1.4.2005 WIT H A VIEW TO AUGMENT THE REVENUE THROUGH THE MECHANISM OF TAX DE DUCTION AT SOURCE. THIS PROVISION WAS BROUGHT ON STATUTE TO DI SALLOW THE CLAIM OF EVEN GENUINE AND ADMISSIBLE EXPENSES OF THE ASSE SSEE UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION IN CASE THE ASSESSEE DOES NOT DEDUCT TDS ON SUCH EXPENSES. THE DEFAULT I N DEDUCTION OF TDS WOULD RESULT IN DISALLOWANCE OF EXPENDITURE ON WHICH SUCH TDS WAS DEDUCTIBLE. IN THE PRESENT CASE TAX WAS DEDUCTE D AS TDS FROM THE SALARIES OF THE EMPLOYEES PAID BY M/S MERCATOR LINES LTD. AND THE CIRCUMSTANCES IN WHICH SUCH SALARIES WERE PAID BY M/S MERCATOR ITA NO.5353/M/11 A.Y.08-09 12 LINES LTD. FOR M/S VECTOR SHIPPING SERVICES THE A SSESSEE WERE SUFFICIENTLY EXPLAINED. IT IS TO BE NOTED THAT FOR DISALLOWING EXPENSES FRO M BUSINESS AND PROFESSION ON THE GROUND THAT TDS HAS NOT BEEN DEDU CTED THE AMOUNT SHOULD BE PAYABLE AND NOT WHICH HAS BEEN PAI D BY THE END OF THE YEAR. WE DO NOT FIND THAT THE TRIBUNAL HAS COMMITTED ANY ERROR IN RECORDING THE FINDING ON THE FACTS WHICH WERE NOT CONTROVERTED BY THE DEPARTMENT AND THUS THE QUESTION OF LAW AS FRAM ED DOES NOT ARISE FOR CONSIDERATION IN THE APPEAL. 10. A PERUSAL OF THE ABOVE OBSERVATIONS MADE BY THE HON'BLE ALLAHABAD HIGH COURT REVEALS THAT NEITHER THE HONBLE HIGH CO URT IN THE SAID JUDGMENT FRAMED THE QUESTION OF LAW AS TO WHETHER THE TDS IS TO BE DEDUCTED ONLY ON THE SUMS WHICH REMAIN PAYABLE ON THE CLOSING OF T HE FINANCIAL YEAR OR THE SAME IS DEDUCTIBLE ON THE PAYMENT WHICH WERE PAYABL E OR PAID DURING THE ENTIRE FINANCIAL YEAR NOR ANY DETAILED DISCUSSION WAS MADE ON THE SAID ISSUE. THE HONBLE HIGH COURT HAS MADE JUST A PASSING REFE RENCE THAT THE DISALLOWANCE CAN BE MADE ON THE AMOUNTS WHICH SHOUL D BE PAYABLE AND NOT WHICH HAD BEEN PAID BY THE END OF THE YEAR. THE HON 'BLE HIGH COURT HAS FURTHER HELD THAT QUESTION OF LAW AS FRAMED IN THE SAID JUDGEMENT (AS REPRODUCED ABOVE) DOES NOT ARISE FOR CONSIDERATION IN THE APPEAL. HENCE THE HON'BLE ALLAHABAD HIGH COURT IN THE SAID CASE DID N OT ANSWER ANY QUESTION OF LAW RATHER THE FINDINGS OF THE TRIBUNAL WERE UPH ELD BEING FACTUAL AND NOT LEGAL. 11. ON THE OTHER HAND THIS ISSUE HAS BEEN DISCUSSED IN DETAIL AND SPECIFICALLY ADJUDICATED BY THE HON'BLE HIGH COURT OF CALCUTTA AS WELL AS THE HON'BLE HIGH COURT OF GUJARAT. THIS QUESTION C AME FOR CONSIDERATION BEFORE THE HONBLE CALCUTTA HIGH COURT IN COMMISSIO NER OF INCOME TAX ITA NO.5353/M/11 A.Y.08-09 13 KOLKATA-XI VERSUS CRESCENT EXPORT SYNDICATE (APP EAL NO. -ITAT 20 OF 2013 GA 190 OF 2013) WHERIN THE HONBLE HIGH COURT HAS HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME TAX A CT 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 WH ICH BECOME PAYABLE AT ANY TIME DURING THE RELEVANT PREVIOUS YEAR AND WAS ACTU ALLY