TMI Blog2020 (8) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... perator/owner and, in fact, the appellant hired the trucks only on need basis. Such an attempt of differentiation is totally baseless and futile. Whether the appellant had specific and identified trucks on its rolls or had been picking them up on freelance basis, the legal effect on the status of parties had been the same that once a particular truck was engaged by the appellant on hire charges for carrying out the part of work undertaken by it (i.e., transportation of the goods of the company), the operator/owner of that truck became the sub-contractor and all the requirements of Section 194C came into operation. No hesitation in affirming the concurrent findings in regard to the applicability of Section 194C to the present case. Question No.1 is, therefore, answered in the negative; against the assessee-appellant and in favour of the revenue. Interpretation of Section 40(a)(ia) - appellant has strenuously argued that Section 40(a)(ia) of the Act remains limited in its scope and does not apply to the amount already paid - It is ex facie evident that the term payable has been used in Section 40(a)(ia) of the Act only to indicate the type or nature of the payments by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being the position, it is difficult to find any substance in the argument that the principles adopted by this Court in the case of Calcutta Export Company [ 2018 (5) TMI 356 - SUPREME COURT] dealing with curative amendment, relating more to the procedural aspects concerning deposit of the deducted TDS, be applied to the amendment of the substantive provision by the Finance (No.2) Act, 2014. Assessee-appellant was either labouring under the mistaken impression that he was not required to deduct TDS or under the mistaken belief that the methodology of splitting a single payment into parts below ₹ 20,000/- would provide him escape from the rigour of the provisions of the Act providing for disallowance. In either event, the appellant had not been a bonafide assessee who had made the deduction and deposited it subsequently. Obviously, the appellant could not have derived the benefits that were otherwise available by the curative amendments of 2008 and 2010. Having defaulted at every stage, the attempt on the part of assessee-appellant to seek some succor in the amendment of Section 40(a)(ia) of the Act by the Finance (No.2) Act, 2014 could only be rejected as entirely baseless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed from deduction in computation of total income of the appellant? Relevant factual and background aspects; the impugned order of assessment 3. In a brief outline of the relevant factual aspects, it could be noticed that the assessee-appellant, a partnership firm, had entered into contract with M/s Aditya Cement Limited, Shambupura, District Chittorgarh for transporting cement to various places in India. As the appellant was not having the transport vehicles of its own, it had engaged the services of other transporters for the purpose. The cement marketing division of M/s Aditya Cement Limited, namely, M/s Grasim Industries Limited, effected payments towards transportation charges to the appellant after due deduction of TDS, as shown in Form No. 16A issued by the company. 4. On 28.10.2005, the assessee-appellant filed its return for the assessment year 2005-2006, showing total income at ₹ 2,89,633/- in the financial year 2004-2005 arising out of the business of transport contract . 5. In the course of assessment proceedings, the Assessing Officer examined the dispatch register maintained by the appellant for the period 01.04.2004 to 31.03.2005, containing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular bearing No. 715 dated 08.08.1995 issued by the Central Board of Direct Taxes (CBDT), to observe that each goods receipt could be considered a separate contract. While further observing that a contract may be written or oral, the AO held that when the truck operators/owners in the case at hand were not to be considered as contractors, they were undoubtedly the subcontractors of the appellant. The AO also pointed out that despite sufficient opportunity being given, a copy of the agreement of the appellant firm with the company for providing transportation services was not furnished. 5.3. Having perused the material placed before him, the AO held on the appellant s responsibility for deducting tax at source while making payment to the truck operators/owners where such payment exceeded ₹ 20,000/- on a single bilty/challan or goods receipt in the following words:- The dispatch register of the assessee firm as well as the cash book clearly establish beyond doubt that payment to the truck operators was made by the assessee firm. In other words, the assessee firm was the person responsible for deducting the tax at source therefrom within the meaning of Section 194C of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wners/ operators was not exceeding ₹ 20,000/-. In this regard it is pertinent to mention that merely by showing payment of one challan/ bilty in two pieces the assessee cannot absolve itself of the provisions of the Section 40(a)(ia) inasmuch as Section 194C(3)(i) clearly speaks of the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the Contractor or sub-contractor, if such sum does not exceed twenty thousand rupees . The learned counsel further submitted that the receipts of the assessee firm are full vouched and verifiable and subject to TDS and the payments to truck owners/ operators are made by the assessee firm from such receipts and as such there as no need for further TDS. He further stated that the assessee firm prepares bills for claiming payments from the company on the basis of freight charges payable to various truck owners/ operators and when the payment is received on the basis of such bills, further payment is made to the truck owners/ operators and nominal commission is retained by the assessee and, therefore, the payment made to the truck owners/ operators was out of the purview of Section 194C of the Act. