REPORTABLE
\nIN THE SUPREME COURT OF INDIA
\nCIVIL APPELLATE JURISDICTION
\nCIVIL APPEAL No. 7865 OF 2009
\nSHREE CHOUDHARY TRANSPORT COMPANY \u2026Appellant(s)
\nVs
\nINCOME TAX OFFICER \u2026Respondent(s)
\nJUDGMENT
\nDinesh Maheshwari, J.
\nPreliminary
\n1. By way of this appeal, the assessee-appellant has called in question
\nthe order dated 15.05.2009 passed in Income Tax Appeal No. 164 of 2008
\nwhereby, the High Court of Judicature for Rajasthan at Jodhpur has summarily
\ndismissed the appeal against the order dated 29.08.2008 passed in ITA No.
\n117\/JU\/2008 by the Income Tax Appellate Tribunal, Jodhpur Bench at
\nJodhpur; and thereby, the High Court has upheld the computation of total
\nincome of the assessee-appellant for the assessment year 2005-2006 with
\ndisallowance of payments to the tune of Rs. 57,11,625\/-, essentially in terms
\nof Section 40(a)(ia) of the Income Tax Act, 19611, for failure of the assesseeappellant
\nto deduct the requisite tax at source2.
\n1 Hereinafter referred to as \u2018the Act of 1961\u2019 or simply \u2018the Act\u2019.
\n2 \u2018Tax deducted at source\u2019 being referred as \u2018TDS\u2019
\n1
\n2. We may take note of the relevant factual and background aspects of
\nthe case while keeping in view the root point calling for determination in this
\nappeal, that is, as to whether the payments in question have rightly been
\ndisallowed from deduction in computation of total income of the appellant?
\nRelevant factual and background aspects; the impugned order of
\nassessment
\n3. In a brief outline of the relevant factual aspects, it could be noticed
\nthat the assessee-appellant, a partnership firm, had entered into contract with
\nM\/s Aditya Cement Limited, Shambupura, District Chittorgarh3 for transporting
\ncement to various places in India. As the appellant was not having the
\ntransport vehicles of its own, it had engaged the services of other transporters
\nfor the purpose. The cement marketing division of M\/s Aditya Cement Limited,
\nnamely, M\/s Grasim Industries Limited, effected payments towards
\ntransportation charges to the appellant after due deduction of TDS, as shown
\nin Form No. 16A issued by the company.
\n4. On 28.10.2005, the assessee-appellant filed its return for the
\nassessment year 2005-2006, showing total income at Rs. 2,89,633\/- in the
\nfinancial year 2004-2005 arising out of the business of \u2018transport contract\u2019.
\n5. In the course of assessment proceedings, the Assessing Officer4
\nexamined the dispatch register maintained by the appellant for the period
\n3 Hereinafter also referred to as \u201cthe consignor company\u201d or \u201cthe company\u201d.
\n4 \u2018AO\u2019 for short
\n2
\n01.04.2004 to 31.03.2005, containing all particulars as regards the trucks
\nhired, date of hire, bilty and challan numbers, freight and commission charges,
\nnet amount payable, the dates on which the payments were made, and the
\ndestination of each truck etc. The contents of the register also indicated that
\neach truck was sent only to one destination under one challan\/bilty; and if one
\ntruck was hired again, it was sent to the same or other destination\/trip as per
\nseparate challan\/bilty. The commission charged by the appellant from the
\ntruck operators\/owners ranged from Rs. 100\/- to Rs. 250\/- per trip.
\n5.1. On verifying the contents of record placed before him, the AO
\nobserved that while making payment to the truck operators\/owners, the
\nappellant had not deducted tax at source even if the net payment exceeded
\nRs. 20,000\/-. Following this, a notice dated 05.11.2007 was issued to the
\nappellant, requiring the details of amount paid to the truck operators\/owners,
\nTDS thereupon, and date of depositing the same in the Government account.
\nIn reply, by its letters dated 12.11.2007 and 15.11.2007, the appellant
\ncontended, inter alia, that the trucks hired were belonging to different
\noperators\/owners who were not the sub-contractors or contractors; that they
\ncame from different parts of India and mostly required cash payment for diesel
\nand other running expenses; that the appellant had no liability to deduct tax at
\nsource because it had not made payments exceeding Rs. 20,000\/- in a single
\ntransaction; and that the provisions of Section 40(a)(ia) were not applicable to
\nthe appellant.
\n3
\n5.2. While drawing up the assessment order dated 22.11.2007, the AO
\nobserved that the payments to different truck operators\/owners were made
\ndirectly by the appellant firm and not the consignor company; that the
\nappellant firm was responsible for transportation of goods of the company as
\nper the contract for which, the appellant received payment from the company
\nafter tax being deducted at source therefrom. The AO also observed that the
\nappellant firm paid freight charges to the truck operators\/owners from the
\nincome so earned; and the remaining amount was shown as commission.
\nLooking to the nature of dealings of the parties, the AO observed that there
\nexisted a contract between the appellant and the truck operators\/owners in
\nrespect of each challan\/bilty for transportation. The AO also referred to the
\nCircular bearing No. 715 dated 08.08.1995 issued by the Central Board of
\nDirect Taxes5, to observe that each goods receipt could be considered a
\nseparate contract. While further observing that a contract may be written or
\noral, the AO held that when the truck operators\/owners in the case at hand
\nwere not to be considered as contractors, they were undoubtedly the subcontractors
\nof the appellant. The AO also pointed out that despite sufficient
\nopportunity being given, a copy of the agreement of the appellant firm with the
\ncompany for providing transportation services was not furnished.
\n5.3. Having perused the material placed before him, the AO held on the
\nappellant\u2019s responsibility for deducting tax at source while making payment to
\nthe truck operators\/owners where such payment exceeded Rs. 20,000\/- on a
\nsingle bilty\/challan or goods receipt in the following words:-
\n5 \u2018CBDT\u2019 for short
\n4
\n\u201cThe dispatch register of the assessee firm as well as the
\ncash book clearly establish beyond doubt that payment to the
\ntruck operators was made by the assessee firm. In other
\nwords, the assessee firm was the person responsible for
\ndeducting the tax at source therefrom within the meaning of
\nSection 194C of the Act. Since the goods were transported
\nby trucks and every truck transported goods under a
\nseparate bilty and challan to a particular destination, there
\nwas a contract or sub-contract between the assessee firm
\nand the truck operator as per the provisions of Section 194C
\nof the Act and Board\u2019s circular supra, and the assessee
\nshould have deducted tax at source while making payment to
\nthe truck operators as per the provisions of Section 194C(3)
\nof the Act where the amount of any sum credited or paid or
\nlikely to be credited or paid to the account of, or to the
\ncontractor or sub-contractor exceeded twenty thousand
\nrupees.
\n*** *** ***
\nFrom the facts and circumstances of the case discussed
\nabove the final position emerging is that in view of the
\nprovisions of Section 194C of the Act the assessee was liable
\nto deduct tax at source while making payment to truck
\nowners\/operators where such payment exceeded Rs.
\n20,000\/- on the basis of single bilty\/challan or GR.\u201d
\n5.4. After examining the details contained in the dispatch register, cash
\nbook and payment vouchers, the AO found that tax was not deducted at
\nsource by the appellant while making payment to the truck operator\/owner,
\neven though the payment under a single goods receipt (challan\/bilty)
\nexceeded the sum of Rs. 20,000\/-. Thereupon, the assessee-appellant was
\ncalled upon to explain as to why deduction claimed on account of such
\npayment from the income be not disallowed in terms of Section 40(a)(ia) of the
\nAct. In the order of assessment, the AO took note of and dealt with various
\nsubmissions made on behalf of the assessee-appellant in this regard as
\nfollows:-
\n5
\n\u201cSince the assessee failed to deduct the tax at source while
\nmaking payment to truck owners\/ operators exceeding Rs.
\n20,000\/-, the assessee was asked to explain as to why
\ndeduction claimed on account of such payments from the
\nincome be not disallowed within the meaning of Section 40(a)
\n(ia) of the Act. The learned counsel of the assessee firm
\nstated that there was no payment exceeding Rs. 20,000\/-. In
\nthis regard he furnished photocopy of extract of cash book
\nand also payment vouchers which indicate that each
\npayment exceeding Rs. 20,000\/- was shown in the cash book
\nin two parts though paid on the same date and the assessee
\nmade two separate vouchers for such payment just to give an
\nimpression that payment to truck owners\/ operators was not
\nexceeding Rs. 20,000\/-. In this regard it is pertinent to
\nmention that merely by showing payment of one challan\/
\nbilty in two pieces the assessee cannot absolve itself of
\nthe provisions of the Section 40(a)(ia) inasmuch as
\nSection 194C(3)(i) clearly speaks of \u2013 \u201cthe amount of any
\nsum credited or paid or likely to be credited or paid to the
\naccount of, or to, the Contractor or sub-contractor, if such
\nsum does not exceed twenty thousand rupees\u201d. The learned
\ncounsel further submitted that the receipts of the assessee
\nfirm are full vouched and verifiable and subject to TDS and
\nthe payments to truck owners\/ operators are made by the
\nassessee firm from such receipts and as such there as no
\nneed for further TDS. He further stated that the assessee firm
\nprepares bills for claiming payments from the company on
\nthe basis of freight charges payable to various truck owners\/
\noperators and when the payment is received on the basis of
\nsuch bills, further payment is made to the truck owners\/
\noperators and nominal commission is retained by the
\nassessee and, therefore, the payment made to the truck
\nowners\/ operators was out of the purview of Section 194C of
\nthe Act. He further stated that it is not practical to deduct tax
\nat source while making payment to a truck owner\/ operator
\nbecause no truck owner accepts payment after TDS. This
\nargument put forth on behalf of the assessee firm is not
\nacceptable inasmuch as Section 194C(1) clearly says that –
\n\u201cAny person responsible for paying any sum to any
\nresident\u2026\u2026.\u201d Since the assessee firm was responsible
\nfor making payment to the truck owners operators, it was
\nmandatory on the part of the assessee to deduct tax at
\nsource while making such payment. Further there is no
\ndirect nexus between the Company and the truck
\nowners\/operators and thus it cannot be said that the
\n6
\nassessee firm was a mediator between the company and
\nthe truck owners\/ operators\u2026…\u201d
\n(emphasis in bold supplied)
\n5.5. In view of the above, the AO proceeded to disallow the deduction of
\npayments made to the truck operators\/owners exceeding Rs. 20,000\/- without
\nTDS, which in total amounted to Rs. 57,11,625\/-; and added the same back to
\nthe total income of the assessee-appellant. The AO also disallowed a lump
\nsum of Rs. 20,000\/- from various expenses debited to the Profit and Loss
\nAccount and finalised the assessment, accordingly, as under:-
\n\u201cTherefore, considering the provisions of Section 194C,
\nSection 40(a)(ia) and Board\u2019s Circular No. 715, dated
\n08.8.1995, the payment made to the truck owners\/operators,
\nexceeding to Rs. 20,000\/- without deducting tax at source is
\ndisallowed and added back to the total income of the
\nassessee firm which works out to Rs. 57,11,625\/-, supra.
\nThe assessee has shown total payments in Truck Freight
\nAccount at Rs. 1,37,71,206\/- and total receipts from the
\ncompany at Rs. 1,43,90,632\/-.
\nThe assessee has shown commission income of Rs.
\n6,23,300\/- on which net profit of Rs. 2,89,694\/- has been
\nshown giving N.P. rate of 46.47% as against N.P. rate of
\n50.91% declared in the immediate preceding year on
\ncommission income of Rs. 6,00,450\/-. The N.P. rate declared
\nthis year is on the lower side. Considering the nature of
\nvarious expenses debited to the Profit and Loss Account like
\nStaff Welfare Expenses, Telephone Expenses, Travelling
\nexpenses, Motor Cycle Repairs etc. where involvement of
\npersonal element cannot be ruled out, a lump sum
\ndisallowance of Rs. 20,000\/- is made to the declared
\nincome.\u201d
\nBefore the Commissioner of Income Tax (Appeals), Jodhpur
\n6. Aggrieved by the order so passed by the Assessing Officer, the
\nassessee-appellant preferred an appeal before the Commissioner of Income
\n7
\nTax (Appeals)6, being Appeal No. 183 of 2007-08, that was considered and
\ndismissed on 15.01.2008.
\n6.1. The CIT(A) re-examined the record and rejected the contentions of
\nthe appellant that it had only received commission income and was not liable
\nto deduct tax at source on payments made to the truck owners while observing
\nas under:-
\n\u201cOn careful consideration of the material facts, it is observed
\nthat the appellant entered into a contract for transportation of
\ngoods (cement) with M\/s Aditiya Cement Limited in order to
\nhonour the contract, the appellant hired various trucks all
\nthrough out the year for the purpose of transportation of
\ncement. The appellant received freight charges from M\/s
\nAditiya Cement Limited on which tax was deducted. The
\nappellant paid freight charges to individual truck owners, after
\ntransportation of goods. There was no nexus between the
\ntruck owners\/ operators and M\/s Aditiya Cement Limited.
\nHow the appellant transported the goods (cement) was
\nthe exclusive domain of the appellant firm. Under such
\ncircumstances, the gross freight received by the
\nappellant from M\/s Aditiya Cement Limited represents
\ngross income of the appellant firm. Since the appellant
\nmade payments to various truck owners\/ operators.
