Income Tax Appellate Tribunal - Chandigarh
Sh. Suhhwinder Singh, Ludhiana vs Department Of Income Tax on 17 July, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'B', CHANDIGARH
BEFORE SHR I T.R.SOOD, ACCOUNTANT MEMBER
AND Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
ITA No.801 /Chd/2011
(Assessment Year : 2008-09)
The D.C.I.T., Vs. Sh.Sukhwinder Singh,
Circle 1, Prop.M/s Ahmedgarh Tanker
Ludhiana. Transport Co., Heera Nagar,
Street No.4, Ludhiana.
PAN: ANZPS8434Q
(Appellant) (Respondent)
Appellant by : Shri Amarveer Singh, DR
Respondent by : Shri Deepak Aggarwal
Date of hearing : 17.07.2013
Date of Pronouncement : 30.09.2013
O R D E R
Per SUSHMA CHOWLA, J.M. :
The appeal filed by the Revenue is against the order of the Commissioner of Income-tax (Appeals)-I, Ludhiana dated 13.05.2011 r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 8 - 0 9 a g a i n s t t h e o r d e r p a s s e d u n d e r section 143(3) of the Income Tax Act, 1961 (in short 'the Act').
2. The grounds of appeal raised by the Revenue read as under:
1. That the Ld CIT(A) erred in law and on facts by deleting the addition of Rs.3,56,76,400/- made u/s 40(a)(ia) of the I.T.Act, 1961, whereas the assessee was liable to deduct tax at source in accordance with the provisions of section 194C of I.T. Act, 1961 on the payments made by him under the Head Freight.
2. That the Ld C1T(A) erred in law and on facts in deleting the addition of Rs.35,99 ,080/- made on account of disallowance of cash payments paid in contravention to provisions of section 40A(3) and on account of non verification of any of the expenses booked under the head freight paid.
3. That the order of the Ld CIT(A) be set aside and that of A.O. be restored.
4. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off.2
3. The issue raised in ground No.1 is against deletion of addition of Rs.3.56 crores made in view of the provisions of section 40(a)(ia) of the Act for the failure to deduct tax at source under section 194C of the Act o n t h e p a ym e n t s m a d e u n d e r t h e h e a d ' f r e i g h t e x p e n s e s ' .
4. The brief facts of the case are that the assessee was engaged in the business of transportation of edible oil from Kandla Sea Port to different p a r t s o f t h e c o u n t r y. Further the assessee also transported molasses f r o m U . P . a n d b l a c k o i l f r o m / t o d i f f e r e n t p l a c e s w i t h i n t h e c o u n t r y. T h e a s s e s s e e o w n e d f l e e t o f o i l t a n k e r s o f h i s o w n f o r c a r r yi n g o n t h e business of transportation. Further the assessee hired vehicles from the market in order to carry on transportation activities. The total receipts on account of cartages were Rs.194.36 lacs and in addition assessee had declared income from commission at Rs.21,40,484/-. The Assessing Officer requisitioned the assessee to reconcile the total receipts with the TDS claim filed by it. On verification the Assessing Officer noted that the total receipts corresponding to TDS claimed by the assessee amounted to Rs.5,14,03,741/-. The explanation of the assessee with regard to the same was that the remaining receipts were not brought into Profit & Loss Account as the assessee onl y received commission from petty transporters which was credited to the Profit & Loss Account. The receipts from freight pertaining to the said petty transporters, as per the assessee, were credited to their respective personal accounts, under their respective vehicle numbers. The Assessing Officer after excluding the commissions @ 6% at Rs.21,40,584/- sought explanation from the assessee in respect of net p a ym e n t o f R s . 3 , 3 5 , 3 5 , 8 1 6 / - a s against receipts of Rs.3,56,76,400/-. The assessee was asked to explain the fulfillment of provisions of section 40(a)(ia) of the Act. The reply of the assessee is incorporated at pages 2 to 4 of the assessment order. The 3 main plea of the assessee was that the small transporters were arranged purely on commission basis on the terms and conditions verbally settled between the assessee and the said petty transporters. The assessee c l a i m e d t o h a v e f o l l o w e d t h e s a i d s y s t e m f r o m ye a r t o ye a r a n d w a s showing receipts from its fleet of vehicles as income from transport business and only commission was received from petty transporters and the same was credited to the Profit & Loss Account. The freight amount pertaining to such transporters was claimed to have been credited to their party accounts under their respective vehicle numbers, and after deducting the commission and petty en-route expenses, the balance was paid to them. The Assessing Officer considering the legal position under section 194C and section 40(a)(ia) of the Act read with Rule 29D of I n c o m e T a x R u l e s a n d a n a l ys e d t h e c a s e u n d e r f o l l o w i n g h e a d s :
1) Whether the assessee has to recognize all the receipts from GRs as part of his total receipts in the P&L a/c as he is a contractee for the main party and not a commission agent:-
The Assessing Officer noted that the GRs were being prepared in the name of the assessee though the assessee claimed that he was only acting as commission agent. Reliance was placed on question No.9 and 10 and answer to it in Circular No.715 dated 8.8.1994, reported in 125 ITR (St.) 12 and it was observed b y the Assessing Officer that all the parties were deducting tax at source on the payments made to the assessee and hence the total receipts of the assessee should be adopted at Rs.5.14 crores.
(2) W h e t h e r t h e a s s e s s e e h a s t o s h o w t h e p a ym e n t s m a d e t o t h e p e t t y t r a n s p o r t e r s a s p a ym e n t s t o s u b - c o n t r a c t o r s a n d c l a i m t h e m as expenses:-4
The Assessing Officer noted that the assessee claimed to have furnished Form No.15I and 15J in respect of certain petty transporters.
The Assessing Officer observed that while the assessee would receive the whole amount as stated in the GR from the main party on delivery of goods, he would give the money to the petty transporters only when he is satisfied about the actual delivery as per contractual obligations.
The assessee has in his own reply dated 23.12.10 stated that he arranges the trucks of petty transporters on terms and conditions verbally settled between him and the petty transporter. The use of 'terms and conditions' signifies the existence of contractual relationship between the assessee and the petty transporters. Therefore, payments made to the petty transporters should be entered in the expenses incurred by the assessee.
The assessee contends that he is charging commission 6% but this commission is actually the margin or the profit of the assessee in the contract.
(3) Whether for claiming these expenses, the assessee needs to comply to the provisions of Section 194C rws 40(a)(ia):-
The Assessing Officer held that In view of
the non compliance of the provisions of Section
194C, it is held that freight payments of
Rs.3,56,76,400/- shall not be allowable to the
assessee as a business expenditure. Therefore,
the amount of Rs.3,56,76,400/- is being
disallowed and added back to the income of the
assessee for non-compliance of provisions of
Section 194C rws 40(a)(ia).
5
5. The second issue before the Assessing Officer was in relation to disallowance of expenses under section 40A(3) of the Act resulting in a d d i t i o n o f R s . 4 0 , 2 4 , 0 8 0 / - o n a c c o u n t o f c a s h p a ym e n t s .
6. Before the CIT (Appeals) the assessee filed written submissions which are incorporated at pages 4 to 17 of the appellate order. The main plea of the assessee was that the same method of accounting has been f o l l o w e d f r o m ye a r t o ye a r a n d e x p e n d i t u r e h a d b e e n a l l o w e d i n t h e e a r l i e r ye a r , w h i c h m e r i t s t o b e a l l o w e d i n t h e ye a r u n d e r c o n s i d e r a t i o n also. The second plea of the assessee was that though the bills were r a i s e d i n t h e n a m e o f t h e a s s e s s e e b u t t h e p a ym e n t i s m a d e t o t h e v e h i c l e owner on hiring the vehicle from the market. The assessee received whole amount of JR but the same is disbursed to the truck owner after delivery of the goods. Another plea was raised by the assessee that there never existed a relationship of contractor and sub-contractor between the assessee and petty transporters and hence there is no obligation to deduct tax at source out of hire charges paid to them. The assessee furnished break up of the details and pointed out that This statement is in respect of petty tanker owners for the period from 01.04.2007 to 31.03.2008 to whom total hire charges of Rs.1,60,59,051/-
were paid and from whom a sum of Rs.9,47,480/- was earned as commission. The summary of the deduction made from the hire charges on various counts and advances made to them to meet the various expenses relating to the running and maintenance of their tankers is given as well as the credits of freights etc. as under:-
Amounts Debited
1) Amount paid- Rs. 36,77,271/-
2) Amount paid from Kandla Office - Rs. 5,62,904/-
3) Diesel -Rs.48,24,721/-
4) Shortage -Rs. 6,27,855/-
6
5) Commission debited - Rs. 9,47,480/-
6) Tanker repair- Rs. 1,69,939/-
7) Loan Instalment on A/c of vehicle Financing Rs.35,10,138/-
8) Advance paid - Rs. 26,15,763/-
9) Tanker Service - Rs. 74,178/-
10) New Tyres- Rs.3,01,700/-
11) Paid for Documents- Rs.2,17,485/-
Amounts Credited
l)Freight credited- Rs.1,60,59,051/-
2)Amount received- Rs.15,26,104/-
7. The CIT (Appeals) held as under:
5. I have considered the basis of AO's conclusion in applying the provisions of section .appellant defending the non deduction of tax at source. The first issue to be considered here is whether the method of accounting adopted by the assessee wherein the receipts/expenditure pertaining to petty transporters is not credited in the profit and loss account, is correct or not. The AR's contention is that the receipts/expenditure is accounted for in the books of account of the appellant by crediting the receipts in the individual accounts of the petty transporters, whereas as per AO the same should be credited in the profit and loss account and further payments made to them or on behalf of them should be debited in the profit and loss account.
