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TMI Blog2017 (5) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... ia) any interest, commission or brokerage, 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 during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of Section 200; Provided that where in respect of any such sum, tax has been deducted in any subsequent year or has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. xxx xxx xxx" 3) As per clause (ia), certain payments made, which includes amounts payable to a contractor or sub-contractor, would not be allowed as expenditure in case the tax is deductible at source on the said payment under Chapter XVIIB of the Act and such tax has not been deducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came up in appeal before the Income Tax Appellate Tribunal (for short 'ITAT') which too met with the same fate. In further appeal to the High Court under Section 260A of the Act, the outcome remained unchanged as the High Court of Himachal Pradesh also dismissed the appeal affirming the order of the ITAT. 6) It may be pertinent to observe that the question raised now and formulated above was specifically raised before the authorities below, including the High Court. 7) The question is, as noted above, when the word used in Section 40(a)(ia) is 'payable', whether this Section would cover only those contingencies where the amount is due and still payable or it would also cover the situations where the amount is already paid but no advance tax was deducted thereupon. This issue has come up for hearing before various High Courts and there are divergent views of the High Courts there upon. In fact, most of the High Courts have taken the view that the aforesaid provision would cover even those cases where the amount stands paid. This is the view of the Madras, Calcutta and Gujarat High Courts. Contrary view is taken by the Allahabad High Court. In a recent judgment, the Punjab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the tax deducted to the credit of the Central Government as required by Section 200(1) and relevant portion thereof reads as under: "Time and mode of payment to Government account of tax deducted at source or tax paid under sub-section (1A) of section 192. 30(1) All sums deducted in accordance with the provisions of Chapter XVII-B by an office of the Government shall be paid to the credit of the Central Government- ...... .......... ........ ........ (2) All sums deducted in accordance with the provisions of Chapter XVII-B by deductors other than an office of the Government shall be paid to the credit of the Central Government- (a) on or before 30th day of April where the income or amount is credited or paid in the month of March; and (b) in any other case, on or before seven days from the end of the month in which- (i) the deduction is made; or (ii) income-tax is due under sub-section(1A) of section 192." 10) As per Section 194C, it is the statutory obligation of a person, who is making payment to the sub-contractor, to deduct tax at source at the rates specified therein. Plain language of the Section suggests that such a tax at source is to be deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicate, (2013) 216 Taxman 258 (Calcutta) held:- "13................ .................. ............... The term 'shall' used in all these sections make it clear that these are mandatory provisions and applicable to the entire sum contemplated under the respective sections. These sections do not give any leverage to the assessee to make the payment without making TDS. On the contrary, the intention of the legislature is evident from the fact that timing of deduction of tax is earliest possible opportunity to recover tax, either at the time of credit in the account of payee or at the time of payment to payee, whichever is earlier." 15. Ms. Dhugga invited our attention to a judgment of the Division Bench of Madras High Court in Tube Investments of India Ltd. v. Assistant Commissioner of Income-Tax (TDS), [2010] 325 ITR 610 (Mad). The Division Bench referred to the statistics placed before it by the Department which disclosed that TDS collection had augmented the revenue. The gross collection of advance tax, surcharge, etc. was Rs. 2,75,857.70 crores in the financial year 2008-09 of which the TDS component alone constituted Rs. 1,30,470.80 crores. The Division Bench observed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision is concerned, it appears to make no difference to the Government as to the accounting system followed by the assessees. The Government is interested in the recovery of taxes. If for some reason, the Government was interested in ensuring the recovery of taxes only from assessees following the mercantile system, we would have expected the provision to so stipulate clearly, if not expressly. It is not suggested that assessees following the cash system are not liable to deduct tax at source. It is not suggested that the provisions of Chapter XVII-B do not apply to assessees following the cash system. There is nothing in Chapter XVII-B either that suggests otherwise. 20. Our view is fortified by the Explanatory Note to Finance Bill (No. 2) of 2004. Sub-clause (ia) of clause (a) of Section 40 was introduced by the Finance Bill (No. 2) of 2004 with effect from 01.04.2005. The Explanatory Note to Finance Bill-2004 stated:- "..... ..... ..... ..... .. With a view to augment compliance of TDS provisions, it is proposed to extend the provisions of section 40(a)(i) to payments of interest, commission or brokerage, fees for professional services or fees for technical services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose with which Section 40 was enacted and that has already been noted above. We have also to keep in mind the provisions of Sections 194C and 200. Once it is found that the aforesaid Sections mandate a person to deduct tax at source not only on the amounts payable but also when the sums are actually paid to the contractor, any person who does not adhere to this statutory obligation has to suffer the consequences which are stipulated in the Act itself. Certain consequences of failure to deduct tax at source from the payments made, where tax was to be deducted at source or failure to pay the same to the credit of the Central Government, are stipulated in Section 201 of the Act. This Section provides that in that contingency, such a person would be deemed to be an assessee in default in respect of such tax. While stipulating this consequence, Section 201 categorically states that the aforesaid Sections would be without prejudice to any other consequences which that defaulter may incur. Other consequences are provided under Section 40(a)(ia) of the Act, namely, payments made by such a person to a contractor shall not be treated as deductible expenditure. When read in this context, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sums to the account of the party/payee, such as, a contractor. This is clear from Section 194C set out earlier. The liability to deduct tax at source, in the case of an assessee following the cash system, arises only when the payment is made and in the case of an assessee following the mercantile system, when he credits such sum to the account of the party entitled to receive the payment. 28. The government has nothing to do with the dispute between the assessee and the payee such as a contractor. The provisions of the Act including Section 40 and the provisions of Chapter XVII do not entitle the tax authorities to adjudicate the liability of an assessee to make payment to the payee/other contracting party. The appellant's submission, if accepted, would require an adjudication by the tax authorities as to the liability of the assessee to make payment. They would then be required to investigate all the records of an assessee to ascertain its liability to third parties. This could in many cases be an extremely complicated task especially in the absence of the third party. The third party may not press the claim. The parties may settle the dispute, if any. This is an exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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