Allahabad High Court also rules that sec 40(a)(ia) is applicable on “Payable”

Hon’ble Allahabad High Court in the case of Ashok Auto Sales Ltd v/s CIT , Agra in Income Tax Appeal No. 351/2013 vide order dated 23.11.2017 has held that Vector shipping is not the correct preposition of law as held by Honb’le SC in the case of M/s Palam Gas Service vs. Commissioner of Income Tax Civil Appeal No.5512 of 2017 decided on 03.05.2017

The impugned appeal was filed by the appellant against the order of Income Tax Appellate Tribunal, Agra Bench dated 19.07.2013 for the assessment year 2009-10 raising the following substantial questions of law :-

“(a) Whether in view of the decision given by this Hon’ble Court in I.T.A. No.122 of 2013 (C.I.T. vs. M/s Vector Shipping Services (P) Ltd) and the use of the word ‘payable’ in Section 40 (a) (ia), the order of the Tribunal below sustaining the addition of the amounts paid as interest by the appellant under Section 40 (a) (ia), without examining its scope and extent is legally sustainable?

(b) Whether on a true and proper interpretation of the word ‘payable’ occurring in Section 40 (a) (ia), the scope of the Section is confined to the amount which remains outstanding (or to be paid) as on the last date of balance sheet (at the end of the year) and sums which are already paid cannot be added to the assessee under this provision ?”

The said question of law was answered against the appellant and in favour of the department by observing as under:-

” Supreme Court in the case of M/s Palam Gas Service vs. Commissioner of Income Tax being Civil Appeal No.5512 of 2017 decided on 03.05.2017 specifically over ruled the judgement of this Court in the case of C.I.T. Vs. M/s Vector Shipping Services (P) Ltd. Muzaffarnagar reported in (2013) 357 ITR 642.

In this regard the Hon’ble Supreme Court has observed as under:-

“17) Insofar as judgment of the Allahabad High Court is concerned, reading thereof would reflect that the High Court, after noticing the fact that since the amounts had already been paid, it straightaway concluded, without any discussion, that Section 40(a) (ia) would apply only when the amount is ‘payable’ and dismissed the appeal of the Department stating that the question of law framed did not arise for consideration. No doubt, the Special Leave Petition thereagainst was dismissed by this Court in limine. However, that would not amount to confirming the view of the Allahabad High Court (See V.M. Salgaocar & Bros. (P) Ltd. v. Commissioner of Income Tax (2000) 243 ITR 383 and Supreme Court Employees Welfare Association v. Union of India (1989) 4 SCC 187.

18) In view of the aforesaid discussion, we hold that the view taken by the High Courts of Punjab & Haryana, Madras and Calcutta is the correct view and the judgment of the Allahabad High Court in CIT v. Vector Shipping Services (P) Ltd., (2013) 357 ITR 642 did not decide the question of law correctly. Thus, insofar as the judgment of the Allahabad High Court is concerned, we overrule the same. Consequences of the aforesaid discussion will be to answer the question against the appellant/assessee thereby approving the view taken by the High Court.”

As to the correct position of law, Hon’ble Supreme Court has approved the view taken by Punjab & Haryana, Madras and Calcutta High Court and held that Section 40(a) (ia) covers not only those cases where the amount is payable but also when it is paid. Then, it has also been held that the entire scheme of obligation to deduct the tax at source and paying it over to the Central Government is read holistically, it cannot be held that the word ‘payable’ occurring in Section 40 (a) (ia) refers to only those cases where the amount is yet to be paid and it does not cover the cases where the amount is actually paid. In view of the above the questions of law are answered infavour of the department and against the assessee.

The appeal is dismissed as above. No costs.”