6. I intend to agree with the view of the AR on this issue as the method adopted by the appellant gives fair picture of the affairs of the business carried on by the appellant. The amounts received whether assessee's own account or on account of petty transporters represent the work done by the assessee as a contractor. The GRs happen to be in the name of the assessee and tax at source has also be deducted from the payments made to the assessee. Since as per assessee's own claim, reiterated vehemently that the entire work pertaining to the contract between the principals and assessee has been executed by him either through his own trucks or by hiring the same from market, maintaining separate ledger account in respect of each petty transporter. It is also to be considered that this method or accounting as been followed consistently by the appellant and has been subjected to scrutiny in number of years as per the history of the case which clearly shows that the same has been accepted by the department.
Therefore, there is no logical basis for AO to conclude that the method of accounting adopted by the assessee had to be rejected.
7. The next issue which would determine whether the appellant is ally obliged to deduct tax at source on payments made to petty transporter depends upon the understanding of the relationship between the appellant and the petty transporter. The Assessing Officer has proceeded with the presumption that the petty transporter act as sub contractors even though he has recorded in the order that it is the assessee who has the final responsibility of safety of the goods and he incurs various expenses on behalf of the petty transporters to ensure that work contracted by him vis-a-vis the principal is carried out smoothly. The AR on the other hand has brought on record voluminous data to highlight the unique relationship between him and the petty transporters wherein the assessee is in complete charge of the contract for which he has undertaken 7 to meet the expenditure on various aspects of transportation even in respect of hired trucks. The details submitted in this regard before the A.O. show that the assessee has met the following expenses in respect of trucks hired from petty transporters:-
12) Amount paid from Kandla Office - Rs. 5,62,904/-
13) Diesel -Rs.48,24,721/-
14) Shortage -Rs. 6,27,855/-
15) Commission debited - Rs. 9,47,480/-
16) Tanker repair- Rs. 1,69,939/-
17) Loan Instalment on A/c of vehicle Financing - Rs.35,10,138/-
18) Advance
19) Tanker Service - Rs. 74,178/-
20) New tyres- Rs. 3,01,700/-
21) Paid for Documents- Rs. 2,17,485/-
The perusal of above detailed data shows that the petty transporters simply handed over their trucks to the assessee as almost all the operational expenses to run a truck have been incurred by the assessee. So much so that even the loan installments due on account of vehicle financing have also been met by the assessee. This particular feature of relationship between assessee and petty transporters clearly shows that no contract exists between the assessee and petty transporter. The AR has also brought on record order passed by my predecessor in the case of the assessee for assessment year 2006-07 wherein this issue had come up from different angle and it was held that the assessee had simply hired the trucks in order to meet the shortfall in executing the work contracted. The order so passed has assumed finality as no appeal against it has been filed before the Hon'ble ITAT.
8. The AR has also placed reliance on the case of Mythri transport corporation Vs. ACIT 124 TTJ 970(Visakhapatnam).
9. The facts of the above mentioned case are comparable with the facts of the case of appellant except that there is no specific written contract between the principal and the appellant even though the AR has contended that the same is understood by both the parties because of years of conducting business and therefore the terms and conditions get settled by convention except that there is no specific obviating any need for written contract. In view of the above detailed analysis and the judicial pronouncement quoted above. It is abundantly appears that no relationship of a contractor and a contractee existed between the appellant and the petty transports and the relationship could simply be described as hire. Therefore, the provisions of section 194C are not applicable to the facts of the case meaning thereby no disallowance under section 40(a)(ia) is warranted for non deduction of tax at source. Addition made by the AO is therefore deleted.
8. In respect of the second addition made on account of disallowance under section 40A(3) of the Act, the CIT (Appeals) deleted the same in the absence of any evidence brought on record to show that one single p a ym e n t e x c e e d e d R s . 2 0 , 0 0 0 / - i n c a s h . However, the CIT (Appeals) further held as under:
8
"However certain portion of the expenses claimed under this head remain unverifiable essentially because of the nature of expenses involved. For instance the assessee has debited an amount of Rs. 83,800/- as entry/DTO and expenses T.I amounting to Rs. 68,350/- which seems to be in the nature of speed money allegedly given to the authorities on highways/roads. Further expenses on meals, mobile phone etc. are also not fully verifiable. Therefore, 10% of expenses claimed under this head need to be disallowed to count for possible unverifiable/disallowable expenses. As such an addition of Rs.4,25,000/- is confirmed though not under A c t i o n 40A(3)."
9. The Revenue is in appeal against the order of the CIT (Appeals). The learned D.R. for the Revenue pointed out that the assessee was engaged in the business of transportation through own and hired trucks and no tax was deducted out of freight paid by the assessee. Our attention was drawn to the details furnished at page 36 of the Paper Book, wherein the assessee had given a break-up of the freight received truck-wise. The assessee has given tabulated details in it is Paper Book w h e r e i n t h e p a ym e n t h a d b e e n m a d e f o r t h e d i e s e l , c o m m i s s i o n , t a n k e r r e p a i r , l o a n i n s t a l m e n t , t a n k e r s e r v i c e , n e w t yr e s , p a i d f o r d o c u m e n t s and also advance paid including freight amount received by the assessee truck-wise. The learned D.R. for the Revenue pointed out that the perusal of the ledger account of the trucks placed by the assessee in Paper Book at pages 37 onwards would reflect that each individual p a ym e n t f o r h i r i n g t h e t r u c k w a s a b o u t R s . 5 0 , 0 0 0 / - w h i c h c l e a r l y a t t r a c t s application of the provisions of section 194C of the Act. Further the assessee himself claimed to have received form No.15-I which is not filed by the assessee. The learned D.R. for the Revenue placed reliance on the decision of the Jodhpur Bench of the Tribunal in Shree Choudhary Transport Company Vs. ITO [119 TTJ 3 (Jodhpur).
10. The learned A.R. for the assessee fairly admitted that the assessee owned tankers which were attached to its fleet of tankers. It was stressed by the learned A.R. for the assessee that the contract was 9 between the assessee and the persons whose goods were being carried. The assessee gets the freight receipts and TDS deducted out of such receipts and assessee also claimed credit of such tax deducted at source. H o w e v e r , t h e a s s e s s e e w a s h i r i n g t r u c k s f r o m t h e m a r k e t a n d w a s p a yi n g freight to such trucks owners but there is no contract as the assessee was only receiving commission on such hiring of trucks. Our attention was drawn to the written submissions filed in this regard before the CIT (Appeals). The next contention of the learned A.R. for the assessee was that the freight was just like purchase of goods and there is no written or oral agreement between the assessee and trucks owners and as individual p a ym e n t w a s l e s s t h a n R s . 2 0 , 0 0 0 / - a n d i n t h e a b s e n c e o f a n y c o n t r a c t , the provisions of section 194C of the Act were not attracted. The learned A.R. for the assessee further pointed out that the provisions of section 40(a)(ia) of the Act were not attracted as no ex penditure was claimed by the assessee. The turn over on account of freight did not belong to the assessee was the next contention of the learned A.R. for the assessee. It was pointed out b y the learned A.R. for the assessee that the same was different procedural aspect in order to prevent leakage. The learned A.R. for the assessee placed reliance on the rule of c o n s i s t e n c y a s s i m i l a r e x p e n d i t u r e w a s a l l o w e d i n t h e e a r l i e r ye a r . The learned A.R. for the assessee further stated that as no work was done by so called contractors and hence it could not be called a case of sub- contractor. In respect of the issue raised vide ground No.2 b y the Revenue, the learned A.R. for the assessee submitted that admittedly f r e i g h t e x p e n s e s w e r e p a i d i n c a s h b u t n o n e o f t h e p a ym e n t s w e r e a b o v e Rs.20,000/- and no disallowance under section 40A(3) of the Act was merited. The learned A.R. for the assessee pointed out impliedly the p a ym e n t s w e r e m a d e f o r h i r i n g o f t a n k e r s a n d a l l a p p l i c a t i o n s i n r e s p e c t thereof were taken care of by the assessee. Further reliance was placed 10 on the Circular No.715 dated 8.8.1994 as referred to by the CIT (Appeals).