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax (Appeals), Jodhpur 6. Aggrieved by the order so passed by the Assessing Officer, the assessee-appellant preferred an appeal before the Commissioner of Income Tax (Appeals) , being Appeal No. 183 of 2007-08, that was considered and dismissed on 15.01.2008. 6.1. The CIT(A) re-examined the record and rejected the contentions of the appellant that it had only received commission income and was not liable to deduct tax at source on payments made to the truck owners while observing as under:- On careful consideration of the material facts, it is observed that the appellant entered into a contract for transportation of goods (cement) with M/s Aditiya Cement Limited in order to honour the contract, the appellant hired various trucks all through out the year for the purpose of transportation of cement. The appellant received freight charges from M/s Aditiya Cement Limited on which tax was deducted. The appellant paid freight charges to individual truck owners, after transportation of goods. There was no nexus between the truck owners/ operators and M/s Aditiya Cement Limited. How the appellant transported the goods (cement) was the exclusive domain of the appellant firm. Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration of the material facts, it is observed that both the entries are consecutive in the cashbook and, therefore, it is observed that the appellant, for its convenience and to avoid rigors of the provisions of Section 40A(3), splitted the payments into two parts. Had the payments been really made in two parts, both the entries should not have been consecutive. It is also not understood as to why the truck owners after completing the contract, would accept the amount in two parts and why they would come to the office of the appellant twice for seeking payments. The theory of making payments in two parts is merely a story, which is capable neither on facts nor on practicability. It is also surprising to note that in none of the case the appellant made fully payment to any truck owner all through out the year exceeding ₹ 20,000/. (emphasis in bold supplied) 6.3. The CIT(A) also examined in detail the question as to whether transport contracts were subject to deduction of tax at source and, with reference to clause (c) of Explanation (iii) of Section 194C of the Act as also to CBDT Circular Nos. 558 dated 28.03.1990 and 681 dated 08.03.1994, held that the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 01.04.2003 executed between itself and M/s Grasim Industries Limited, and as the Department had no-objection, the same was admitted as additional evidence by the order dated 17.07.2008 but, another application for admission of evidence in shape of affidavit of partner of the appellant firm, was objected to by the Department and was rejected. 7.2. The ITAT found that the agreement in question was on principal to principal basis whereby, the appellant was awarded the work of transporting cement from Shambupura but, as the appellant did not own any trucks, it had engaged the services of other truck operators/owners for transporting the cement; and such a transaction was a separate contract between the appellant and the truck operator/owner. The ITAT, therefore, endorsed the findings of AO and CIT(A) in the following words:- 13. The perusal of agreement on record reveals that the assessee was awarded a works contract by M/s. Grasim Industries Limited, a cement marketing division of M/s. Aditya Cement Ltd. This agreement was on principal to principal basis whereby the appellant was awarded the cement transportation work and in terms of agreement the scope of work was to inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of issuance of Circular No. 5 dated 15.07.2005, the time for payment of tax at source had expired and that Section 40(a)(ia) would only be applicable from the assessment year 2006-2007 and not from the assessment year 2005-2006. The ITAT also referred to the proviso to Section 40(a)(ia) of the Act and pointed out that thereunder, the assessee was eligible to get deduction of such expenditure in a subsequent year in which TDS was actually paid to the Government. The ITAT observed in regard to these two aspects concerning applicability of the provision in question as also the effect of proviso thereto, in the following passage:- 15. The assessee s counsel also raised a plea that Circular No. 5 was issued only on 15-7-2005 by which date the time for payment of tax at source has also expired and as such it was contended that the provisions as contained in Section 40(a)(ia) of the Act would be applicable not from A.Y. 2005-06 but from 2006-07. We, however, do not subscribe to the view so canvassed by the assessee. The Finance (No.2) Act 2004 has brought an amendment in Section 40 of the Act making it applicable w.e.f. 01/04/2004 (sic) 1 . Since this amendment came before c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ators/owners, cannot be allowed while computing the total income of the assessee-appellant, came to be affirmed by the High Court. Rival Submissions Appellant 10. Assailing the order so