\nSuch payments represent expenditure. It may be
\nmentioned here that the payments to the truck owners\/
\noperators were made only after the goods were transported
\nby them satisfactorily at the given destinations. In other
\nwords, there existed a contract or a sub-contract between the
\nappellant firm and the transporters. Under such
\ncircumstances, the appellant was required to deduct tax at
\nsource on the payments made to truck drivers\/ owners within
\nthe meaning of provisions of Section 40(a)(ia) read with
\nSection 194C of the Act. Under no circumstances, it can be
\nsaid that the appellant only received commission income and
\ntherefore provisions of Section 194C are not applicable.\u201d
\n(emphasis in bold supplied)
\n6.2. In regard to the contention that the appellant was not required to
\ndeduct tax at source when no payment exceeded Rs. 20,000\/-, the CIT(A)
\n6 \u2018CIT(A)\u2019 for short
\n8
\nfound that the appellant had, for its convenience and to avoid the rigour of
\nSection 40A(3) of the Act, chose to split the payments into two parts but the
\nentries of such split payments were available consecutively in the cash book.
\nThus, while not accepting such methodology, the CIT(A) observed that even in
\nthe split payments, it was required of the appellant to deduct tax at the time of
\nmaking final payment. The relevant observation of the CIT(A) read as under:-
\n\u201cThe facts have been gone through and it is observed that
\nthe appellant made payments in a manner according to which
\nindividual payment to the truck owner(s) did not exceed Rs.
\n20,000\/-. In other words, the payment was splitted into two
\nparts. However, the total amount paid to the truck owner(s)
\nfor individual contract exceeded Rs. 20,000\/-. For instance,
\ncashbook dated 31-1-2005 of the appellant shows payments
\nof Rs. 14,750\/- and Rs. 10,510\/- to Truck No.RJ14-G-5599
\nfor transport of cement from the premises of the Cement
\nCompany to Bhatinda. The same cashbook page also shows
\npayments of Rs. 14,750\/- and Rs. 9,431\/- to Truck No.RJ23-
\nG-3041 for transport of cement. It is the argument that since
\nthe individual payment did not exceed Rs. 20,000\/-, the
\nprovisions of Section 194C are not applicable. On careful
\nconsideration of the material facts, it is observed that both
\nthe entries are consecutive in the cashbook and,
\ntherefore, it is observed that the appellant, for its
\nconvenience and to avoid rigors of the provisions of
\nSection 40A(3), splitted the payments into two parts. Had
\nthe payments been really made in two parts, both the entries
\nshould not have been consecutive. It is also not understood
\nas to why the truck owners after completing the contract,
\nwould accept the amount in two parts and why they would
\ncome to the office of the appellant twice for seeking
\npayments. The theory of making payments in two parts is
\nmerely a story, which is capable neither on facts nor on
\npracticability. It is also surprising to note that in none of the
\ncase the appellant made fully payment to any truck owner all
\nthrough out the year exceeding Rs.20,000\/.\u201d
\n(emphasis in bold supplied)
\n6.3. The CIT(A) also examined in detail the question as to whether
\ntransport contracts were subject to deduction of tax at source and, with
\n9
\nreference to clause (c) of Explanation (iii) of Section 194C of the Act as also to
\nCBDT Circular Nos. 558 dated 28.03.1990 and 681 dated 08.03.1994, held
\nthat the provisions of Section 194C of the Act were applicable to the contracts
\nfor transportation of goods; and the appellant was required to deduct tax at
\nsource if the gross credited or paid or likely to be credited or paid exceeded
\nthe limit of Rs. 20,000\/-. Having found that the appellant\u2019s case was squarely
\ncovered within the provisions of Section 194C of the Act, the CIT(A) held that
\nin view of the mandatory provisions of Section 40(a)(ia) of the Act, the
\npayments in question cannot be allowed as deduction while computing total
\nincome. Thus, the CIT(A) proceeded to dismiss the appeal while holding, inter
\nalia, as under:-
\n\u201cIt is, therefore, clear that the appellant\u2019s case was squarely
\ncovered within the provisions of the Section 194C and,
\ntherefore, it was required to deduct tax at sources while
\nmaking payments to the truck owners.
\nProvisions of Section 40(a)(ia) clearly provide that if any
\namount payable to a contractor or subcontractor for carrying
\nout any work on which tax is deductible at source under
\nChapter XVII-B and such tax has not been deducted or, after
\ndeduction, has not been paid during the previous year, or in
\nthe subsequent year before the expiry of the time prescribed
\nunder sub-section (1) of Section 200, such sum shall not be
\nallowed as a deduction while computing the total income. As
\ncan be seen, the provisions are mandatorily to be complied
\nwith in the case a default and the question of existence of
\nany reasonable cause has got no meaning.
\nIn the light of the entire discussion as above, I hold that the
\nappellant was required by the provisions of the Act to deduct
\ntax on freight payments totalling to Rs.57,11,625\/-. Since the
\nappellant failed to deduct tax at source the sum of
\nRs.57,11,625\/- was rightly disallowed by the Ld. AO. The Ld.
\nAO rightly invoked the provisions of Section 40(a)(ia) of the
\nAct. Therefore, on the given facts as also in law, the ground
\nof appeal fails.\u201d
\n10
\nBefore the Income Tax Appellate Tribunal, Jodhpur Bench
\n7. Aggrieved again, the appellant approached the Income Tax Appellate
\nTribunal, Jodhpur Bench7 in further appeal, being ITA No. 117\/JU\/2008. This
\nappeal was considered and dismissed by ITAT by way of its order dated
\n29.08.2008.
\n7.1. The ITAT pointed out that by an application dated 16.07.2008, the
\nappellant sought permission to produce additional evidence i.e., the
\nagreement dated 01.04.2003 executed between itself and M\/s Grasim
\nIndustries Limited, and as the Department had no-objection, the same was
\nadmitted as additional evidence by the order dated 17.07.2008 but, another
\napplication for admission of evidence in shape of affidavit of partner of the
\nappellant firm, was objected to by the Department and was rejected.
\n7.2. The ITAT found that the agreement in question was on principal to
\nprincipal basis whereby, the appellant was awarded the work of transporting
\ncement from Shambupura but, as the appellant did not own any trucks, it had
\nengaged the services of other truck operators\/owners for transporting the
\ncement; and such a transaction was a separate contract between the appellant
\nand the truck operator\/owner. The ITAT, therefore, endorsed the findings of AO
\nand CIT(A) in the following words:-
\n\u201c13. The perusal of agreement on record reveals that the
\nassessee was awarded a works contract by M\/s. Grasim
\nIndustries Limited, a cement marketing division of M\/s. Aditya
\nCement Ltd. This agreement was on principal to principal
\nbasis whereby the appellant was awarded the cement
\ntransportation work and in terms of agreement the scope of
\n7 \u2018ITAT\u2019 for short
\n11
\nwork was to include placement of trucks for cement
\ntransportation from their plant at Shambupura on regular
\nbasis in the state of Rajasthan. In case the assessee failed to
\nprovide trucks as per contractual obligation, the company
\nwas free to hire trucks from market at prevailing prices and
\nthe amount of expenses incurred if any was to be debited to
\nthe assessee\u2019s account terming him to be a transporter. The
\nassessee merely acted as an independent contractor while
\ncarrying on the aforesaid work contract awarded to it by M\/s.
\nGrasim Industries Limited. Admittedly, the appellant did not
\nown trucks of its own for carrying out such transportation
\ncontract and has engaged the services of other truck
\nowners\/operators for lifting goods from the premises of M\/s
\nGrasim Industries Limited and transporting the same to
\nvarious sites in Rajasthan. Goods receipt [GR]\/bilty were
\nprepared and the same was to be taken as a contract
\nbetween the appellant and such truck owners\/operators. A
\nclarification to this effect given vide Board Circular No. 715
\ndated 8.8.1995 has been brought on record by the Revenue
\nand strongly relied upon by the assessing authority as well so
\nas to consider the goods carried under particular
\ngoods\/receipt\/bilty as a separate contract. The assignment of
\nsuch contract by the appellant to the truck operators\/owners
\nwas rightly taken as a sub contract for carrying out the job
\nawarded to the assessee by M \/s. Grasim Industries Limited.
\nProvisions of Section 194C were duly attracted to such
\npayments which have been made\/credited or was likely to be
\npaid on account of obligation under each goods receipt\/bilty.
\nThe assessing authority has found that the payments made
\nand credited with respect to each of such contracts involving
\naggregate payment of Rs. 20,000\/- on a particular day
\namounted to Rs. 57,11,625\/-. In the light of clear provisions
\ncontained in Section 194C of the Act and having regard to the
\nfact that both the amounts actually paid or credited or likely to
\nbe paid on account of each contract exceeded Rs. 20,000\/-
\non a single day. Section 194C has rightly found applicable.
\nWe, therefore, do not find any wrong committed by the ld.
\nCIT(A) in holding that the assessee has committed default in
\nmaking deduction with respect to payments aggregating to
\nRs. 57,11,625\/- without deduction of tax at source.\u201d
\n7.3. The ITAT also negated the argument that by the time of issuance of
\nCircular No. 5 dated 15.07.2005, the time for payment of tax at source had
\nexpired and that Section 40(a)(ia) would only be applicable from the
\n12
\nassessment year 2006-2007 and not from the assessment year 2005-2006.
\nThe ITAT also referred to the proviso to Section 40(a)(ia) of the Act and
\npointed out that thereunder, the assessee was eligible to get deduction of such
\nexpenditure in a subsequent year in which TDS was actually paid to the
\nGovernment. The ITAT observed in regard to these two aspects concerning
\napplicability of the provision in question as also the effect of proviso thereto, in
\nthe following passage:-
\n\u201c15. The assessee\u2019s counsel also raised a plea that Circular
\nNo. 5 was issued only on 15-7-2005 by which date the time
\nfor payment of tax at source has also expired and as such it
\nwas contended that the provisions as contained in Section
\n40(a)(ia) of the Act would be applicable not from A.Y. 2005-06
\nbut from 2006-07. We, however, do not subscribe to the view
\nso canvassed by the assessee. The Finance (No.2) Act 2004
\nhas brought an amendment in Section 40 of the Act making it
\napplicable w.e.f. 01\/04\/2004 (sic)8. Since this amendment
\ncame before close of the financial year ended on
\n31\/03\/2005 in the statute books, the assessee cannot be
\nheld to be ignorant of its liability to deduct tax at source.
\nThe subsequent board circular issued is merely clarificatory.
\nThe amendment in Section 40 of the Act does not take away
\nthe right of the assessee to claim deduction for such
\nexpenses for all times to come. It only mandates that the
\ndeduction shall not be allowed in the relevant year in which
\nthere was liability to deduct and pay tax at source but the
\nsame has not been paid before the expiry of the time
\nprescribed under sub-section (1) of Section 200 of the act. It
\nalso had proviso clause whereby the assessee was
\neligible to get deduction of such expenditure in a
\nsubsequent year in which such tax deducted at source
\nhas actually been paid. The plea raised by the assessee,
\ntherefore, does not support the claim.\u201d
\n(emphasis in bold supplied)
\n8 The extraction is from the typed copy of the order of ITAT, placed on record as Annexure P-5 ( at
\npage 84 of the paper book) but there is obvious typographical error on this date \u201c01.04.2004\u201d because
\nthe amendment of Section 40 of the Act of 1961 by the Finance (No.2) Act, 2004 was made applicable
\nwith effect from \u201c01.04.2005\u201d. The effect and implication of the relevant date is examined in Question
\nNo. 3 infra.
\n13
\n7.4. The ITAT further rejected the contention that the amount of
\nexpenditure was not charged to the Profit and Loss Account and only
\ncommission was shown as income. The ITAT observed that mere reflection in
\ntwo different account books would not qualify for distinct and different
\ntreatment since both freight paid and freight charged partake the same
\ncharacter. The ITAT, accordingly, dismissed the appeal.
\nBefore the High Court
\n8. Aggrieved yet again, the appellant approached the High Court in
\nD.B. Income Tax Appeal No. 164 of 2008 against the order passed by ITAT.
\nHowever, the appeal so filed was dismissed summarily by the High Court, by
\nits short order dated 15.05.2009 that reads as under:-
\n\u201cIn our view, on the language of Section 194C(2), and the fact
\nthat the good received were sent through truck owners by the
\nappellant, and there was no privity of direct contract between
\nthe truck owners and the cement factory. According to the
\ncontract between the appellant and the cement factory, it was
\nthe appellant\u2019s responsibility to transport the cement, and for
\nthat the appellant hired the services of the truck owners,
\nobviously as sub-contractors. In that view of the matter, we
\ndo not find any error in the impugned order of the Tribunal.
\nThe appeal is, therefore, dismissed summarily.\u201d
\n9. Thus, the net result of the proceedings aforesaid had been that the
\nconsistent views of the AO, CIT(A) and ITAT, that deduction, of the payments
\nmade to the truck operators\/owners, cannot be allowed while computing the
\ntotal income of the assessee-appellant, came to be affirmed by the High Court.
\nRival Submissions
\nAppellant
\n14
\n10. Assailing the order so passed by the High Court in summary
\ndismissal of the appeal as also the views expressed in the assessment and
\nappellate orders, learned counsel for the assessee-appellant has urged before
\nus multiple contentions on the scope and applicability of Section 194C of the
\nAct as also Section 40(a)(ia) thereof and has argued that these provisions
\ncould not have been applied to the case at hand.
