2017 (3) TMI 1268 - SC - Income Tax

TDS u/s 194C - disallowance under Section 40(a)(ia) - Held that - We find that the High Court has referred to the provisions of Sub-Section(3) of Section 194C of Act as well as Rule 29D of Income Tax Rules. Sub-Rule (3) of Rule 29D stipulates that the particulars under the third proviso to clause(i) of sub-section (3) of Section 194C to be furnished by a contractor responsible for paying any sum to such sub-contractor shall be in Form No. 15J. The High Court has treated the filling of the said Form as a prerequisite and on that basis held that provisions of Section 40(a)(ia) of the Act could not be invoked. In the process the High Court has failed to notice that even that aspect of not filling Form No. 15J is kept aside, in the present case, the income of the assessee on the total contract receipts of ₹ 74,81,106/- had been reached at by applying the net rate of profit after reduction and, thus, no further addition could be made under Section 40(a)(ia) of the Act. This is the reason which is rightly ascribed by the Commissioner of Income Tax (Appeals)to the order.

Summary

Issues:
Assessment of income under Section 40(a)(ia) of the Income Tax Act, 1961 based on transport contract receipts.

Analysis:
The appellant, engaged in transport contracts, received a significant amount from the army for services rendered. The Assessing Officer disallowed a portion of the amount under Section 40(a)(ia) of the Act, leading to an appeal by the assessee. The Commissioner of Income Tax (Appeals) reduced the net profit rate and held that no disallowance should have been made under Section 40(a)(ia). The Tribunal set aside the disallowance findings, and the High Court, in its judgment, dismissed the appeal. The High Court emphasized the requirement of filling Form No. 15J under Rule 29D of the Income Tax Rules, stating it as a prerequisite for invoking Section 40(a)(ia).

However, the Supreme Court noted that even if the Form No. 15J was not filled, the income of the assessee had been correctly computed based on the total contract receipts. The Court agreed with the Commissioner of Income Tax (Appeals) that no further addition should be made under Section 40(a)(ia) of the Act. Therefore, the Court allowed the appeal, overturning the High Court's decision.

In conclusion, the Supreme Court's judgment clarified that the correct computation of income based on contract receipts, even without filling Form No. 15J, precludes additional disallowances under Section 40(a)(ia) of the Income Tax Act. The Court's decision emphasized the importance of accurate income assessment and compliance with relevant provisions to avoid unwarranted disallowances.