passed by the High Court in summary dismissal of the appeal as also the views expressed in the assessment and appellate orders, learned counsel for the assessee-appellant has urged before us multiple contentions on the scope and applicability of Section 194C of the Act as also Section 40(a)(ia) thereof and has argued that these provisions could not have been applied to the case at hand. 10.1. Learned counsel for the appellant has strenuously argued that the provisions of Section 194C of the Act of 1961, particularly sub-section (2) thereof, were not applicable to the present case for there was no oral or written contract of the appellant with the truck operators/owners, whose vehicles were engaged to execute the work of transportation of the goods. It has been contended that the liability under Section 194C(2) would have arisen only if payments were made to sub-contractor and that too in pursuance of a contract for the purpose of carrying whole or any part of work undertaken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on paid is used while giving out the circumstances when a deduction, not allowed under the main provision, could be claimed in the subsequent year. 10.2.1. Taking this line of argument further, learned counsel would contend that the scope of Section 40(a)(ia) of the Act cannot be decided on the basis of the scope of Section 194C of the Act. Learned counsel would submit that Section 201 of the Act provides for consequence of non-deduction of TDS either at the time of payment or booking, whichever is earlier; and thus, the said provision would apply to both the situations where the expenses amount has been paid or is payable . However, according to the learned counsel, the additional consequence of default as provided in Section 40(a)(ia) of the Act would come into operation only if the alleged default strictly falls within the language of this provision, which is limited to the amount payable . Learned counsel would submit that the scope of Section 40(a)(ia) of the Act cannot be expanded beyond its language merely because as per Section 194C, the liability to deduct tax is at the time of credit of such amount to the account of a contractor or at the time of payment whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... President of India on 10.09.2004 and hence, the rigour of subclause (ia) of Section 40(a) of the Act cannot be applied in relation to the payments already made before 10.09.2004, the date of introduction of this provision. 10.3.1. In yet another alternative, learned counsel for the appellant has referred to the amendment made to Section 40(a)(ia) of the Act by the Finance (No.2) Act, 2014, restricting and limiting the extent of disallowance to 30% of the expenditure and has submitted that the said amendment, being curative in nature and having been introduced to ameliorate the hardships faced by the assessees, deserves to be applied retrospectively and from the date of introduction of sub-clause (ia) to Section 40(a) of the Act. The learned counsel has developed this argument by relying on the decision in Commissioner of Income-Tax v. Calcutta Export Company: (2018) 404 ITR 654, wherein this Court has held the remedial amendment of Section 40(a)(ia) of the Act by the Finance Act, 2010 to be retrospective in nature and applicable from the date of insertion of the said provision. 10.4. Learned counsel for the appellant has lastly submitted that the result of applying the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said decision; and this appeal deserves to be dismissed for the question sought to be raised as regard interpretation of Section 40(a)(ia) of the Act being no more res integra. 11.4. Learned counsel for the revenue has further contended that the amendment to Section 40(a) of the Act with insertion of sub-clause (ia) by the Finance (No. 2) Act, 2004 with effect from 01.04.2005 directly applies to the assessment year 2005-2006; and for the appellant having failed to deduct tax at source from the payment made to the sub-contractors for the work of transportation, deduction of such payment has rightly been disallowed. 11.5. The learned counsel has also argued that the proviso to Section 40(a)(ia) of the Act, as inserted by the Finance Act, 2014, does not apply to the case at hand pertaining to the assessment year 2005-2006 and hence, the argument for curative benefit with reference to the said proviso does not hold the ground. Questions for determination 12. Having regard to the submissions made by the learned counsel for the parties and the observations occurring in the orders impugned, the principal questions arising for determination in this appeal could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw, 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 firm, 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 in case of advertising, (ii)in any other case two per cent, of such sum as income-tax on income comprised therein. (2) Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) or, as the case may be, sub-section (2) shall be liable to deduct income-tax under this section; or (ii) any sum credited or paid before the 1st day of June, 1972; or (iii) any sum credited or paid before the 1st day of June, 1973, in pursuance of a contract between the contractor and a cooperative society or in pursuance of a contract between such contractor and the sub-contractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the co-operative society. 