\n10.1. Learned counsel for the appellant has strenuously argued that the
\nprovisions of Section 194C of the Act of 1961, particularly sub-section (2)
\nthereof, were not applicable to the present case for there was no oral or written
\ncontract of the appellant with the truck operators\/owners, whose vehicles were
\nengaged to execute the work of transportation of the goods. It has been
\ncontended that the liability under Section 194C(2) would have arisen only if
\npayments were made to \u201csub-contractor\u201d and that too \u201cin pursuance of a
\ncontract\u201d for the purpose of \u201ccarrying whole or any part of work undertaken by
\nthe contractor\u201d. The learned counsel for the appellant would argue that when
\nthere had not been any specific contract between the appellant and the truck
\nowners, whose vehicles were hired by the appellant on freelance and need
\nbasis, the ingredients of Section 194C(2) were not satisfied and the obligation
\nof deducting tax at source could not have been fastened on the appellant.
\n10.1.1. The learned counsel has supported his contentions against the
\napplicability of Section 194C of the Act to the present case with reference to
\nthe decision of Delhi High Court in the case of Commissioner of Income-Tax
\nv. Hardarshan Singh: (2013) 350 ITR 427 wherein it was held that when the
\n15
\nassessee merely acted as facilitator or intermediary in the process of
\ntransportation of goods, he had no liability to deduct TDS under Section 194C
\nof the Act.
\n10.2. The main plank of the submissions of learned counsel for the
\nappellant has been that disallowance under Section 40(a)(ia) of the Act is
\nconfined to the expenses that are booked during the year but remain payable
\nor outstanding and not the expenses that had already been paid. The learned
\ncounsel has referred to the decision of this Court in the case of J.K.
\nSynthetics Limited v. Commercial Taxes Officer: (1994) 4 SCC 276; and
\nthe definition of the term \u201cpaid\u201d in Section 43(2) of the Act to submit that the
\ntwo expressions \u201cpayable\u201d and \u201cpaid\u201d are of entirely different connotations. The
\nlearned counsel has painstakingly referred to the contents of the Bill
\nintroducing the Finance (No.2) Act of 2004 where the expressions \u201ccredited or
\npaid\u201d were used but in the provision as enacted, the expression \u201cpayable\u201d has
\noccurred. According to the learned counsel, if the legislature intended to
\ndisallow the deduction towards the payments made and incurred, it would
\nhave used the expression \u201cpaid\u201d, which term has been specifically defined for
\nthe purposes of Sections 28 to 41 of the Act but the use of expression
\n\u201cpayable\u201d makes it clear that the coverage of the provision is restricted and in
\nany case, it is not applicable over the amount already paid. The learned
\ncounsel has also attempted to draw support to his contentions with reference
\nto the contents of the proviso to Section 40(a)(ia) of the Act with the
\nsubmissions that the meaning and scope of the main provision is accentuated
\n16
\nby the scope of proviso wherein, the expression \u201cpaid\u201d is used while giving out
\nthe circumstances when a deduction, not allowed under the main provision,
\ncould be claimed in the subsequent year.
\n10.2.1. Taking this line of argument further, learned counsel would contend
\nthat the scope of Section 40(a)(ia) of the Act cannot be decided on the basis of
\nthe scope of Section 194C of the Act. Learned counsel would submit that
\nSection 201 of the Act provides for consequence of non-deduction of TDS
\neither at the time of payment or booking, whichever is earlier; and thus, the
\nsaid provision would apply to both the situations where the expenses amount
\nhas been \u201cpaid\u201d or is \u201cpayable\u201d. However, according to the learned counsel,
\nthe additional consequence of default as provided in Section 40(a)(ia) of the
\nAct would come into operation only if the alleged default strictly falls within the
\nlanguage of this provision, which is limited to the amount \u201cpayable\u201d. Learned
\ncounsel would submit that the scope of Section 40(a)(ia) of the Act cannot be
\nexpanded beyond its language merely because as per Section 194C, the
\nliability to deduct tax is at the time of \u201ccredit of such amount to the account of a
\ncontractor\u201d or at the time of \u201cpayment\u201d whichever is earlier. With reference to
\nthe decision of this Court in the case of Institute of Chartered Accountants
\nof India v. Price Waterhouse: (1997) 93 Taxman 588, the learned counsel
\nhas argued that when the words are clear and there is no obscurity, the
\nintention of legislature has to be inferred only from the words used in the
\nprovision.
\n17
\n10.2.2. Thus, learned counsel for the appellant has strenuously argued that
\nSection 40(a)(ia) of the Act remains limited in its scope and does not apply to
\nthe amount already \u201cpaid\u201d. However, being aware of the position that the
\nsubstratum of such contentions does not stand in conformity with the view
\nalready taken by this Court in the case of Palam Gas Service v.
\nCommissioner of Income-Tax : (2017) 394 ITR 300, the learned counsel
\nhas made elaborate submissions that the said decision in Palam Gas Service
\nrequires reconsideration. According to the learned counsel, such
\nreconsideration is necessitated because of the factors that: (a) the taxing
\nprovision for disallowance has to be strictly construed as per the language
\nused and there is no scope for adopting the so-called purposive construction;
\n(b) the change of words used in the Bill \u201ccredited or paid\u201d to the word \u201cpayable\u201d
\nhas been ignored; (c) the effect of proviso making it clear that the intent of the
\nmain provision is only to disallow the outstanding or payable amounts has not
\nbeen considered; and (d) the Court has widened the scope of consequences
\nprovided under Section 40(a)(ia) of the Act based on the scope of Sections
\n194C and 201 of the Act, although such an approach is impermissible while
\ninterpreting a provision in the taxing statute.
\n10.3. Learned counsel for the appellant has argued in the alternative that
\nthe said sub-clause (ia), having been inserted to clause (a) of Section 40 of the
\nAct with effect from 01.04.2005 by the Finance (No.2) Act, 2004, would apply
\nonly from the financial year 2005-2006 and hence, cannot apply to the present
\ncase pertaining to the financial year 2004-2005. In support, the learned
\n18
\ncounsel has referred to and relied upon the decision of Calcutta High Court in
\nthe case of PIU Ghosh v. Deputy Commissioner of Income-Tax & Ors.:
\n(2016) 386 ITR 322. Supplemental to these contentions, the learned counsel
\nhas also argued that, in any case, the Finance (No.2) Act, 2004 received the
\nassent of the President of India on 10.09.2004 and hence, the rigour of subclause
\n(ia) of Section 40(a) of the Act cannot be applied in relation to the
\npayments already made before 10.09.2004, the date of introduction of this
\nprovision.
\n10.3.1. In yet another alternative, learned counsel for the appellant has
\nreferred to the amendment made to Section 40(a)(ia) of the Act by the Finance
\n(No.2) Act, 2014, restricting and limiting the extent of disallowance to 30% of
\nthe expenditure and has submitted that the said amendment, being curative in
\nnature and having been introduced to ameliorate the hardships faced by the
\nassessees, deserves to be applied retrospectively and from the date of
\nintroduction of sub-clause (ia) to Section 40(a) of the Act. The learned counsel
\nhas developed this argument by relying on the decision in Commissioner of
\nIncome-Tax v. Calcutta Export Company: (2018) 404 ITR 654, wherein this
\nCourt has held the remedial amendment of Section 40(a)(ia) of the Act by the
\nFinance Act, 2010 to be retrospective in nature and applicable from the date
\nof insertion of the said provision.
\n10.4. Learned counsel for the appellant has lastly submitted that the result
\nof applying the provisions in question to the entire payment practically leads to
\na highly incongruous position that whole of the receipt from company is treated
\n19
\nas the income of the appellant and taxed accordingly, but without due
\nprovision towards necessary expenses. According to the learned counsel, in
\nsuch contracts, the annual income of the transport contractor like the appellant
\ncannot be, and is not, to the extent of about Rs. 57 lakhs, as sought to be
\ntaxed in the present matter.
\nRespondent
\n11. Per contra, the learned counsel for respondent-revenue has duly
\nsupported the orders impugned, essentially with reference to the reasonings
\ntherein and also with reference to the decision of this Court in Palam Gas
\nService (supra).
\n11.1. Learned counsel for the revenue has, in the first place, contended
\nwith reference to the decided cases that the concurrent findings of fact
\nrecorded by the authorities and ITAT, as affirmed by the High Court call for no
\ninterference for no case of apparent perversity being made out.
\n11.2. Learned counsel has further submitted that the appellant admittedly
\ncarried out the work of transportation by hiring the trucks and made payments
\nto the operators\/owners while issuing an invoice\/bilty\/challan for every such
\nhiring, which constituted a separate contract\/sub-contract. According to the
\nlearned counsel, in such dealings, the appellant was required to deduct tax at
\nsource in terms of Section 194C of the Act when making payment to any truck
\noperator\/owner in the sum exceeding Rs. 20,000\/-; and the appellant having
\nfailed to do so, the provisions of Section 40(a)(ia) have rightly been invoked.
\n20
\n11.3. Learned counsel for the revenue has made elaborate reference to
\nthe decision of this Court in the case of Palam Gas Service (supra) and has
\nsubmitted that the principal contention on the part of the appellant, that the
\nexpression \u201cpayable\u201d, as occurring in Section 40(a)(ia) of the Act, refers only to
\nthose cases where the amount is yet to be paid and does not cover the cases
\nwhere the amount is actually paid, has been duly considered and specifically
\nrejected by this Court; and the said decision squarely covers the present
\nmatter. The learned counsel has argued that in the case of Palam Gas
\nService (supra), this Court having holistically examined the scheme of the
\nprovisions in question, there is no scope for reconsideration of the said
\ndecision; and this appeal deserves to be dismissed for the question sought to
\nbe raised as regard interpretation of Section 40(a)(ia) of the Act being no more
\nres integra.
\n11.4. Learned counsel for the revenue has further contended that the
\namendment to Section 40(a) of the Act with insertion of sub-clause (ia) by the
\nFinance (No. 2) Act, 2004 with effect from 01.04.2005 directly applies to the
\nassessment year 2005-2006; and for the appellant having failed to deduct tax
\nat source from the payment made to the sub-contractors for the work of
\ntransportation, deduction of such payment has rightly been disallowed.
\n11.5. The learned counsel has also argued that the proviso to Section
\n40(a)(ia) of the Act, as inserted by the Finance Act, 2014, does not apply to the
\ncase at hand pertaining to the assessment year 2005-2006 and hence, the
\n21
\nargument for curative benefit with reference to the said proviso does not hold
\nthe ground.
\nQuestions for determination
\n12. Having regard to the submissions made by the learned counsel for
\nthe parties and the observations occurring in the orders impugned, the
\nprincipal questions arising for determination in this appeal could be stated as
\nfollows:-
\n1. As to whether Section 194C of the Act does not apply to the
\npresent case?
\n2. As to whether disallowance under Section 40(a)(ia) of the Act is
\nconfined\/limited to the amount \u201cpayable\u201d and not to the amount
\n\u201calready paid\u201d; and whether the decision of this Court in Palam Gas
\nService v. Commissioner of Income-Tax: (2017) 394 ITR 300
\nrequires reconsideration?
\n3. As to whether sub-clause (ia) of Section 40(a) of the Act, as
\ninserted by the Finance (No. 2) Act, 2004 with effect from
\n01.04.2005, is applicable only from the financial year 2005-2006
\nand, hence, is not applicable to the present case relating to the
\nfinancial year 2004-2005; and, at any rate, whole of the rigour of this
\nprovision cannot be applied to the present case?
\n4. As to whether the payments in question have rightly been
\ndisallowed from deduction while computing the total income of the
\nassessee-appellant?
\n22
\nRelevant Provisions
\n13. For determination of the questions aforesaid, we need to closely look
\nat the statutory provisions in the Act of 1961 which have material bearing on
\nthis case.
\n13.1. It is noticed that elaborate provisions have been made in Chapter
\nXVII of the Act of 1961 for \u201cCollection and Recovery of Tax\u201d and Part B thereof
\ncarries the provisions concerning \u201cDeduction at Source\u201d. Sections 194C, 200
\nand 201, which have come in reference in the present matter, are contained in
\nthis part and the same, as existing at the relevant point of time pertaining to
\nthe assessment year 2005-2006, may be usefully noticed.
\n13.1.1. The liability against the appellant has basically arisen because of its
\nalleged non-compliance of the requirements of Section 194C of the Act. At the
\nrelevant point of time, this provision read as under:-
\n\u201c194C. Payments to contractors and sub-contractors.-
\n(1) Any person responsible for paying any sum to any
\nresident (hereafter in this section referred to as the
\ncontractor) for carrying out any work (including supply of
\nlabour for carrying out any work) in pursuance of a contract
\nbetween the contractor and-
\n(a) the Central Government or any State Government;
\nor
\n(b) any local authority; or
\n(c) any corporation established by or under a Central,
\nState or Provincial Act; or
\n(d) any company; or
\n(e) any co-operative society; or
\n(f) any authority, constituted in India by or under any
\nlaw, engaged either for the purpose of dealing with
\nand satisfying the need for housing accommodation
\nor for the purpose of planning, development or
\nimprovement of cities, towns and villages, or for
\nboth; or
\n23
\n(g) any society registered under the Societies
\nRegistration Act, 1860 (21 of 1860) or under any law
\ncorresponding to that Act in force in any part of
\nIndia; or
\n(h) any trust; or
\n(i) any University established or incorporated by or
\nunder a Central, State or Provincial Act and an
\ninstitution declared to be a University under section
\n3 of the University Grants Commission Act, 1956 (3
\nof 1956); or
\n(j) any firm,
\nshall, at the time of credit of such sum to the account of the
\ncontractor or at the time of payment thereof in cash or by
\nissue of a cheque or draft or by any other mode, whichever is
\nearlier, deduct an amount equal to-
\n(i) one per cent in case of advertising,
\n(ii)in any other case two per cent,
\nof such sum as income-tax on income comprised therein.
