9911796707
TMI Blog2013 (4) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... returning total income at Rs.1,37,383/- as against which the total income of the assessee was assessed by the Assessing Officer at Rs. 59,10,645/- after disallowing a sum of Rs. 57,48,265/- u/s. 40(a)(ia) of the Income-tax Act. 3. Before setting out the facts that led to the impugned disallowance, it may be relevant to mention at the outset that section 40(a)(ia), as it stood in the assessment year under appeal, provided that, notwithstanding anything to the contrary in sections 30 to 38, the amounts payable to a contractor or sub-contractor for carrying out any work on which tax is "deductible at source" under Chapter XVII-B of the Income-tax Act shall not be allowed deduction unless such tax has been deducted at source or, after deduction, has been paid on or before the last day of the previous year. The provisions of section 40(a)(ia) were amended by the Finance Act 2010 with effect from 1.4.2010. According to the amended provisions, tax deducted at source out of payments made to a contractor or sub-contractor could be paid on or before the due date specified in sub-section (1) of section 139. In its judgment dated 23rd November 2011 in CIT v. Virgin Creations, the Hon'ble Cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dited in favour of M/s. J.B. Construction Co, Junagadh and not to deduct the tax by debiting the running account of the payee in its books. He further submitted that the amount deducted on 31-03-2006 was not deducted at source in as much as it was not deducted out of the amount paid by the assessee on 12-05-2005, 20-06-2005 and 08-11-2005 and hence the aforesaid sum shown as deduction on 31-03-2006 did not constitute deduction of tax at source out of amounts paid/credited to M/s. J.B. Construction Co. in terms of section 194C of the Income-tax Act. According to him, there was thus failure on the part of the assessee in complying with the provisions of section 194C and therefore its case was not covered by the judgment of the Hon'ble Calcutta High Court in CIT v. Virgin Creations. 7. In reply, the ld. Authorized Representative for the assessee supported the order passed by the CIT (A). At the outset, he fairly submitted that the provisions of section 194C were fully applicable to the amounts paid by the assessee to its subcontractor, namely, M/s J.B. Construction. He further submitted that M/s. J.B. Construction Co. has running account with the assessee and therefore the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; (a) in the case of any assessee- (i)** ** ** (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, *[has not been paid on or before the due date specified in sub-section (1) of section 139: **Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.] Explanation.- .................." *Substituted for the following by the Finance Act, 2010, w.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a). 13. Section 40(a)(ia) applies only when "... tax is deductible at source under Chapter XVII-B and such tax has not been deducted ....". The relevant question therefore is as to what is the import firstly of the phrase "deduction" of tax and secondly of such deduction being "at source". "Deduct" means to take away or to subtract from the whole. "At source" means occurrence of an event that initiates a process. Therefore payment of any amount, on which tax is deductible at source, itself is the "source" at which tax should be deducted and it is after such deduction that the remaining amount should be paid to the payee. This position becomes quite clear on perusal of Chapter XVII-B of the Income-tax Act dealing with "Collection and Recovery of Tax - Deduction at Source". "Deduction at source" means subtraction of the amount of tax from the whole amount payable by the assessee to the payee out of which tax is deductible. If tax is not so deducted out of the amount payable, it cannot be said to have been "deducted at source". In other words, if tax is deducted at any other point of time than at the time when the amount exigible to deduction of tax at source is paid or is deducted o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ource, as mandated by law, out of the amounts paid on the aforesaid three dates. In the present case, the assessee claims deduction in respect of payments made by it on the aforesaid three dates to M/s J.B. Construction without deduction of tax at source and therefore its deductibility is squarely hit by section 40(a)(ia). The tax claimed to have been deducted by debiting the account of M/s J.B. Construction on 31.3.2006 does not constitute deduction of tax at source out of the amounts paid on the aforesaid three dates. 16. Judgment dated 23-11-2011 delivered by the Hon'ble Calcutta High Court in CIT v. Virgin Creations reads as under: "The Court: We have heard Mr. Nizamuddin and gone through the impugned judgment and order. We have also examined the point formulated for which the present appeal is sought to be admitted. It is argued by Mr. Nizamuddin that this court needs to take decision as to whether section 40(a)(ia) is having retrospective operation or not. The learned Tribunal on fact found that the assessee had deducted tax at source from the paid charges between the period April 1, 2005 and April 28, 2006 and the same were paid by the assessee in July and August 2006, i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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