13.1.2. Sections 200 and 201 of the Act, respectively dealing with the duty of the person deducting tax and consequences on failure to deduct or pay, as applicable at the relevant time, could also be reproduced as under:- 200. Duty of person deducting tax. (1) Any person deducting any sum in accordance with the foregoing provisions of this Chapter 2 , shall pay within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1). 13.2. Chapter IV of the Act of 1961 deals with the subject Computation of Total Income and Section 40 occurs in Part D thereof, carrying the provisions relating to the Profits and Gains of Business or Profession . Even when Sections 30 to 38 provide for various allowances and deductions in computation of the income from profits and gains of business or profession, Section 40 specifically ordains that certain amounts shall not be deducted, notwithstanding anything to the contrary contained in the said Sections 30 to 38 of the Act. In the present matter, we are concerned with the provisions contained in sub-clause (ia) of clause (a) of Section 40 of the Act, which was inserted by the Finance (No. 2) Act, 2004 with effect from 01.04.2005. Hence, the extraction hereunder is essentially of the provision that could be read as Section 40(a)(ia) of the Act after insertion by the Finance (No. 2) Act, 2004: - 40. Amounts not deductible. - Notwithsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the head Profits and gains of business or profession ; *** *** *** 13.4. For their relevance in relation to another segment of arguments, we may also take note of the meaning assigned to the expression assessment year in clause (9) of Section 2; and to the expression previous year in Section 3 of the Act of 1961 as follows: - 2. Definitions.- In this Act, unless the context otherwise requires,- *** *** *** (9) assessment year means the period of twelve months commencing on the 1st day of April every year; *** *** *** 3. Previous year defined.- For the purposes of this Act, previous year means the financial year immediately preceding the assessment year: *** *** *** 14. We may now take up the questions involved in this matter ad seriatim. Question No.1 15. In order to maintain that the appellant was under no obligation to make any deduction of tax at source, it has been argued that there was no oral or written contract of the appellant with the truck operators/owners, whose vehicles were engaged to execute the work of transportation of the goods only on freelance and need basis. The submission has been tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essentials of making of a contract existed; and, as aforesaid, the said truck operator/owner became a sub-contractor for the purpose of the work in question. The AO, CIT(A) and the ITAT have concurrently decided this issue against the appellant with reference to the facts of the case, particularly after appreciating the nature of contract of the appellant with the consignor company as also the nature of dealing of the appellant, while holding that the truck operators/owners were engaged by the appellant as sub-contractors. The same findings have been endorsed by the High Court in its short order dismissing the appeal of the appellant. We are unable to find anything of error or infirmity in these findings. 15.3. The decision of Delhi High Court in the case of Hardarshan Singh (supra), in our view, has no application whatsoever to the facts of the present case. The assessee therein, who was in the business of transporting goods, had four trucks of his own and was also acting as a commission agent by arranging for transportation through other transporters. As regards the income of assessee relatable to transportation through other transporters, it was found that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinguish the nature of contract in Palam Gas Service by suggesting that therein, the assessee s sub-contractors were specific and identified persons with whom the assessee had entered into contract whereas the present appellant was free to hire the service of any truck operator/owner and, in fact, the appellant hired the trucks only on need basis. In our view, such an attempt of differentiation is totally baseless and futile. Whether the appellant had specific and identified trucks on its rolls or had been picking them up on freelance basis, the legal effect on the status of parties had been the same that once a particular truck was engaged by the appellant on hire charges for carrying out the part of work undertaken by it (i.e., transportation of the goods of the company), the operator/owner of that truck became the sub-contractor and all the requirements of Section 194C came into operation. 15.5. Thus, we have no hesitation in affirming the concurrent findings in regard to the applicability of Section 194C to the present case. Question No.1 is, therefore, answered in the negative; against the assessee-appellant and in favour of the revenue. Question No.2. 16. While t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 200(1), such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. 