2016 (4) TMI 42 - HC - Income Tax

TDS u/s 194C - payments made to the harvesters and transporters were pursuant to a Contract - Held that - In the instant case, assessee is involved in manufacturing Sugar and its byproducts in a large scale. Therefore, the assessee has no escape but to comply with various Fiscal Statues such as Income Tax, Sales Tax, Customs Act, Central Excise Act etc., and Labour Laws such as Factories Act, ESI Act, PF Act etc. Further, there is clear evidence on record to show that the assessee has paid large sums of fee to the Lawyers and availed services of Chartered Accountant also. These two aspects namely, evidence of expenditure towards fee paid to the lawyers and engagement of services of Chartered Accountant are sufficient circumstances to hold that non-deduction of tax at source is not due to ignorance of law. On admitted facts non-compliance of statutory compliance of statutory provisions of Sections 194C, 194I and 194J of the Act stand proved. Therefore, in the light of the settled position of law the only consequence that flows is to invoke Section 40(a)(ia) of the Act as has been rightly held by the Assessing Authority and affirmed by the First Appellate Authority. In the result, the appeals filed by the Revenue are allowed by answering the following substantial question of law in its favour and it is held that in the facts and circumstances of this case, the Tribunal was not correct in interpreting the language of section 40(a)(ia) to mean that the consequence of disallowance is attracted only in respect of amounts which remain payable on the last day of the financial year. - Decided in favour of revenue

Issues Involved:
1. Validity of the Tribunal's reliance on the case of Vector Shipping Services (P.) Ltd. versus CBDT Circular No. 6/2007.
2. Whether the Bond Agreements for appointing Harvesters/Transporters constituted a CONTRACT under the Indian Contract Act, 1872.
3. Tribunal's determination on the existence of a CONTRACT between the Harvesters/Transporters and the Appellant.
4. Tribunal's direction to the Appellant to furnish details to the Assessing Officer regarding payments for taxation purposes.
5. Interpretation of Section 40(a)(ia) concerning amounts payable at the end of the financial year.
6. Applicability of Section 40(a)(ia) to amounts "paid" versus "payable."

Detailed Analysis:

1. Validity of the Tribunal's reliance on the case of Vector Shipping Services (P.) Ltd. versus CBDT Circular No. 6/2007:
The Tribunal's reliance on the case of Vector Shipping Services (P.) Ltd. was contested by the assessee, arguing that the CBDT Circular No. 6/2007 should prevail. The Tribunal had directed the assessee to prove that no amount was left payable at the year-end and that all amounts claimed were fully paid by the year-end, referencing the Vector Shipping Services case. However, the court found that the facts of the Vector Shipping Services case were not applicable to the present case, as the assessee had not deducted tax at source as required under Sections 194C, 194I, and 194J of the Act.

2. Whether the Bond Agreements for appointing Harvesters/Transporters constituted a CONTRACT under the Indian Contract Act, 1872:
The assessee argued that the agreements between the assessee and the harvesters/transporters did not constitute a legally enforceable contract because the farmer was not a party to the contract nor had ratified it. The court rejected this argument, noting that the assessee had entered into specific agreements for harvesting and transportation, and payments were made pursuant to these agreements. The court concluded that the agreements were valid contracts, and the provisions of Section 194C were applicable.

3. Tribunal's determination on the existence of a CONTRACT between the Harvesters/Transporters and the Appellant:
The Tribunal did not record a definite finding regarding the existence of a valid contract. The court emphasized that the agreements were indeed valid contracts, as the harvesting and transportation of sugarcane were carried out with the consent of the farmers, and payments were made to the contractors. Thus, the Tribunal's decision to remit the matter for re-adjudication was not justified.

4. Tribunal's direction to the Appellant to furnish details to the Assessing Officer regarding payments for taxation purposes:
The Tribunal had directed the assessee to furnish details to the Assessing Officer to verify whether the payments for harvesting, transportation, and legal consultancy were offered for taxation. The court found this direction unnecessary, as the non-compliance with Sections 194C, 194I, and 194J was already established.

5. Interpretation of Section 40(a)(ia) concerning amounts payable at the end of the financial year:
The Revenue argued that the Tribunal erred in interpreting Section 40(a)(ia) to mean that the disallowance consequence is attracted only for amounts payable on the last day of the financial year. The court agreed with the Revenue, referencing judgments from the High Courts of Calcutta and Gujarat, which held that Section 40(a)(ia) applies to amounts payable at any time during the year, not just those remaining payable at the year-end.

6. Applicability of Section 40(a)(ia) to amounts "paid" versus "payable":
The court held that Section 40(a)(ia) applies to both amounts "paid" and "payable" during the year. The Tribunal's reliance on the Vector Shipping Services case, which suggested otherwise, was incorrect. The court emphasized that non-compliance with statutory provisions of Sections 194C, 194I, and 194J leads to the invocation of Section 40(a)(ia).

Conclusion:
The court allowed the appeals filed by the Revenue, setting aside the orders passed by the ITAT and confirming the orders of the First Appellate Authority. The appeals filed by the assessee were dismissed, and the court held that the Tribunal's interpretation of Section 40(a)(ia) was incorrect. The court emphasized that non-compliance with statutory obligations has consequences, and ignorance of law is not an excuse.

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