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2015 (5) TMI 1066

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..... ear 2008-09 by taking the following revised grounds of appeal:- (I) For that ld. AO and CIT(A) failed to appreciate that payment to the truck owners, by the appellant was not made under any sub-contract requiring deduction of tax at source under section 194C of I.T. Act, 1961 resulting in disallowance under section 40(a)(ia) of the said Act and thus the addition of ₹ 1,28,20,814/- is not legal and valid. (II) For that CIT(A) failed to consider that payments made to the individual truck drivers were less than ₹ 50,000/- for which the individual truck owners issued Form 15-I as prescribed, hence no disallowance under section 40(a)(ia) of the Income Tax Act, 1961 was called for. (III) For that section 40(a)(ia) of I.T. Act, 1961, applies to hire charges which are payable and not applicable to the sum already paid and thus disallowance of the sum of ₹ 96,57,939/- inclusive of a sum of ₹ 2,83,186/- allowed by AO was not legal and valid. (IV) For that ld. CIT(A) was not justified in upholding the charging of interest of ₹ 13,86,714/- under section 234B of I.T. Act, 1961. 2. We have heard the rival submissions and carefully considered .....

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..... unt 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 17[thirty] thousand rupees: Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid durin .....

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..... 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. ] 4. A plain reading of this Section makes it clear that any person responsible for paying any sum to any resident (hereafter in this sect ion referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person is requi red to deduct tax at source under sect ion from the amounts so paid or payable. .....

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..... e case of the assessee. According to him, 2n d proviso is curative in nature intended to supply an obvious omission, take care of an unintended consequence and make the section workable. Section 40(a)(ia) without the second proviso resulted in the unintended consequence of disallowance of legitimate business expenditure even in a case where the payee in receipt of the income had paid tax, 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 retrospective effect and accordingly contended that the issue be restored to the file of the Assessing Officer so that the assessee can provide all the detail s in terms of the second proviso to section 40(a)(ia). 6. We find force in the said submission of the ld. A.R. We noted that the submissions of the ld. A.R. are duly covered by the decision of this Tribunal ( SMC Bench) in ITA No. 1905/Kol/2014 for the assessment year 2007-08, in which this Tribunal vide order dated 04.03.2015 has held as under:- 5. I have heard rival contentions and gone through the facts and circumstances of the case. I find from first argument made by Ld. counsel for the assessee t .....

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..... uch income, the person responsible for paying the income is no longer required to deduct or deposit any tax at source. In the similar circumstances, I find that the first proviso to section 40(a)(ia) inserted by the Finance Act, 2010, which has been held to be curative and therefore, retrospective in its operation by the Hon'ble Calcutta High Court in ITAT No. 302 of 2011, GA 3200/2011, CIT v Virgin Creations decided on November 23, 2011 provides for allowance of the expenditure in any subsequent year in which tax has been deducted and deposited. The intention of the legislature 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 come about. Such unintended consequence has been sought to be taken care of by the second proviso inserted in sec .....

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..... of income ; and (iii) Has paid 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 section 201(1) on account of payment of taxes by the such resident, the interest under section 201(1A)(i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident payee. Amendments on similar lines are also proposed to be made in the provisions of section 206C relating to TCS for clarifying the deemed date of discharge of tax liability by the buyer or licensee or lessee. These amendments will take effect from 1st July, 2012. II. Disallowance of business expenditure on account of non-deduction of tax on payment to resident payee. A related issue to the above is th .....

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..... ntions. Section 194A provides for deduction of tax from the interest paid by the assessee at the appropriate rate. Section 197A(1A) provides that notwithstanding anything contained in section 194A no deduction of tax shall be made under the section if the payee of the interest furnished to the person responsible for paying the interest, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the tax on his estimated total Income of the previous year in which the interest is to be included will be nil. Sub-section 2 provides that the person responsible for paying interest shall deliver or cause to be delivered to the CCIT or CIT one-copy of the declaration submitted by the payee of the interest to the assessee on or before the seventh day of the month next following the month in which the declaration was furnished to him. If the person responsible for paying the interest (i.e. the assessee) does not comply with sub-section 2 of section 197A, he is liable to pay penalty of ₹ 100/- for every day during which the failure continues. Such penalty can be imposed only by the Commissioner or Chief Commissioner of Income Tax .....

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..... essee cannot be blamed because at the time of paying the interest to the loan creditors, he has to perforce rely upon the declarations filed by the loan cr editors and he was not expected to embark upon an enquiry as to whether the loan creditors really and in truth have no taxabl e income on which tax is payable. That would be putting an impossible burden on the assessee. Thai apart sub-section IA of Section 197A merely requires a declaration to be filed by the payee of the interest and once it is filed the payer of the interest has no choice except to desist from deducting tax from the interest. The sub-section uses the word shall which leaves no choice to the assessee in the matter. In the case of payment of leave travel conc ession and conveyance allowance to employees who are liable to deduct tax from the salary paid to the employees under section 192, the Supreme obligation under the Act or Rules to collect evidence to show that the employee had actually utilized the money paid towards leave travel concession/conveyanc e allowance. The pos ition is stronger under section 197A which does not apply to section 192, but which provides in sub-section (1A) that if the payee of th .....

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