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TMI Blog2015 (6) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed that the issue involved in both the appeals is common and, therefore, both the appeals should be decided on the basis of the facts relevant to the assessment year 2006-07. 4. Brief facts relating to the ground involved are that the Assessing Officer noted that the assessee had paid transportation hire charges amounting to Rs. 1,07,21,525/- on which no tax has been deducted at source. It was al so noted that these charges were paid as under to the following parties:- Sl. No. Name of the person/concerns to whom hire charges paid Amount (Rs.) TDS 1. Sea Queen Construction 14,37,200/- NIL 2. New Bargabhim Transport 14,39,975/- NIL 3. United Construction 13,57,200/- NIL 4. M/s. Tahi r Khan 14,23,650/- NIL 5. United Trading Corporation 10,77,025/- NIL 6. A.S.M. Enterprise 13,80,075/- NIL 7. Md. Sahabuddin 13,68,475/- NIL 8. S.A. Enterprise 12,37,925/- NIL TOTAL 1,07,21,525/- The Assessing officer, therefore, invoked the provisions of section 40(a)(ia) and disallowed the same. The assessee went in appeal before the ld. CIT(Appeals). 5. Ld. CIT(Appeals) took the view that the Assessing Officer has to bring on r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source- (i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or (ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice. (4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed 17[thirty] thousand rupees : Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds 18[seventy-five] thousand rupees, the person responsible for paying such sums referred to in sub-section (1) shall be liable to deduct income-tax under this section. (6) No deduction shall be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roadcasting or telecasting; (c) carriage of goods or passengers by any mode of transport other than by railways; (d) catering; (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer."] 7. A plain reading of this Section makes it clear that "any person responsible for paying any sum to any resident (hereafter in this sect ion referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person" is required to deduct tax at source under sect ion from the amounts so paid or payable. There is no doubt that the assessee in this case has made the payment s as transportation charges in the nature of hiring charges for goods carried vehicles. The main contention of the assessee is, however, that the payments have not been made in pursuance of a contract between the assessee and the transporters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unintended consequence of disallowance of legitimate business expenditure even in a case where the payee in receipt of the income had paid tax, and, therefore, he took the plea that the second proviso although inserted w.e.f. 1s t April, 2013 but being curative in nature has ret rospective effect and accordingly contended that the issue be restored to the file of the Assessing Officer so that the assessee can provide all the detail s in terms of the second proviso to section 40(a)(ia). We find force in the said submission of the ld. A.R. We noted that the submissions of the ld. A.R. are duly covered by the decision of this Tribunal ('SMC' Bench) in ITA No. 1905/Kol/2014 for the assessment year 2007-08, in which this Tribunal vide order dated 04.03.2015 has held as under:- "5. I have heard rival contentions and gone through the facts and circumstances of the case. I find from first argument made by Ld. counsel for the assessee that the second proviso to section 40(a)(ia) of the Act inserted by the Finance Act, 2012 would apply in the instant case. According to him, the second proviso is curative in nature intended to supply an obvious omission, take care of an unintended consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and therefore, retrospective in its operation by the Hon'ble Calcutta High Court in ITAT No. 302 of 2011, GA 3200/2011, CIT v Virgin Creations decided on November 23, 2011 provides for allowance of the expenditure in any subsequent year in which tax has been deducted and deposited. The intention of the legislature clearly is not to disallow legitimate business expenditure. The allowance of such expenditure is sought to be made subject to deduction and payment of tax at source. However, in a case where the deductee/payee has paid tax and as such the person responsible for paying is no longer required to deduct or pay any tax, legitimate business expenditure would stand disallowed since the situation contemplated by the first proviso viz. deduction and payment of tax in a subsequent year would never come about. Such unintended consequence has been sought to be taken care of by the second proviso inserted in section 40(a)(ia) by the Finance Act, 2012. There can be no doubt that the second proviso was inserted to supply an obvious omission and make the section workable. The insertion of second proviso was explained by Memorandum Explaining The provision in Finance Bill, 2012, rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch return has been furnished by the payer. It is also proposed to provide that where the payer fails to deduct the whole or any part of the tax on the payment made to a resident and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the such resident, the interest under section 201(1A)(i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident payee. Amendments on similar lines are also proposed to be made in the provisions of section 206C relating to TCS for clarifying the deemed date of discharge of tax liability by the buyer or licensee or lessee. These amendments will take effect from 1st July, 2012. II. Disallowance of business expenditure on account of non-deduction of tax on payment to resident payee. A related issue to the above is the disallowance under section 40(a)(ia) of certain business expenditure like interest, commission, brokerage, professional fee, etc. due to non-deduction of tax. It has been provided that in case the tax is deducted in subsequent previous year, the expenditure shall be allowed in that subsequent previous year of deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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