2015 (2) TMI 847 - HC - Income Tax

Liability to pay TDS on freight charges - disallowance u/s 40(a)(ia) - whether the assessee gets any benefit or his obligation is absolved if the recipient of the said amount has already paid taxes on the amounts received by them in the light of the amendment to the second proviso to section 40a(ia)? - Held that - Reading of section 40(a)(ia) along with the second proviso and section 201(1) along with the proviso, it would mean that the mandate or requirement on the part of the payer to deduct tax at source is not so strict if they are able to show that the payee or the recipient of the amounts has paid tax in accordance with the provisions of section 201(1) and the proviso. This was not the claim made by the assessee before the Assessing Officer. The claim was on a different stand, initially reflecting the amounts as loan in the account books though shown as freight charges in the returns and later explained that it was not the loan amount but freight charges. It was never the case of the assessee that there was no mandate subsequent to the amendment, to deduct tax as TDS in the light of above provisions. The assessment year in question is 2007-08 and the amendment giving breathing space to payer of amounts is with effect from April 1, 2013. Therefore, the said benefit is not applicable to the assessee. Even otherwise, on factual situation, the very fact that these amounts were claimed as loan initially, till the scrutiny came up for consideration before the assessing authority would only indicate the real intention of the assessee-firm, i.e., not to disclose this amount as freight charges but something else as repayment of loan. Thus Tribunal did not err so far as the assessment year 2007-08 with reference to disallowance under section 40(a)(ia). - Decided against assessee.

Summary

Issues:
1. Whether the deduction claimed as payment of freight charges under section 40(a)(ia) of the Income-tax Act, 1961 is allowable.
2. Whether the obligation of the payer is absolved if the recipient has already paid taxes on the amounts received.
3. Interpretation of the second proviso to section 40(a)(ia) and its applicability to the case.
4. Analysis of the provisions of section 201(1) and the relevant provisos in relation to tax deduction at source.

Analysis:

1. The judgment primarily revolves around the deduction claimed as payment of freight charges under section 40(a)(ia) of the Income-tax Act, 1961. The appellant-firm engaged in a transport contract and did not deduct TDS on the amount paid as freight charges to three different persons. The firm claimed that the amount was accepted as a loan and shown as repayment. However, upon scrutiny, it was revealed that the amount actually represented lorry hire charges. The Assessing Officer treated the amounts as sundry creditors, leading to a dispute regarding tax deduction. The issue was whether the deduction claimed by the assessee was allowable under the provisions of section 40(a)(ia).

2. The key question addressed in the judgment was whether the obligation of the payer to deduct tax at source is absolved if the recipient has already paid taxes on the amounts received. The court analyzed the second proviso to section 40(a)(ia) inserted by the Finance Act of 2012, which provided a concession to the assessee under certain conditions. The court examined the applicability of this proviso to the case at hand and whether the assessee could benefit from it based on the factual circumstances.

3. The judgment delved into the interpretation of the second proviso to section 40(a)(ia) and its alignment with the provisions of section 201(1) of the Income-tax Act. The court highlighted the conditions under which the payer's obligation to deduct tax at source is relaxed, emphasizing the importance of compliance with the prescribed procedures and requirements to avail of any concessions or exemptions provided under the law.

4. In analyzing the case, the court referred to the provisions of section 201(1) and the relevant provisos to understand the implications of tax deduction at source. The court emphasized the strictness of the mandate on the part of the payer to deduct tax at source unless specific conditions are met, such as the recipient furnishing a return of income, accounting for the sum received, and paying the due tax. The judgment underscored the importance of adherence to statutory provisions and the implications of non-compliance on the payer's liability.

In conclusion, the court dismissed the appeal, holding that the Tribunal did not err in disallowing the deduction claimed under section 40(a)(ia) for the assessment year 2007-08 based on the factual and legal analysis presented in the judgment.