\n(2) Any person (being a contractor and not being an
\nindividual or a Hindu undivided family) responsible for paying
\nany sum to any resident (hereafter in this section referred to
\nas the sub-contractor) in pursuance of a contract with the
\nsub-contractor for carrying out, or for the supply of labour for
\ncarrying out, the whole or any part of the work undertaken by
\nthe contractor or for supplying whether wholly or partly any
\nlabour which the contractor has undertaken to supply shall, at
\nthe time of credit of such sum to the account of the subcontractor
\nor at the time of payment thereof in cash or by
\nissue of a cheque or draft or by any other mode, whichever is
\nearlier, deduct an amount equal to one per cent of such sum
\nas income-tax on income comprised therein:
\nProvided that an individual or a Hindu undivided family,
\nwhose total sales, gross receipts or turnover from the
\nbusiness or profession carried on by him exceed the
\nmonetary limits specified under clause (a) or clause (b) of
\nsection 44AB during the financial year immediately preceding
\nthe financial year in which such sum is credited or paid to the
\naccount of the sub-contractor, shall be liable to deduct
\nincome-tax under this sub-section.
\nExplanation I.- For the purposes of sub-section (2), the
\nexpression \u201ccontractor\u201d shall also include a contractor who is
\ncarrying out any work (including supply of labour for carrying
\nout any work) in pursuance of a contract between the
\ncontractor and the Government of a foreign State or a foreign
\nenterprise or any association or body established outside
\nIndia.
\n24
\nExplanation II. -For the purposes of this section, where any
\nsum referred to in sub-section (1) or sub-section (2) is
\ncredited to any account, whether called \u201cSuspense account\u201d
\nor by any other name, in the books of account of the person
\nliable to pay such income, such crediting shall be deemed to
\nbe credit of such income to the account of the payee and the
\nprovisions of this section shall apply accordingly.
\nExplanation III. \u2013 For the purposes of this section, the
\nexpression \u201cWork\u201d shall also include-
\n(a) advertising;
\n(b) broadcasting and telecasting including production of
\nprogrammes for such broadcasting or telecasting;
\n(c) carriage of goods and passengers by any mode of
\ntransport other than by railways;
\n(d) catering.
\n(3) No deduction shall be made under sub-section (1) or
\nsub-section (2) from-
\n(i) the amount of any sum credited or paid or likely to be
\ncredited or paid to the account of, or to, the contractor or subcontractor,
\nif such sum does not exceed twenty thousand
\nrupees:
\nProvided that where the aggregate of the amounts of such
\nsums credited or paid or likely to be credited or paid during
\nthe financial year exceeds fifty thousand rupees, the person
\nresponsible for paying such sums referred to in sub-section
\n(1) or, as the case may be, sub-section (2) shall be liable to
\ndeduct income-tax under this section; or
\n(ii) any sum credited or paid before the 1st day of June, 1972;
\nor
\n(iii) any sum credited or paid before the 1st day of June, 1973,
\nin pursuance of a contract between the contractor and a cooperative
\nsociety or in pursuance of a contract between such
\ncontractor and the sub-contractor in relation to any work
\n(including supply of labour for carrying out any work)
\nundertaken by the contractor for the co-operative society.\u201d
\n13.1.2. Sections 200 and 201 of the Act, respectively dealing with the duty of
\nthe person deducting tax and consequences on failure to deduct or pay, as
\napplicable at the relevant time, could also be reproduced as under:-
\n\u201c200. Duty of person deducting tax.
\n25
\n(1) Any person deducting any sum in accordance with the
\nforegoing provisions of this Chapter9, shall pay within the
\nprescribed time, the sum so deducted to the credit of the
\nCentral Government or as the Board directs.
\n(2) Any person being an employer, referred to in sub-section
\n(1A) of section 192 shall pay, within the prescribed time, the
\ntax to the credit of the Central Government or as the Board
\ndirects.10
\n(3) Any person deducting any sum on or after the 1st day of
\nApril, 2005 in accordance with the foregoing provisions of this
\nChapter or, as the case may be, any person being an
\nemployer referred to in sub-section (1A) of section 192 shall,
\nafter paying the tax deducted to the credit of the Central
\nGovernment within the prescribed time, prepare quarterly
\nstatements for the period ending on the 30th June, the 30th
\nSeptember, the 31st December and the 31st March in each
\nfinancial year and deliver or cause to be delivered to the
\nprescribed income-tax authority or the person authorised by
\nsuch authority such statement in such form and verified in
\nsuch manner and setting forth such particulars and within
\nsuch time as may be prescribed.11
\n201. Consequences of failure to deduct or pay.
\n(1) If any such person referred to in section 200 and in the
\ncases referred to in section 194, the principal officer and the
\ncompany of which he is the principal officer does not deduct
\nthe whole or any part of the tax or after deducting fails to pay
\nthe tax as required by or under this Act, he or it shall, without
\nprejudice to any other consequences which he or it may
\nincur, be deemed to be an assessee in default in respect of
\nthe tax:
\nProvided that no penalty shall be charged under section 221
\nfrom such person, principal officer or company unless the
\nAssessing Officer is satisfied that such person or principal
\nofficer or company, as the case may be, has without good
\nand sufficient reasons failed to deduct and pay the tax.
\n(1A) Without prejudice to the provisions of sub-section (1), if
\nany such person, principal officer or company as is referred
\n9 The words \u201cthe foregoing provisions of this Chapter\u201d were substituted for the previous expressions
\ncarrying various provisions of the Act, by the Finance (No. 2) Act, 2004, w.e.f. 01.10.2004.
\n10 Sub-section (2) was inserted by the Finance Act, 2002.
\n11 Sub-section (3) was inserted by the Finance (No.2) Act, 2004, w.e.f. 01.04.2005.
\n26
\nto in that sub-section does not deduct the whole or any part
\nof the tax or after deducting fails to pay the tax as required by
\nor under this Act, he or it shall be liable to pay simple interest
\nat twelve per cent per annum on the amount of such tax from
\nthe date on which such tax was deductible to the date on
\nwhich such tax is actually paid.
\n(2) Where the tax has not been paid as aforesaid after it is
\ndeducted, the amount of the tax together with the amount of
\nsimple interest thereon referred to in sub-section (1A) shall
\nbe a charge upon all the assets of the person, or the
\ncompany, as the case may be, referred to in sub-section (1).\u201d
\n13.2. Chapter IV of the Act of 1961 deals with the subject \u201cComputation of
\nTotal Income\u201d and Section 40 occurs in Part D thereof, carrying the provisions
\nrelating to the \u201cProfits and Gains of Business or Profession\u201d. Even when
\nSections 30 to 38 provide for various allowances and deductions in
\ncomputation of the income from profits and gains of business or profession,
\nSection 40 specifically ordains that certain amounts shall not be deducted,
\nnotwithstanding anything to the contrary contained in the said Sections 30 to
\n38 of the Act. In the present matter, we are concerned with the provisions
\ncontained in sub-clause (ia) of clause (a) of Section 40 of the Act, which was
\ninserted by the Finance (No. 2) Act, 2004 with effect from 01.04.2005. Hence,
\nthe extraction hereunder is essentially of the provision that could be read as
\nSection 40(a)(ia) of the Act after insertion by the Finance (No. 2) Act, 2004: –
\n\u201c40. Amounts not deductible. – Notwithstanding anything to
\nthe contrary in sections 30 to 38, the following amounts shall
\nnot be deducted in computing the income chargeable under
\nthe head \u201cProfits and gains of business or profession\u201d,-
\n(a) in the case of any assessee-
\n*** *** ***
\n(ia) any interest, commission or brokerage, fees for
\nprofessional services or fees for technical services payable
\n27
\nto a resident, or amounts payable to a contractor or subcontractor,
\nbeing resident, for carrying out any work
\n(including supply of labour for carrying out any work), on
\nwhich tax is deductible at source under Chapter XVII-B and
\nsuch tax has not been deducted or, after deduction, has not
\nbeen paid during the previous year, or in the subsequent year
\nbefore the expiry of the time prescribed under sub-section (1)
\nof section 200:
\nProvided that where in respect of any such sum, tax has
\nbeen deducted in any subsequent year or, has been
\ndeducted in the previous year but paid in any subsequent
\nyear after the expiry of the time prescribed under sub-section
\n(1) of section 200, such sum shall be allowed as a deduction
\nin computing the income of the previous year in which such
\ntax has been paid.
\nExplanation.- For the purposes of this sub-clause,-
\n(i) \u201ccommission or brokerage\u201d shall have the same meaning
\nas in clause (i) of the Explanation to section 194H;
\n(ii) \u201cfees for technical services\u201d shall have the same meaning
\nas in Explanation 2 to clause (vii) of sub-section (1) of
\nsection 9;
\n(iii) \u201cprofessional services\u201d shall have the same meaning as
\nin clause (a) of the Explanation to section 194J;
\n(iv) \u201cwork\u201d shall have the same meaning as in Explanation III
\nto section 194C;
\n*** *** ***\u201d12
\n13.3. Section 43 in the very same Part D of Chapter IV of the Act of 1961
\ndefines various terms relevant to the income from profits and gains of business
\nor profession; and clause (2) thereof, carrying the definition of the expression
\n\u201cpaid\u201d, having been referred in the present matter, could also be usefully
\nreproduced as under:-
\n\u201c43. Definitions of certain terms relevant to income from
\nprofits and gains of business or profession. – In sections
\n12 We may usefully indicate that Section 40(a)(ia) of the Act has undergone several amendments
\nfrom time to time and in one segment of arguments, the amendments as made in the years 2010 and
\n2014, have been referred on behalf of the appellant. We shall refer to the relevant contents of this
\nprovision after such amendments while dealing with that part of arguments at the appropriate juncture
\nhereafter later.
\n28
\n28 to 41 and in this section, unless the context otherwise
\nrequires-
\n*** *** ***
\n(2) \u201cpaid\u201d means actually paid or incurred according to the
\nmethod of accounting upon the basis of which the profits or
\ngains are computed under the head \u201cProfits and gains of
\nbusiness or profession\u201d;
\n*** *** ***\u201d
\n13.4. For their relevance in relation to another segment of arguments, we
\nmay also take note of the meaning assigned to the expression \u201cassessment
\nyear\u201d in clause (9) of Section 2; and to the expression \u201cprevious year\u201d in
\nSection 3 of the Act of 1961 as follows: –
\n\u201c2. Definitions.- In this Act, unless the context otherwise
\nrequires,-
\n*** *** ***
\n(9) \u201cassessment year\u201d means the period of twelve months
\ncommencing on the 1st day of April every year;
\n*** *** ***\u201d
\n\u201c3. \u201cPrevious year\u201d defined.- For the purposes of this Act,
\n\u201cprevious year\u201d means the financial year immediately
\npreceding the assessment year:
\n*** *** ***\u201d
\n14. We may now take up the questions involved in this matter ad
\nseriatim.
\nQuestion No.1
\n15. In order to maintain that the appellant was under no obligation to
\nmake any deduction of tax at source, it has been argued that there was no
\noral or written contract of the appellant with the truck operators\/owners, whose
\nvehicles were engaged to execute the work of transportation of the goods only
\non freelance and need basis. The submission has been that the question of
\nTDS under Section 194C(2) would have arisen only if the payment was made
\n29
\nto a \u201csub-contractor\u201d and that too, in pursuance of a contract for the purpose
\nof \u201ccarrying whole or any part of work undertaken by the contractor\u201d. In our
\nview, the submissions so made remain entirely baseless.
\n15.1. The nature of contract entered into by the appellant with the
\nconsignor company makes it clear that the appellant was to transport the
\ngoods (cement) of the consignor company; and in order to execute this
\ncontract, the appellant hired the transport vehicles, namely, the trucks from
\ndifferent operators\/owners. The appellant received freight charges from the
\nconsignor company, who indeed deducted tax at source while making such
\npayment to the appellant. Thereafter, the appellant paid the charges to the
\npersons whose vehicles were hired for the purpose of the said work of
\ntransportation of goods. Thus, the goods in question were transported through
\nthe trucks employed by the appellant but, there was no privity of contract
\nbetween the truck operators\/owners and the said consignor company.
\nIndisputably, it was the responsibility of the appellant to transport the goods
\n(cement) of the company; and how to accomplish this task of transportation
\nwas a matter exclusively within the domain of the appellant. Hence, hiring the
\nservices of truck operators\/owners for this purpose could have only been
\nunder a contract between the appellant and the said truck operators\/owners.
\nWhether such a contract was reduced into writing or not carries hardly any
\nrelevance. In the given scenario and set up, the said truck operators\/owners
\nanswered to the description of \u201csub-contractor\u201d for carrying out the whole or
\n30
\npart of the work undertaken by the contractor (i.e., the appellant) for the
\npurpose of Section 194C(2) of the Act.
