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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 ..... ) 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? (ii) Whether on the facts and circumstances of the case, the Tribunal was right and justified in allowing the payment of Rs. 2,14,63,446/- 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. Mangalam Cement entire TDS as applicable on transporters has been deducted?" (2) Income Tax Appeal No.202/2011 admitted on 19.01.2012 "(i) Whether on the facts and circumstances of the case, the Tribunal was right and justified in deleting the disallowance of payment of Rs. 30,99,961/- which was made by the Assessing Officer and confirmed by the CIT(A) as the assessee failed to deduct tax on source (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. (ii) Whether on the facts and circumstances of the case, the Tribunal was right and justified is not only upholding the reduction in disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed 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? (ii) Whether on the facts and circumstances of the case, the Tribunal was right and justified in allowing the payment of Rs. 50,25,303/- 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. While arguing the matter of earlier occasion Mr. Singhi, counsel for the appellant pointed out the observations made by the Assessing Officer which reads as under:- "It is seen that during the year the assessee received transportation receipts from various companies at Rs. 45694860/- and made total payment of Rs. 44584847/- as transportation expenses to various persons/truck owners. The assessee received 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/tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05 by the appellant and by M/s Mangalam Cement Ltd. as per the following bifurcation:- (i) Freight paid by M/s Daulat Enterprises directly to truck owners/drivers. Rs. 3,08,48,375 (ii) Freight paid by M/s Mangalam Cement Ltd.directly to truck owners/drivers. Rs.1,37,36,472 Total Freight/handling charges Rs.4,45,84,847 6. He further contended that in view of the observations made by the Mangalam Cement Ltd. in clause 3 (Annexure-4) which reads as under:- "3. We shall pay to Rs. 20 per tonne as handling charges for arranging the trucks for transportation of Gypsum on our behalf. Service tax will be paid by the company, if applicable and ITDS will be deducted as per Income Tax Rules." 7. The deduction was on the basis of additional document which reads as under:- Mangalam Cement Ltd. Regd. Office & Works: P.O. Aditya Nagar-326520, Morak, Distt. Kota(Raj.) Regd AD MC/Accts/11663 &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lam 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 Rs. 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 exceeding Rs. 50,000/- during the year as per details enclosed. 3294864 The assessee claimed that TDS is not ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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(a)(ia) refers 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 prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decision to match. The Tribunal rightly observed in its judgment which reads as under:- "Thus we concur with the contention of Ld.A.R. that wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 pay you Rs. 20/- perr tonne as handling charges for arranging the trucks for transportation of Gypsum on our behalf. Service tax will be paid by the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prised 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 for the respondent Mr. Jhanwar that Section 194(c) read with 204(iii) will come into operation only on the payment made by assessee and as rightly discussed since payment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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