PAID WITHIN THE PREVIOUS YEAR. THE HONBLE HIGH COURT FURTHER OBSER VED THAT THE SPECIAL BENCH VERDICT OF THE ITAT IN MERILYN SHIPPING IS NOT GOOD LAW. THE HONBLE CALCUTTA HIGH COURT AFTER MAKING DETAILED D ISCUSSION ON THE ISSUE AND RELYING UPON VARIOUS CASE LAWS RELATING TO THE INTERPRETATION OF THE STATUTE HAS FINALLY OBSERVED THAT THE KEY WORDS USED IN SECTION 40(A)(IA) ARE: ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII B. IF THE QUESTION IS: WHICH EXPENSES ARE SOUGHT TO BE DISALLOWED? THE ANSWER IS BOUND TO BE: THOSE EXPENSES ON WHIC H TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII B. ONCE THIS IS REALIZE D NOTHING TURNS ON THE BASIS OF THE FACT THAT THE LEGISLATURE USED THE WOR D PAYABLE AND NOT PAID OR CREDITED. UNLESS ANY AMOUNT IS PAYABLE IT CAN NEI THER BE PAID NOR CREDITED. IF AN AMOUNT HAS NEITHER BEEN PAID NOR CREDITED TH ERE CAN BE NO OCCASION FOR CLAIMING ANY DEDUCTION. THE HONBLE HIGH COURT FURT HER OBSERVED THAT THERE CAN BE NO DENIAL THAT THE PROVISION IN QUESTION IS HARSH. BUT THAT IS NO GROUND TO READ THE SAME IN A MANNER WHICH WAS NOT INTENDED BY THE LEGISLATURE. THE LAW WAS DELIBERATELY MADE HARSH TO SECURE COMPLIANC E OF THE PROVISIONS REQUIRING DEDUCTIONS OF TAX AT SOURCE. IT WAS NOT T HE CASE OF AN INADVERTENT ERROR. THE HONBLE HIGH COURT FURTHER OBSERVED TH AT THE MAJORITY VIEW EXPRESSED IN THE CASE OF MERILYN SHIPPING & TRANSPO RTS (SUPRA) WAS NOT ACCEPTABLE. ITA NO.5353/M/11 A.Y.08-09 14 12. THIS ISSUE AGAIN CAME FOR CONSIDERATION BEFORE THE HONBLE HIGH COURT OF GUJARAT IN COMMISSIONER OF INCOME TAX VE RSUS SIKANDARKHAN N TUNVAR (TAX APPEAL NO. 905 OF 2012 ) WHERE IN THE HONBLE GUJRAT HIGH COURT HAS ALSO HELD THAT SPECIAL BENCH VERDICT OF T HE ITAT IN MERILYN SHIPPING (SUPRA) IS NOT GOOD LAW OBSERVING THAT IN THAT CA SE THE MAJORITY HELD THAT AS THE FINANCE BILL PROPOSED THE WORDS A MOUNT CREDITED OR PAID AND AS THE FINANCE ACT USED THE WORDS AMOUNTS PAYA BLE SEC. 40(A)(IA) COULD ONLY APPLY TO AMOUNTS THAT ARE OUTSTANDING AS OF 31ST MARCH AND NOT TO AMOUNTS ALREADY PAID DURING THE YEAR. IT WAS OBSER VED THAT THIS VIEW WAS NOT CORRECT FOR TWO REASONS. FIRSTLY A STRICT READING OF S. 40(A)(IA) SHOWS THAT ALL THAT IT REQUIRES IS THAT THERE SHOULD BE AN AMOUNT PAYABLE OF THE NATURE DESCRIBED WHICH IS SUCH ON WHICH TAX IS DEDUCTIBLE AT SOURCE BUT SUCH TAX HAS NOT BEEN DEDUCTED OR IF DEDUCTED NOT PAID BEFOR E THE DUE DATE. THE PROVISION NOWHERE REQUIRES THAT THE AMOUNT WHICH IS PAYABLE MUST REMAIN SO PAYABLE THROUGHOUT DURING THE YEAR. THE HONBLE GUJA RAT HIGH COURT FURTHER OBSERVED THAT IF THE ASSESSEES INTERPRETATION IS ACCEPTED IT WOULD LEAD TO A SITUATION WHERE THE ASSESSEE WHO THOUGH WAS REQUIRE D TO DEDUCT THE TAX AT SOURCE BUT NO SUCH DEDUCTION WAS MADE OR MORE FLAGR ANTLY DEDUCTION