Tale of Two SC Verdicts in 'Paid vs Payable' Saga - Which one is Binding Precedent?

May 12,2017
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Advocate K. Ravi

Advocate Sudarshan


Recently, the Honorable Supreme Court (‘SC’) in the case of Palam Gas Services [TS-170-SC-2017] upheld Section 40a (ia) disallowance for TDS (Tax Deducted at Source) default on freight payments. The case related to the interpretation of Section 40a(ia) of the Income Tax Act, wherein the question raised was whether the provisions of Section 40a(ia) would be attracted when the amount is not “payable” to a contractor or sub-contractor but has actually been paid, given the fact that the word contained in the Section is only “payable”. It was held by the SC that Section 40a (ia) would cover not only cases where the amounts are payable but also when they are paid, considering the purpose for which the Section was originally introduced.

It’s imperative to note that a contrary view was taken by the Allahabad High Court in the case of CIT vs Vector Shipping Services (P) Ltd. [TS-352-HC-2013(ALL)], where it was held that for disallowances under Section 40a(ia) amounts should be payable by the end of the year, not those which were already paid. The SC dismissed the Special Leave Petition (‘SLP’) made by the Revenue, in limine (non-speaking order) [TS-401-SC-2014].

The question now arises as to whether the SC’s judgement in Palam Gas Service has settled the long pending issue on TDS disallowance or do we have two conflicting SC judgments on the same issue, i.e. Vector Shipping SLP dismissal by SC favoring the assessee vis- -vis to the latest SC judgement in Palam Gas Service which is against the assessee. If the latter scenario holds water, then which judgment has binding validity by virtue of Doctrine of Precedent? We will try to find a solution for the questions that have arisen with the recent SC judgment.

Vector Shipping SLP dismissal by the SC - Whether a binding precedent?

We would determine whether the SC’s dismissal of the SLP filed by the revenue against the Allahabad High Court’s judgement in Vector Shipping has any binding validity as a precedent. It is worth mentioning here that the Doctrine of Precedent is a common law doctrine where the judges are required to decide the cases based on the judgements that have been already decided by the courts placed higher in the hierarchy of courts. In this context one would refer to Article 141 of the Indian Constitution which states that “The law declared by the Supreme Court shall be binding on all courts within the territory of India”. Article 141 appears to give a sacrosanct value to the law declared by the SC.

Hence the moot issue in the context of Vector Shipping will be as to whether the dismissal of a SLP in limine (non-speaking order) by the SC will be treated as a valid proposition of law laid down by the SC? In other words whether the Allahabad’s HC judgement will be merged with the SC’s SLP verdict by applying the Doctrine of Merger theory.


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