11. We have heard the rival contentions and perused the record. Section 194C of the Act provides as under:
194C. (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 earlier, deduct an amount equal to--
(i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family;
(ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein. (2) Where any sum referred to in sub-section (1) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (3) Where any sum is paid or credited for carrying out any work mentioned in sub- 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 twenty 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 fifty 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 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 11
(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
(k) any firm; or
(l) any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person,--
(A) does not fall under any of the preceding sub-clauses; and (B) is liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor;
(ii) "goods carriage" shall have the meaning assigned to it in the Explanation to sub-
section (7) of section 44AE;
(iii) "contract" shall include sub-contract;
(iv) "work" shall include--
(a) advertising;
(b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
(c) carriage of goods or passengers by any mode 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.]
12. The requirement of section 194C of the Act are that in pursuance to a contract between the contractor and specified person where any sum a b o v e R s . 2 0 , 0 0 0 / - p e r c o n t r a c t o r R s . 5 0 , 0 0 0 / - c u m u l a t i v e l y i n t h e ye a r , i s p a i d f o r c a r r yi n g o u t a n y w o r k i n c l u d i n g s u p p l y o f l a b o u r f o r c a r r yi n g out any work, then at the time of payment or at the time of credit, the contractor is obliged to deduct tax at source at the prescribed rates. As 12 per the explanation to section 194C of the Act, the contract shall also include sub-contract of any work.
13. Under section 40 of the Act it is provided that certain amounts as prescribed in the clauses of section 40 of the Act, would not be deducted in computing the income chargeable under the head 'profits and gains of business or profession'. The said clause is non obstante clause i.e. not w i t h s t a n d i n g a n yt h i n g to the contrary provided in sections 30 to 38 of the Act. Under section 40(a)(ia) of the Act it is provided as under:
40. Notwithstanding anything to the contrary in sections 30 to [38], the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",--
(a) in the case of any assessee--
[(i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,--
(A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been really deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 :
Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
Explanation.--For the purposes of this sub-clause,--
(A) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;
(B) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;
(ia) any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid,--
(A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub- section (1) of section 139; or (B) in any other case, on or before the last day of the previous year:] [Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted--
13(A) during the last month of the previous year but paid after the said due date;
or (B) during any other month of the previous year but paid after the end of the said previous year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.] Explanation.--For the purposes of this sub-clause,--
(i) "commission or brokerage" shall have the same meaning as in clause (i) of the Explanation to section 194H;
(ii) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;
(iii) "professional services" shall have the same meaning as in clause (a) of the Explanation to section 194J;
(iv) "work" shall have the same meaning as in Explanation III to section 194C; [(v) "rent" shall have the same meaning as in clause (i) to the Explanation to section 194-I;
(vi) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;]
14. The said provisions of section 40(a)(ia) of the Act were first a n a l yz e d b y t h e S p e c i a l B e n c h o f V i s h a k h a p a t n a m T r i b u n a l i n M e r i l yn Shipping Transporters V. ACIT [136 ITD 23 (Vishakhapatnam)] wherein i t w a s h e l d t h a t a n y a m o u n t w h i c h h a d b e e n p a i d d u r i n g t h e ye a r u n d e r c o n s i d e r a t i o n a n d w a s n o t p a ya b l e a t t h e c l o s e o f t h e y e a r w a s n o t t o b e disallowed under the provisions of section 40(a)(ia) of the Act for non deduction of tax at source. The said decision has been over ruled by the Hon'ble Gujarat High Court in CIT V. Sikandarkhan N Tunwar and others [87 DTR 137(Guj)] and also b y the Calcutta High Court in CIT V. Cresent Export Syndicate, 216 Taxman 258 [Cal)]. In the facts of the case before the Hon'ble Gujarat High Court in CIT V. Sikandarkhan N Tunwar and others (supra), the assessee was engaged in the business of transport contract and commission. During the course of assessment proceedings, it was noted by the Assessing Officer in that case that the e x p e n d i t u r e t o t h e t u n e o f R s . 8 . 7 4 c r o r e s w a s o n a c c o u n t o f p a ym e n t made by the assessee to its sub-contractors. The assessee had not d e d u c t e d t a x a t s o u r c e f r o m s u c h p a ym e n t a n d i n d i v i d u a l p a ym e n t / s exceeded the limit of Rs.20,000/- for a single and aggregated over 14 R s . 5 0 , 0 0 0 / - d u r i n g t h e ye a r . Though the assessee had obtained form No.15-I from such sub-contractors which were not submitted before the CIT (Appeals) before the due date and hence the expenditure on account of p a ym e n t to sub contractors were disallowed by invoking the provisions of section 40(a)(ia) of the Act. The Tribunal in the said a p p e a l o f t h e a s s e s s e e a l l o w e d t h e c l a i m o f e x p e n d i t u r e i n t u r n r e l yi n g u p o n t h e r a t i o l a i d d o w n b y t h e S p e c i a l B e n c h o f t h e T r i b u n a l i n M e r i l yn Shipping Transporters V. ACIT (supra). The Tribunal held that the word "payable" used in Section 40(a)()ia) would make provision applicable only in respect of expenditure payable on 31st March of a particular year and such provision cannot be invoked to disallow the amounts which has already been paid during the year though the tax may not have been deducted at source. Following specific questions were posed before the Hon'ble High Court:
"In all these appeals the Tribunal has followed the decision of the Special Bench in the case of M/s Merilyn Shipping Transporters V. ACIT (supra) and deleted the disallowance on this limited ground. As in the present case, other Merilyn Shipping Transporters V. ACIT (supra) grounds of controversy between the parties with respect to allowability or otherwise of such expenditure was not examined by the Tribunal. For the purpose of these appeals, therefore, we frame following substantial question of law:
"1 Whether disallowance u/s 40(a)(ia) of the I.T Act could be made only in respect of such amounts which are payable as on 31st Mach of the year under consideration?
2 Whether decision of Special Bench of the Tribunal in the case of M/s Merilyn Shipping Transporters V. ACIT (supra) lays down correct law?"
15. The Hon'ble Gujarat High Court in CIT V. Sikandarkhan N Tunwar and others (supra) after considering the submissions of both the parties referred to the provision of Chapter XVII A of the Act dealing with the Tax Deduction Provisions. After this reference was made to Section 40(a)(ia) through which it was provided that tax has not been deducted o n c e r t a i n p a ym e n t s a n d t h e s a m e w i l l n o t b e a l l o w a b l e . The Hon'ble 15 High Court discussed the implementations of these provisions and d e c i s i o n o f S p e c i a l B e n c h i n c a s e o f M e r i l yn S h i p p i n g T r a n s p o r t e r s V . ACIT (supra) and observed and held as under:
" 17. In plain terms Section 40(a)(ia) provides that in case of any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor for carrying out any work on which tax is deductible at source and such tax has not been deducted or after deduction has not been paid before the due date, such amounts shall not be deducted in computing the income chargeable under the head Profits and Gains of Business or Profession irrespective of the provisions contained in Sections 30 to 38 of the Act. Proviso to Section 40(a)(ia), however, enables the assessee to take such deduction in subsequent year, if tax is deducted in such year or though deducted during the previous year but paid after the due date specified in sub-Section(1) of Section 139 of the Act.
18. In such context, therefore, the question arises whether under Section 40(a)(ia) of the Act disallowance of the expenditure payment of which, though required deduction of tax at source has not been made would be confined only to those cases where the amount remains payable till the end of the previous year or would include all amounts which became payable during the entire previous year.
