2020 (8) TMI 23 - SC - Income Tax

TDS u/s 194C - Disallowance u/s 40(a)(ia) - non deduction of tds on payment to the truck operators/owners - payments exceeding ₹ 20,000/- in a single transaction or not? - Payments to contractors and sub-contractors - whether the payments in question have rightly been disallowed from deduction in computation of total income of the appellant? - HELD THAT - AO held that the assessee had entered into a sub-contract with the said three persons within the meaning of Section 194C - Such findings of AO were concurrently upheld up to the High Court and, after interpretation of Section 40(a)(ia), this Court also approved the decision of the High Court while dismissing the appeal with costs. Appellant has made an attempt to distinguish the nature of contract in Palam Gas Service 2017 (5) TMI 242 - SUPREME COURT by suggesting that therein, the assessee s sub-contractors were specific and identified persons with whom the assessee had entered into contract whereas the present appellant was free to hire the service of any truck operator/owner and, in fact, the appellant hired the trucks only on need basis. Such an attempt of differentiation is totally baseless and futile. Whether the appellant had specific and identified trucks on its rolls or had been picking them up on freelance basis, the legal effect on the status of parties had been the same that once a particular truck was engaged by the appellant on hire charges for carrying out the part of work undertaken by it (i.e., transportation of the goods of the company), the operator/owner of that truck became the sub-contractor and all the requirements of Section 194C came into operation. No hesitation in affirming the concurrent findings in regard to the applicability of Section 194C to the present case. Question No.1 is, therefore, answered in the negative; against the assessee-appellant and in favour of the revenue. Interpretation of Section 40(a)(ia) - appellant has strenuously argued that Section 40(a)(ia) of the Act remains limited in its scope and does not apply to the amount already paid - It is ex facie evident that the term payable has been used in Section 40(a)(ia) of the Act only to indicate the type or nature of the payments by the assessees to the payees referred therein. In other words, the expression payable is descriptive of the payments which attract the liability for deducting tax at source and it has not been used in the provision in question to specify any particular class of default on the basis as to whether payment has been made or not. The semantical suggestion by the learned counsel for the appellant, that this expression payable be read in contradistinction to the expression paid , sans merit and could only be rejected. In respectful agreement with the observations in Palam Gas Service that the enunciations in P.M.S. Diesels had been of correct interpretation of the provisions contained in Section 40(a)(ia) of the Act. The decision in Palam Gas Service covers the entire matter and the said decision, in our view, does not require any reconsideration. That being the position, the contention urged on behalf of the appellant that disallowance under Section 40(a)(ia) does not relate to the amount already paid stands rejected. Reference to the definition of the term paid in Section 43(2) of the Act is of no assistance to the appellant. Similarly, the observations in the case of J.K. Synthetics 1994 (5) TMI 233 - SUPREME COURT as regards the difference in connotation of the expressions payable and paid , in the context of liability to pay interest on the tax payable under the Rajasthan Sales Tax Act, 1954, has no co-relation whatsoever to the present case. Further, when it is found that the process of interpretation of Section 40(a)(ia) of the Act in P.M.S. Diesels 2015 (5) TMI 617 - PUNJAB HARYANA HIGH COURT as approved by this Court in Palam Gas Service (supra), had been with due application of the relevant principles, reference to the decision in the case of Institute of Chartered Accountants of India 1997 (7) TMI 649 - SUPREME COURT on the general principles of interpretation, does not advance the case of the appellant in any manner. Question No.2 is also answered in the negative; against the assessee-appellant and in favour of the revenue. Scope of amendment of Section 40(a)(ia) - What this Court has held as regards retrospective operation is that the amendment of the year 2010, being curative in nature, would be applicable from the date of insertion of the provision in question i.e., sub-clause (ia) of Section 40(a) of the Act. This being the position, it is difficult to find any substance in the argument that the principles adopted by this Court in the case of Calcutta Export Company 2018 (5) TMI 356 - SUPREME COURT dealing with curative amendment, relating more to the procedural aspects concerning deposit of the deducted TDS, be applied to the amendment of the substantive provision by the Finance (No.2) Act, 2014. Assessee-appellant was either labouring under the mistaken impression that he was not required to deduct TDS or under the mistaken belief that the methodology of splitting a single payment into parts below ₹ 20,000/- would provide him escape from the rigour of the provisions of the Act providing for disallowance. In either event, the appellant had not been a bonafide assessee who had made the deduction and deposited it subsequently. Obviously, the appellant could not have derived the benefits that were otherwise available by the curative amendments of 2008 and 2010. Having defaulted at every stage, the attempt on the part of assessee-appellant to seek some succor in the amendment of Section 40(a)(ia) of the Act by the Finance (No.2) Act, 2014 could only be rejected as entirely baseless, rather preposterous.Question No.3 is also answered in the negative, i.e., against the assessee-appellant and in favour of the revenue. Whether the payments in question have rightly been disallowed from deduction? - The proviso so amended, obviously, safeguarded the interest of a bonafide assessee who had made the deduction as required and had paid the same to the revenue. The appellant having failed to avail the benefit of such relaxation too, cannot now raise a grievance of alleged hardship. Thirdly, as noticed, the appellant had shown total payments in Truck Freight Account at ₹ 1,37,71,206/- and total receipts from the company at ₹ 1,43,90,632/-. What has been disallowed is that amount of ₹ 57,11,625/- on which the appellant failed to deduct the tax at source and not the entire amount received from the company or paid to the truck operators/owners Question No. 4 is clearly in the affirmative i.e., against the appellant and in favour of the revenue that the payments in question have rightly been disallowed from deduction while computing the total income of the assessee-appellant. - Decided in favour of revenue.

