Final view of Supreme on section 40(a)(ia): (a) Disallowance correct even if there is nothing “payable”. (b) Amendment by FA-2010 is not retrospective in nature (c) Amount disallowable even if contract is on freelance basis

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Final view of Supreme on section 40(a)(ia): (a) Disallowance correct even if there is nothing “payable”. (b) Amendment by FA-2010 is not retrospective in nature (c) Amount disallowable even if contract is on freelance basis

Final view of Supreme on section 40(a)(ia):

(a) Disallowance correct even if there is nothing “payable”.
(b) Amendment by FA-2010 is not retrospective in nature
(c) Amount disallowable even if contract is on freelance basis

Shree Choudhary Transport Company Versus Income Tax Officer: Supreme Court

No.- CIVIL APPEAL No. 7865 OF 2009

Dated.- July 29, 2020

Finally, Hon’ble supreme court has put to the rest various issues arising from the disallowance of TDS in the case of Shree Choudhary Transport Company Versus ITO.

The copy of the order is attached herewith for easy reference. The key observations are summarized hereunder:

  1. It was argued by the assessee that the law settled by Palam Gas Service ( Refer- https://thetaxtalk.com/2018/07/05/palam-gas-service/ ) is not applicable as therein, the assessee’s sub-contractors were specific and identified persons with whom the assessee had entered into contract whereas the present appellant was free to hire the service of any truck operator/owner and, in fact, the appellant hired the trucks only on need basis.

The court observed that such an attempt of differentiation is totally baseless and futile. Whether the appellant had specific and identified trucks on its rolls or had been picking them up on freelance basis, the legal effect on the status of parties had been the same that once a particular truck was engaged by the appellant on hire charges for carrying out the part of work undertaken by it (i.e., transportation of the goods of the company), the operator/owner of that truck became the sub-contractor and all the requirements of Section 194C came into operation.
The court further held that there is no hesitation in affirming the concurrent findings in regard to the applicability of Section 194C to the present case. Question No.1 is, therefore, answered in the negative; against the assessee-appellant and in favour of the revenue.

2. The second argument by the assessee was with regard to its applicability when the amount is not payable but already paid. Appellant has strenuously argued that Section 40(a)(ia) of the Act remains limited in its scope and does not apply to the amount already “paid”.

The court held that it is ex facie evident that the term “payable” has been used in Section 40(a)(ia) of the Act only to indicate the type or nature of the payments by the assessees to the payees referred therein. In other words, the expression “payable” is descriptive of the payments which attract the liability for deducting tax at source and it has not been used in the provision in question to specify any particular class of default on the basis as to whether payment has been made or not. The semantical suggestion by the learned counsel for the appellant, that this expression “payable” be read in contradistinction to the expression “paid”, sans merit and could only be rejected. In respectful agreement with the observations in Palam Gas Service that the enunciations in P.M.S. Diesels (2015) 277 CTR 0491 (P&H) : (2015) 119 DTR 0212 (P&H) : (2015) 374 ITR 0562 (P&H) : (2015) 232 TAXMAN 0544 (P&H) had been of correct interpretation of the provisions contained in Section 40(a)(ia) of the Act. The decision in Palam Gas Service covers the entire matter and the said decision, in our view, does not require any reconsideration. That being the position, the contention urged on behalf of the appellant that disallowance under Section 40(a)(ia) does not relate to the amount already paid stands rejected. Reference to the definition of the term “paid” in Section 43(2) of the Act is of no assistance to the appellant. Similarly, the observations in the case of J.K. Synthetics [1994 (5) TMI 233 – SUPREME COURT] as regards the difference in connotation of the expressions “payable” and “paid”, in the context of liability to pay interest on the tax payable under the Rajasthan Sales Tax Act, 1954, has no co-relation whatsoever to the present case. Further, when it is found that the process of interpretation of Section 40(a)(ia) of the Act in P.M.S. Diesels (2015) 277 CTR 0491 (P&H) : (2015) 119 DTR 0212 (P&H) : (2015) 374 ITR 0562 (P&H) : (2015) 232 TAXMAN 0544 (P&H) as approved by this Court in Palam Gas Service (supra), had been with due application of the relevant principles, reference to the decision in the case of Institute of Chartered Accountants of India [1997 (7) TMI 649 – SUPREME COURT] on the general principles of interpretation, does not advance the case of the appellant in any manner. Question No.2 is also answered in the negative; against the assessee-appellant and in favour of the revenue.

3. The third argument by the appellant was with regard to the restrospective application of section 40(a)(ia) as was done by the FA-2010. Hon’ble supreme court observed as under:
“What this Court has held as regards “retrospective operation” is that the amendment of the year 2010, being curative in nature, would be applicable from the date of insertion of the provision in question i.e., sub-clause (ia) of Section 40(a) of the Act. This being the position, it is difficult to find any substance in the argument that the principles adopted by this Court in the case of Calcutta Export Company (2018) 302 CTR 0201 (SC) : (2018) 165 DTR 0321 (SC) : (2018) 404 ITR 0654 (SC) : (2018) 255 TAXMAN 0293 (SC) dealing with curative amendment, relating more to the procedural aspects concerning deposit of the deducted TDS, be applied to the amendment of the substantive provision by the Finance (No.2) Act, 2014.

Assessee-appellant was either labouring under the mistaken impression that he was not required to deduct TDS or under the mistaken belief that the methodology of splitting a single payment into parts below ₹ 20,000/- would provide him escape from the rigour of the provisions of the Act providing for disallowance.

In either event, the appellant had not been a bonafide assessee who had made the deduction and deposited it subsequently. Obviously, the appellant could not have derived the benefits that were otherwise available by the curative amendments of 2008 and 2010.

Having defaulted at every stage, the attempt on the part of assessee-appellant to seek some succor in the amendment of Section 40(a)(ia) of the Act by the Finance (No.2) Act, 2014 could only be rejected as entirely baseless, rather preposterous. Question No.3 is also answered in the negative, i.e., against the assessee-appellant and in favour of the revenue.

4. Court on an issue as to whether the payments in question have rightly been disallowed from deduction observed as under:

The proviso so amended, obviously, safeguarded the interest of a bonafide assessee who had made the deduction as required and had paid the same to the revenue. The appellant having failed to avail the benefit of such relaxation too, cannot now raise a grievance of alleged hardship. Thirdly, as noticed, the appellant had shown total payments in Truck Freight Account at ₹ 1,37,71,206/- and total receipts from the company at ₹ 1,43,90,632/-. What has been disallowed is that amount of ₹ 57,11,625/- on which the appellant failed to deduct the tax at source and not the entire amount received from the company or paid to the truck operators/owners Question No. 4 is clearly in the affirmative i.e., against the appellant and in favour of the revenue that the payments in question have rightly been disallowed from deduction while computing the total income of the assessee-appellant. – Decided in favour of revenue.

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