19. Decision in the case of M/s. Merilyn Shipping & Transports vs. ACIT (supra) was rendered by the Special Bench by a split opinion. Learned Accountant Member who was in minority, placed heavy reliance on a decision of Madras High Court in the case of Tube Investments of India Ltd. and another vs. Assistant Commissioner of Income- Tax (TDS) and others reported in [2010] 325 ITR 610 (Mad). Learned Judge did notice that the High Court in such case was concerned with the vires of the statutory provision but found some of the observations made by the Court in the process useful and applicable. Learned Judge rejected the theory of narrow interpretation of term payable and observed as under:
12.4 In our considered opinion, there is no ambiguity in the section and term payable cannot be ascribed narrow interpretation as contended by assessee. Had the intentions of the legislature were to disallow only items outstanding as on 31st March, then the term payable would have been qualified by the phrase as outstanding on 31st March. However, no such qualification is there in the section and, therefore, the same cannot be read into the section as contended by the assessee.
20. On the other hand, learned Judicial Member speaking for majority adopted a stricter interpretation. Heavy reliance was placed on the Finance Bill of 2004, which included the draft of the amendment in Section 40 and the ultimate amendment which actually was passed by the Parliament. It was observed that from the comparison between the proposed and the enacted provision it can be seen that the legislature has replaced the words amounts credited or paid with the word payable in the enactment.
On such basis, it was held that this is a case of conscious omission and when the language was clear the intention of the legislature had to be gathered from language used. In their opinion the provision would apply only to amounts which are payable at the end of the year. Having said so, curiously, it was observed that the proviso to Section 40(a)(ia) of the Act lays down that earlier years provision can be allowed in subsequent years only if TDS is deducted and deposited and, therefore, Revenues fear is unfounded as the provision of Section 40(a)(ia) of the Act covers the situation. 16
21. In the present case, we have no hesitation in accepting the contention that the provision must be construed strictly. This being a provision which creates an artificial charge on an amount which is otherwise not an income of the assessee, cannot be liberally construed. Undoubtedly if the language of the section is plain, it must be given its true meaning irrespective of the consequences. We have noticed that the provision makes disallowance of an expenditure which has otherwise been incurred and is eligible for deduction, on the ground that though tax was required to be deducted at source it was not deducted or if deducted, had not been deposited before the due date. By any intendment or liberal construction of such provision, the liability cannot be fastened if the plain meaning of the section does not so permit.
22. For the purpose of the said section, we are also of the opinion that the terms payable and paid are not synonymous. Word paid has been defined in Section 43(2) of the Act to mean actually paid or incurred according to the method of accounting, upon the basis of which profits and gains are computed under the head Profits and Gains of Business or Profession. Such definition is applicable for the purpose of Sections 28 to 41 unless the context otherwise requires. In contrast, term payable has not been defined. The word payable has been described in Websters Third New International Unabridged Dictionary as requiring to be paid: capable of being paid: specifying payment to a particular payee at a specified time or occasion or any specified manner. In the context of section 40(a)(ia), the word payable would not include paid. In other words, therefore, an amount which is already paid over ceases to be payable and conversely what is payable cannot be one that is already paid. When as rightly pointed out by Counsel Mr. Hemani, the Act uses terms paid and payable at different places in different context differently, for the purpose of Section 40(a)(ia) of the Act, term payable cannot be seen to be including the expression paid. The term paid and payable in the context of Section 40(a)(ia) are not used interchangably. In the case of Birla Cement Works and another vs. State of Rajasthan and another reported in AIR 1994(SC) 2393, the Apex Court observed that the word payable is a descriptive word, which ordinarily means that which must be paid or is due or may be paid but its correct meaning can only be determined if the context in which it is used is kept in view. The word has been frequently understood to mean that which may, can or should be paid and is held equivalent to due.
23. Despite this narrow interpretation of section 40(a)(ia), the question still survives if the Tribunal in case of M/s. Merilyn Shipping & Transports vs. ACIT (supra) was accurate in its opinion. In this context, we would like to examine two aspects. Firstly, what would be the correct interpretation of the said provision. Secondly, whether our such understanding of the language used by the legislature should waver on the premise that as propounded by the Tribunal, this was a case of conscious omission on part of the Parliament. Both these aspects we would address one after another. If one looks closely to the provision, in question, adverse consequences of not being able to claim deduction on certain payments irrespective of the provisions contained in Sections 30 to 38 of the Act would flow if the following requirements are satisfied:-
(a) There is interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to resident or amounts payable to a contractor or sub-contractor being resident for carrying out any work.
(b) These amounts are such on which tax is deductible at source under Chapter XVII-B.
(c)Such tax has not been deducted or after deduction has not been paid on or before due date specified in sub-Section (1) of Section 39.
For the purpose of current discussion reference to the proviso is not necessary. 17
24. What this Sub-Section, therefore, requires is that there should be an `amount payable in the nature described above, which is such on which tax is deductible at source under Chapter XVII-B but such tax has not been deducted or if deducted not paid before the due date. This provision no-where requires that the amount which is payable must remain so payable throughout during the year. To reiterate the provision has certain strict and stringent requirements before the unpleasant consequences envisaged therein can be applied. We are prepared to and we are duty bound to interpret such requirements strictly. Such requirements, however, cannot be enlarged by any addition or subtraction of words not used by the legislature. The term used is interest, commission, brokerage etc. is payable to a resident or amounts payable to a contractor or sub-contractor for carrying out any work. The language used is not that such amount must continue to remain payable till the end of the accounting year. Any such interpretation would require reading words which the legislature has not used. No such interpretation would even otherwise be justified because in our opinion, the legislature could not have intended to bring about any such distinction nor the language used in the section brings about any such meaning. If the interpretation as advanced by the assessees is accepted, it would lead to a situation where the assessee who though was required to deduct the tax at source but no such deduction was made or more flagrantly deduction though made is not paid to the Government, would escape the consequence only because the amount was already paid over before the end of the year in contrast to another assessee who would otherwise be in similar situation but in whose case the amount remained payable till the end of the year. We simply do not see any logic why the legislature would have desired to bring about such irreconcilable and diverse consequences. We hasten to add that this is not the prime basis on which we have adopted the interpretation which we have given. If the language used by the Parliament conveyed such a meaning, we would not have hesitated in adopting such an interpretation. We only highlight that we would not readily accept that the legislature desired to bring about an incongruous and seemingly irreconcilable consequences. The decision of the Supreme Court in the case of Commissioner of Income-Tax, Gujarat vs. Ashokbhai Chimanbhai (supra), would not alter this situation. The said decision, of course, recognizes the concept of ascertaining the profit and loss from the business or profession with reference to a certain period i.e. the accounting year. In this context, last date of such accounting period would assume considerable significance. However, this decision nowhere indicates that the events which take place during the accounting period should be ignored and the ascertainment of fulfilling a certain condition provided under the statute must be judged with reference to last date of the accounting period. Particularly, in the context of requirements of Section 40(a)(ia) of the Act, we see no warrant in the said decision of the Supreme Court to apply the test of payability only as on 31st March of the year under consideration. Merely because, accounts are closed on that date and the computation of profit and loss is to be judged with reference to such date, does not mean that whether an amount is payable or not must be ascertained on the strength of the position emerging on 31st March.
25. This brings us to the second aspect of this discussion, namely, whether this is a case of conscious omission and therefore, the legislature must be seen to have deliberately brought about a certain situation which does not require any further interpretation. This is the fundamental argument of the Tribunal in the case of M/s. Merilyn Shipping & Transports vs. ACIT(supra) to adopt a particular view.
26. While interpreting a statutory provision the Courts have often applied Hydens rule or the mischief rule and ascertained what was the position before the amendment, what the amendment sought to remedy and what was the effect of the changes.
27. In the case of Bengal Immunity Co. Ltd. vs. State of Bihar and others reported in AIR 1955 SC 661, the Apex Court referred to the famous english decision in Hydens case wherein while adopting restrictive or enlarging interpretation, it was observed that four things are to be considered, (1) what was the common law before making of the act 18 (2) what was the mischief and defect in which the common law did not provide. (3) what remedy the Parliament had resolved and adopted to cure the disease and (4) true reason of the remedy.