\n15.2. The suggestions on behalf of the appellant that the said truck
\noperators\/owners were not bound to supply the trucks as per the need of the
\nappellant nor the freight payable to them was pre-determined, in our view,
\ncarry no meaning at all. Needless to observe that if a particular truck was not
\nengaged, there existed no contract but, when any truck got engaged for the
\npurpose of execution of the work undertaken by the appellant and freight
\ncharges were payable to its operator\/owner upon execution of the work, i.e.,
\ntransportation of the goods, all the essentials of making of a contract existed;
\nand, as aforesaid, the said truck operator\/owner became a sub-contractor for
\nthe purpose of the work in question. The AO, CIT(A) and the ITAT have
\nconcurrently decided this issue against the appellant with reference to the
\nfacts of the case, particularly after appreciating the nature of contract of the
\nappellant with the consignor company as also the nature of dealing of the
\nappellant, while holding that the truck operators\/owners were engaged by the
\nappellant as sub-contractors. The same findings have been endorsed by the
\nHigh Court in its short order dismissing the appeal of the appellant. We are
\nunable to find anything of error or infirmity in these findings.
\n15.3. The decision of Delhi High Court in the case of Hardarshan Singh
\n(supra), in our view, has no application whatsoever to the facts of the present
\ncase. The assessee therein, who was in the business of transporting goods,
\nhad four trucks of his own and was also acting as a commission agent by
\n31
\narranging for transportation through other transporters. As regards the income
\nof assessee relatable to transportation through other transporters, it was found
\nthat the assessee had merely acted as a facilitator or as an intermediary
\nbetween the two parties (i.e., the consignor company and the transporter) and
\nhad no privity of contract with either of such parties inasmuch as he only
\ncollected freight charges from the clients who intended to transport their goods
\nthrough other transporters; and the amount thus collected from the clients was
\npaid to those transporters by the assessee while deducting his commission.
\nLooking to the nature of such dealings, the said assessee was held to be \u201cnot
\nthe person responsible\u201d for making payments in terms of Section 194C of the
\nAct and hence, having no obligation to deduct tax at source. In
\ncontradistinction to the said case of Hardarshan Singh, the appellant of the
\npresent case was not acting as a facilitator or intermediary between the
\nconsignor company and the truck operators\/owners because those two parties
\nhad no privity of contract between them. The contract of the company, for
\ntransportation of its goods, had only been with the appellant and it was the
\nappellant who hired the services of the trucks. The payment made by the
\nappellant to such a truck operator\/owner was clearly a payment made to a
\nsub-contractor.
\n15.4. Though the decision of this Court in the case of Palam Gas Service
\n(supra) essentially relates to the interpretation of Section 40(a)(ia) of the Act
\nand while the relevant aspects concerning the said provision shall be
\nexamined in the next question but, for the present purpose, the facts of that
\n32
\ncase could be usefully noticed, for being akin to the facts of the present case
\nand being of apposite illustration. Therein, the assessee was engaged in the
\nbusiness of purchase and sale of LPG cylinders whose main contract for
\ncarriage of LPG cylinders was with Indian Oil Corporation, Baddi wherefor, the
\nassessee received freight payments from the principal. The assessee got the
\ntransportation of LPG done through three persons to whom he made the
\nfreight payments. The Assessing Officer held that the assessee had entered
\ninto a sub-contract with the said three persons within the meaning of Section
\n194C of the Act. Such findings of AO were concurrently upheld up to the High
\nCourt and, after interpretation of Section 40(a)(ia), this Court also approved
\nthe decision of the High Court while dismissing the appeal with costs. Learned
\ncounsel for the appellant has made an attempt to distinguish the nature of
\ncontract in Palam Gas Service by suggesting that therein, the assessee\u2019s
\nsub-contractors were specific and identified persons with whom the assessee
\nhad entered into contract whereas the present appellant was free to hire the
\nservice of any truck operator\/owner and, in fact, the appellant hired the trucks
\nonly on need basis. In our view, such an attempt of differentiation is totally
\nbaseless and futile. Whether the appellant had specific and identified trucks
\non its rolls or had been picking them up on freelance basis, the legal effect on
\nthe status of parties had been the same that once a particular truck was
\nengaged by the appellant on hire charges for carrying out the part of work
\nundertaken by it (i.e., transportation of the goods of the company), the
\n33
\noperator\/owner of that truck became the sub-contractor and all the
\nrequirements of Section 194C came into operation.
\n15.5. Thus, we have no hesitation in affirming the concurrent findings in
\nregard to the applicability of Section 194C to the present case. Question No.1
\nis, therefore, answered in the negative; against the assessee-appellant and in
\nfavour of the revenue.
\nQuestion No.2.
\n16. While taking up the question of interpretation of Section 40(a)(ia), it
\nmay be usefully noticed that Section 194C is placed in Chapter XVII of the Act
\non the subject \u201cCollection and Recovery of Tax\u201d; and specific provisions are
\nmade in the Act to ensure that the requirements of Section 194C are met and
\ncomplied with, while also providing for the consequences of default. As
\nnoticed, Section 200 specifically provides for the duties of the person
\ndeducting tax to deposit and submit the statement to that effect. The
\nconsequences of failure to deduct or pay the tax are then provided in Section
\n201 of the Act which, as noticed, puts such defaulting person in the category
\nof \u201cthe assessee in default in respect of the tax\u201d apart from other
\nconsequences which he or it may incur. The aspect relevant for the present
\npurpose is that Section 40 of the Act, and particularly the provision contained
\nin sub-clause (ia) of clause (a) thereof, indeed provides for one of such
\nconsequences.
\n16.1. Section 40(a)(ia) provides for the consequences of default in the
\ncase where tax is deductible at source on any interest, commission, brokerage
\n34
\nor fees but had not been so deducted, or had not been paid after deduction
\n(during the previous year or in the subsequent year before expiry of the
\nprescribed time) in the manner that the amount of such interest, commission,
\nbrokerage or fees shall not be deducted in computing the income chargeable
\nunder \u201cprofits and gains of business or profession\u201d. In other words, it shall be
\ncomputed as income of the assessee because of his default in not deducting
\nthe tax at source.
\n16.2. In the overall scheme of the provisions relating to collection and
\nrecovery of tax, it is evident that the object of legislature in introduction of the
\nprovisions like sub-clause (ia) of clause (a) of Section 40 had been to ensure
\nstrict and punctual compliance of the requirement of deducting tax at source.
\nIn other words, the consequences, as provided therein, had the underlying
\nobjective of ensuring compliance of the requirements of TDS. It is also
\nnoteworthy that in the proviso added to clause (ia) of Section 40(a) of the Act,
\nit was provided that where in respect of the sum referable to TDS requirement,
\ntax has been deducted in any subsequent year, or has been deducted during
\nthe previous year but paid in any subsequent year after the expiry of the time
\nprescribed in Section 200(1), such sum shall be allowed as a deduction in
\ncomputing the income of the previous year in which such tax has been paid.
\n16.3. The purpose and coverage of this provision as also protection
\ntherein have been tersely explained by this Court in the case of Calcutta
\nExport Company (supra), which has been cited by learned counsel for the
\nappellant in support of another limb of submissions which we shall be dealing
\n35
\nwith in the next question. For the present purpose, we may notice the relevant
\nobservations of this Court in Calcutta Export Company as regards Section
\n40(a)(ia) of the Act as follows (at p. 662 of ITR):-
\n\u201c16. The purpose is very much clear from the above referred
\nexplanation by the Memorandum that it came with a purpose
\nto ensure tax compliance. The fact that the intention of the
\nLegislature was not to punish the assessee is further
\nreflected from a bare reading of the provisions of section
\n40(a)(ia) of the Income-tax Act. It only results in shifting of the
\nyear in which the expenditure can be claimed as deduction.
\nIn a case where the tax deducted at source was duly
\ndeposited with the Government within the prescribed time,
\nthe said amount can be claimed as a deduction from the
\nincome in the previous year in which the TDS was deducted.
\nHowever, when the amount deducted in the form of TDS was
\ndeposited with the Government after the expiry of period
\nallowed for such deposit then the deductions can be claimed
\nfor such deposited TDS amount only in the previous year in
\nwhich such payment was made to the Government.\u201d
\n16.4. Taking up the question as to whether disallowance under Section
\n40(a)(ia) of the Act is confined to the amount \u201cpayable\u201d and not to the amount
\n\u201calready paid\u201d, we find that these aspects of interpretation do not require
\nmuch dilation in view of the ratio of the decision of this Court in the case of
\nPalam Gas Service (supra).
\n16.5. In fact, the decision in Palam Gas Service (supra) is a direct answer
\nto all the contentions urged on behalf of the appellant in the present case. In
\nthat case, this Court approved the views of Punjab and Haryana High Court in
\nthe case of P.M.S. Diesels and Ors. v. Commissioner of Income-Tax:
\n(2015) 374 ITR 562 as regards mandatory nature of the provisions relating to
\nthe liability to deduct tax at source in the following words (at pp. 306-308 of
\nITR):-
\n36
\n\u201c11. The Punjab & Haryana High Court in P.M.S. Diesels v.
\nCIT [2015] 374 ITR 562 (P&H), has held these provisions to
\nbe mandatory in nature with the following observations:
\n\u201cThe liability to deduct tax at source under the
\nprovisions of Chapter XVII is mandatory. A person
\nresponsible for paying any sum is also liable to
\ndeposit the amount in the Government account. All
\nthe sections in Chapter XVII-B require a person to
\ndeduct the tax at source at the rates specified therein.
\nThe requirement in each of the sections is preceded
\nby the word \u2018shall\u2019. The provisions are, therefore,
\nmandatory. There is nothing in any of the sections that
\nwould warrant our reading the word \u2018shall\u2019 as \u2018may\u2019.
\nThe point of time at which the deduction is to be made
\nalso establishes that the provisions are mandatory.
\nFor instance, under section 194C, a person
\nresponsible for paying the sum is required to deduct
\nthe tax “at the time of credit of such sum to the
\naccount of the contractor or at the time of the
\npayment thereof. ……\u2019\u201d
\n12. While holding the aforesaid view, the Punjab and
\nHaryana High Court discussed the judgments of the Calcutta
\nand Madras High Courts, which had taken the same view,
\nand concurred with the same, which is clear from the
\nfollowing discussion contained in the judgment of the Punjab
\nand Haryana High Court:
\n\u201cA Division Bench of the Calcutta High Court in CIT v.
\nCrescent Export Syndicate [2013] 216 Taxman 258
\n(Cal) held :
\n\u201813. \u2026
\n\u2018The term \u201cshall\u201d used in all these sections
\nmake it clear that these are mandatory
\nprovisions and applicable to the entire sum
\ncontemplated under the respective sections.
\nThese sections do not give any leverage to the
\nassessee to make the payment without making
\nTDS. On the contrary, the intention of the
\nLegislature is evident from the fact that timing of
\ndeduction of tax is earliest possible opportunity
\nto recover tax, either at the time of credit in the
\naccount of payee or at the time of payment to
\npayee, whichever is earlier.\u2019
\nMs. Dhugga invited our attention to a judgment of the
\nDivision Bench of the Madras High Court in Tube
\nInvestments of India Ltd. v. Asst. CIT (TDS) [2010]
\n325 ITR 610 (Mad). The Division Bench referred to
\n37
\nthe statistics placed before it by the Department which
\ndisclosed that TDS collection had augmented the
\nrevenue. The gross collection of advance tax,
\nsurcharge, etc. was Rs 2,75,857.70 crores in the
\nfinancial year 2008-09 of which the TDS component
\nalone constituted Rs 1,30,470.80 crores. The Division
\nBench observed that introduction of section 40(a)(ia)
\nhad achieved the objective of augmenting the TDS to
\na substantial extent. The Division Bench also
\nobserved that when the provisions and procedures
\nrelating to TDS are scrupulously applied, it also
\nensured the identification of the payees thereby
\nconfirming the network of assessees and that once
\nthe assessees are identified it would enable the tax
\ncollection machinery to bring within its fold all such
\npersons who are liable to come within the network of
\ntaxpayers. These objects also indicate the legislative
\nintent that the requirement of deducting tax at source
\nis mandatory.
