2016 (9) TMI 702 - HC - Income Tax

TDS u/s 194C - non deduction of tds on payment of transportation or carriage of good - addition made by the Assessing Officer u/s. 40(a) (ia) - Held that - As decided in Commissioner of Income Tax-I vs. Valibhai Khanbhai Mankad 2012 (12) TMI 413 - GUJARAT HIGH COURT the exclusion provided in sub-section (3) of section 194C from the liability to deduct tax at source under sub-section (2) would thus be complete the moment the requirements contained therein are satisfied. Such requirements, principally, are that the sub-contractor, recipient of the payment produces a necessary declaration in the prescribed format and further that such sub-contractor does not own more than two goods carriages during the entire previous year. The moment, such requirements are fulfilled, the liability of the assessee to deduct tax on the payments made or to be made to such sub-contractors would cease. In fact he would have no authority to make any such deduction. Once the conditions of further proviso of section 194C(3) are satisfied, the liability of the payee to deduct tax at source would cease. The requirement of such payee to furnish details to the income tax authority in the prescribed form within prescribed time would arise later and any infraction in such a requirement would not make the requirement of deduction at source applicable under sub-section (2) of section 194C of the Act. - no application of section 40(a)(ia) required - Decided in favor of assessee.

Summary

Issues:
Disallowance under Section 40(a)(ia) of the Income Tax Act for failure to deduct tax at source on transportation expenses exceeding ?50,000.

Analysis:
The issue in consideration pertains to the disallowance under Section 40(a)(ia) of the Income Tax Act made by the Assessing Officer due to the alleged breach of Section 194C of the Act. The Assessee, a transporter, incurred expenses of ?83.02 lacs for transportation of goods without deducting tax at source despite payments exceeding ?50,000. The Assessing Officer disallowed the claim as the Form J was submitted after the due date of 30.06.2011. However, the Tribunal, relying on a previous judgment, allowed the claim, emphasizing the importance of tax deduction at source under Section 40(a)(ia) of the Act.

In the judgment of Commissioner of Income Tax-I vs. Valibhai Khanbhai Mankad, the Court upheld the Tribunal's decision, emphasizing the necessity of tax deduction at source under Section 40(a)(ia) for payments made towards various expenses. Section 194C outlines the liability to deduct tax at source for certain payments, with exceptions provided under sub-section (3) for specific scenarios. The exclusion from the liability to deduct tax occurs when the recipient produces a declaration in the prescribed format and does not own more than two goods carriages during the previous year.

The Court clarified that once the conditions of the further proviso of section 194C(3) are met, the liability to deduct tax at source ceases. The requirement for the payee to furnish details to the income tax authority arises later and does not impact the necessity of deduction at the source. Therefore, failure to comply with such requirements does not result in adverse consequences under Section 40(a)(ia) of the Act. As the record indicated that the further proviso requirements were fulfilled, the assessee was not obligated to deduct tax at source, thus negating the application of Section 40(a)(ia).

Regarding a previous Tribunal judgment, the Court noted the lack of clarity on whether the Revenue appealed the decision but independently analyzed the matter to reach a conclusion. Despite the Revenue approaching the Supreme Court against a similar judgment, the Court was bound by the precedent set in the Valibhai Khanbhai Mankad case, leading to the dismissal of the tax appeal.