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TMI Blog2020 (4) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. No contrary decision was brought to our knowledge by the ld. D.R. We restore this issue to the file of the Assessing officer with the direction that the assessee shall provide all the details to the Assessing Officer with regard to the recipients of the income and tax es paid by them. AO shall carry out necessary verification in respect of the payments and taxes of such income and al so filing the return by the recipient. AO finds that the recipient has duly paid the tax es on the income, the addition made by the AO shall stand deleted. Thus this ground is allowed for statistical purposes. Having sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s such, considering all the facts of the case, we are of the view that the provisions of section 194C of the Act were not applicable to the reimbursement of actual expenses and the assessee was not liable to deduct tax at source from such reimbursement. Accordingly, we set aside the orders of the Income tax authorities and direct the A.O. to verify the claim of the assessee. Addition incurred for the deficiency of services - HELD THAT:- The facts of this issue are that the Assessing Officer noted from the profit and loss account furnished by the assessee that the assessee has debited an amount of ₹ 5,22,346 for penalty paid, which according to the A.O. is not an allowable expenses. Since the assessee has not made any submission before the CIT(A), he confirmed the same. - Since assessee failed to substatiate the claim, additions confirmed. - ITA No.785/Bang/2018 - - - Dated:- 24-2-2020 - Shri Chandra Poojari, AM And Smt.Beena Pillai, JM For the Appellant : Sri. Narendra Sharma, Advocate For the Respondent : Ms.Neera Malhotra, CIT-DR ORDER PER CHANDRA POOJARI, AM : This appeal filed by the assessee is directed against the order of the CIT(A), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ia) of the Act is applicable only in the cases where the assessee is held to be as an assessee in default as per the provisions of section 201 [1] of the Act under Chapter - XVII B of the Act, whereas the same is absent in the instant case and consequently the disallowance under the provisions of section 40[a][ia] of the Act is not warranted under the facts and circumstances of the case. 8. Without Prejudice the learned authorities below failed to appreciate the fact that disallowance under section 40(a)(ia) is permissible only if the deduction is claimed under section 30 to 38 of the Income-tax Act, 1961 under the facts and circumstances of the case. Where the payment to the drivers and also towards the petrol and diesel expenditure incurred by the appellant partakes the payment made under section 28 of the Income-tax Act, 1961 and consequently no disallowance under section 40[a][ia] of the Act is warranted under the facts and circumstances of the case. 9. Without further prejudice though not conceding only 30% of the expenditure incurred and claimed for the alleged violation of the TDS provisions can be disallowed under section 40(a)(ia) of the Act if at all it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses, however, the assessee was failed to do so. Subsequently, the assessee submitted PAN card from cab drivers and owners for whom hire charges were paid and that the cab drivers and owners were all regular income-tax payers and hence as per section 194C no TDS was made where PAN was provided. According to the A.O. section 194C will only apply to a contractor during the course of business of plying, hiring or leasing goods carriages and not to a contractor engaged in the business of plying passenger vehicle. Accordingly, A.O. held the assessee liable to deduct TDS and disallowed a sum of ₹ 6,18,73,785 for vehicle hire charges, u/s 40(a)(ia) of the Act. 5. On appeal, the CIT(A) confirmed the disallowance made by the Assessing Officer. Hence, the assessee is in appeal before us. Before us the contention of the learned AR is that the assessee has not entered into any contract with cab owners for the vehicles and drivers provided by them and the individual payments made to them were not regular or routine and as such the provisions of section 194C were not attracted. 6. As regards ground Nos.5, 6, 7, 8 and 9, the learned AR submitted that the authorities below fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers of the Income-tax Authorities. 8. We have heard the rival submissions and perused the material on record. The provisions of section 40(a)(ia) are very clear if the assessee fails to deduct the tax at source or after deduction has not paid before the due date specified in subsection (1) of section 139, the same will not be allowed in computing the income under the head profit and gains of business or profession . The contention of th e assessee, however, is that the provisions of section 194C are not applicable on the facts as there is no agreement or contract between the assessee and the persons from whom the vehiles have been hired. The provision of section 194C lays down as under:- 194C - 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 ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it, such particulars, in such form and within such time as may be prescribed. Explanation.