\nThe liability to deduct tax at source is, therefore,
\nmandatory.\u201d
\n13. The aforesaid interpretation of sections 194C
\nconjointly with section 200 and rule 30(2) is unblemished
\nand without any iota of doubt. We, thus, give our
\nimprimatur to the view taken\u2026…\u201d
\n(emphasis in bold supplied)
\n16.5.1. Having said that deducting tax at source is obligatory, this Court
\nproceeded to deal with the issue as to whether the word ‘payable’ in Section
\n40(a)(ia) would cover only those cases where the amount is payable and not
\nwhere it has actually been paid. This Court took note of the exhaustive
\ninterpretation of various aspects related with this issue by the Punjab and
\nHaryana High Court in the case of P.M.S. Diesels (supra) as also by the
\nCalcutta High Court in the case of Commissioner of Income-Tax, Kolkata-
\nXI v. Crescent Export Syndicate: (2013) 216 Taxman 258; and while
\napproving the same, this Court held, as regards implication and connotation of
\nthe expression \u201cpayable\u201d used in this provision, as follows (at p. 310 of ITR):-
\n38
\n\u201c15. We approve the aforesaid view as well. As a fortiori, it
\nfollows that section 40(a)(ia) covers not only those cases
\nwhere the amount is payable but also when it is paid. In
\nthis behalf, one has to keep in mind the purpose with which
\nsection 40 was enacted and that has already been noted
\nabove. We have also to keep in mind the provisions of
\nsections 194C and 200. Once it is found that the aforesaid
\nsections mandate a person to deduct tax at source not only
\non the amounts payable but also when the sums are actually
\npaid to the contractor, any person who does not adhere to
\nthis statutory obligation has to suffer the consequences
\nwhich are stipulated in the Act itself. Certain consequences
\nof failure to deduct tax at source from the payments made,
\nwhere tax was to be deducted at source or failure to pay the
\nsame to the credit of the Central Government, are stipulated
\nin section 201 of the Act. This section provides that in that
\ncontingency, such a person would be deemed to be an
\nassessee in default in respect of such tax. While stipulating
\nthis consequence, section 201 categorically states that the
\naforesaid sections would be without prejudice to any other
\nconsequences which that defaulter may incur. Other
\nconsequences are provided under section 40(a)(ia) of the
\nAct, namely, payments made by such a person to a
\ncontractor shall not be treated as deductible expenditure.
\nWhen read in this context, it is clear that section 40(a)(ia)
\ndeals with the nature of default and the consequences
\nthereof. Default is relatable to Chapter XVII-B (in the instant
\ncase sections 194C and 200, which provisions are in the
\naforesaid Chapter). When the entire scheme of obligation
\nto deduct the tax at source and paying it over to the
\nCentral Government is read holistically, it cannot be held
\nthat the word \u201cpayable\u201d occurring in section 40(a)(ia)
\nrefers to only those cases where the amount is yet to be
\npaid and does not cover the cases where the amount is
\nactually paid. If the provision is interpreted in the manner
\nsuggested by the appellant herein, then even when it is found
\nthat a person, like the appellant, has violated the provisions
\nof Chapter XVII-B (or specifically sections 194C and 200 in
\nthe instant case), he would still go scot-free, without suffering
\nthe consequences of such monetary default in spite of
\nspecific provisions laying down these consequences\u2026…\u201d
\n(emphasis in bold supplied)
\n16.6. We may profitably observe that in the case of P.M.S. Diesels
\n(supra), the Punjab and Haryana High Court had extensively dealt with myriad
\n39
\nfeatures of Section 40(a)(ia) of the Act, including the term \u201cpayable\u201d used
\ntherein as also the proviso thereto; and expounded on the entire gamut of this
\nprovision while making reference to Finance (No. 2) Bill of 2004 introducing
\nthe provision and while also drawing support from the views expressed by
\nCalcutta High Court in the case of Crescent Export Syndicate (supra). As
\nregards the interpretation of the term \u201cpayable\u201d, it was observed in P.M.S.
\nDiesels as under (at pp. 574-575 of ITR):-
\n\u201c21. Section 40(a)(ia), therefore, applies not merely to
\nassessees following the mercantile system but also to
\nassessees following the cash system.
\nIf this view is correct and indeed we must proceed on the
\nfooting that it is, it goes a long way in indicating the fallacy in
\nthe appellant’s main contention, namely, if the payments have
\nalready been made by the assessee to the payee\/contracting
\nparty, the provisions of section 40(a)(ia) would not be
\nattracted even if the tax is not deducted and\/or paid over to
\nthe Government account.
\n22. Section 40(a)(ia) refers to the nature of the default and
\nthe consequence of the default. The default is a failure to
\ndeduct the tax at source under Chapter XVII-B or after
\ndeduction the failure to pay over the same to the Government
\naccount. The term “payable” only indicates the type or
\nnature of the payments by the assessees to the
\npersons\/payees referred to in section 40(a)(ia), such as,
\ncontractors. It is not in respect of every payment to a payee
\nreferred to in Chapter XVII-B that an assessee is bound to
\ndeduct tax. There may be payments to persons referred to in
\nChapter XVII-B, which do not attract the provisions of
\nChapter XVII-B. The consequences under section 40(a)(ia)
\nwould only operate on account of failure to deduct tax where
\nthe tax is liable to be deducted under the provisions of the Act
\nand in particular Chapter XVII-B thereof. It is in that sense
\nthat the term “payable” has been used. The term
\n“payable” is descriptive of the payments which attract
\nthe liability to deduct tax at source. It does not
\ncategorize defaults on the basis of when the payments
\nare made to the payees of such amounts which attract
\nthe liability to deduct tax at source.\u201d
\n(emphasis in bold supplied)
\n40
\n16.7. We find the above-extracted observations and reasonings, which
\nhave already been approved by this Court in Palam Gas Service (supra), to
\nbe precisely in accord with the scheme and purpose of Section 40(a)(ia) of the
\nAct; and are in complete answer to the contentions urged by the learned
\ncounsel for the appellant. It is ex facie evident that the term “payable” has
\nbeen used in Section 40(a)(ia) of the Act only to indicate the type or nature of
\nthe payments by the assessees to the payees referred therein. In other words,
\nthe expression “payable” is descriptive of the payments which attract the
\nliability for deducting tax at source and it has not been used in the provision in
\nquestion to specify any particular class of default on the basis as to whether
\npayment has been made or not. The semantical suggestion by the learned
\ncounsel for the appellant, that this expression \u201cpayable\u201d be read in
\ncontradistinction to the expression \u201cpaid\u201d, sans merit and could only be
\nrejected. In a nutshell, while respectfully following Palam Gas Service
\n(supra), we could only iterate our approval to the interpretation by the Punjab
\nand Haryana High Court in P.M.S. Diesels (supra).
\n16.8. Faced with the position that declaration of law in Palam Gas
\nService (supra) practically covers this matter, learned counsel for the
\nappellant has endeavoured to submit that the decision in Palam Gas Service,
\nrequires reconsideration for the reason that certain aspects of law have not
\nbeen considered therein and correct principles of interpretation have not been
\napplied. We are unable to find substance in any of these contentions. The
\ndecision of Co-ordinate Bench in Palam Gas Service (supra) on the core
\n41
\nquestion of law is equally binding on this Bench and could be doubted only if
\nthe view, as taken, is shown to be not in conformity with any binding decision
\nof the Larger Bench or any statutory provisions or any other reason of the like
\nnature. We find none. In fact, a close look at the decision of P.M.S. Diesels
\n(supra), which has been totally approved by this Court in Palam Gas Service,
\nmakes it clear that therein, every aspect of the matter, from a wide range of
\nangles, was examined by the Punjab and Haryana High Court while drawing
\nsupport from the decisions of other High Courts, particularly that of the
\nCalcutta High Court in the case of Crescent Export Syndicate (supra).
\n16.9. We are in respectful agreement with the observations in Palam Gas
\nService that the enunciations in P.M.S. Diesels had been of correct
\ninterpretation of the provisions contained in Section 40(a)(ia) of the Act. The
\ndecision in Palam Gas Service covers the entire matter and the said decision,
\nin our view, does not require any reconsideration. That being the position, the
\ncontention urged on behalf of the appellant that disallowance under Section
\n40(a)(ia) does not relate to the amount already paid stands rejected.
\n16.10. Another contention in regard to Section 40(a)(ia) of the Act, that its
\nscope cannot be decided on the basis of Section 194C, has only been noted
\nto be rejected. The interplay of these provisions is not far to seek where
\nSection 40(a)(ia) is not a stand-alone provision but provides one of those
\nadditional consequences as indicated in Section 201 of the Act for default by a
\nperson in compliance of the requirements of the provisions contained in Part B
\nof Chapter XVII of the Act. The scheme of these provisions makes it clear that
\n42
\nthe default in compliance of the requirements of the provisions contained in
\nPart B of Chapter XVII of the Act (that carries Sections 194C, 200 and 201)
\nleads, inter alia, to the consequence of Section 40(a)(ia) of the Act. Hence, the
\ncontours of Section 40(a)(ia) of the Act could be aptly defined only with
\nreference to the requirements of the provisions contained in Part B of Chapter
\nXVII of the Act, including Sections 194C, 200 and 201. Putting it differently,
\nwhen the obligation of Section 194C of the Act is the foundation of the
\nconsequence provided by Section 40(a)(ia) of the Act, reference to the former
\nis inevitable in interpretation of the latter.
\n16.11. In view of the above, reference to the definition of the term \u201cpaid\u201d in
\nSection 43(2) of the Act is of no assistance to the appellant. Similarly, the
\nobservations in the case of J.K. Synthetics (supra), as regards the difference
\nin connotation of the expressions \u201cpayable\u201d and \u201cpaid\u201d, in the context of
\nliability to pay interest on the tax payable under the Rajasthan Sales Tax Act,
\n1954, has no co-relation whatsoever to the present case. Further, when it is
\nfound that the process of interpretation of Section 40(a)(ia) of the Act in P.M.S.
\nDiesels (supra), as approved by this Court in Palam Gas Service (supra),
\nhad been with due application of the relevant principles, reference to the
\ndecision in the case of Institute of Chartered Accountants of India (supra),
\non the general principles of interpretation, does not advance the case of the
\nappellant in any manner.
\n16.12. In view of the above, Question No.2 is also answered in the
\nnegative; against the assessee-appellant and in favour of the revenue.
\n43
\nQuestion No.3
\n17. Quite conscious of the position that the decision of this Court in
\nPalam Gas Service (supra) practically covers the substance of present matter
\nagainst the assessee, learned counsel for the assessee-appellant has made a
\nfew alternative attempts to argue against the disallowance in question.
\n17.1. The learned counsel would submit that the said sub-clause (ia),
\nhaving been inserted to clause (a) of Section 40 of the Act with effect from
\n01.04.2005 by Finance (No.2) Act, 2004, would apply only from the financial
\nyear 2005-2006 and hence, cannot apply to the present case pertaining to the
\nfinancial year 2004-2005. The learned counsel, of course, drew support to this
\ncontention from the decision of Calcutta High Court in the case of PIU Ghosh
\n(supra).
\n17.1.1. Before proceeding further, it appears apposite to observe, as
\nindicated in paragraph 7.3 hereinbefore, that in the copy of order passed by
\nITAT in this case, there is obvious typographical error on the date of coming
\ninto force of the amendment to Section 40 of the Act of 1961 by the Finance
\n(No.2) Act, 2004 inasmuch as the said amendment was made applicable with
\neffect from 01.04.2005 and not 01.04.2004, as appearing the copy of the order
\nof ITAT. However, this error is not of material bearing because the amendment
\nin question was applicable from and for the assessment year 2005-2006, for
\nthe reasons occurring infra.
\n17.2. Reverting to the contentions urged in this case, there is no doubt
\nthat in PIU Ghosh (supra), the Calcutta High Court, indeed, took the view
\n44
\nwhich the learned counsel for the appellant has canvassed before us. The
\nCalcutta High Court observed that the said Finance (No.2) Act, 2004 got
\npresidential assent on 10.09.2004 and it was provided that the provision in
\nquestion shall stand inserted with effect from 01.04.2005. According to the
\nCalcutta High Court, the assessee could not have foreseen prior to
\n10.09.2004 that any amount paid to a contractor without deducting tax at
\nsource was likely to become not deductible in computation of income under
\nSection 40 and that the legislature, being conscious of the likely predicament,
\nprovided that the provision shall become operative from 01.04.2005. The
\nHigh Court further proceeded to observe that any other interpretation would
\namount to punishing the assessee for no fault of his. The High Court further
\nobserved that Section 11 of the said Finance Act, inserting sub-clause (ia), did
\nnot provide that the same was to become effective from the assessment year
\n2005-2006. We may usefully reproduce the opinion of the Calcutta High Court
\nin the case of PIU Ghosh, as under (at p. 326 of ITR):-
\n\u201c9. Admittedly, the Finance Act, 2004 got presidential assent
\non September 10, 2004. The assessee could not have
\nforeseen prior to September 10, 2004 that any amount paid
\nto a contractor without deducting tax at source was likely to
\nbecome not deductible under section 40. It is difficult to
\nassume that the Legislature was not aware or did not foresee
\nthe aforesaid predicament. The Legislature therefore
\nprovided that the Act shall become operative on April 1, 2005.
\nAny other interpretation shall amount to “punishing the
\nassessee for no fault of his” following the judgment in the
\ncase of Hindustan Electro Graphites Ltd. (supra).
\n10. On top of that, section 4 relied upon by Mr. Agarwal
\nmerely provides for an enactment as regards rate of tax to be
\ncharged in any particular assessment year which has no
\napplication to the case before us. Section 11 of the Finance
\n(No. 2) Act, 2004 by which sub-clause (ia) was added to
\n45
\nsection 40(a) of the Income-tax Act does not provide that the
\nsame was to become effective from the assessment year
\n2005-06. It merely says it shall become effective on April 1,
\n2005 which for reasons already discussed should mean to
\nrefer to the financial year. There is, as such, no scope for any
\nambiguity nor is there any scope for confusion\u2026…\u201d
\n17.3. Learned counsel for the appellant has submitted that the revenue
\nhas accepted the said decision and has not filed any appeal against the same.