28. In such context, the position prevailing prior to the amendment introduced in Section 40(a) would certainly be a relevant factor. However, the proceedings in the Parliament, its debates and even the speeches made by the proposer of a bill are ordinarily not considered as relevant or safe tools for interpretation of a statute. In the case of Aswini Kumar Ghose and another vs. Arabinda Bose and another reported in A.I.R. 1952 SC 369 in a Constitution Bench decision of (Coram: Patanjali Sastri, C.J.), observed that:-
33. &..It was urged that acceptance or rejection of amendments to a Bill in the course of Parliamentary proceedings forms part of the pre-enactment history of a statute and as such might throw valuable light on the intention of the Legislature when the language used in the statue admitted of more than one construction. We are unable to assent to this preposition.
The reason why a particular amendment was proposed or accepted or rejected is often a matter of controversy, as it happened to be in this case, and without the speeches bearing upon the motion, it cannot be ascertained with any reasonable degree of certainty. And where the Legislature happens to be bicameral, the second Chamber may or may not have known of such reason when it dealt with the measure. We hold accordingly that all the three forms of extrinsic aid sought to be resorted to by the parties in the case mus be excluded from consideration in ascertaining the true object and intention of the Legislature.
29. In yet another Constitution Bench judgment in the case of A.K.Gopalan vs. State of Madras reported in AIR 1950 SC 27, it was observed as under:-
17.....The result appears to be that while it is not proper to take into consideration the individual opinions of members of Parliament or Convention to construe the meaning of the particular clause, when a question is raised whether a certain phrase or expression was up for consideration at all or not, a reference to the debates may be permitted.
30. In the case of Express Newspaper (Private) Ltd. and another vs. The Union of India and others reported in AIR 1958 SC 578, N.H.Bhagwati, J., observed as under:-
173. We do not propose to enter into any elaborate discussion on the question whether it would be competent to us in arriving at a proper construction of the expression fixing rates of wages to look into the Statement of Objects and Reasons attached to the Bill No.13 of 1955 as introduced in the Rajya Sabha or the circumstances under which the word minimum came to be deleted from the provisions of the Bill relating to rates of wages and the Wage Board and the fact of such deletion when the act came to be passed in its present form. There is a consensus of opinion that these are not aids to the construction of the terms of the Statute which have of course to be given their plain and grammatical meaning ( See: Ashvini Kumar ghosh v. Arabinda Bose, 1953 SC R 1:(AIR 1952 SC 369) (Z24) and Provat Kumar Kar v. William Trevelyan Curtiez Parker, AIR 1950 Cal 116 (Z25). It is only when the terms of the statute are ambiguous or vague that resort may be had to them for the purpose of arriving at the true intention of the Legislature.19
31. It can thus be seen that the debates in the Parliament are ordinarily not considered as the aids for interpretation of the ultimate provision which may be brought into the statute. The debates at best indicate the opinion of the individual members and are ordinarily not relied upon for interpreting the provisions, particularly when the provisions are plain. We are conscious that departure is made in two exceptional cases, namely, the debates in the Constituent Assembly and in case of Finance Minister's speech explaining the reason for introduction of a certain provision. The reason why a certain language was used in a draft bill and why the provision ultimately enacted carried a different expression cannot be gathered from mere comparison of the two sets of provisions. There may be variety of reasons why the ultimate provision may vary from the original draft. In the Parliamentary system, two Houses separately debate the legislations under consideration. It would all the more be unsafe to refer to or rely upon the drafts, amendments, debates etc for interpretation of a statutory provision when the language used is not capable of several meanings. In the present case the Tribunal in case of M/s. Merilyn Shipping & Transports vs. ACIT (supra) fell in a serious error in merely comparing the language used in the draft bill and final enactment to assign a particular meaning to the statutory provision.
32. It is, of course, true that the Courts in India have been applying the principle of deliberate or conscious omission. Such principle is applied mainly when an existing provision is amended and a change is brought about. While interpreting such an amended provision, the Courts would immediately inquire what was the statutory provision before and what changes the legislature brought about and compare the effect of the two. The other occasion for applying the principle, we notice from various decisions of the Supreme Court, has been when the language of the legislature is compared with some other analogous statute or other provisions of the same statute or with expression which could apparently or obviously been used if the legislature had different intention in mind, while framing the provision. We may refer to some of such decisions presently. In the case of Bhuwalka Steel Industries Ltd. vs. Bombay Iron and Steel Labour Board reported in AIR 2010 (Suppl.) 122, the Apex Court observed as under:-
"The omission of the words as proposed earlier from the final definition is a deliberate and conscious act on the part of the legislature, only with the objective to provide protection to all the labourers or workers, who were the manual workers and were engaged or to be engaged in any scheduled employment. Therefore, there was a specific act on the part of the legislature to enlarge the scope of the definition and once we accept this, all the arguments regarding the objects and reasons, the Committee Reports, the legislative history being contrary to the express language, are relegated to the background and are liable to be ignored.
33. In the case of Agricultural Produce Market Committee, Narela, Delhi vs. Commissioner of Income Tax and anr. reported in AIR 2008 SC(Supplement) 566, the Supreme Court noticed that prior to Finance Act, 2002, the Income Tax Act did not contain the definition of words Local Authority. The word came to be defined for the first time by the Finance Act of 2002 by explanation/ definition clause to Section 10(20) of the Act. It was further noticed that there were significant difference in the definition of term local authority contained under Section 3(31) of the General Clauses Act, 1987 as compared to the definition clause inserted in Section 10(20) of the Income Tax Act, 1961 vide Finance Act, of 2002. In this context it was observed that:-
27. Certain glaring features can be deciphered from the above comparative chart. Under Section 3(31) of the General Clauses Act, 1897, local authority was defined to mean a municipal committee, district board, body of port commissioners or other authority legally entitled to the control or management of a municipal or local fund.20
The words other authority in Section 3(31) of the 1897 Act has been omitted by Parliament in the Explanation/ definition clause inserted in Section 10(20) of the 1961 Act vide Finance Act, 2002. Therefore, in our view, it would not be correct to say that the entire definition of the word local authority is bodily lifted from Section 3(31) of the 1897 Act and incorporated, by Parliament, in the said Explanation to Section 10(20) of the 1961 Act. This deliberate omission is important.
34. The Apex Court in the case of Greater Bombay CO-operative Bank Ltd. vs. M/s. United Yarn Tex.Pvt.Ltd & Ors. reported in AIR 2007 SC 1584, in the context of question whether the Cooperative Banks transacting business of banking fall within the meaning of banking company defined in the Banking Regulation Act, 1949, observed as under:-
59. The RDB Act was passed in 1993 when Parliament had before it the provisions of the BR Act as amended by Act No.23 of 1965 by addition of some more clauses in Section 56 of the Act. The Parliament was fully aware that the provisions of the BR Act apply to co-operative societies as they apply to banking companies. The Parliament was also aware that the definition of banking company in Section 5(c) had not been altered by Act No.23 of 1965 and it was kept intact, and in fact additional definitions were added by Section 56(c).Co-operative bank was separately defined by the newly inserted clause (cci) and primary co-operative bank was similarly separately defined by clause (ccv). The Parliament was simply assigning a meaning to words; it was not incorporating or even referring to the substantive provisions of the BR Act. The meaning of banking company must, therefore, necessarily be strictly confined to the words used in Section 5(c) of the BR Act. It would have been the easiest thing for Parliament to say that banking company shall mean banking company as defined in Section 5(c) and shall include co-operative bank as defined in Section 5(cci) and primary co-operative bank as defined in Section 5(ccv).
However, the Parliament did not do so. There was thus a conscious exclusion and deliberate commission of co-operative banks from the purview of the RDB Act. The reason for excluding co-operative banks seems to be that co-operative banks have comprehensive, self-contained and less expensive remedies available to them under the State Co-operative Societies Acts of the States concerned, while other banks and financial institutions did not have such speedy remedies and they had to file suits in civil courts.
35. In the case of National Mineral Development Corporation Ltd. vs. State of M.P and another reported in AIR 2004 SC 2456, the Apex Court observed as under:-
29. The Parliament knowing it full well that the iron ore shall have to undergo a process leading to emergence of lumps, fines, concentrates and slimes chose to make provision for quantification of royalty only by reference to the quantity of lumps, fines and concentrates. It left slimes out of consideration. Nothing prevented the Parliament from either providing for the quantity of iron ore as such as the basis for quantification of royalty.
