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2017 (7) TMI 1153 - HC - Income TaxTDS u/s 194C - failure to deduct tds on payment to the transporters which is mandatory in view of Section 40(a) (ia) for claiming the expenditure? - Held that - It will not be out of place to mention that as rightly contended by counsel for the respondent Mr. Jhanwar that Section 194(c) read with 204(iii) will come into operation only on the payment made by assessee and as rightly discussed since payment is not made by the assessee if at all there is default the default is of Mangalam. Since the payment was not received the same is required to be considered in the books of account since TDS is deducted by the Mangalam on behalf of assessee completely. Therefore if there is default in payment made he is entitled to match the balance-sheet and he cannot claim for credit @ 20 per tonne as handling charges for arranging the truck for transportation. The view taken by the Tribunal is just and proper. The issues are answered in favour of the assessee against the department.
Issues Involved:
1. Deletion of disallowance of payments due to failure to deduct TDS under Section 194C of the Income Tax Act. 2. Justification of the Tribunal's decision in allowing payments without TDS deduction. 3. Applicability of Section 40(a)(ia) of the Income Tax Act for claiming expenditure. Detailed Analysis: 1. Deletion of Disallowance of Payments Due to Failure to Deduct TDS: The appellant challenged the Tribunal's decision to delete disallowances made by the Assessing Officer (AO) under Section 40(a)(ia) of the Income Tax Act. The AO had disallowed payments made to transporters by the assessee, citing failure to deduct TDS as mandated by Section 194C. The Tribunal, however, found that the payments were made directly by Mangalam Cement Ltd. to the truck owners, and thus, the assessee was not liable to deduct TDS on these payments. The Tribunal observed that the assessee only received handling charges, and all other obligations, including TDS deduction, were carried out by Mangalam Cement Ltd. 2. Justification of the Tribunal's Decision in Allowing Payments Without TDS Deduction: The Tribunal's decision was based on the contractual arrangement between the assessee and Mangalam Cement Ltd., which stipulated that Mangalam Cement Ltd. would directly pay the freight to the truck owners and deduct TDS as applicable. The Tribunal concurred with the assessee's contention that it was not possible for the assessee to make any deduction and payment of tax on the freight paid by Mangalam Cement Ltd. The Tribunal also referenced the case of CIT Vs. United Rice Land Ltd., where it was held that in the absence of an agreement between the assessee and the transporters, the assessee was not liable to deduct tax under Section 194C. 3. Applicability of Section 40(a)(ia) of the Income Tax Act for Claiming Expenditure: The Tribunal's interpretation of Section 40(a)(ia) was supported by the Supreme Court's ruling in Palam Gas Service vs. Commissioner of Income Tax, which clarified that the provision applies to both amounts payable and paid. The Tribunal found that since the freight payments were made directly by Mangalam Cement Ltd. and TDS was deducted by them, the assessee was not liable for any default under Section 40(a)(ia). The Tribunal rejected the AO's assumption that the payments were made on behalf of the assessee and thus required TDS deduction by the assessee. Conclusion: The High Court upheld the Tribunal's decision, noting that the contractual arrangement and the direct payment by Mangalam Cement Ltd. absolved the assessee from the obligation to deduct TDS. The Court found the Tribunal's view just and proper, answering the issues in favor of the assessee and dismissing the appeals.
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