Mumbai ITAT holding victor shipping (allahabad high court on which slp dismissed by SC) is no authority for paid vs payable as it was on some other issue (22/8/2014 order)

[Kapil Goel]

M/s. Pratibhuti Viniyog Ltd Date of Order – 22.08.2014

However, regarding ground no.1, before us, the learned counsel has raised an alternative plea that all the payments remained paid up to 31st March 2007 and, therefore, no disallowance under section 40(a)(ia) should be made even with regard to transaction charges in view of the decision of Allahabad High Court in Vector Shipping Services Pvt. Ltd. He submitted that though there are two High Court decision, one of Calcutta High Court and other of Gujarat High Court against the assessee, however, the Hon’ble Allahabad High Court in case of CIT v/s Vector Shipping Service Pvt. Ltd., ITA no.122 of 2013, order dated 9th July 2013, has held that the amount should be deducted on the amount which is payable and not which has been paid by the end of the year. He pointed out that this decision of the Allahabad High Court stands approved in the sense that the SLP against the said decision has been dismissed by the Hon'ble Supreme Court, vide order dated 2nd July 2014. Thus, he submitted that this decision being favourable to the assessee, should be followed.
6. The learned Departmental Representative, on the other hand, submitted that this issue was not raised before the authorities below, therefore, the same should not be entertained and secondly the decision of Calcutta High Court and Gujarat High Court should be followed which are more elaborate and detail judgments.

Held

We have heard the rival contentions. On a perusal of the order of the Hon’ble Allahabad High Court in Vector Shipping Services Pvt. Ltd., ITA no.122 of 2013, judgment dated 9th July 2013, it is seen that only question of law which was formulated by the Hon’ble High Court 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 ` 1,17,68,621 made by the Assessing Officer 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 the assessee. M/s. Vector Shipping Services Pvt. Ltd. and there was a Memorandum of Understanding signed between both the companies as per the definition of memorandum of understanding, it includes contract also.”
8. Thus issue of paid and payable was not subject of reference before the Hon’ble High Court. Further, from the facts which has been incorporated by the Hon’ble High Court, was that M/s. Mercator Lines Ltd. had deducted tax at source on the salaries paid by it on behalf of the assessee in respect of which the disallowance was made by the Assessing Officer under section 40(a)(ia). While answering the aforesaid question of law, the Hon’ble High Court held in the present case, tax was duly deducted as the TDS has been deducted from the salary of the employees paid by M/s. Mercator Lines Ltd. on behalf of Vector Shipping Service (the assessee) and the circumstances in which such salaries were paid by M/s. Mercator Lines Ltd., for M/. Vector Shipping Services, where sufficiently explained by the assessee. Thus, the issue was decided on the ground that the tax has already been deducted, therefore, no disallowance under section 40(a)(ia) should be made. After having answered the question in the aforesaid manner, the Hon’ble High Court further observed as under:–
“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.”
9. Such an observation of the Hon’ble High Court sans the issue in question of law formulated is in the form of obiter dicta. This observation was made by the Court because the Tribunal while dealing with the said disallowance has referred to the decision of the Special Bench in M/s. Merilyn Shipping and Transport Ltd., 136 ITD 23 (SB). It is not the case where the Hon’ble High Court has categorically affirmed the reasoning and interpretation given by the Special Bench

Thus, the decision of the Hon’ble Calcutta High Court and Hon’ble Gujarat High Court constitutes ratio decidendi on this issue which in our humble opinion should prevail. Thus, we do not find any merit in the contention raised by the learned counsel that the decision of the Allahabad High Court in Vector Shipping Services Pvt. Ltd. against which Special Leave Petition has been dismissed by the Hon'ble Supreme Court, lays down a ratio decidendi on the phrase paid and payable by approving the decision of Special Bench in Merlyn Shipping. Thus, ground no.1, of the Revenue is partly allowed.