2013 (2) TMI 372 - AT - Income Tax

Disallowance u/s 40(a)(ia) - Assessee is engaged in transport contract - Assessee contended that the provisions of section 40(a)(ia) is restricted to amounts that are payable if they are outstanding as on the last day of the accounting year Held that - Following the decision in case of Merilyn Shipping & Transports (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) that the word payable used in section 40(a)(ia) is applicable only to expenditure which is payable as on March 31 of every year and cannot be invoked to disallow the amounts which have already been paid during the previous year, without deducting TDS. It is not clear neither from the assessment order nor from the CIT(A) s order, that the amounts that were payable in the months of January and February, 2009, are paid before the year ending 31/3/2009. What is remaining as payable as on the last day of the accounting year alone calls for disallowance by invoking the provisions of section 40(a)(ia). To decide accordingly appeal Remand back to AO

Issues Involved:
1. Retrospective applicability of the amendment to section 40(a)(ia) by Finance Act, 2010.
2. Disallowance of expenditure due to delayed TDS payment.
3. Interpretation of "deductible" and "payable" in section 40(a)(ia).
4. Applicability of section 194C to truck hire payments.
5. Interpretation of section 200 in relation to section 40(a)(ia).
6. Nature of contracts with truck owners and applicability of section 194C.
7. Treatment of payments below the threshold limits under section 194C.
8. Applicability of section 40(a)(ia) to sections 30 to 38 versus section 28.

Detailed Analysis:

1. Retrospective Applicability of the Amendment:
The assessee argued that the amendment to section 40(a)(ia) by Finance Act, 2010 should be treated as retrospective from 1st April 2005, asserting that the amendment is remedial and curative in nature. The Assessing Officer (AO) and CIT(A) rejected this contention, stating that the amendment is not retrospective as it is silent on this aspect. The Special Bench of the ITAT in the case of M/s Bharati Shipyard Ltd. v DCIT also supported this view, holding that the amendment had no retrospective operation from 1/4/2005.

2. Disallowance of Expenditure Due to Delayed TDS Payment:
The AO disallowed Rs.7,18,96,190/- representing payments made to lorry owners for which TDS was remitted late. The AO held that the tax deducted at source in January and February 2009 should have been remitted by 31/3/2009, and the delayed remittance came within the mischief of proviso B to section 40(a)(ia). The CIT(A) upheld this disallowance.

3. Interpretation of "Deductible" and "Payable":
The assessee contended that the words "deductible" and "payable" in section 40(a)(ia) should mean mandatorily deductible and outstanding as of the last date of the accounting year, respectively. The Special Bench of the Tribunal in the case of Merilyn Shipping and Transports v Additional CIT held that the word "payable" used in section 40(a)(ia) is applicable only to expenditure payable as on March 31 of every year and cannot be invoked to disallow amounts already paid during the previous year without deducting tax at source.

4. Applicability of Section 194C to Truck Hire Payments:
The assessee argued that there existed no sub-contract with truck owners as the trucks were taken on hire and the owners were small-time operators. Hence, the requirements of section 194C were not attracted to the payments made to them. The CIT(A) rejected this argument, holding that the mere fact of deduction made it equivalent to deductible under section 40(a)(ia).

5. Interpretation of Section 200 in Relation to Section 40(a)(ia):
The CIT(A) interpreted section 200 as referring to tax deducted at source, manner of payment, and interest for late payment, and not in relation to section 40(a)(ia). The assessee argued that the mere deduction of tax did not render it "deductible" under section 40(a)(ia).

6. Nature of Contracts with Truck Owners:
The assessee contended that he had entered into written contracts with large companies and merely took trucks on hire, and the truck owners were not sub-contractors. The CIT(A) rejected this, holding that the trucks taken on hire constituted sub-contracts under section 194C.

7. Treatment of Payments Below the Threshold Limits:
The assessee provided a list of payments trip-wise where the amount involved was less than the limit prescribed in section 194C. The CIT(A) did not accept this list, maintaining that section 40(a)(ia) applied regardless of the threshold limits.

8. Applicability of Section 40(a)(ia) to Sections 30 to 38 Versus Section 28:
The assessee argued that section 40(a)(ia) referred only to sections 30 to 38 of the IT Act and not to business income computation under section 28. The CIT(A) and AO held that the provisions of section 40(a)(ia) applied to section 28 as well.

Conclusion:
The Tribunal held that the word "payable" in section 40(a)(ia) applies only to amounts outstanding as of March 31 and not to amounts already paid during the year. The case was remitted to the AO to examine whether the amounts were paid before the year-end. The appeal filed by the assessee was allowed for statistical purposes.

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