It chose to make provision for the quantification being awaited until the emergence of lumps, fines and concentrates. Having done so the Parliament has not said fines including slimes. Though slimes are not fines the Parliament could have assigned an artificial or extended meaning to fines for the purpose of levy of Royalty which it has chosen not to do. It is clearly suggestive of its intention not to take into consideration slimes for quantifying the amount of royalty. This deliberate omission of Parliament cannot be made good by interpretative process so as to charge royalty on 21 slimes by reading Section 9 of the Act divorced from the provisions of the Second Schedule. Even if slimes were to be held liable to charge of royalty, the question would still have remained at what rate and on what quantity which questions cannot be answered by Section 9.
36. In the case of Gopal Sardar, vs. Karuna Sardar reported in AIR 2004 SC 3068, the Apex Court in the context of limitation within which right of preemption must be exercised and whether in the context of the relevant provisions contained in West Bengal Land Reforms and Limitation Act, 1963 applied or not, observed as under:-
8....Prior to 15-2-1971, an application under Section 8 was required to be made to the Revenue Officer specifically empowered by the State Government in this behalf. This phrase was substituted by the phrase Munsif having territorial jurisdiction by the aforementioned amendment. Even after this amendment when an application is required to be made to Section 8 of the Act either to apply Section 5 of the Limitation act or its principles so as to enable a party to make an application after the expiry of the period of limitation prescribed on showing sufficient cause for not making an application within time. The Act is of 1955 and for all these years, no provision is made under Section 8 of the Act providing for condonation of delay. Thus, when Section 5 of the Limitation Act is not made applicable to the proceedings under Section 8 of the Act unlike to the other proceedings under the Act, as already stated above, it is appropriate to construe that the period of limitation prescribed under Section 8 of the Act specifically and expressly governs an application to be made under the said section and not the period prescribed under Article 137 of the Limitation Act.
37. In our opinion, the Tribunal committed an error in applying the principle of conscious omission in the present case. Firstly, as already observed, we have serious doubt whether such principle can be applied by comparing the draft presented in Parliament and ultimate legislation which may be passed. Secondly, the statutory provision is amply clear.
38. In the result, we are of the opinion that Section 40(a)(ia) would cover not only to the amounts which are payable as on 31th March of a particular year but also which are payable at any time during the year. Of course, as long as the other requirements of the said provision exist. In that context, in our opinion the decision of the Special Bench of the Tribunal in the case of M/s. Merilyn Shipping & Transports vs. ACIT(surpa), does not lay down correct law.
39. We answer the questions as under:-
Question (1) in the negative i.e. in favour of the Revenue and against the assessees."
16. The Hon'ble Gujarat High Court in case of CIT V. Sikandarkhan N Tunwar and others (supra) after considering various facts of the issue r a i s e d i n t h e d e c i s i o n o f t h e S p e c i a l B e n c h o f t h e T r i b u n a l i n M e r i l yn Shipping Transporters V. ACIT (supra), over ruled the decision of the Special Bench and held that the provisions of section 40(a)(ia) of the Act would cover not only the amounts which were payable as on the 22 c l o s e o f p a r t i c u l a r y e a r b u t a l s o w h i c h w e r e p a ya b l e a t a n y t i m e d u r i n g t h e ye a r .
17. Similar proposition had been laid down by the Hon'ble High Court i n t h e c a s e o f C I T V s . C r e s e n t E x p o r t S yn d i c a t e ( s u p r a ) .
18. Further Chandigarh Bench of the Tribunal had consistently followed the decision of the Hon'ble Gujarat High Court in the case of CIT V. Sikandarkhan N Tunwar and others (supra) as well the decision o f t h e H o n ' b l e C a l c u t t a H i g h C o u r t i n C I T V s . C r e s e n t E x p o r t S yn d i c a t e (supra) and applied the provisions of section 40(a)(ia) of the Act to the a m o u n t s w h i c h w e r e p a ya b l e d u r i n g t h e ye a r u n d e r c o n s i d e r a t i o n , f r o m which no tax was deducted at source, but may have been paid before the c l o s e o f t h e r e s p e c t i v e f i n a n c i a l ye a r .
19. We further find that the Hon'ble Allahabad High Court in CIT Vs. Vector Shipping Services, ITA No. 122 of 2013 had upheld the decision o f t h e S p e c i a l B e n c h o f t h e T r i b u n a l i n t h e c a s e o f M e r i l yn S h i p p i n g Transporters V. ACIT (supra). However, we find that in the case of CIT Vs. Vector Shipping Services (supra) the issue was different. In that case the question posed before the Hon'ble High Court reads as under:
"Whether on the facts and in the circumstances of the case, the Hon'ble ITAT has rightly confirmed the order of the ld. CIT(A) and thereby deleting the disallowance of Rs. 1,17,68,621/- made by the Assessing Officer u/s 40(a)(ia) of the IT Act by ignoring the fact that the company M/s Mercator Lines Ltd. had performed ship management work on behalf of the assessee M/s Vector Shipping Services (P) Ltd and there was a Memorandum of Undertaking signed between both the companies and a s per the definition of memorandum of undertaking, it included contract also."
20. In the facts of the case before the Hon'ble Allahabad High Court, certain expenses were disallowed u/s 40(a)(ia) because no tax was deducted. On appeal the Tribunal found that the ld. CIT(A) has already given a finding that M/s Mercator Lines Ltd. had deducted the TDS on 23 salary paid on behalf of the assessee and hence under such circumstances the assessee was not required to deduct the TDS on reimbursement on salary being made by it to M/s Mercator Lines Ltd. The Hon'ble High Court has confirmed the decision of the Tribunal. Thus it is clear that Hon'ble Allahabad High Court was neither required nor has given detailed reasons for approving the decision of Special Bench whereas Hon'ble Gujarat High Court in CIT V. Sikandarkhan N Tunwar and others (supra) has after detailed discussion over ruled the decision of Special B e n c h i n M e r i l yn S h i p p i n g T r a n s p o r t e r s V . A C I T ( s u p r a ) .
21. Now coming to the facts of the present case before us, the assessee was engaged in the business of transportation of edible oil from Kandla S e a P o r t t o d i f f e r e n t p a r t s o f t h e c o u n t r y. The assessee was also engaged in the transportation of molasses from U.P. and black oil from/to different places of the country. The assessee had entered into an arrangement for the said transportation of the goods, which the assessee claimed was exclusively made between the assessee and the principals/consignors, whose goods were required to be transported. The assessee had a fleet of oil tankers of his own and because of the volume of work, the assessee claimed to have hired tankers from market to complete his contract with the principals/consignors. D u r i n g t h e ye a r under consideration the assessee had declared total cartages receipts at Rs.194.36 lacs and income from commission at Rs.21,40,484/-. The assessee claimed to have received the said commission on account of hiring the vehicles and using the said vehicles for transportation of the goods on behalf of his principals/consignors. The assessee in the return of income claimed credit of tax deducted at source out of the freight receipts and on verification the Assessing Officer noted that the total receipts corresponding to the TDS amounted to Rs.514.03 lacs. The 24 assessee had only declared total cartages receipts at Rs.194.36 lacs and the balance receipts were claimed to be in respect of the vehicles hired by the assessee. The net receipts after excluding the amount shown by the assessee totaled to Rs.3,56,76,400/-.
