IT : Where assessee-company made payments to its holding company on account of service charges, deputation charges and administrative expenses, since agreement executed between parties was a composite agreement, provisions of section 194C would be attracted to impugned payments
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[2013] 40 taxmann.com 154 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'E'
STCI Commodities Ltd.
v.
Assistant Commissioner of Income-tax, Range -10(1)*
P.M. JAGTAP, ACCOUNTANT MEMBER
AND SANJAY GARG, JUDICIAL MEMBER
AND SANJAY GARG, JUDICIAL MEMBER
IT APPEAL NO. 5353 (MUM.) OF 2011
[ASSESSMENT YEAR 2008-09]
[ASSESSMENT YEAR 2008-09]
OCTOBER 23, 2013
Section 194C, read with sections 40(a)(i) and 194J, of the Income-tax Act, 1961 - Deduction of tax at source - Contractors/sub-contractors, payments to [Service charges, etc.] - Assessment year 2008-09 - Assessee-company made payments to its holding company on account of service charges, deputation charges and administrative expenses, as per terms and conditions of MOU/agreement entered with holding company, and claimed deduction of same - No tax was deducted at source on said payments - As per MOU, assessee neither had any employee on its roll, nor any separate office space/infrastructure - To ensure smooth functioning of day-to-day operations of company, assessee required services of varied skilled personnel, back office support, software, hardware and other infrastructure for which it had to pay service charges - Whether since agreement executed between parties was a composite agreement for providing of all type of services by holding company to assessee, provisions of section 194C would be attracted to impugned payments - Held, yes - Whether since there was an agreed consideration for services and infrastructural facilities provided by holding company to assessee, disallowance of impugned payments under section 40(a)(ia) was justified - Held, yes [Paras 5,6 and 6.1] [In favour of revenue]
FACTS
| ■ | During the year, the assessee-company made payments to its holding company on account of service charges, deputation charges and administrative expenses, as per the terms and conditions of the MOU/agreement entered with the holding company, and claimed deduction of the same. No tax was deducted at source by the assessee on the said payments. | |
| ■ | The Assessing Officer held that the payments made by the assessee to its holding company were in the nature of payments covered under section 194C/194J. Since the assessee failed to deduct tax at source on such payments, the Assessing Officer disallowed the said payments under section 40(a)(ia). | |
| ■ | On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. | |
| ■ | On second appeal: |
HELD
| ■ | As per MOU, the assessee neither had any employee on its roll nor any separate office space/infrastructure. To ensure smooth functioning of the day-to-day operations of the company, the assessee required services of varied skilled personnel, back office support, software, hardware and other infrastructure for which it had to pay the service charges as per the MOU/agreement. [Para 4] | |
| ■ | Now the issue for consideration is whether such services provided by the holding company in the light of the terms and conditions of the MOU constituted 'work contract' under section 194C and providing of professional and technical services to the assessee falling under section 194J or otherwise. The real intentions of the parties to the MOU can be gathered from going through the terms and conditions of the MOU. [Para 4.1] | |
| ■ | A perusal of the MOU reveals that the word facilities includes all type of infrastructural facilities including computer hardware and software systems and other various assets and facilities. The definition given is wide and inclusive definition which includes also any other infrastructural facility which has not been specifically mentioned therein. Similarly the definition of support services is also wide enough to include every type of services including skilled and technical services. These services have been agreed to be provided by the holding company to the assessee on payment of service charges. Again the MOU defining service fees is wide enough to cover the payment of consideration not only for day-to-day business of the assessee, but also for every type of technical and skilled services, such as, relating to accounts, finance, 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 holding company. The agreement is a composite agreement for providing of all type of services for which the consideration has been settled except the expenditure relating to printing and stationery, conveyance, legal expenses, stamp duty, advertisement, etc., which has been agreed to be borne by the assessee on actual basis. Hence the contention of the assessee that the expenditure for which the disallowance has been made was actual reimbursement of the expenditure is not tenable. The holding company thus falls within the definition of service provider, i.e. contractor as defined under section 194C. Though technical 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 service provider, the provisions of section 194C are attracted in the instant case. [Para 5] | |
| ■ | The next contention of the assessee has been that the holding company did not earn any income, therefore, profit element was not involved. So the disallowance under section 40(a)(ia) was not liable to be made in the instant case. There is no merit in the contention. The agreement in question is a composite agreement. A perusal of the agreement reveals that there is no such clause in the agreement from which it can be gathered that the service provider, i.e., the holding company will provide services on actual cost basis or that no profit element is involved. Rather it may be observed that there is a specific clause in the agreement regarding payment on service charges. The 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 payment under section 194C refers to the entire payment, i.e., the cost to the contractor for the work carried out plus profit element, if any. [Para 6] | |
