AI Drafter 
TaxTMI 
TaxTMI 
2017 (7) TMI 1153
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....r 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 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 Trib....
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.... and justified in deleting the disallowance of payment of Rs. 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 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....
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....rucks for dispatch of material on behalf of Mangalam Cement Ltd. The total freight/handling charges amounting to Rs. 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 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 &nb....
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....s made since the assessee has failed to deduct tax on payment amounting to Rs. 13782626/- made to sub contractors for transportation. Facts of the case in brief are that 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/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 ....
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....it may be stated that the assessee has shown receipt from this company in its P&L account. As per TDS certificate issued by M/s Manglam Cement Ltd also such payments were made to the assessee firm. As a matter of fact M/s Manglam Cement Ltd appointed the assessee firm 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 receip....
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....s of Sections 194C and 200. Once it is found that the aforesaid Sections mandate a person to deduct tax at source not only on the amounts payable but also when the sums are actually paid to the contractor, any person who does not adhere to this statutory obligation has to suffer the consequences which are stipulated 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 C....
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....ier. The liability to deduct tax at source, in the case of an Assessee following the cash system, arises only when the payment is made and in the case of an Assessee following the mercantile system, when he credits such sum to the account of the party entitled to receive the payment. 28. The government has nothing to do 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. ....
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.... paid to them in pursuance of a contract for a specific period, quantity or price. The l.d. CIT(A) was thus not correct in fixing liability on assessee for non making TDS on the payments of Rs. 30,99,661/- as freight by Mangalam Cement Ltd. to the truck owners. We order accordingly, while deleting disallowance of Rs. 30,99,661/- 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....
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.... 385 ITR 575 (Calcutta) wherein it has been held as under:- "9. From a combined reading of the provisions set out above, it would appear that any person responsible for paying any sum to any resident on account of carriage of goods " 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 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....