Summary

Issues Involved:
1. Applicability of Section 194C of the Income Tax Act, 1961.
2. Scope of disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.
3. Retrospective application of sub-clause (ia) of Section 40(a) of the Income Tax Act, 1961.
4. Justification for disallowance of payments in computation of total income.

Issue-Wise Detailed Analysis:

1. Applicability of Section 194C of the Income Tax Act, 1961:
The appellant, a partnership firm, had hired trucks from various operators/owners to fulfill its transportation contract with a cement company. The appellant contended that there was no contract with the truck operators/owners, and hence, Section 194C(2) was not applicable. However, the court held that the appellant was responsible for transporting the goods and hired trucks for this purpose, making the truck operators/owners sub-contractors. The court noted that the nature of the dealings and the contractual obligations between the appellant and the truck operators/owners satisfied the requirements of Section 194C(2). The court affirmed the findings of the lower authorities and held that Section 194C was applicable.

2. Scope of Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961:
The appellant argued that the disallowance under Section 40(a)(ia) should be limited to amounts "payable" and not to amounts "already paid." The court referred to the decision in Palam Gas Service v. Commissioner of Income-Tax, which held that Section 40(a)(ia) covers both amounts payable and paid. The court emphasized that the provision aims to ensure compliance with TDS requirements and that the term "payable" is descriptive of the payments attracting TDS liability. The court rejected the appellant's contention and upheld the applicability of Section 40(a)(ia) to both payable and paid amounts.

3. Retrospective Application of Sub-Clause (ia) of Section 40(a) of the Income Tax Act, 1961:
The appellant contended that the amendment inserting sub-clause (ia) of Section 40(a) should apply only from the financial year 2005-2006 and not to the financial year 2004-2005. The court noted that the amendment was effective from 01.04.2005, indicating its applicability from the assessment year 2005-2006. The court rejected the appellant's reliance on the decision in PIU Ghosh v. Deputy Commissioner of Income-Tax, which held that the amendment should apply from the financial year 2005-2006. The court emphasized that the law in force during the assessment year is applicable, and the amendment was intended to apply from the assessment year 2005-2006.

4. Justification for Disallowance of Payments in Computation of Total Income:
The appellant argued that the disallowance of payments would lead to an incongruous position where the entire receipt from the company is treated as income without due provision for necessary expenses. The court rejected this argument, noting that the disallowance under Section 40(a)(ia) is intended to enforce compliance with TDS requirements. The court emphasized that the appellant had failed to deduct TDS and could not claim relief under the proviso to Section 40(a)(ia). The court held that the disallowance was justified and affirmed the lower authorities' decision.

Conclusion:
The court dismissed the appeal, holding that the provisions of Section 194C were applicable, disallowance under Section 40(a)(ia) covered both payable and paid amounts, the amendment to Section 40(a)(ia) applied from the assessment year 2005-2006, and the disallowance of payments was justified. The court emphasized the importance of compliance with TDS requirements and rejected the appellant's contentions regarding prejudice and hardship.