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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 ..... The Punjab & Haryana High Court [2015 (5) TMI 617 - PUNJAB & HARYANA HIGH COURT] has exhaustively interpreted Section 40(a(ia) keeping in mind different aspects. Allahabad High Court [2013 (7) TMI 622 - ALLAHABAD HIGH COURT], while interpreting Section 40(a)(ia), did not deal with this aspect at all, even when it has a clear bearing while considering the amplitude of the said provision. - No doubt, the Special Leave Petition thereagainst was dismissed by this Court in limine. However, that would not amount to confirming the view of the Allahabad High Court. The view taken by the High Courts of Punjab & Haryana, Madras and Calcutta is the correct view and the judgment of the Allahabad High Court in CIT v. Vector Shipping Services (P) Ltd., did not decide the question of law correctly. - Decided in favor of revenue. - Civil Appeal No. 5512 of 2017 - - - Dated:- 3-5-2017 - A. K. Sikri And Ashok Bhushan, JJ. JUDGMENT A. K. Sikri, J. The neat question which arises for consideration in this appeal relates to the interpretation of Section 40(a)(ia) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'). Section 197C of the Act has also some b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Department/Revenue has, therefore, not allowed the amounts paid to the sub-contractors as deduction while computing the income chargeable to tax at the hands of the assessee in the said Assessment Year. 4) It can be seen that Section 40(a)(ia) uses the expression 'payable' and on that basis the question which is raised for consideration is: Whether the provisions of Section 40(a)(ia) shall be attracted when the amount is not 'payable' to a contractor or sub-contractor but has been actually paid? 5) Some facts which will have bearing on the aforesaid issue need to be mentioned at this stage: The appellant-assessee is engaged in the business of purchase and sale of LPG cylinders under the name and style of M/s. Palam Gas Service at Palampur. During the course of assessment proceedings, it was noticed by the Assessing Officer that the main contract of the assessee for carriage of LPG was with the Indian Oil Corporation, Baddi. The assessee had received the total freight payments from the IOC Baddi to the tune of ₹ 32,04,140/-. The assessee had, in turn, got the transportation of LPG done through three persons, namely, Bimla Devi, Sanj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4C and 200 of the Act as well as Rule 30(2) of the Income Tax Rules, since they are also relevant to decide the controversy. These provisions make the following reading: 194-C. Payments to contractors.-(1) Any person responsible for paying any sum to any resident (hereafter in this section 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 shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- . . 200. Duty of person deducting tax.-(1) Any person deducting any sum in accordance with the foregoing provisions of this chapter] shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs. (2) Any person being an employer, referred to in subsection (1-A) of Section 192 shall pay, within the prescribed time, the tax to the credit of the Central Government or as the Board directs. (3) Any person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prescribed time. A conjoint reading of these two Sections would suggest that not only a person, who is paying to the contractor, is supposed to deduct tax at source on the said payment whether credited in the account or actual payment made, but also deposit that amount to the credit of the Central Government within the stipulated time. The time within which the payment is to be deposited with the Central Government is mentioned in Rule 30(2) of the Rules. 11) The Punjab Haryana High Court in P.M.S. Diesels Ors. v. Commissioner of Income Tax 2, Jalandhar Ors., (2015) 374 ITR 562, has held these provisions to be mandatory in nature with the following observations: 13. The liability to deduct tax at source under the provisions of Chapter XVII is mandatory. A person responsible for paying any sum is also liable to deposit the amount in the Government account. All the sections in Chapter XVII-B require a person to deduct the tax at source at the rates specified therein. The requirement in each of the sections is preceded by the word shall . The provisions are, therefore, mandatory. There is nothing in any of the sections that would warrant our reading the word sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come within the network of tax payers. These objects also indicate the legislative intent that the requirement of deducting tax at source is mandatory. 16. The liability to deduct tax at source is, therefore, mandatory. 13) The aforesaid interpretation of Sections 194C conjointly with Section 200 and Rule 30(2) is unblemished and without any iota of doubt. We, thus, give our imprimatur to the view taken. As would be noticed and discussed in little detail hereinafter, the Allahabad High Court, while interpreting Section 40(a)(ia), did not deal with this aspect at all, even when it has a clear bearing while considering the amplitude of the said provision. 14) In the aforesaid backdrop, let us now deal with the issue, namely, the word 'payable' in Section 40(a)(ia) would mean only when the amount is payable and not when it is actually paid. Grammatically, it may be accepted that the two words, i.e. 'payable' and 'paid', denote different meanings. The Punjab Haryana High Court, in P.M.S. Diesels Ors., referred to above, rightly remarked that the word 'payable' is, in fact, an antonym of the word 'paid'. At the same time, it too ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut also enables the authorities to bring within their fold all such persons who are liable to come within the network of tax payers. The intention was to ensure the collection of tax irrespective of the system of accounting followed by the assessees. We do not see how this dual purpose of augmenting the compliance of Chapter XVII and bringing within the Department's fold tax payers is served by confining the provisions of Section 40(a)(ia) to assessees who follow the mercantile system. Nor do we find anything that indicates that for some reason the legislature intended achieving these objectives only by confining the operation of Section 40(a)(ia) to assessees who follow the mercantile system. 22. The same view was taken by a Division Bench of the Calcutta High Court in Commissioner of Income Tax v. Crescent Export Syndicate, (supra). It was held:- 12.3. It is noticeable that Section 40(a) is applicable irrespective of the method of accounting followed by an assessee. Therefore, by using the term payable legislature included the entire accrued liability. If assessee was following mercantile system of accounting, then the moment amount was credited to the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to only those cases where the amount is yet to be paid and does not cover the cases where the amount is actually paid. If the provision is interpreted in the manner suggested by the appellant herein, then even when it is found that a person, like the appellant, has violated the provisions of Chapter XVIIB (or specifically Sections 194C and 200 in the instant case), he would still go scot free, without suffering the consequences of such monetary default in spite of specific provisions laying down these consequences. The Punjab Haryana High Court has exhaustively interpreted Section 40(a(ia) keeping in mind different aspects. We would again quote the following paragraphs from the said judgment, with our complete approval thereto: 26. Further, the mere incurring of a liability does not require an assessee to deduct the tax at source even if such payments, if made, would require an assessee to deduct the tax at source. The liability to deduct tax at source under Chapter XVII-B arises only upon payments being made or where so specified under the sections in Chapter XVII, the amount is credited to the account of the payee. In other words, the liability to deduct tax at source aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had already been paid, it straightaway concluded, without any discussion, that Section 40(a)(ia) would apply only when the amount is 'payable' and dismissed the appeal of the Department stating that the question of law framed did not arise for consideration. No doubt, the Special Leave Petition thereagainst was dismissed by this Court in limine. However, that would not amount to confirming the view of the Allahabad High Court (See V.M. Salgaocar Bros. (P) Ltd. v. Commissioner of Income Tax, (2000) 243 ITR 383 and Supreme Court Employees Welfare Association v. Union of India, (1989) 4 SCC 187. 18) In view of the aforesaid discussion, we hold that the view taken by the High Courts of Punjab Haryana, Madras and Calcutta is the correct view and the judgment of the Allahabad High Court in CIT v. Vector Shipping Services (P) Ltd., (2013) 357 ITR 642 did not decide the question of law correctly. Thus, insofar as the judgment of the Allahabad High Court is concerned, we overrule the same. Consequences of the aforesaid discussion will be to answer the question against the appellant/assessee thereby approving the view taken by the High Court. 19) The appeal is, accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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