\nIt appears, however, that the amount of deduction in the said case was only a
\nsum of Rs. 4,30,386\/- and obviously, the net tax effect in that case, decided on
\n12.07.2016, was on the lower side. In any case, the said decision cannot be
\ntreated as final declaration of law on the subject merely because the same
\nhas not been appealed against. Having examined the law applicable, with
\nrespect, we find it difficult to approve the above-quoted opinion of the Calcutta
\nHigh Court, particularly when it does not appear standing in conformity with
\nthe scheme of assessment of income tax under the Act of 1961 and where the
\nHigh Court seems to have not noticed the proviso to clause (ia) of Section
\n40(a) of the Act forming the part of the amendment in question.
\n17.4. It needs hardly any detailed discussion that in income tax matters,
\nthe law to be applied is that in force in the assessment year in question,
\nunless stated otherwise by express intendment or by necessary implication.
\nAs per Section 4 of the Act of 1961, the charge of income tax is with reference
\nto any assessment year, at such rate or rates as provided in any central
\nenactment for the purpose, in respect of the total income of the previous year
\nof any person. The expression \u201cprevious year\u201d is defined in Section 3 of the
\nAct to mean \u2018the financial year immediately preceding the assessment year\u2019;
\n46
\nand the expression \u201cassessment year\u201d is defined in clause (9) of Section 2 of
\nthe Act to mean \u2018the period of twelve months commencing on the 1st day of
\nApril every year\u2019.
\n17.5. In the case of Commissioner of Income-Tax, West Bengal v.
\nIsthmian Steamship Lines: (1951) 20 ITR 572, a 3-Judge Bench of this
\nCourt exposited on the fundamental principle that \u2018in income-tax matters the
\nlaw to be applied is the law in force in the assessment year unless otherwise
\nstated or implied.\u2019 This decision and various other decisions were considered
\nby the Constitution Bench of this Court in the case of Karimtharuvi Tea
\nEstate Ltd. v. State of Kerala: (1966) 60 ITR 262 and the principles were laid
\ndown in the following terms (at pp. 264-266 of ITR):-
\n\u201cNow, it is well-settled that the Income-tax Act, as it
\nstands amended on the first day of April of any financial
\nyear must apply to the assessments of that year. Any
\namendments in the Act which come into force after the
\nfirst day of April of a financial year, would not apply to
\nthe assessment for that year, even if the assessment is
\nactually made after the amendments come into force.
\n*** *** ***
\nThe High Court has, however relied upon a decision of this
\ncourt in Commissioner of Income-tax v. Isthmian Steamship
\nLines, where it was held as follows :
\n“It will be observed that we are here concerned with
\ntwo datum lines : (1) the 1st of April, 1940, when the
\nAct came into force, and (2) the 1st of April, 1939,
\nwhich is the date mentioned in the amended proviso.
\nThe first question to be answered is whether these
\ndates are to apply to the accounting year or the year
\nof assessment. They must be held to apply to the
\nassessment year, because in income-tax matters the
\nlaw to be applied is the law in force in the
\nassessment year unless otherwise stated or implied.
\nThe first datum line therefore affected only the
\nassessment year of 1940-41, because the
\namendment did not come into force till the 1st of
\n47
\nApril 1940. That means that the old law applied to
\nevery assessment year up to and including the
\nassessment year 1939-40.”
\nThis decision is authority for the proposition that
\nthough the subject of the charge is the income of the
\nprevious year, the law to be applied is that in force in
\nthe assessment year, unless otherwise stated or
\nimplied. The facts of the said decision are different and
\ndistinguishable and the High Court was clearly in error in
\napplying that decision to the facts of the present case.\u201d
\n(emphasis in bold supplied)
\n17.6. We need not multiply on the case law on the subject as the
\nprinciples aforesaid remain settled and unquestionable. Applying these
\nprinciples to the case at hand, we are clearly of the view that the provision in
\nquestion, having come into effect from 01.04.2005, would apply from and for
\nthe assessment year 2005-2006 and would be applicable for the assessment
\nin question. Putting it differently, the legislature consciously made the said
\nsub-clause (ia) of Section 40(a) of the Act effective from 01.04.2005, meaning
\nthereby that the same was to be applicable from and for the assessment year
\n2005-2006; and neither there had been express intendment nor any
\nimplication that it would apply only from the financial year 2005-2006.
\n17.7. The observations of Calcutta High Court in the case of PIU Ghosh
\n(supra) as regards the likely prejudice to an assessee in relation to the
\nfinancial year 2004-2005, in our view, do not relate to any legal grievance or
\nlegal prejudice. The requirement of deducting tax at source was already
\nexisting as per Section 194C of the Act and it was the bounden duty of the
\nappellant to make such deduction of TDS and to make over the same to the
\nrevenue. Section 201 was also in existence which made it clear that default in
\n48
\nmaking deduction in accordance with the provisions of the Act would make the
\nappellant \u201can assessee in default\u201d. The appellant cannot suggest that even if
\nthe obligation of TDS on the payments made by him was existing by virtue of
\nSection 194C(2), he would have honoured such an obligation only if being
\naware of the drastic consequence of default that such payment shall not be
\ndeducted for the purpose of drawing up the assessment.
\n17.7.1. Apart from the above, significant it is to notice that by the
\namendment in question, clause (ia) was added to Section 40(a) of the Act with
\na proviso to the effect that where, in respect of the sum referable to TDS
\nrequirement, tax has been deducted in any subsequent year, or has been
\ndeducted during the previous year but paid in any subsequent year after
\nexpiry of the time prescribed in Section 200(1), such sum shall be allowed as
\na deduction in computing the income of the previous year in which such tax
\nhas been paid. The proviso effectively took care of the case of any bonafide
\nassessee who would earnestly comply with the requirement of deducting the
\ntax at source. It is evident that the said proviso has totally escaped the
\nattention of Calcutta High Court in the case of PIU Ghosh (supra). In fact, the
\nrelaxation by way of the proviso\/s to Section 40(a)(ia) of the Act had further
\nbeen modulated by way of various subsequent amendments to further
\nmitigate the hardships of bonafide assessees, as noticed hereafter later.
\nSuffice it to observe for the present purpose that the said decision in PIU
\nGhosh cannot be regarded as correct on law.
\n49
\n17.8. In fact, if the contention of learned counsel for the appellant read
\nwith the proposition in PIU Ghosh (supra) is accepted and the said sub-clause
\n(ia) of Section 40(a) of the Act is held applicable only from the financial year
\n2005-2006, the result would be that this provision would apply only from the
\nassessment year 2006-2007. Such a result is neither envisaged nor could be
\ncountenanced. Hence, the contention that sub-clause (ia), of clause (a) of
\nSection 40 of the Act would apply only from the financial year 2005-2006 and
\ncannot apply to the present case pertaining to the financial year 2004-2005
\nstands rejected.
\n18. The supplemental submission that in any case, disallowance cannot
\nbe applied to the payments already made prior to 10.09.2004, the date on
\nwhich the Finance (No.2) Act, 2004 received the assent of the President of
\nIndia, remains equally baseless. The said date of assent of the President of
\nIndia to Finance (No.2) Act, 2004 is not the date of applicability of the
\nprovision in question, for the specific date having been provided as
\n01.04.2005. Of course, the said date relates to the assessment year
\ncommencing from 01.04.2005 (i.e., assessment year 2005-2006).
\n18.1. Even if it be assumed, going by the suggestions of the appellant,
\nthat the requirements of Section 40(a)(ia) became known on 10.09.2004, the
\nappellant could have taken all the requisite steps to make deductions or, in
\nany case, to make payment of the TDS amount to the revenue during the
\nsame financial year or even in the subsequent year, as per the relaxation
\navailable in the proviso to Section 40(a)(ia) of the Act but, the appellant simply
\n50
\navoided his obligation and attempted to suggest that it had no liability to
\ndeduct the tax at source at all. Such an approach of the appellant, when
\nstanding at conflict with law, the consequence of disallowance under Section
\n40(a)(ia) of the Act remains inevitable.
\n19. In yet another alternative attempt, learned counsel for the appellant
\nhas argued that by way of Finance (No.2) Act, 2014, disallowance under
\nSection 40(a)(ia) has been limited to 30% of the sum payable and the said
\namendment deserves to be held retrospective in operation. This line of
\nargument has been grafted with reference to the decision in Calcutta Export
\nCompany (supra) wherein, another amendment of Section 40(a)(ia) by the
\nFinance Act of 2010 was held by this Court to be retrospective in operation.
\nThe submission so made is not only baseless but is bereft of any logic.
\nNeither the amendment made by the Finance (No.2) Act, 2014 could be
\nstretched anterior the date of its substitution so as to reach the assessment
\nyear 2005-2006 nor the said decision in Calcutta Export Company has any
\ncorrelation with the case at hand or with the amendment made by the Finance
\n(No.2) Act of 2014.
\n19.1. By the amendment brought about in the year 2014, the legislature
\nreduced the extent of disallowance under Section 40(a)(ia) of the Act and
\nlimited it to 30% of the sum payable. On the other hand, by the Finance Act of
\n2010, which was considered in the case of Calcutta Export Company
\n(supra), the proviso to Section 40(a)(ia) of the Act was amended so as to
\nprovide relief to a bonafide assessee who could not make deposit of deducted
\n51
\ntax within prescribed time. In fact, even before the year 2010, the said proviso
\nwas amended by the Finance Act 2008 and that amendment of the year 2008
\nwas provided retrospective operation by the legislature itself. For ready
\nreference, we may reproduce in juxtaposition the main part of Section 40(a)
\n(ia) of the Act as it would read after the amendments of 2008, 2010 and 2014
\nrespectively, as under13:-
\n(i) After the amendment by Finance Act, 2008
\n\u201c40. Amounts not deductible. – Notwithstanding anything
\nto the contrary in sections 30 to 38, the following amounts
\nshall not be deducted in computing the income chargeable
\nunder the head \u201cProfits and gains of business or
\nprofession\u201d,-
\n(a) in the case of any assessee-
\n*** *** ***
\n(ia) any interest, commission or brokerage, rent, royalty14,
\nfees for professional services or fees for technical services
\npayable to a resident, or amounts payable to a contractor or
\nsub-contractor, being resident, for carrying out any work
\n(including supply of labour for carrying out any work), on
\nwhich tax is deductible at source under Chapter XVII-B and
\nsuch tax has not been deducted or, after deduction, has not
\nbeen paid,-
\n(A) in a case where the tax was deductible and was so
\ndeducted during the last month of the previous year, on or
\nbefore the due date specified in sub-section (1) of section
\n139; or
\n(B) in any other case, on or before the last day of the
\nprevious year:
\nProvided that where in respect of any such sum, tax has
\nbeen deducted in any subsequent year or, has been
\ndeducted \u2013
\n(A) during the last month of the previous year but paid after
\nthe said due date; or
\n(B) during any other month of the previous year but paid
\nafter the end of the said previous year,
\n13 The Explanation part of the provision is omitted, for being not relevant for the present
\npurpose.
\n14 The expressions \u201crent, royalty\u201d were inserted in the year 2006.
\n52
\nsuch sum shall be allowed as a deduction in computing the
\nincome of the previous year in which such tax has been
\npaid.
\n*** *** ***\u201d
\n(ii) After the amendment by Finance Act, 2010
\n\u201c40. Amounts not deductible. – Notwithstanding anything to
\nthe contrary in sections 30 to 38, the following amounts shall
\nnot be deducted in computing the income chargeable under
\nthe head \u201cProfits and gains of business or profession\u201d,-
\n(a) in the case of any assessee-
\n*** *** ***
\n(ia) any interest, commission or brokerage, rent, royalty, fees
\nfor professional services or fees for technical services
\npayable to a resident, or amounts payable to a contractor or
\nsub-contractor, being resident, for carrying out any work
\n(including supply of labour for carrying out any work), on
\nwhich tax is deductible at source under Chapter XVII-B and
\nsuch tax has not been deducted or, after deduction, has not
\nbeen paid on or before the due date specified in sub-section
\n(1) of section 139:
\nProvided that where in respect of any such sum, tax has
\nbeen deducted in any subsequent year, or has been
\ndeducted during the previous year but paid after the due date
\nspecified in sub-section (1) of section 139, such sum shall be
\nallowed as a deduction in computing the income of the
\nprevious year in which such tax has been paid:
\n*** *** ***\u201d
\n(iii) After the amendment by Finance (No.2) Act, 2014
\n\u201c40. Amounts not deductible. – Notwithstanding anything
\nto the contrary in sections 30 to 38, the following amounts
\nshall not be deducted in computing the income chargeable
\nunder the head \u201cProfits and gains of business or
\nprofession\u201d,-
\n(a) in the case of any assessee-
\n*** *** ***
\n(ia) thirty per cent. of any sum payable to a resident, on
\nwhich tax is deductible at source under Chapter XVII-B and
\nsuch tax has not been deducted or, after deduction, has not
\nbeen paid on or before the due date specified in sub-section
\n(1) of section 139:
\n53
\nProvided that where in respect of any such sum, tax has
\nbeen deducted in any subsequent year, or has been
\ndeducted during the previous year but paid after the due
\ndate specified in sub-section (1) of section 139, thirty per
\ncent. of such sum shall be allowed as a deduction in
\ncomputing the income of the previous year in which such
\ntax has been paid15:
\nProvided further that where an assessee fails to deduct the
\nwhole or any part of the tax in accordance with the
\nprovisions of Chapter XVII-B on any such sum but is not
\ndeemed to be an assessee in default under the first proviso
\nto sub-section (1) of section 201, then, for the purpose of
\nthis sub-clause, it shall be deemed that the assessee has
\ndeducted and paid the tax on such sum on the date of
\nfurnishing of return of income by the resident payee referred
\nto in the said proviso.16
\n*** *** ***\u201d
\n19.2. The aforesaid amendment by the Finance (No.2) Act of 2014 was
\nspecifically made applicable w.e.f. 01.04.2015 and clearly represents the will
\nof the legislature as to what is to be deducted or what percentage of deduction
\nis not to be allowed for a particular eventuality, from the assessment year
\n2015-2016.
