TaxTMI 
TaxTMI 
2020 (4) TMI 756
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....come-tax [Appeals] is not justified in confirming the addition made by the learned assessing officer disallowing a sum of Rs. 6,18,73,785/- by invoking the provisions of section 40 (a)(ia) of the Act for non deduction of TDS on the payments debited as vehicle hire charges, on the facts and circumstances of the case. 4. The learned Commissioner of Income-tax [Appeals] is not justified in disallowing a sum of Rs. 2,42,41,856/- by invoking the provisions of section 40(a)(ia) of the Act towards the reimbursement of petrol and diesel charges to the drives. The learned authorities below failed to appreciate that the provisions of section 40(a)(ia) of the Act is not applicable to the reimbursement of expenditures and consequently the addition made by the learned assessing officer and confirmed by the learned Commissioner of Income-tax [Appeals] amounting to Rs. 2,42,84,856/- requires to be deleted, on the facts and circumstances of the case. 5. The authorities below failed to appreciate the fact that the appellant had not entered into an agreement with either with the owners of the vehicles nor with the drivers for the transportation and thus applicability of section 194C of the Act d....
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....me-tax [Appeals] is not justified in not adjudicating the ground on the issue of addition made by the learned assessing officer amounting to Rs. 5,22,346/- which was incurred by the appellant for the deficiency of service, on the facts and circumstances of the case. 11. The Appellant denies himself liable to be charged to interest under section 234B & 234D of the Income-Tax Act, 1961, on the facts and circumstances of the case. 12. The Appellant craves leave of this Hon'ble Tribunal, to add, alter, modify, delete or substitute any of the grounds urged above. 13. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity." 2. At the time of hearing before us, it was fairly conceded by the learned Counsel for the assessee that ground No.1, 2, 11, 12 and 13 are general in nature and does not require any adjudication. Accordingly, these grounds are dismissed being general. 3. Ground No.3 is with regard to disallowance of Rs. 6,18,73,785 by invoking the provisions of section 40(a)(ia) of the I.T.Act. Since ground Nos.5, 6, 7, 8 and 9 are interr....
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....ion 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. It was also contended by the learned AR that the 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. Further, 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 to be disallowed, not the entire expenditure claimed by the assessee. The authorities failed to appreciate that considering the draconian provisions of section 40(a)(ia) of the Act, the legislature reduced the disallowance to 30% of the expendit....
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....b-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source- (i)on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or (ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice. (4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to 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[seventyfive] 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 d....
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....ode of transport other than by railways; (d) catering; (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer."] 8.1 A plain reading of this Section makes it clear that "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" is required to deduct tax at source under section from the amounts so paid or payable. There is no doubt that the assessee in this case has made the payments as hire charges to cab owners. The main contention of the assessee is, however, that the payments have not been made in pursuance of a contract between the assessee and the cab owners. Now the question arises before us, whether there is contractual relationship between the assessee and the persons to whom the asse....
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.... 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 Calcutta High Court as follows at pages 469-470 of the reports: "A point has been made by the assessee that as a result of this deduction the department is realizing the tax twice on the same income. It does not appear that this point was agitated before the Tribunal. We, however, make it clear that if the amount of tax has already been realised from the employees concerned directly, there cannot be any questio....
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....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 of the amount of such non-deduction. However, section 191 of the Act provides that a person shall be deemed to be assessee in default in respect of non/short deduction of tax only in cases where the payee has also failed to pay the tax directly. Therefore, the deductor cannot be treated as assessee in default in respect of non/short deduction of tax if the payee has discharged his tax liability. Th....
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....essional 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 return of income by the resident payee. These beneficial provisions are proposed to be applicable only in the case of resident payee. These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years." 8.4 No contrary decision was brought to our knowledge by the ld. D.R. By respectfully following t....
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....collected amounting to Rs. 2,42,41,856. According to the A.O., the assessee himself has debited TDS on the payment of Rs. 2,48,39,356 paid for petrol and diesel expenses, however, the A.O. disallowed the amount of Rs. 2,42,41,856 by invoking the provisions of section 40(a)(ia) of the Act, since it is in the nature of contract receipts and contract payments for which the assessee was liable to deduct TDS. In first appeal, the CIT(A) confirmed the disallowance made by the Assessing Officer. 9. Against this, the assessee is in appeal before us. The learned AR submitted that the assessee has collected a sum of Rs. 2,42,41,856 towards petrol and diesel expenses from the parties and paid a sum of Rs. 2,48,39,356 to the cab drivers. According to him, this amount was directly paid by the assessee to the petrol pump and not to the cab owners and accordingly it was reimbursed by the concerned parties. This was duly reflected in the profit and loss account of the assessee for the year ended on 31st March, 2014 and there was no dispute on this account. The learned AR submitted that when the assessee paid the petrol and diesel expenses directly to the petrol pump, the assessee is not liable ....
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....dering the rival submissions and perusing the relevant material on record, we find no infirmity in the impugned order of the learned CIT(A) on this issue. It is observed that as agreed by and between the assessee and the cab owners, a vehicle was to be provided by the assessee to the parties and thus, the assessee was to bear the vehicle expenses actually incurred by the said cab owners and which will be reimbursed by the parties concerned. If bills for such expenses incurred by the said cab owners were separately raised by them on the assessee in addition to bills for hire charges and since the amount of bills so raised was towards the actual expenses incurred by them, there was no element of any profit involved in the said bills. It was thus a clear case of reimbursement of actual expenses incurred by the assessee and the same, therefore, was not of the nature of payment covered by section 194C of the Act requiring the assessee to deduct tax at source therefrom, where bills were raised separately by the cab owners for reimbursement of actual expenses incurred by them. As such, considering all the facts of the case, we are of the view that the provisions of section 194C of the Act....