| ■ | The related expenditure, the cost of which was to be borne by the assessee on actual basis, have been specifically mentioned in the agreement e.g. printing, stationery, conveyance, stamp duty, etc. There remains no doubt that there was an agreed consideration for the services and infrastructural facilities provided by the holding company to the assessee and further nothing has been mentioned therein that those services would be provided on actual cost basis. [Para 6.1] | |
| ■ | The assessee has further submitted that as per the provisions of section 194C, the TDS has to be deducted for paying any sum for carrying out any work, which produces something tangible. A perusal of the provisions of section 194C reveal that there can be no inference or suggestions either direct or indirect from the wording that the work is related to production of something tangible. There is no merit in this contention of the assessee. [Paras 7 and 7.1] | |
| ■ | The next contention of the assessee has been that the disallowance for non deduction of TDS should have been made on the sum which was payable as on 31st March of the relevant financial year. No disallowance could have been made on the sums which were already paid by the assessee as on 31st March of the said financial year. [Para 8] | |
| ■ | It is well settled that section 40(a)(ia) covers not only to the amounts which are payable as on 31st March of a particular year but also which are payable at any time during the year. [Para 12] |
CASE REVIEW
CIT v. Crescent Export Syndicate [2013] 216 Taxman 258/33 taxmann.com 250 (Cal.) (para 13) and CIT v. Sikandarkhan N. Tunvar [2013] 33 taxmann.com 133 (para 13) followed.
CIT v. Vector Shipping Services (P) Ltd. [2013] 38 taxmann.com 77 (All.) (para 10) distinguished.
CASES REFERRED TO
Merlyn Shipping & Transports v. Asstt. CIT [IT Appeal No. 477 (Viz.) of 2008, dated 29-3-2013] (para 8), CIT v. Vector Shipping Services (P) Ltd. [2013] 38 taxmann.com 77 (para 8), CIT v. Crescent Export Syndicate [2013] 216 Taxman 258/33 taxmann.com 250 (Cal.) (para 11) and CITv. Sikandarkhan N Tunvar [2013] 33 taxmann.com 133 (para 12).
Nitesh Joshi for the Appellant. Javed Akhtar for the Respondent.
ORDER
Sanjay Garg, Judicial Member : The present appeal has been preferred by the assessee against the order of the CIT(A) dated 6.5.2011 relevant to assessment year 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:
| 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 was 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 Income Tax Act 1961, the appellant was responsible for deduction of tax at source on paying such sum to any resident i.e. to its holding company. Similar provisions were there u/s. 194J of the Act in respect of fees paid for professional or technical services. The A.O. held that the payment made by the appellant company to its holding company were in the nature of payments covered u/s. 194C/ 194J of the Act. The A.O. further observed that that similar issue was there in the case of the assessee for A.Y. 2007-08 wherein also the 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 under 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. In 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 submitted that assessee is a wholly owned subsidiary. The above expenses were paid by appellant to its holding company as per terms and condition of MOU entered with the holding company. In terms of MOU, the holding company was to make available to the appellant staff, infrastructure, administrative support and support services. The cost relating to these activities, 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 Central Govt. Account. As regards services of staff and infrastructure, the holding company had to provide staff, software and hardware services and infrastructure services, etc. for smooth functioning of the day to day operation of its subsidiary company. For this purpose, the holding company deputed such staff and employees on their pay roll to the appellant for back office operations. The holding company was to continue to pay their salary and allowance as per the terms of employment. The appellant submitted that the reimbursement was done on actual basis to its holding company. Therefore, when no payment was made by the appellant directly to any outside service provider, the question for deduction of any tax did not arise and that the agreement was for reimbursement of such expenses actually incurred by its holding company which was not in the nature of work contract as envisaged in Sec. 194C of the Act. His contention has been that the disallowance 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. Representatives 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 placed on the file by the appellant. As per MOU, the appellant neither had any employee on its roll nor any separate office space/infrastructure. As per clause (3) of the MOU, to ensure smooth functioning of the day to day operations of the company, the appellant required services of varied skilled personnel, back office support, software, hardware and other infrastructure 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 whether 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 providing of professional and technical services to the appellant 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 conditions 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 agreement reveals that the said agreement is essentially an agreement of contract for work and services.