-For the purposes of this section,- (i) specified person shall mean,- (a) the Central Government or any State Government; or (b) any local authority; or (c) any corporation established by or under a Central, State or Provincial Act; or (d) any company; or (e) any co-operative society; or (f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or (g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or (h) any trust; or (i) any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or (j) any Government of a foreign State or a foreign enterprise or any association or body established outside India; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oking the provisions of Section 194 C with respect to payment of TDS . The cab owners have received the payments from the assessee towards the hiring charges, therefore, the presumption normally be that one would proceed on the basis that there was a contract for hiring of vehicles. Therefore, if the assessee has made the payment for hiring the vehicles, the provisions of section 194C are clearly applicable. The contract has to be looked into partywise not on the basis of the individual. In our opinion, all the payments made to a cab owner throughout the year are to be aggregated to ascertain the applicability of the TDS provision as all the payments pertain to a contract. Contract need not be in writing. It may infer from the conduct of the parties. It may be oral also. We also noted that under section 194C, subsection (5) proviso thereto, the aggregate amount of all the payments or credited to a person should exceed only ₹ 75,000, then the assessee shall be liable to deduct incometax at source. 8.2 But before us, the ld. A.R. has taken a submission that the 2 n d proviso to section 40(a) (ia) as inserted by Finance Act, 2012 would apply in the case of the assessee. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the legal position was accepted by the Central Board of Direct Taxes in its Circular No.275/201/95-IT(B) dated January 29, 1997. Reference in this behalf may also be made to the judgment of the Hon'ble Supreme Court in Hindustan Coca Cola Beverage P. Ltd. v CIT, (2007) 293 ITR 226 (SC) where the same view was taken. We find that the aforesaid settled position in law has also been legislatively recognized by insertion of a proviso in sub-section (1) of section 201 of the Act by the Finance Act, 2012. Thus, the settled position in law is that if the deductee/payee has paid the tax, no recovery can be made from the person responsible for paying of income from which he failed to deduct tax at source. In a case where the deductee/payee has paid the tax on such income, the person responsible for paying the income is no longer required to deduct or deposit any tax at source. In the similar circumstances, we find that the first proviso to section 40(a)(ia) inserted by the Finance Act, 2010, which has been held to be curative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to when it can be said that payer has paid the taxes directly. Also, there is no clarity on the issue of the cut-off date, i.e., the date on which it can be said that the payee has discharged his tax liability. In order to provide clarity regarding discharge of tax liability by the resident payee on payment of any sum received by him without deduction of tax, it proposed to amend section 201 to provide that the payer who fails to deduct the whole or any part of the tax on the payment made to a resident payee shall not be deemed to be an assessee in dealt in respect of such tax if such resident payee- (i) Has furnished his return of income under section 139; (ii) Has taken into account such sum for computing income in such return of income ; and (iii) Has paid the tax due on the income declared by him in such return of income, and the payer furnishes a certificate to this effect from an accountant in such form as may be prescribed. The date of payment of taxes by the resident payee shall be deemed to be the date on which 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and al so filing the return by the recipient. In case, the Assessing Officer finds that the recipient has duly paid the tax es on the income, the addition made by the Assessing Officer shall stand deleted. Thus this ground is allowed for statistical purposes. 8.5 Further, having said so, we will be failing in our duty if we do not discuss the amendment brought in by the Finance (No.2) Act, 2014 with effect from 01.04.2015 by virtue of which proviso to section 40(a)(ia) has been inserted, which provides that if any such sum taxed has been deducted in any subsequent year or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such shall be allowed as a deduction in computing the income of previous year, such sum shall be allowed as a deduction in computing the income of previous year, and further, section 40(a)(ia) has been substituted wherein the 30% of any sum payable to a resident has been substituted. In the present case, the authorities below has added the entire sum of ₹ 6,18,73,785 by disallowing the whole amount. Though the substitution in section 40 has been made effective with effect from 01.04.2015, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tine and as such the provisions of section 194C were not attracted. This argument of the assessee is without any merit, as this is not a case where the payments are being made once in a blue moon to a particular can owner. Further, the assessee has not brought on record anything to show that the payments were not more than the prescribed limit of ₹ 30,000 at any instance or ₹ 75,000 during the financial year. It is an undisputed fact that the assessee is engaged in the business of vehicle hire and takes vehicles along with drivers on hire from various persons and pays vehicle hire charges and petrol and diesel expenses to such cab owners. When the Assessing Officer has confronted the assessee on the issue of tax deduction at source, the assessee has relied on the provisions of section 194C(6) of the Act and argued that he was not liable to deduct tax at source on the payments as he had obtained PAN of the persons from whom vehicle was taken on hire and these persons were regular income tax payers. Thus, the fact of existence of a contract with the cab owners was not denied by the assessee but he argued that the provisions of section 194C(6) of the Act are applicable to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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