TaxTMI 
TaxTMI 
2015 (5) TMI 1066
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....nder section 40(a)(ia) of the Income Tax Act, 1961 was called for. (III) For that section 40(a)(ia) of I.T. Act, 1961, applies to hire charges which are payable and not applicable to the sum already paid and thus disallowance of the sum of Rs. 96,57,939/- inclusive of a sum of Rs. 2,83,186/- allowed by AO was not legal and valid. (IV) For that ld. CIT(A) was not justified in upholding the charging of interest of Rs. 13,86,714/- under section 234B of I.T. Act, 1961. 2. We have heard the rival submissions and carefully considered the same along with the order of tax authorities below. We noted that the assessee is engaged in the business of transport of goods belonging to business houses. The assessee during the previous year incurred an expenditure of Rs. 1,31,04,000/- towards hiring of lorries. The Assessing Officer was of the view that the assessee was required to deduct TDS, but the assessee has not deducted the TDS where single payment was in excess of Rs. 20,000/- at a time and aggregate payment to a single truck owner exceeds Rs. 50,000/- during the impugned year. The Assessing Officer, therefore, took the view that a sum of Rs. 1,28,20,814/- falls under the provisio....
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....the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed 17[thirty] thousand rupees: Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds 18[seventy-five] thousand rupees, the person responsible for paying such sums referred to in sub-section (1) shall be liable to deduct income-tax under this section. (6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum. (7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such ....
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.... makes it clear that "any person responsible for paying any sum to any resident (hereafter in this sect ion 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" is requi red to deduct tax at source under sect ion from the amounts so paid or payable. There is no doubt that the assessee in this case has made the payment s as transportation charges in the nature of hiring charges for goods carried vehicles. The main contention of the assessee is, however, that the payment s have not been made in pursuance of a contract between the assessee and the transporters. Now the question arises before us, whether there is cont ractual relationship between the assessee and the persons to whom the assessee had made the payment s in the nature of hiring charges for goods carried vehicles. In our opinion, a contract need not be in writing; even an oral contract is good enough to invoke the provisions of Section 194 C. As Hon'ble Karnataka High Court has observed in the case of Smt J Rama Vs CIT (236 CTR 105), "Law does not stipulate the existence of a written contract....
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....e ld. A.R. are duly covered by the decision of this Tribunal ('SMC' Bench) in ITA No. 1905/Kol/2014 for the assessment year 2007-08, in which this Tribunal vide order dated 04.03.2015 has held as under:- "5. I have heard rival contentions and gone through the facts and circumstances of the case. I find from first argument made by Ld. counsel for the assessee that the second proviso to section 40(a)(ia) of the Act inserted by the Finance Act, 2012 would apply in the instant case. According to him, the second proviso is curative in nature intended to supply an obvious omission, take care of an unintended consequence and make the section workable. Section 40(a)(ia) without the second proviso resulted in the unintended consequence of disallowance of legitimate business expenditure even in a case where the payee in receipt of the income had paid tax. According to him, it has for long been the legal position that if the payee has paid tax on his income, no recovery of any tax can be made from the person who had failed to deduct the income tax at source from such amount. In Grindlays Bank v CIT, (1992) 193 ITR 457 (Cal) decided on September 5, 1989, it was held by the Hon'ble Calcutt....
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....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. The insertion of second proviso was explained by Memorandum Explaining The provision in Finance Bill, 2012, reported in 342 ITR (Statutes)234 at 260 & 261, which reads as under:- "E.RATIONALIZATION OF TAX DEDUCTION AT SOURCE (TDS) AND TAX COLLECTION AT SOURCE (TCS) PROVISIONS I. Deemed date of payment of tax by the resident payee. Under the existing provisions of Chapter XVII-B of the Income-tax Act, a person is required to deduct tax on certain specified payments at the specified rates if the payment exceeds specified threshold. In case of non-deduction of tax in accordance with the provisions of this Chapter, he is deemed to be an assessee in default under section 201(1) in respect....
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....g the deemed date of discharge of tax liability by the buyer or licensee or lessee. These amendments will take effect from 1st July, 2012. II. Disallowance of business expenditure on account of non-deduction of tax on payment to resident payee. A related issue to the above is the disallowance under section 40(a)(ia) of certain business expenditure like interest, commission, brokerage, professional fee, etc. due to non-deduction of tax. It has been provided that in case the tax is deducted in subsequent previous year, the expenditure shall be allowed in that subsequent previous year of deduction. In order to rationalize the provisions of disallowance on account of non-deduction of tax from the payments made to a resident payee, it is proposed to amend section 40(a)(ia) to provide that where an assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, the, for the purpose of allowing deduction of such sum, it shall be deemed that the assessee had deducted and paid the tax on such sum on the date of furnishing of ret....
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....nterest (i.e. the assessee) does not comply with sub-section 2 of section 197A, he is liable to pay penalty of Rs. 100/- for every day during which the failure continues. Such penalty can be imposed only by the Commissioner or Chief Commissioner of Income Tax as stat ed in clause (b) of subsection 3 of section 272A and sub-section 4 requires that an opportunity shall be given to the assessee before any penalty order is passed. 7. In the present case the claim of the assessee is that at the time of paying the interest to the 34 persons mentioned in the assessment order, he had before him the appropriate declarations in the prescribed form from the payees stating that no tax was payable by them in respect of their total income and therefore tax need not be deducted from interest under section 194A, and in the light of these declarations he had no option but to make the payment of interest without any tax deduction. If the claim is true then the contention must be accepted because under sub-section (lA) of section 197A, if such a declaration is filed by the payee of interest no deduction of tax shall be made by the assessee. The revenue authorities have doubted the assessee's ver....
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....t the employee had actually utilized the money paid towards leave travel concession/conveyanc e allowance. The pos ition is stronger under section 197A which does not apply to section 192, but which provides in sub-section (1A) that if the payee of the interest has filed the prescribed form to the effect that he is not liable to pay any tax in computing his total income, the payee shall not deduct any tax. The subsection does not impose any obligation on the payer to find out the truth of the declarations filed by the payee. Even if the assessee has delayed the filing of the declarations with the office of the CIT/CCIT (TDS) within the time limit specified in subsection (2) of section 197 A, that is a distinct omission or default for which a penalty is prescribed. Section 273B provides that no penalty shall be imposed under any of the clauses of sub-section (2) of section 272A for the delay. if the assessee proves that there was reasonable cause for the same. We have already seen that under sub-section (4) of section 27 2A. no penalty can be imposed unless the assessee is given an opportunity of being heard. All these provisions indicate that the failure on the part of the assessee....