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 but not limited to land and buildings (office premises), capitalized furniture and fittings, computer hardware and software, systems, network connectivity and such other assets held by UTISEL and to be provided in accordance with the terms of this MOU for 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, investment and other research, legal and secretarial, dealing room and dealer services, electronic support, information, back office support such as book and record keeping, generation of reports and administrative support and such other services as may 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
| (a) | UTISEL will depute/second such of its officers and employees to UTISEC COM as may be required in relation to the conduct of the following functions/activities of UTISEC COM:- (i) business development; (ii) dealing; (iii) back office etc. These employees will report solely to a Director of UTISEC COM as specified by UTISEC COM from time to time. The number of employees to be initially deputed by UTISEL to UTISEC COM shall be 3. The number of employee's deputed /seconded may be reduced or increased by mutual agreement between UTISEL and UTISEC COM. UTISEL shall have the right to recall and substitute such employees with other employees of similar capabilities and qualifications at its sole and unfettered discretion. | |
| (b) | UTISEL will continue to pay their salaries and allowances as per their existing terms of employment and the period of their service with UTISEC COM shall be considered as 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 UTISEC COM for the day to day operations of the Company as mentioned 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 agreed to by UTISEL on the basis of the scope of Support Services as contemplated by this MOU. Any modification in such scope may be subject to an appropriate modification in the Service Fee to be mutually agreed to between UTISEL and UTISEC COM. |
3.2 Service Fee
In consideration for the provision of Support Services by UTISEL as aforesaid, UTISEC COM shall pay to UTISEL as follows:
| (a) | Towards any direct identifiable cost including but not limited to exclusive telephone connections, VSAT charges, internet 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 limited to Accounts, Finance, HR &Administration, Legal & Secretarial, Compliance), Rs.10,000/- per month(Rupees Ten Thousand 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 name of the second party i.e. UTISEC COM refers to the assessee and the name of the first party i.e. UTISEL refers to the holding company of the assessee. Now coming to the clauses of the agreement, a perusal of the clause (1) a reveals that the word facilities includes all type of infrastructural facilities including computer hardware and software systems and other various assets and facilities. The definition given is wide and inclusive definition which includes also any other infrastructural facility which has not been specifically mentioned therein. Similarly the definition of Support services as mentioned under clause 1(c) is also wide enough to include every type of 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 under 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 only for day to day business of the assessee company but also for every type of technical and skilled services such as relating to accounts, finance, 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 settled except the expenditure relating to Printing & Stationery, conveyance, legal expenses, stamp duty, advertisement etc. which has been agreed to be borne by the assessee on actual basis. Hence the contention of the ld. AR that the expenditure for which the disallowance has been made was actual reimbursement of the expenditure is not tenable. Such 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 technical 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 service provider, hence, in our view the provisions of section 194 C are attracted in this case.
6. The next contention of the ld. Authorized Representative 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 assessee. We do not agree with this contention of the ld. 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 element is involved as has been alleged by the ld. Authorized Representative. Rather it may be observed that there is a specific clause in the agreement regarding 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 the 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 payment 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 mentioned under clause 3(d) of the agreement e.g. printing, stationery, conveyance, stamp duty etc. There remains no doubt in our mind, after going through the various clauses of the agreement, that there was an agreed consideration for the services and infrastructural facilities provided by the first party to the second party and further nothing has been mentioned therein that those services would be provided on actual cost basis. Hence, this contention of the ld. Authorized Representative is hereby rejected.
7. The ld. Authorized Representative has further submitted that as per the provisions of section 194C of the Income tax Act, the TDS has to be deducted for paying any sum for carrying out any work. The ld. Authorized Representative while stressing on the word "work" has contended that it refers to the work which produces something tangible. 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 sake of convenience is reproduced below:
"194C. Payments to contractors.— (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including 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 section 194C reveals that there can be no inference or suggestions either direct or indirect from the wording that the work is related to production of something tangible. There is no merit in this contention of the ld. Authorized 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 sum which was payable as on 31st March of the relevant financial year. No disallowance could have been made on the sums which were already paid by the assessee as on 31st March of the said financial year. In this regard he has relied upon the Special Bench verdict of ITAT in the case of Merlyn Shipping & Transports v.Asstt. CIT in ITA No.477/Viz./2008 dated 29.03.2013, wherein it has been so held by the Special Bench of the ITAT.
