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TMI Blog2017 (7) TMI 1153X X X X Extracts X X X X X X X X Extracts X X X X ..... ransportation. The view taken by the Tribunal is just and proper. The issues are answered in favour of the assessee against the department. X X X X Extracts X X X X X X X X Extracts X X X X ..... ction in disallowance of payment of ₹ 1,06,82,965/-, but even deleting the balance addition of ₹ 30,99,661/-, confirmed by the CIT(A), which was made by the Assessing Officer as the assessee failed to deduct tax on source I(T.D.S.) U/S. 194C of the Act while making payment to the transporters, which is mandatory in view of Section 40(a) (ia) of the Act for claiming the expenditure? (iii) Whether on the facts and circumstances of the case, the Tribunal was right and justified in allowing the payment of ₹ 1,37,82,626/- made by the assessee in violation of the provisions of Section 40(a) (ia) of the Act, without deducting T.D.S. U/s.194C of the Act, even when on the payment made to the assessee by M/s. Magalam Cement entire T.D.S. as applicable on transporters has been deducted?" (4) Income Tax Appeal No.383/2011 admitting on 06.07.2012 "(i) Whether the Tribunal was right and justified in deleting the disallowance of payment of ₹ 50,25,303/- made by the Assessing Officer, as the assessee failed to deduct tax on source I(T.D.S.) U/S. 194C of the Act while making payment to the transporters, which is mandatory in view of Section 40(a) (ia) of the Act for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 194C is not applicable to us in this respect. We further state that neither we have paid the freight to the trucks nor we have credited the freight to the trucks. We credited the freight to the account of Mangalam Cement Ltd. who have directly paid the freight to the trucks and as such this act does not come under sub-contract. M/s Mangalam Cement Ltd. has bifurcated the total amount in two ways, i.e. freight to the trucks and balance amount to us and as such section 194C is not applicable to us. We submit the ledger account of Mangalam Cement Ltd. for your kind perusal." 5. He has also taken us to the observations made by the CIT(A) which reads as under:- "The contention of the A/R is that the appellant dispatched the material to ACC Ltd., Binani Cement Ltd. and Shree Cement Ltd. during the year. Under the contract, for handling charges, the appellant also organized trucks for dispatch of material on behalf of Mangalam Cement Ltd. The total freight/handling charges amounting to ₹ 4,45,84,847/- were paid during the F.Y. 2004-05 by the appellant and by M/s Mangalam Cement Ltd. as per the following bifurcation:- (i) Freight paid by M/s Daulat Enterprises direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved the transportation charges as contractor of various companies i.e. Binani Cement, ACC Ltd, Mangalam Cement, Shree Cement Ltd etc. The assessee firm then made payment to various persons/truck owners for carrying out the work as sub contractor. Accordingly the firm was liable to make TDS on such payments made to Sub contractors. As per the information filed it was seen that the assessee did not deduct tax on payments made for carrying out work of Mangalam Cement. The total of such expenses were ₹ 13782626/-. Therefore addition was made by way of disallowance. Against this order the assessee filed application u/s 154 of the Act on 07-01-2008 and again on 18-02-08 (dated 31-01-08). It is stated that total transportation freight paid to trucks directly by M/s Mangalam cement Ltd includes following details of two schedules- Freight paid by Manglam Cement Ltd directly to trucks having freight value less than 20,000 in one time and not exceeding Rs.50,000/- during the year as per details enclosed on which the TDS is not deductible by them u/s 194C. 10441608 Freight paid by M/s Manglam Cement Ltd directly to the trucks having freight value exceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its agent/contractor for transportation work and to regulate the work made payment directly to truck owners/transporter/argent of the assessee on behalf of the assessee firm. Therefore the argument does not hold good that the section 194C is not applicable on it since they have not made paid freight to the trucks. Sufficient evidence was not produced to conclude that one particular person was made payment during the year below the prescribed limit for making TDS. The addition was made after duly considering the facts and legality to the case. Thus the issue raised by the assessee is not a mistake apparent from the record therefore not covered in the purview of section 154 of the Act. In view of above discussion, the applications (dated 7- 01-08 and 31-01-08) filed by the assessee are hereby rejected." 9. He has also drew our attention to Annexure-10 where expenses towards transportation and handling receipts is shown as under:- "For the current year 46188731.0 - 44584847.0= 1603884" 10. He has also taken us the provision of Section 40(a) which reads as under:- "(a) in the case of any assessee- (i) any interest (not being interest on a loan issued for public subscripti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulated 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 is clear that Section 40(a)(ia) deals with the nature of default and the consequences thereof. Default is relatable to Chapter XVIIB (in the instant case Sections 194C and 200, which provisions are in the aforesaid Chapter). When the entire scheme of obligation to deduct the tax at source and paying it over to the Central Government is read holistically, it cannot be held that the word 'payable' occurring in Section 40( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 not even remotely required or even contemplated by the section. 12. Counsel for the respondent Mr. Jhanwar has taken us to the provision so Section 194(c) read with 204(iii) and contended that the amount of Annexure-9 is deducted completely on the payment which is required to be made and if the complete amount is not shown in the books of account and corresponding debit in the books of accounts it will not reach to any final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - made by the l.d.CIT(A) in this regard. The ground no.1 of the appela preferred by the revenue is thus rejected and ground of the appeal preferred by the assessee is allowed. Consequently, ground no 2 of the appeal preferred by the revenue is rejected as having become infructuous in view of our finding in ground of appeal preferred by the assessee on the issue. 13. In view of the observations made by the Tribunal, he contended that the order passed by the tribunal is just and proper. 14. He also invited our attention to the contract which was entered between the company and the assessee which reads as under:- "With reference to the discussion we had with your representative on the above subject we are pleased to award this contract on the following terms and conditions:- 1. You will arrange the transportation of Gypsum of good quality from the above mines of M/s. R.S.M.M. Ltd. to our works at Morak. Regarding quantity to be transported we will inform to you from time to time. 2. We will inform you about the road freight from the mines of R.S.M.M. Ltd to our works at Morak from time to time as per the prevailing rate of market and availability of trucks. 3. We shall p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s earlier, [deduct an amount equal to - (iii) one per cent in case of advertising, (iv) in any other case two per cent, of such sum as income-tax on income comprised therein.]" Therefore, the relevant question to be asked is, who was responsible for paying any sum to any resident for carriage of goods? The answer obviously is that it was the seller who was responsible for paying and the seller admits to have done that. Therefore, the liability to deduct tax was that of the seller. In case seller is unable to show that he had made the deduction, Section 40(a)(ia) may be applied to his case but not to the case of the buyer/assessee. 11. In that view of the matter, the question, quoted above, is answered by holding that the Tribunal was wrong in holding that the appellant was liable to deduct tax at source in respect of the freight component. When the assessee was not liable to make any deduction under Section 194C, the rigours of Section 40(a)(ia) could not have been applied to him. The question is thus answered. The appeal is thus allowed. 15. We have heard counsel for the parties. 15.1 It will not be out of place to mention that as rightly contended by counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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