2012 (12) TMI 413 - HC - Income Tax

Disallowance u/s 40(a) (ia) - payment made to transporters - AO disallowed such expenditure under section 40(a)(ia) on the ground that the assessee had not furnished form No. 15J before 30th June 2006 as required under Rule 29D of the Income Tax Rules, 1962 - held that - 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. - application of section 40(a)(ia) would not arise - Decided in favor of assessee.

Summary

Issues:
1. Whether the Appellate Tribunal was correct in deleting the addition made under section 40(a)(ia) of the Income Tax Act, 1961?

Analysis:

Issue 1:
The case involved a dispute regarding the deletion of an addition made under section 40(a)(ia) of the Income Tax Act, 1961. The respondent-assessee, engaged in the transport business, had not deducted tax at source on payments made to sub-contractors-transporters amounting to Rs. 7,91,02,011. The Assessing Officer disallowed this expenditure under section 40(a)(ia) as the assessee failed to furnish form No. 15J before the specified date. The Appellate Tribunal reversed the Revenue's decision, stating that the requirement of furnishing form No. 15J was not linked to the liability to deduct tax at source. The Tribunal's view was that non-compliance with this requirement did not warrant disallowance under section 40(a)(ia).

Analysis Continued:

The court analyzed the relevant provisions of the Income Tax Act, particularly section 194C, which pertains to payments to contractors. It was highlighted that liability to deduct tax at source arises under section 194C, but there are exclusions provided in sub-section (3) where such liability does not apply. The court focused on the proviso to sub-section (3), which exempts deduction of tax at source for payments made to sub-contractors in certain circumstances, such as when the sub-contractor is an individual with not more than two goods carriages. The court emphasized that once these conditions are met, the liability to deduct tax at source ceases.

Moreover, the court explained that the requirement to furnish details to the income tax authority arises at a later stage, and non-compliance with this requirement does not trigger the need for tax deduction at the source under section 194C. Therefore, the court upheld the Tribunal's decision, stating that since the conditions for exemption were fulfilled, the assessee was not obligated to make any deduction at source, and hence, the application of section 40(a)(ia) did not arise in this case.

In conclusion, the court dismissed the tax appeal, affirming the Tribunal's decision and emphasizing that the failure to comply with the requirement of furnishing form No. 15J did not warrant adverse consequences under section 40(a)(ia) as long as the conditions for exemption from tax deduction at source were met.