22. The first plea raised by the assessee was that the receipts relatable to the said trucks attached with the transport business of the assessee were not includible as receipts of the assessee. Further plea raised by the assessee in this regard was that the said trucks were engaged purely on commission basis on the basis of terms and conditions verbally settled between the parties in order to facilitate the transportation of goods of the principals/consignors with whom the assessee had an understanding. A d m i t t e d l y, t h e G R s / b i l l s a g a i n s t t h e f r e i g h t d u e f r o m the principals were raised in the name of M/s Ahmednagar Tanker Transport i.e. the assessee before us. The said GRs/bills were raised by the assessee in respect of the tankers owned by him and also in respect o f t h e t a n k e r s h i r e d b y t h e a s s e s s e e . T h e p a ym e n t a g a i n s t s u c h h i r i n g o f the tankers both of the assessee and of individual tanker owners, were made to the assessee by the principal/consignor and tax was deducted at s o u r c e o u t o f s u c h p a ym e n t s . T h e a s s e s s e e i n t h e r e t u r n o f i n c o m e f i l e d f o r t h e ye a r u n d e r c o n s i d e r a t i o n , h a d c l a i m e d t h e c r e d i t o f s u c h t a x deducted at source though the receipts relating to the individual tanker owners were not included by the assessee in its total receipts and only commission claimed to be earned on such transactions was reflected in the Profit & Loss Account. The assessee claims that because of the understanding between him and the so called individual tanker owners, the services of the said tankers were utilized for the transportation business carried on by the assessee, under which the tankers owned by individual owners were attached with the fleet of tankers owned by the 25 assessee. Similarly, recognition of income in the hands of the assessee w a s b e i n g f o l l o w e d f r o m ye a r t o ye a r . The ld. AR for the assessee, in this regard raised the plea of consistency to be applied for non- recognition of such receipts as receipts of the assessee. We find no merit in the stand of the assessee on account of the fact that the assessee had raised the GRs/bills in the name of his concern both in respect of the tankers owned by him and in respect of the tankers allegedly hired by h i m . A d m i t t e d l y t h e a s s e s s e e d u r i n g t h e ye a r u n d e r c o n s i d e r a t i o n h a d n o t shown all the receipts from the said GRs of the tankers/trucks which were attached to the fleet of tankers as part of the total receipts in the Profit & Loss Account. The assessee had entered into contract with principals/consignors for providing transport service to them and had r e c e i v e d t h e f r e i g h t p a ym e n t f r o m t h e s a i d p r i n c i p a l s / t r a n s p o r t e r s n o t only in respect of its own fleet of tankers but also in respect of all other tankers which are claimed to be attached to its fleet of tankers. The said p r i n c i p a l s / t a n k e r s h a d d e d u c t e d t a x a t s o u r c e o u t o f t h e p a ym e n t m a d e t o the assessee. The contention of the assessee with regard to the freight relating to such tankers which are attached to the fleet owned by the assessee was that the said receipts could not be added as income of the assessee in view of the fact that it was only receiving commission on the said receipts. Admittedly the assessee had claimed credit of tax at source out of such receipts, which as per the assessee were not includible in his hands as receipts, for the financial ye a r under consideration. The second plea raised by the assessee was that though GRs were being prepared in the name of the assessee, each GR was to be taken as an independent contract. However, the Assessing Officer noted from the perusal of TDS reconciliation statement furnished by the assessee that all the main parties were deducting tax at source out of the p a ym e n t s m a d e t o t h e a s s e s s e e . In view thereof, we are in agreement 26 with the orders of the authorities below that the total contract receipts received by the assessee both on account of own fleet of tankers and on account of tankers so engaged by it are to be recognized as receipts in the hands of the assessee. The assessee himself had claimed the benefit/credit of tax deducted at source out of such receipts and the same are to be treated as part of the total receipts of the assessee. The plea of the assessee that it was following the same accounting principle from y e a r t o ye a r , w h i c h i n t u r n h a d b e e n a c c e p t e d b y t h e d e p a r t m e n t i n t h e p r e v i o u s ye a r , i s n o t t e n a b l e i n v i e w o f t h e e s t a b l i s h e d p r i n c i p l e t h a t u n d e r t h e I n c o m e T a x A c t e a c h a s s e s s m e n t ye a r i s i n d e p e n d e n t a n d t h e principles of res-judicata are not applicable to the Income-tax proceedings. Further we find support from the ratio laid down by the Hon'ble Supreme Court in CIT Vs British Paints India Ltd. 188 ITR 44 (SC) wherein it has been held that the Assessing Officer is to determine c o r r e c t i n c o m e a n d n o t b o u n d b y a n y m e t h o d f o l l o w e d i n e a r l i e r ye a r , observing as under:
"It is not only the right but the duty of the Assessing Officer to consider whether or not the books disclose the true state of accounts and the correct income can be deduced therefrom. It is incorrect to say, as contended on behalf of the assessee, that the officer is bound to accept the system of accounting regularly employed by the assessee the correctness of which had not been questioned in the past. There is no estoppel in these matters and the officer is not bound by the method followed in the earlier year."
23. In view thereof we find no merit in the plea of the assessee and hold that the total receipts of Rs.514.03 lacs are to be recognized as i n c o m e o f t h e a s s e s s e e . C o n s e q u e n t l y, t h e s a i d r e c e i p t s a r e t o b e included in the hands of the assessee for computing the income from truck business. Under the provisions of the Income Tax Act, the receipts relatable to the tax deducted at source claimed by the assessee are to be included in the hands of the assessee itself and hence we uphold the 27 order of the authorities below including the net receipts at Rs. 3,56,76,400/- as income of the assessee.
24. The first aspect of the issue arising before us has been adjudicated in the paras hereinabove, under which we have held that the total freight receipts on which tax had been deducted at source by the principals is to be included in the hands of the assessee as its receipt. The second aspect of the issue arising in the present appeal is the claim of e x p e n d i t u r e b e i n g t h e a m o u n t p a ya b l e t o t h e i n d i v i d u a l t a n k e r o w n e r s . The case of the assessee was that in case the total receipts are included in the hands of the assessee, then the corresponding payments made to individual tankers owners are to be allowed as an expenditure as the said amount has been paid to such persons. The first aspect of the said deduction claimed by the assessee was that in the absence of any contract between the parties, there was no merit in a p p l yi n g t h e provisions of section 194C of the Act. Further plea raised was that as the said provisions were not applicable, there was no liability to deduct tax at source and the assessee having not deducted the said tax at source, there was no merit in any disallowance of expenditure under section 40(a)(ia) of the Act.
25. The assessee had placed on record the copies of the ledger account of various truck numbers at pages 37 to 122 of the Paper Book. The first c o p y o f t h e a c c o u n t o f t r u c k N o . 1 0 C B 2 4 0 7 f o r t h e f i n a n c i a l ye a r 2 0 0 7 - 08 is placed at pages 37 to 43 of the Paper Book. The perusal of the said copy of account reflects the first bill of freight raised on 18.7.2007 is of Rs.68,695/-. Prior to the raising of the said bill of Rs.68,695/- there are certain debits to the account of the said trucks on account of various taxes paid. The perusal of the account further reflects that in 28 the month of August, 2007 there were several receipts on account of freight credited to the said account, which are as under:
1) 18.2.2007 Rs.28,267/-
2) 6.8.2007 Rs.47,295/-
3) 6.8.2007 Rs.75,084/-
4) 14.8.2007 Rs.28,557/-
5) 24.8.2007 Rs.41,610/-
6) 24.8.2007 Rs.22,076/-
7) 30.8.2007 Rs.60,478/-
26. Similar credits are made from month to month in the copy of the account filed by the assessee. The assessee at page 44 onwards had attached the copy of account of another tanker No.PB 1-BX 0418 in which there are credits of similar amounts starting from April, 2007 itself. In the month of April, 2007, the credits were as under:
1) 2.4.2007 Rs.40,350/-
2) 2.4.2007 Rs.28,713/-
3) 2.4.2007 Rs.26,405/-
4) 7.4.2007 Rs.70,798/-
5) 15.4.2007 Rs.40,050/-
6) 17.4.2007 Rs.26,730/-
7) 17.4.2007 Rs.26,583/-
27. The perusal of the said copies of account of different tankers reflect certain debits which are recurring from month to month. The assessee at page 36 of the Paper Book had furnished the break up of the amounts paid head-wise on account of each truck, which is as under: 29 30
28. The assessee had given break up of the freight amount due and the amount paid on account of diesel, shortage, commission, tanker repair, l o a n i n s t a l l m e n t s p a i d , t a n k e r s s e r v i c e , n e w t yr e s , p a i d f o r d o c u m e n t s , i n respect of 22 trucks. From the tabulated details, it transpires that the assessee in respect of Truck No. 10BX 0418 has shown freight of Rs. 17,75,410/- against which the expenditure on diesel is Rs. 5,70,509/-, tanker repair Rs. 97209/-, loan installment Rs. 6,17,500/-, advance paid o f R s . 2 0 6 4 7 9 / - , t a n k e r s e r v i c e o f R s . 1 1 , 2 1 1 / - , n e w t ye r s o f R s . 61,000/- and paid for documentation Rs. 45,000/-, etc totaling Rs. 2141557/-. Similar expenditure has been incurred by the assessee in respect of other Trucks. The perusal of the said tabulated break up of the freight amount due to individual tanker reflects that the assessee was incurring expenditure on diesel, tanker repair, tanker service and even the loan installments of some of the trucks were being paid by the assessee including the amount to be paid for documentation. The a s s e s s e e w a s a l s o i n c u r r i n g e x p e n d i t u r e o f n e w t yr e s a n d c e r t a i n a m o u n t s on account of shortage. Part of the freight amount was also being paid and further in respect of few of the trucks there was certain amount due to the said truck owners. Whereas in respect of certain truck owners advance had been given against the amount due to the said persons. The said arrangement is between the assessee and all the tankers, which are attached with the fleet of tankers owned by the assessee. The same establishes existence of contract between the assessee and the individual truck owners and the provisions of section194C of the Act are applicable.
