Thursday, April 4, 2013


According to the Ld. Advocates present in the Court-Room No. 4 of the Calcutta High Court, a division bench of Hon’ble Justice Girish Chandra Gupta & Hon’ble Justice Tarun Kr. Das passed a judgement on 3.4.2013 in the post- lunch sitting of the Court in a case overruling the majority view taken by the Special Bench of ITAT, Vishakapatnam.
It is worthwhile to note that the ITAT Special bench (Vishakapatnam) in the case of Merilyn Shipping & Transports vs. ACIT 146 TTJ 1, by a majority view, held that the disallowance u/s 40(a)(ia) was applicable only to the amounts outstanding or provisions made on the date of balance sheet on which there was a default in complying with the TDS provisions and not to the amounts actually paid.
Recently, Revenue had filed an application u/s 151 of the Code of Civil Procedure before the Hon’ble High Court of Andhra Pradesh praying that the operation of the order passed by the ITAT, Vizag Bench in the case of Merilyn Shipping may please be suspended. Pursuant to the said application, the Andhra Pradesh High Court had passed an interim suspension order.
Thereafter, there was a virtual embargo on the Special bench order in Merilyn Shipping and all the Benches of ITAT as well as authorities below were refraining from passing any order following Merilyn Shipping.
An Article titled “Despite Suspension, Special Bench verdict in Merilyn Shipping is binding” was hosted by ITAT Online on 30.01.2013 where an opinion was expressed that the salutary impact of the Special bench Judgement has not been oblitered inspite of the “Interim Suspension”.Some judgments from the Calcutta High Court & the apex court were cited for the proposition ( viz.,Pijush Kanti Chowdhury vs. State of West Bengal and Ors.,Shree Chamund Mopeds Ltd. vs. Church of South India Trust Association, Madras) .  Thereafter, the embargo was lifted and several orders were passed following the ratio of Merilyn Shipping after those judgments were cited.  
Now, the reversal of the majority view of the Merilyn Shipping by the Hon’ble Calcutta High Court will have a wider ramification all over the country. Though, technically non-jurisdictional High Court judgements are not binding over the lower authorities but Income Tax Act being an all India statute, the interpretation given by a High Court is followed by the other High Courts and other authorities unless there are compelling reasons to depart from the view. Please refer Peirce Leslie & Co. v. CIT 216 ITR 176 (Mad), CIT v. Deepak family Trust No. 1(1994) 72 Taxman 406 (Guj.);CIT v. Alcock Ashdown & Co. Ltd. (1979) 119 ITR 164 (Bom);Sarupchand Hukamchand, In re [1945] 13 ITR 245 (Bom.)]

The Hon’ble Calcutta High Court’s judgement has now sealed an important escape route out of the most mischievous provision ever made in the Income Tax Act i.e. Section 40(a)(ia). There were already five provisions in the Income Tax Act viz., sections 201(1), 201(1A), 221, 271C, 271B to ensure strict compliance of TDS provisions. These provisions are containing provisions for strict penal actions having huge financial implications as well as provision for incarceration of the defaulters. The 100% disallowance of expenditure for the technical default of non-deduction of TDS of as low as 1% of the amount paid/ payable will prove to be the final nail in the coffin of the TDS defaulters. It will mean that for a small traffic violation of crossing a red light, one will be hanged by the noose. It will also mean flogging a horse many times over even after he is dead.
However, the mandarins of the North Block, who were instrumental in bringing in such an illogical and draconian provision will now be able to nurse their “sadistic personality disorders” with a smile on their face.

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