THOUGH MADE IS NOT PAID TO THE GOVERNMENT WOULD ESCAPE TH E CONSEQUENCE ONLY BECAUSE THE AMOUNT WAS ALREADY PAID OVER BEFORE THE END OF THE YEAR IN CONTRAST TO ANOTHER ASSESSEE WHO WOULD OTHERWISE BE IN SIMILAR SITUATION BUT IN WHOSE CASE THE AMOUNT REMAINED PAYABLE TILL THE END OF THE YEAR. THERE IS NO LOGIC WHY THE LEGISLATURE WOULD HAVE DESIRED TO BRING ABOUT SUCH IRRECONCILABLE AND DIVERSE CONSEQUENCES. SECONDLY THE PRINCIPLE OF DELIBERATE OR CONSCIOUS OMISSION IS APPLIED MAINLY WHEN AN EXISTING PROVISION IS AMENDED AND A CHANGE IS BROUGHT ABOUT. THE SPECIAL BENCH WAS WRONG IN COMPARING THE LANGUAGE USED IN THE DRAFT B ILL TO THAT USED IN THE ITA NO.5353/M/11 A.Y.08-09 15 FINAL ENACTMENT TO ASSIGN A PARTICULAR MEANING TO S . 40(A)(IA). THE HONBLE GUJARAT HIGH COURT THUS HELD THAT MERILYN SHIPPING (SUPRA) DOES NOT LAY DOWN CORRECT LAW. THE CORRECT LAW IS THAT S. 40(A)( IA) COVERS NOT ONLY TO THE AMOUNTS WHICH ARE PAYABLE AS ON 31TH MARCH OF A PAR TICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. 13. IN VIEW OF THE LAW LAID DOWN BY THE HONBLE CAL CUTTA HIGH COURT AND FURTHER BY THE HON'BLE HIGH COURT OF GUJARAT AS DI SCUSSED ABOVE THERE IS NO MERIT IN THE CONTENTION OF THE LD. AUTHORIZED REPRE SENTATIVE ON THIS ISSUE ALSO. IT MAY BE OBSERVED THAT THE FINDING OF THE HO NBLE HIGH COURT OF ALLAHABAD DOES NOT HOLD BINDING PRECEDENT AS HON'BL E HIGH COURT OF ALLAHABAD DID NOT DISCUSS THE LEGAL ISSUE IN QUESTI ON RATHER THE APPEAL WAS DISMISSED UPHOLDING THE FINDING OF FACT GIVEN BY TH E TRIBUNAL WHEREAS THE LAW LAID DOWN BY THE HON'BLE HIGH COURT OF CALCUTTA IN THE CASE OF CIT VS. CRESCENT EXPORT SYNDICATE (SUPRA ) AS WELL AS THE DECISION OF THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF VERSUS SIKANDARKHAN N TUNVAR (SUPRA) HOLD A BINDING PRECEDENT ON THIS SPECIFIC ISSUE W HICH HAS BEEN DISCUSSED IN DETAIL BY RESPECTIVE HIGH COURTS AND HAS BEEN ANSWE RED IN FAVOUR OF THE REVENUE. IN VIEW OF OUR FINDINGS GIVEN ABOVE THERE AGAIN NO MERIT IN THE CONTENTION OF THE ASSESSEE ON THIS ISSUE. 14. HOWEVER BEFORE PARTING WITH THE JUDGMENT IT M AY BE OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION AND PAYMENT OF T DS REGARDING SERVICE FEE. THE A.O. THEREFORE IS DIRECTED TO VERIFY THE S AID CLAIM AND DELETE THE DISALLOWANCE IN RESPECT OF PAYMENTS UPON WHICH TAX WAS DEDUCTED AND DULY DEPOSITED BY THE ASSESSEE IN ACCORDANCE WITH LAW. T HE MATTER IS RESTORED TO ITA NO.5353/M/11 A.Y.08-09 16 THE AO ONLY ON THIS SPECIFIC POINT HOWEVER THE OTH ER CONTENTIONS OF THE ASSESSEE AS DISCUSSED ABOVE ARE REJECTED. 15. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD OCTOBER 2013. SD/- SD/- (P.M. JAGTAP ) ACCOUNTANT MEMBER (SANJAY GARG ) JUDICIAL MEMBER MUMBAI DATED: 23/10/2013. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI.