Special Bench verdict in Sec 40(a)(ia) TDS case of Merilyn Shipping considered as bad law

CLR Editorial Note: The assessee had incurred an expenditure of about Rs. 31 lakhs on freight but had not deducted TDS as per section 194C of the IT Act. The Assessing Officer hence held that there was a failure to deduct TDS, hence the expenditure could not be allowed as per deduction under section 40(a)(ia).

This was however, overruled by the CIT(A), who allowed the said claim on the grounds that the freight charges were part of the price of the goods and because there was no contract between the assessee and the transporter. The department appealed to the Tribunal which dismissed the appeal after relying on a Special Bench verdict in the case of Merilyn Shipping 146 TTJ 1 (Viz) (SB) where it was held (by a majority) that sec 40(a)(ia) had no applications to amounts that were already paid during the year but it was confined to amounts remaining payable as at the end of the year.

On further appeal by the department in the High Court, the Tribunal’s verdict was dismissed and it was held that:

“We already have delivered a judgment on 3rd April, 2013 in ITAT No. 20 of 2013, G.A. No. 190 of 2013 (CIT, Kolkata-XI Vs. Crescent Export Syndicates) holding that the views expressed in the case of Merilyn Shipping & Transports (ITA.477/Viz./2008 dated 20.3.2012) were not acceptable. That is one reason why the matter should be remanded to the Tribunal. Another reason for remanding the matter to the Tribunal is that the finding of facts recorded by the CIT (Appeal) was not tested by the Tribunal. For the aforesaid reasons, the order under challenge is set aside and the matter is remanded to the Tribunal for a decision de novo.”


The Full Case Document is available for download


Main Case File :

Reference Cases:

  • Case File – Ms. Merilyn Shipping & Transports vs. ACIT (ITAT Visakhapatnam Special Bench)

Tags: AppealCalcutta High CourtCITFull Case DocumentIncome taxKolkata

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