\n19.3. On the other hand, in the case of Calcutta Export Company
\n(supra), this Court noticed the aforesaid two amendments to Section 40(a)(ia)
\nof the Act by the Finance Act, 2008 and by the Finance Act, 2010, which were
\nintended to deal with procedural hardship likely to be faced by the bonafide
\ntax payer, who had deducted tax at source but could not make deposit within
\nthe prescribed time so as to claim deduction. In paragraph 17 of judgment in
\nCalcutta Export Company, this Court took note of the case of genuine
\nhardship, particularly of the assessees who had deducted tax at source in the
\n15 This proviso was substituted in the year 2008 and again in the year 2010; and then, was amended
\nby the Finance (No. 2) Act, 2014.
\n16 This proviso was inserted by Act No. 23 of 2012.
\n54
\nlast month of previous year; and observed in paragraph 18 that the said
\namendment of the year 2008 was brought about with a view to mitigate such
\nhardship. After reproducing the said amendment of the year 2008 and after
\nnoticing its retrospective operation, this Court delved into the position
\nobtaining after 2008, where still remained one class of assessees who could
\nnot claim deduction for the TDS amount in the previous year in which the tax
\nwas deducted and who could claim benefit of such deduction in the next year
\nonly; and, after finding that the amendment of the year 2010 was intended to
\nremedy this position, held that the said amendment, being curative in nature,
\nis required to be given retrospective operation that is, from the date of
\ninsertion of Section 40(a)(ia).
\n19.4. Learned counsel for the appellant has only referred to the
\nconcluding part of the decision in Calcutta Export Company but, a look at
\nthe entire synthesis by this Court, of the reasons for the amendments of 2008
\nand 2010, makes it clear as to why this Court held that the amendment of the
\nyear 2010 would be retrospective in operation. We may usefully reproduce the
\nrelevant discussion and exposition of this Court in Calcutta Export Company
\nas under:- (at pp. 663-666 of ITR):-
\n\u201c19. The above amendments made by the Finance Act, 2008
\nthus provided that no disallowance under section 40(a)(ia) of
\nthe Income-tax Act shall be made in respect of the
\nexpenditure incurred in the month of March if the tax
\ndeducted at source on such expenditure has been paid
\nbefore the due date of filing of the return. It is important to
\nmention here that the amendment was given retrospective
\noperation from the date of April 1,2005, i.e., from the very
\ndate of substitution of the provision.
\n55
\n20. Therefore, the assesses were, after the said amendment
\nin 2008, classified in two categories namely: one, those who
\nhave deducted that tax during the last month of the previous
\nyear and two, those who have deducted the tax in the
\nremaining eleven months of the previous year. It was
\nprovided that in the case of assessees falling under the first
\ncategory, no disallowance under section 40(a)(ia) of the
\nIncome-tax Act shall be made if the tax deducted by them
\nduring the last month of the previous year has been paid on
\nor before the last day of filing of return in accordance with the
\nprovisions of section 139(1) of the Income-tax Act for the said
\nprevious year. In case, the assessees are falling under the
\nsecond category, no disallowance under section 40(a)(ia) of
\nIncome-tax Act where the tax was deducted before the last
\nmonth of the previous year and the same was credited to the
\nGovernment before the expiry of the previous year. The net
\neffect is that the assessee could not claim deduction for the
\nTDS amount in the previous year in which the tax was
\ndeducted and the benefit of such deductions can be claimed
\nin the next year only.
\n21. The amendment though has addressed the concerns of
\nthe assesses falling in the first category but with regard to the
\ncase falling in the second category, it was still resulting into
\nunintended consequences and causing grave and genuine
\nhardships to the assesses who had substantially complied
\nwith the relevant TDS provisions by deducting the tax at
\nsource and by paying the same to the credit of the
\nGovernment before the due date of filing of their returns
\nunder section 139(1) of the Income-tax Act. The disability to
\nclaim deductions on account of such lately credited sum of
\nTDS in assessment of the previous year in which it was
\ndeducted, was detrimental to the small traders who may not
\nbe in a position to bear the burden of such disallowance in
\nthe present assessment year.
\n22. In order to remedy this position and to remove hardships
\nwhich were being caused to the assessees belonging to such
\nsecond category, amendments have been made in the
\nprovisions of section 40(a) (ia) by the Finance Act, 2010.
\n*** *** ***
\n24. Thus, the Finance Act, 2010 further relaxed the rigors of
\nsection 40(a)(ia) of the Income-tax Act to provide that all TDS
\nmade during the previous year can be deposited with the
\nGovernment by the due date of filing the return of income.
\nThe idea was to allow additional time to the deductors to
\ndeposit the TDS so made. However, the Memorandum
\n56
\nExplaining the Provisions of the Finance Bill, 2010 expressly
\nmentioned as follows: “This amendment is proposed to take
\neffect retrospectively from April 1, 2010 and will, accordingly,
\napply in relation to the assessment year 2010-11 and
\nsubsequent years.”
\n25. The controversy surrounding the above amendment was
\nwhether the amendment being curative in nature should be
\napplied retrospectively, i.e., from the date of insertion of the
\nprovisions of section 40(a)(ia) or to be applicable from the
\ndate of enforcement.
\n*** *** ***
\n27. A proviso which is inserted to remedy unintended
\nconsequences and to make the provision workable, a proviso
\nwhich supplies an obvious omission in the section, is required
\nto be read into the section to give the section a reasonable
\ninterpretation and requires to be treated as retrospective in
\noperation so that a reasonable interpretation can be given to
\nthe section as a whole.
\n28. The purpose of the amendment made by the Finance Act,
\n2010 is to solve the anomalies that the insertion of section
\n40(a)(ia) was causing to the bona fide tax payer. The
\namendment, even if not given operation retrospectively, may
\nnot materially be of consequence to the Revenue when the
\ntax rates are stable and uniform or in cases of big assessees
\nhaving substantial turnover and equally huge expenses and
\nnecessary cushion to absorb the effect. However, marginal
\nand medium taxpayers, who work at low gross product rate
\nand when expenditure which becomes the subject matter of
\nan order under section 40(a)(ia) is substantial, can suffer
\nsevere adverse consequences if the amendment made in
\n2010 is not given retrospective operation, i.e., from the date
\nof substitution of the provision. Transferring or shifting
\nexpenses to a subsequent year, in such cases, will not wipe
\nout the adverse effect and the financial stress. Such could
\nnot be the intention of the Legislature. Hence, the
\namendment made by the Finance Act, 2010 being curative in
\nnature is required to be given retrospective operation, i.e.,
\nfrom the date of insertion of the said provision.\u201d
\n19.5. A bare look at the extraction aforesaid makes it clear that what this
\nCourt has held as regards \u201cretrospective operation\u201d is that the amendment of
\nthe year 2010, being curative in nature, would be applicable from the date of
\ninsertion of the provision in question i.e., sub-clause (ia) of Section 40(a) of
\n57
\nthe Act. This being the position, it is difficult to find any substance in the
\nargument that the principles adopted by this Court in the case of Calcutta
\nExport Company (supra) dealing with curative amendment, relating more to
\nthe procedural aspects concerning deposit of the deducted TDS, be applied to
\nthe amendment of the substantive provision by the Finance (No.2) Act, 2014.
\n19.6. We may in the passing observe that the assessee-appellant was
\neither labouring under the mistaken impression that he was not required to
\ndeduct TDS or under the mistaken belief that the methodology of splitting a
\nsingle payment into parts below Rs. 20,000\/- would provide him escape from
\nthe rigour of the provisions of the Act providing for disallowance. In either
\nevent, the appellant had not been a bonafide assessee who had made the
\ndeduction and deposited it subsequently. Obviously, the appellant could not
\nhave derived the benefits that were otherwise available by the curative
\namendments of 2008 and 2010. Having defaulted at every stage, the attempt
\non the part of assessee-appellant to seek some succor in the amendment of
\nSection 40(a)(ia) of the Act by the Finance (No.2) Act, 2014 could only be
\nrejected as entirely baseless, rather preposterous.
\n19.7. Hence, Question No.3 is also answered in the negative, i.e., against
\nthe assessee-appellant and in favour of the revenue.
\nQuestion No. 4
\n20. Before finally answering the root question in the matter as to whether
\nthe payments in question have rightly been disallowed from deduction, we may
\nusefully summarise the answers to Question Nos. 1 to 3 that the provisions of
\n58
\nSection 194C were indeed applicable and the assessee-appellant was under
\nobligation to deduct the tax at source in relation to the payments made by it for
\nhiring the vehicles for the purpose of its business of transportation of goods;
\nthat disallowance under Section 40(a)(ia) of the Act is not limited only to the
\namount outstanding and this provision equally applies in relation to the
\nexpenses that had already been incurred and paid by the assessee; that
\ndisallowance under Section 40(a)(ia) of the Act of 961 as introduced by the
\nFinance (No.2) Act, 2004 with effect from 01.04.2005 is applicable to the case
\nat hand relating to the assessment year 2005-2006; and that the benefit of
\namendment made in the year 2014 to the provision in question is not available
\nto the appellant in the present case. These answers practically conclude the
\nmatter but we have formulated Question No. 4 essentially to deal with the last
\nlimb of submissions regarding the prejudice likely to be suffered by the
\nappellant.
\n21. The suggestion on behalf of the appellant about the likely prejudice
\nbecause of disallowance deserves to be rejected for three major reasons. In
\nthe first place, it is clear from the provisions dealing with disallowance of
\ndeductions in part D of Chapter IV of the Act, particularly those contained in
\nSections 40(a)(ia) and 40A(3)17 of the Act, that the said provisions are
\nintended to enforce due compliance of the requirement of other provisions of
\nthe Act and to ensure proper collection of tax as also transparency in dealings
\n17 Section 40A(3) envisaged at the relevant time that twenty percent of the expenditure exceeding
\ntwenty thousand rupees, of which payment was made otherwise than by a crossed cheque or bank
\ndraft, shall not be allowed as a deduction.
\n59
\nof the parties. The necessity of disallowance comes into operation only when
\ndefault of the nature specified in the provisions takes place. Looking to the
\nobject of these provisions, the suggestions about prejudice or hardship carry
\nno meaning at all. Secondly, as noticed, by way of the proviso as originally
\ninserted and its amendments in the years 2008 and 2010, requisite relief to a
\nbonafide tax payer who had collected TDS but could not deposit within time
\nbefore submission of the return was also provided; and as regards the
\namendment of 2010, this Court ruled it to be retrospective in operation. The
\nproviso so amended, obviously, safeguarded the interest of a bonafide
\nassessee who had made the deduction as required and had paid the same to
\nthe revenue. The appellant having failed to avail the benefit of such relaxation
\ntoo, cannot now raise a grievance of alleged hardship. Thirdly, as noticed, the
\nappellant had shown total payments in Truck Freight Account at Rs.
\n1,37,71,206\/- and total receipts from the company at Rs. 1,43,90,632\/-. What
\nhas been disallowed is that amount of Rs. 57,11,625\/- on which the appellant
\nfailed to deduct the tax at source and not the entire amount received from the
\ncompany or paid to the truck operators\/owners. Viewed from any angle, we do
\nnot find any case of prejudice or legal grievance with the appellant.
\n21.1. Hence, answer to Question No. 4 is clearly in the affirmative i.e.,
\nagainst the appellant and in favour of the revenue that the payments in
\nquestion have rightly been disallowed from deduction while computing the
\ntotal income of the assessee-appellant.
\n60
\nConclusion
\n22. For what has been discussed hereinabove, this appeal fails and is,
\ntherefore, dismissed with costs.
\n\u2026\u2026\u2026\u2026\u2026\u2026..\u2026\u2026\u2026\u2026.J.
\n(A.M. KHANWILKAR)
\n\u2026\u2026\u2026\u2026..\u2026\u2026\u2026\u2026.\u2026\u2026.J.
\n(DINESH MAHESHWARI)
\nNew Delhi,
\nDated: 29th July, 2020.
\n61<\/p>\n","protected":false},"excerpt":{"rendered":"
We may in the passing observe that the assessee-appellant was either labouring under the mistaken impression that he was not required to deduct TDS or under the mistaken belief that the methodology of splitting a single payment into parts below Rs. 20,000\/- would provide him escape from the rigour of the provisions of the Act providing for disallowance. In either event, the appellant had not been a bonafide assessee who had made the deduction and deposited it subsequently. Obviously, the appellant could not have derived the benefits that were otherwise available by the curative amendments of 2008 and 2010. Having defaulted at every stage, the attempt on the part of assessee-appellant to seek some succor in the amendment of Section 40(a)(ia) of the Act by the Finance (No.2) Act, 2014 could only be rejected as entirely baseless, rather preposterous<\/p>\n