29. Further, the total freight in relation to such trucks/tankers is in e x c e s s o f R s . 5 0 , 0 0 0 / - p e r t r u c k d u r i n g t h e ye a r . As pointed out in the paras hereinabove and in majority of the cases the payments per month 31 were in excess of Rs.50,000/-. The perusal of the details reflects that t h e t o t a l p a ym e n t s i n r e s p e c t o f t h r e e t r u c k s w e r e l e s s t h a n R s . 5 0 , 0 0 0 / - i.e. Rs.33,988/-,Rs. 37,596/- and Rs.26,358/- and excluding the said t h r e e p a ym e n t s t h e t o t a l p a ym e n t i n r e s p e c t o f a l l t h e o t h e r t r u c k s w e r e a b o v e R s . 5 0 , 0 0 0 / - d u r i n g t h e f i n a n c i a l ye a r . I n v i e w t h e r e o f , w h e r e t h e contract between the assessee and the respective tanker owners was in e x c e s s o f R s . 5 0 , 0 0 0 / - p e r ye a r , t h e p r o v i s i o n s o f s e c t i o n 1 9 4 C o f t h e Act were attracted and the assessee was liable to deduct tax at source.
30. Now the issue before us is that after the recognition of the said i n c o m e i n t h e h a n d s o f t h e a s s e s s e e a s t o t a l r e c e i p t s i s t h e p a ym e n t s made to the petty transporters are to be allowed as expenditure in the hands of assessee. The case of the assessee was that there is no liability to deduct tax at source out of the payments made to such persons as the said persons were not contractees of the assessee. The ld. AR for the assessee placed reliance on the ratio laid down by the Vishakhapatnam B e n c h o f T r i b u n a l i n M yt h r i T r a n s p o r t C o r p o r a t i o n V s A C I T ( 2 0 0 9 ) 1 2 4 TTJ 970 for the proposition that even in cases where the trucks are hired f r o m d i f f e r e n t p e r s o n s i n t h e a b s e n c e o f a n y s u b - c o n t r a c t , t h e p a ym e n t s made to such sub-contractors are not covered under the provisions of s e c t i o n 1 9 4 C ( 2 ) o f t h e A c t . I n t h e f a c t s o f t h e c a s e i n M yt h r i T r a n s p o r t Corporation Vs ACIT (supra), we find that there is a finding of non- existence of contract between the assessee and the person from whom the trucks were hired. However, as established by us in the paras herein above, in the case of the assessee before us, admittedly there was an understanding between the parties, under which the assessee not only engaged the services of the individual tanker owners, but had also agreed to incur various expenditures relatable to such tankers including the installment due on tankers. The modus-operandi adopted by the assessee 32 establishes the presence of contract between the parties under which it was fully agreed that out of the freight amount due to such individual tanker owners, various expenditures relatable to the said tankers i.e. the installment due on the tankers, diesel and other expenses and even cost of documentation was paid by the assessee and thereafter balance amount was paid either in advance or on completion of the contract. The above establishes the presence of a contract between the parties and in view thereof, the applicability of the provisions of section 194C of the Act is to be seen. The facts of the case have to be seen in order to determine the said issue. The assessee admittedly had made an arrangement with the persons owning such tankers. The arrangement between the assessee and the owners of the tankers is though not in writing but is a clear understanding between the two under which the assessee was obliged not o n l y t o p a s s t h e s a i d f r e i g h t p a ym e n t s t o t h e p e r s o n s b u t o u t o f t h e s a i d p a ym e n t s t h e a s s e s s e e i n s o m e c a s e s w h e r e n o a m o u n t s w e r e e v e n received, was incurring expenditure on behalf of the truck owners. The list of expenditure which had been incurred by the assessee on behalf of the truck owners as enlisted at page 36 of the Paper Book reflects a definite understanding by way of contract between the assessee and the truck owners wherein the assessee had even obliged to pay loan installment of various trucks, which were attached to its fleet of own trucks. T h e p a ym e n t f o r d i e s e l i s a l s o p a r t o f t h e s a i d c o n t r a c t a n d i n a d d i t i o n t h e a s s e s s e e w a s p a yi n g f o r t a n k e r r e p a i r , t a n k e r s e r v i c e , n e w t yr e s , d o c u m e n t a t i o n a n d v a r i o u s o t h e r e x p e n s e s . Even advances had been paid to certain truck owners. Further in respect of truck No.10CC 0490 the freight amount is Rs.6,68,258/- and the amount paid for diesel is Rs.2,57,183/-, installment paid is Rs.2,68,300/-, advance paid is Rs.91,604/- and other expenses which totaled up to Rs.8,60,417/-, against which there is closing balance of Rs.1,68,159/-. All the above 33 said expenditure incurred by the assessee on behalf of various trucks reflect clear understanding between the assessee and various truck o w n e r s t h a t o u t o f t h e f r e i g h t p a ym e n t s d u e t o t h e s a i d p a r t i e s w h i c h admittedly was over and above Rs.50,000/-, the assessee had undertaken to pay even the truck installments, which in no case, are less than Rs.20,000/-. In view thereof, we find no merit in the submissions of the assessee that there was no contract between the assessee and various truck owners and in the absence of any contract the provisions of section 194C of the Act were not attracted.
31. The ld. AR for the assessee further placed reliance on the ratio laid down in CIT Vs Truck Operators' Union (2011) 339 ITR 532 (P&H) which is a case of a Truck Operators' Union and the said ratio laid down b y t h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i s n o t a p p l i c a b l e t o t h e facts of the case before us. Another reliance was placed by the ld. AR for the assessee on the ratio laid down in CIT Vs United Rice Land Ltd. 322 ITR 594 and CIT Vs Bhagwati Steels 326 ITR 108. We find no merit in the said reliance placed by the assessee on the abovesaid ratio in view of our holding the assessee to have entered into a contract with the individual tanker owners, whose tankers were attached by the assessee w i t h i t s f l e e t o f t a n k e r s f o r c a r r yi n g o n i t s t r a n s p o r t a t i o n b u s i n e s s a n d the nature of the understanding between the assessee in the facts of the present case wherein the total receipts per month were in excess of Rs. 50,000/- and also the understanding to incur various items of expenditure as pointed out by us in paras herein above establishes clear understanding between the parties, which contract as envisaged under section 194C of the Act. The assessee, in view thereof was obliged to d e d u c t t a x a t s o u r c e o u t o f s u c h p a ym e n t s b e i n g m a d e t o i t s c o n t r a c t e e s and the assessee in the present case has failed to deduct tax at source. 34 In view thereof, provisions of section 40a(ia)of the Act are applicable. We uphold the order of the CIT (Appeals) in disallowing sum of Rs.356.76 lacs and adding the same as income of the assessee for non- compliance of the provisions of section 194C r.w.s.40(a)(ia) of the Act. The ground of appeal No. 1 raised by the revenue is thus, allowed.
32. The next issue raised by the revenue is in relation to the deletion of addition made under section 40A(3) of the Act. The CIT(Appeals) has g i v e n a f i n d i n g t h a t n o p a ym e n t i n t h e p r e s e n t c a s e i s a b o v e R s . 2 0 , 0 0 0 / - and the details furnished before the Assessing Officer were in respect of the total cash payments made to a party which in many cases exceeded Rs. 20,000/-. Under the provisions of section 40A(3) of the Act, the r e q u i r e m e n t i s t h a t e a c h p a ym e n t s h o u l d n o t e x c e e d R s . 2 0 , 0 0 0 / - i n c a s h . The ld. DR for the revenue failed to controvert the findings of the CIT(Appeals) and in the absence of the same, we find no merit in the ground of appeal No.2 raised by the revenue and the same is dismissed.
33. In the result, appeal of the revenue is partly allowed.
Order pronounced in the open court on this 30th day of September, 2013.
Sd/- Sd/-
(T.R.SOOD) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 30 t h September, 2013
*Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh