Hon’ble Tribunal (SB) held in case of Merilyn Shipping & Transports and Hon’ble Allahabad High Court in case of Vector Shipping Services (P) Ltd. held that disallowance under Section 40(a)(ia) shall be made for the amount payable at the end of the year and not to the amount paid during the year.

Relying on the afore-said decision, Hon’ble Chennai Tribunal and Hon’ble Bangalore Tribunal held that disallowances under section 40(a)(ia) is to be applied for the amount payable at the end of the year and not for amount paid during the year. Further, Hon’ble Lucknow Tribunal rejected jurisdictional High Court ruling in Vector Shipping stating that in the said judgement, only a reference has been made to Merilyn Shipping and did not approve it.

The revenue has filed SLP against the decision of Hon’ble Allahabad High Court which was dismissed by the Hon’ble Supreme Court in the case of  Vector Shipping Services (P) Ltd.

Article 136(1) that deals with SLPs is couched differently and reads as:-

“Notwithstanding anything in this Chapter, the Supreme Court may, in its discretion, grant special leave to appeal from any judgment, decree, determination, sentence or order in any cause or matter passed or made by any court or tribunal in the territory of India.”

Hon’ble Supreme Court in case of Bengal Chemical & Pharmaceutical Works Ltd v/s Their Workmen (1959 AIR 633) held that

“Article 136 of the Constitution does not confer a right of appeal to any party from the decision of any Tribunal, but it confers a discretionary power on the Supreme Court to grant special leave to appeal from the order of any tribunal in the territory of India.”

In Supreme Court Employees’ Welfare Association v/s Union of India (AIR 1990 SC 334)the Apex Court also observed that:-

“It is now a well settled principle of law that when a special leave petition is summarily dismissed under article 136 of the Constitution, by such dismissal this court does not lay down any law, as envisaged by article 141 of the Constitution, as contended by the learned Attorney-General.”

In view of the afore-said arguments, it can be said that about applicability of Section 40(a)(ia) is still awaited. 

Disclaimer: This article is the property of the author. No one shall publish, reproduce or use it in any manner, for commercial purposes, without the permission of the author. The author shall not be responsible or liable for anything done or omitted to be done on the basis of this article.

(Author- Aditya Singhania & Nischal Agarwal)

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  1. bhavik shah says:

    VECTOR SHIPPING – SC SLP dismissal ….

    Dismissal of SLP is not having precedent value. Furthermore, Question of law was not before SC as to decide ‘Paid’ or ‘payable ‘ issue in the case of vector …

    In vector shipping case also merilyn shipping was not upheld reason being it was not on question of law raised before HC, but a mere ‘obiter dicta’. Simple passing reference to Merilyn decision, did not approve Merilyn ratio, and relief was ultimately granted on merit.

    After the latest developments , departmental circular – ( I know departmental circular is not binding to ‘A’ , but still departmental circular was conclusive enough ). , amendments in sections 40(a)(ia) / 201(1),(1A) … vector shall not alter the position …

    GUJ HC decision will hold good (had already held against in 2 cases ) and departmental circular also takes its cognizance.

    -Recent Mumbai ITAT decision in the case Pratibhuti viniyoug Ltd has also rationally held that SC’s SLP dismissal in Vector Shipping not ratio decidendi on Sec. 40(a)(ia) disallowance.

    -Interestingly, Banglore ITAT bench of Shri. Rajpal Yadav and Shri. Abraham P. George. followed Allhabad HC Vector especially since SC dismissed Revenue SLP against the same; Relies on SC ruling in Vegetable Products to hold that in absence of any jurisdictional HC ruling on ‘paid’ vs.
    ‘payable’ issue. Matter also gone in a flow that the assessee has availed 15G/H and done with compliance at its end.

    -on a later day; SC shall and will held against , rational is If you would have not deducted TDS , no worries …. First and even Second Proviso to section 40(a)(ia) is on rescue and that is retrospective in nature ( ITAT’ are accepting this – and will also be followed ) ; but if otherwise position – it will lead to dis-allowance and that was the intention of section 40(a)(ia).

    – new argument to watch out amendment in Act by Finance Act 2014; 30% dis -allowance classificatory retrospective amendment in nature..

    to conclude …

    SC speaking order will only park the ship of 40(a)(ia); till then, let the ships sail in stormy sea of merilyin shipping and vector shipping !!

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April 2021