2019 (1) TMI 658 - HC - Income Tax

TDS u/s 194C - Assessee had made payments for transportation of the goods in excess of ₹ 50,000/- without deducting tax at source - addition u/s 40(a)(ia)- proof of contract or sub-contract between the payer or payee - Held that - Tribunal reiterated relying on judgment in case of Merilyn Shipping and Transports (2012 (4) TMI 290 - ITAT VISAKHAPATNAM), is clearly an error. The Supreme Court in the case of Palam Gas Service v/s Commissioner of Income Tax 2017 (5) TMI 242 - SUPREME COURT has reversed the view of the Merilyn Shipping and Transports (supra) holding that the disallowance would also cover the payments which are also made as long as of-course the breach of the requirements of deduction of tax at source is found. Requirement of deducting tax at source itself did not arise since the Assessee had simply hired the trucks for specific transportation work for jobs assigned to him and there was no contract of agency or middle man. Thus, there was no contract or sub-contract between the payer or payee. In this respect, we are in agreement with the view of the authorities below. No questions of law arises. - Decided against revenue

Summary

Issues:
1. Failure to deduct TDS under section 194C of the Income Tax Act, 1961
2. Interpretation of section 40(a)(ia) of the Income Tax Act, 1961

Issue 1: Failure to deduct TDS under section 194C of the Income Tax Act, 1961
The case involved an individual assessee who had made payments for transportation exceeding ?50,000 without deducting tax at source, totaling ?2.85 crores for the Assessment Year 2008-2009. The Assessing Officer disallowed the expenditure under Section 40(a)(ia) of the Income Tax Act, 1961, citing a breach of Section 194C. The Commissioner (Appeals) allowed the appeal, noting that the transportation was done through individual truck owners, not as contractors, and that the entire payment had been made with nothing remaining outstanding. The Commissioner relied on a Special Bench decision that disallowance under Section 40(a)(ia) can only be made for unpaid amounts. The Tribunal upheld this decision, leading to the Revenue's appeal.

Issue 2: Interpretation of section 40(a)(ia) of the Income Tax Act, 1961
The High Court considered whether the Tribunal's decision, based on the Merilyn Shipping case, was erroneous. The Court referenced the Supreme Court's ruling in Palam Gas Service v. Commissioner of Income Tax, which overturned the Merilyn Shipping decision, stating that disallowance can cover payments already made if there is a breach of TDS requirements. However, in the present case, both the Commissioner (Appeals) and the Tribunal found no requirement to deduct TDS as the assessee had hired trucks for specific transportation work without a contract of agency or middleman, thus no contract or sub-contract existed between the payer and payee. The High Court concurred with the lower authorities' view, dismissing the Tax Appeal as no questions of law arose.

In conclusion, the High Court upheld the decision of the lower authorities, emphasizing that the requirement to deduct tax at source did not apply in the given circumstances, leading to the dismissal of the Tax Appeal.