Merilyn Shipping case on 40(a)(ia) distinguished by Calcutta High Court


CIT v M.D. Jakir Hossain Mondal (ITA No 31 of 2013 dtd 04.04.2013) (Calcutta High Court)

Background:

The assessee incurred expenditure of Rs. 31 lakhs on freight but did not deduct TDS thereon u/s 194C. The AO held that as there was a failure to deduct TDS, the expenditure could not be allowed as a deduction u/s 40(a)(ia). However, the CIT(A) allowed the claim on the ground that the freight charge was a part of the price of the goods and there was no contract between the assessee and the transporter.

On appeal by the department, the Tribunal dismissed the appeal by relying on the Special Bench verdict in the case of Merilyn Shipping 146 TTJ 1 (Viz) (SB). It was held in that case that:

“The object of s. 40(a)(ia) is to ensure that the TDS provisions are scrupulously implemented without any default. If a narrow interpretation is assigned to the term ‘payable’, the object with which s. 40(a)(ia) was inserted would be frustrated. The Legislature could have never intended that only amounts payable at the end of the year should be disallowed but not the amounts paid during the year. The reason the words “credited” or “paid” were dropped was because they came within the ambit of the term “payable” and would have been superfluous. As s. 40(a) is applicable irrespective of the method of accounting followed by an assessee, the term ‘payable’ covered the entire accrued liability. Also s. 40(a)(ia) is to be interpreted harmoniously with the TDS provisions as its operation depends solely on the provisions contained under Chapter XVII-B & it provides for one of the consequences of non-deduction of tax. In the backdrop of the TDS provisions, the term “payable” means the amount “payable” “on which tax was deductible at source under Chapter XVII-B”. Consequently, s. 40(a)(ia) applies to all expenditure which is actually paid and which is payable as at the end of the year.”

HELD:

We already have delivered a judgment on 3rd April, 2013 in ITAT No. 20 of 2013, G.A. No. 190 of 2013 (CIT, Kolkata-XI Vs. Crescent Export Syndicates) holding that the views expressed in the case of Merilyn Shipping & Transports were not acceptable. That is one reason why the matter should be remanded to the Tribunal. Another reason for remanding the matter to the Tribunal is that the finding of facts recorded by the CIT (Appeal) was not tested by the Tribunal. For the aforesaid reasons, the order under challenge is set aside and the matter is remanded to the Tribunal for a decision de novo.

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