He has further relied upon an authority of the Hon'ble Allahabad High Court styled as CIT v. Vector Shipping Services (P) Ltd. [2013] 38 taxmann.com 77.
9. We have gone through the judgment of Hon'ble Allahabad High Court in the case of 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 the case, the Hon'ble 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 ignoring 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 Understanding signed between the companies and as per the definition of memorandum of understanding, it included contract also."
9.1 While answering the said question the Hon'ble Allahabad High Court in the concluding paras of the judgment has observed as under :—
"We do not find that the revenue can take any benefit from the observations made by the Special Bench of the Tribunal in the case of Merilyn Shipping and Transport Ltd. (136 ITD 23) (SB) quoted as above to the effect Section 40(a) (ia) was introduced in the Act by the Finance Act, 2004 with effect from 1.4.2005 with a view to augment the revenue through the mechanism of tax deduction at source. This provision was brought on 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. In the present case tax was deducted 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 Lines Ltd., for M/s Vector Shipping Services, 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.
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 framed 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 Hon'ble High court 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 the Financial Year or the same is deductible on the payment which were payable or paid during the entire financial year, nor any detailed discussion was made on the said issue. The Hon'ble High Court has made just a passing reference that the disallowance can be made on the amounts which should 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 not answer any question of law rather the findings of the Tribunal were upheld 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 came for consideration before the Hon'ble Calcutta High Court in CIT v. Crescent Export Syndicate [2013] 216 Taxman 258/33 taxmann.com 250 wherin the honble High court has held that the provisions of section 40(a)(ia) of the Income Tax Act, 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, which become payable at any time during the relevant previous year and was actually paid within the previous year. The Hon'ble High Court further observed that the Special Bench verdict of the ITAT in Merilyn Shipping& Transpots case (supra) is not good law. The Hon'ble Calcutta High Court after making detailed discussion 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 which tax is deductible at source under Chapter XVII –B." Once this is realized nothing turns on the basis of the fact that the legislature used the word 'payable' and not 'paid or credited'. Unless any amount is payable, it can neither be paid nor credited. If an amount has neither been paid nor credited, there can be no occasion for claiming any deduction. The Hon'ble High Court further 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 compliance of the provisions requiring deductions of tax at source. It was not the case of an inadvertent error. The Hon'ble High Court further observed that the majority view expressed in the case of Merilyn Shipping & Transports (supra) was not acceptable.
12. This issue again came for consideration before The Honble High Court Of Gujarat in "CIT v. Sikandarkhan N Tunvar [2013] 33 taxmann.com 133where in the Hon'ble Gujrat High Court has also held that Special Bench verdict of the ITAT in 'Merilyn Shipping & Transports (supra) is not good law, observing that in that case the majority held that as the Finance Bill proposed the words "amount credited or paid" and as the Finance Act used the words "amounts payable", 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 observed 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 before the due date. The provision nowhere requires that the amount which is payable must remain so payable throughout during the year. The Honble Gujarat High Court further observed that if the assessee's interpretation is accepted, it would lead to a situation where the assessee who though was required to deduct the tax at source but no such deduction was made or more flagrantly deduction though made is not paid to the Government, would escape the 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 bill to that used in the final enactment to assign a particular meaning to s. 40(a)(ia). The Hon'ble 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 particular year but also which are payable at any time during the year.
13. In view of the law laid down by the Hon'ble Calcutta High Court and further by the Hon'ble High Court of Gujarat as discussed above, there is no merit in the contention of the ld. Authorized Representative on this issue also. It may be observed that the finding of the Hon'ble High Court of Allahabad does not hold binding precedent as Hon'ble High Court of Allahabad did not discuss the legal issue in question rather the appeal was dismissed upholding the finding of fact given by the Tribunal whereas the law laid down by the Hon'ble High Court of Calcutta in the case of Crescent Export Syndicate(Supra) as well as the decision of the Hon'ble High Court of Gujarat in the case of Sikandarkhan N Tunvar (Supra) hold a binding precedent on this specific issue, which has been discussed in detail by respective High Courts and has been answered 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 may be observed that the assessee has claimed deduction and payment of TDS regarding service fee. The A.O. therefore is directed to verify the said claim and delete the disallowance in respect of payments upon which tax was deducted and duly deposited by the assessee in accordance with law. The matter is restored to the AO only on this specific point, however the other contentions of the assessee as discussed above are rejected.
15. In the result the appeal of the assessee is partly allowed for statistical purposes.
S.K.JRegards
Prarthana Jalan
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