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Deputy Commissioner of income Tax and Assistant Commissioner of income Tax, Central Circle-II, Kolkata Versus M/s. Five Star Shipping Agency Pvt. Ltd.

2015 (6) TMI 170 - ITAT KOLKATA

Non deduction of TDS on account of transportation hire charges made under section 40(a)(ia) - no oral contract existed between the assessee and the transporters - whether there is contractual relationship between the assessee and the persons to whom the assessee had made the payment s in the nature of hiring charges for goods carried vehicles? - Held that:- In our opinion, a contract need not be in writing; even an oral contract is good enough to invoke the provisions of Section 194 C. As Hon’bl .....

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f goods carried vehicles. Therefore, if the assessee has made the payment for hiring the goods carried vehicles, the provisions of section 194C are clearly applicable. In our opinion, the ld. CIT(Appeals) was not correct in law that the assessee will be liable to deduct the TDS if the amount of a single contract exceeds ₹ 20,000/-. The contract has to be looked into party-wise not on the basis of the individual GR. In our opinion, all the payment s made to a t ruck owner throughout the yea .....

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the Assessing officer with the direction that the assessee shall provide all the details to the Assessing Officer with regard to the recipients of the income and taxes paid by them. The Assessing Officer shall carry out necessary verification in respect of the payment s and taxes of such income and al so filing the return by the recipient. In case, the Assessing Officer finds that the recipient has duly paid the taxes on the income, the addition made by the Assessing Officer shall stand deleted. .....

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ound taken by the Revenue in both the appeal s reads as under:- That in the facts and circumstances of the case, the ld. CIT(A) erred in deleting the addition of ₹ 1,07,21,525/- (for A.Y. 2006-07) and ₹ 14,17,925/- (for A.Y. 2007-08) on account of transportation hire charges made under section 40(a)(ia) for non-deduction of TDS by holding that no oral contract existed between the assessee and the transporters . 3. Both the parties agreed that the issue involved in both the appeals is .....

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s.) TDS 1. Sea Queen Construction 14,37,200/- NIL 2. New Bargabhim Transport 14,39,975/- NIL 3. United Construction 13,57,200/- NIL 4. M/s. Tahi r Khan 14,23,650/- NIL 5. United Trading Corporation 10,77,025/- NIL 6. A.S.M. Enterprise 13,80,075/- NIL 7. Md. Sahabuddin 13,68,475/- NIL 8. S.A. Enterprise 12,37,925/- NIL TOTAL 1,07,21,525/- The Assessing officer, therefore, invoked the provisions of section 40(a)(ia) and disallowed the same. The assessee went in appeal before the ld. CIT(Appeals). .....

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ties, the ld. CIT(Appeal s) deleted the disallowance. 6. We have heard the rival submissions and carefully considered the same along with the order of the tax authorities below. The provisions of sect ion 40(a)(ia) are very clear if the assessee fail s to deduct the tax at source or after deduction has not paid before the due date specified in sub-section (1) of section 139, the same will not be allowed in computing the income under the head profit and gains of business or profession . The conte .....

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n 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 oth .....

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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 credite .....

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n 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 t .....

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; 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 .....

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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 broad .....

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s it clear that any person responsible for paying any sum to any resident (hereafter in this sect ion referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person is required to deduct tax at source under sect ion from the amounts so paid or payable. There is no doubt that the assessee in this case has made the payment s as transportation charges in the nature of hiring cha .....

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voke the provisions of Section 194 C. As Hon ble Karnataka High Court has observed in the case of Smt J Rama Vs CIT (236 CTR 105), Law does not stipulate the existence of a written contract as a condition precedent for ( invoking the provisions of Section 194 C with respect to) payment of TDS . The transporters have received the payments from the assessee towards the t ransportation charges, therefore, the presumption normally be that one would proceed on the basis that there was a contract for .....

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the year are to be aggregated to ascertain the applicability of the TDS provision as all the payments pertain to a contract. Contract need not be in writing. It may infer from the conduct of the parties. It may be oral also. Our aforesaid view is duly supported by the decision of ITAT, A Bench, Kolkata in the case of DCIT -vs.- Kamal Kr. Mukherjee & Co. in ITA No. 199/Kol/2010. We also noted that under section 194C, subsect ion (5) proviso thereto, the aggregate amount of all the payments o .....

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ce 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, and, therefore, he took the plea that the second proviso although inserted w.e.f. 1s t April, 2013 but being curative in nature has ret rospective effect and accordingly contended that the issue be restored to the file of the Assessing Officer so that the asses .....

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by Ld. counsel for the assessee that the second proviso to section 40(a)(ia) of the Act inserted by the Finance Act, 2012 would apply in the instant case. According to him, the second proviso is curative in nature intended to supply an obvious omission, take care of an unintended consequence and make the section workable. Section 40(a)(ia) without the second proviso resulted in the unintended consequence of disallowance of legitimate business expenditure even in a case where the payee in receip .....

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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 question of further realisation of tax as the same income cannot be taxed twice. If the tax has been realised once, it cannot be realised once again, but that does not mean that the assessee will not be liable for payment of inter .....

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ttled position in law has also been legislatively recognized by insertion of a proviso in sub-section (1) of section 201 of the Act by the Finance Act, 2012. Thus, the settled position in law is that if the deductee/payee has paid the tax, no recovery can be made from the person responsible for paying of income from which he failed to deduct tax at source. In a case where the deductee/payee has paid the tax on such income, the person responsible for paying the income is no longer required to ded .....

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ture clearly is not to disallow legitimate business expenditure. The allowance of such expenditure is sought to be made subject to deduction and payment of tax at source. However, in a case where the deductee/payee has paid tax and as such the person responsible for paying is no longer required to deduct or pay any tax, legitimate business expenditure would stand disallowed since the situation contemplated by the first proviso viz. deduction and payment of tax in a subsequent year would never co .....

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(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-deduct .....

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was deductible to the date on which the payee has discharged his tax liability directly. As there is no one-to-one correlation between the tax to be deducted by the payer and the tax paid by the payee, there is lack of clarity as to when it can be said that payer has paid the taxes directly. Also, there is no clarity on the issue of the cut-off date, i.e., the date on which it can be said that the payee has discharged his tax liability. In order to provide clarity regarding discharge of tax lia .....

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id the tax due on the income declared by him in such return of income, and the payer furnishes a certificate to this effect from an accountant in such form as may e prescribed. The date of payment of taxes by the resident payee shall be deemed to be the date on which return has been furnished by the payer. It is also proposed to provide that where the payer fails to deduct the whole or any part of the tax on the payment made to a resident and is not deemed to be an assessee in default under sect .....

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isallowance of business expenditure on account of non-deduction of tax on payment to resident payee. A related issue to the above is the disallowance under section 40(a)(ia) of certain business expenditure like interest, commission, brokerage, professional fee, etc. due to non-deduction of tax. It has been provided that in case the tax is deducted in subsequent previous year, the expenditure shall be allowed in that subsequent previous year of deduction In order to rationalize the provisions of .....

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