16.3. The purpose and coverage of this provision as also protection therein have been tersely explained by this Court in the case of Calcutta Export Company (supra), which has been cited by learned counsel for the appellant in support of another limb of submissions which we shall be dealing with in the next question. For the present purpose, we may notice the relevant observations of this Court in Calcutta Export Company as regards Section 40(a)(ia) of the Act as follows (at p. 662 of ITR):- 16. The purpose is very much clear from the above referred explanation by the Memorandum that it came with a purpose to ensure tax compliance. The fact that the intention of the Legislature was not to punish the assessee is further reflected from a bare reading of the provisions of section 40(a)(ia) of the Income-tax Act. It only results in shifting of the year in which the expenditure can be claimed as deduction. In a case where the tax deducted at source was duly deposited with the Government within the prescribed time, the said amount can be claimed as a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is clear from the following discussion contained in the judgment of the Punjab and Haryana High Court: A Division Bench of the Calcutta High Court in CIT v. Crescent Export Syndicate [2013] 216 Taxman 258 (Cal) held : 13. The term shall used in all these sections make it clear that these are mandatory provisions and applicable to the entire sum contemplated under the respective sections. These sections do not give any leverage to the assessee to make the payment without making TDS. On the contrary, the intention of the Legislature is evident from the fact that timing of deduction of tax is earliest possible opportunity to recover tax, either at the time of credit in the account of payee or at the time of payment to payee, whichever is earlier. Ms. Dhugga invited our attention to a judgment of the Division Bench of the Madras High Court in Tube Investments of India Ltd. v. Asst. CIT (TDS) [2010] 325 ITR 610 (Mad). The Division Bench referred to the statistics placed before it by the Department which disclosed that TDS collection had augmented the revenue. The gross collection of advance tax, surcharge, etc. was ₹ 2,75,857.70 crores in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutory obligation has to suffer the consequences which are stipulated in the Act itself. Certain consequences of failure to deduct tax at source from the payments made, where tax was to be deducted at source or failure to pay the same to the credit of the Central Government, are stipulated in section 201 of the Act. This section provides that in that contingency, such a person would be deemed to be an assessee in default in respect of such tax. While stipulating this consequence, section 201 categorically states that the aforesaid sections would be without prejudice to any other consequences which that defaulter may incur. Other consequences are provided under section 40(a)(ia) of the Act, namely, payments made by such a person to a contractor shall not be treated as deductible expenditure. When read in this context, it is clear that section 40(a)(ia) deals with the nature of default and the consequences thereof. Default is relatable to Chapter XVII-B (in the instant case sections 194C and 200, which provisions are in the aforesaid Chapter). When the entire scheme of obligation to deduct the tax at source and paying it over to the Central Government is read holistically, it cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to in Chapter XVII-B, which do not attract the provisions of Chapter XVII-B. The consequences under section 40(a)(ia) would only operate on account of failure to deduct tax where the tax is liable to be deducted under the provisions of the Act and in particular Chapter XVII-B thereof. It is in that sense that the term payable has been used. The term payable is descriptive of the payments which attract the liability to deduct tax at source. It does not categorize defaults on the basis of when the payments are made to the payees of such amounts which attract the liability to deduct tax at source. (emphasis in bold supplied) 16.7. We find the above-extracted observations and reasonings, which have already been approved by this Court in Palam Gas Service (supra), to be precisely in accord with the scheme and purpose of Section 40(a)(ia) of the Act; and are in complete answer to the contentions urged by the learned counsel for the appellant. It is ex facie evident that the term payable has been used in Section 40(a)(ia) of the Act only to indicate the type or nature of the payments by the assessees to the payees referred therein. In other words, the expression pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to Section 40(a)(ia) of the Act, that its scope cannot be decided on the basis of Section 194C, has only been noted to be rejected. The interplay of these provisions is not far to seek where Section 40(a)(ia) is not a stand-alone provision but provides one of those additional consequences as indicated in Section 201 of the Act for default by a person in compliance of the requirements of the provisions contained in Part B of Chapter XVII of the Act. The scheme of these provisions makes it clear that the default in compliance of the requirements of the provisions contained in Part B of Chapter XVII of the Act (that carries Sections 194C, 200 and 201) leads, inter alia, to the consequence of Section 40(a)(ia) of the Act. Hence, the contours of Section 40(a)(ia) of the Act could be aptly defined only with reference to the requirements of the provisions contained in Part B of Chapter XVII of the Act, including Sections 194C, 200 and 201. Putting it differently, when the obligation of Section 194C of the Act is the foundation of the consequence provided by Section 40(a)(ia) of the Act, reference to the former is inevitable in interpretation of the latter. 16.11. In view of the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occurring infra. 17.2. Reverting to the contentions urged in this case, there is no doubt that in PIU Ghosh (supra), the Calcutta High Court, indeed, took the view which the learned counsel for the appellant has canvassed before us. The Calcutta High Court observed that the said Finance (No.2) Act, 2004 got presidential assent on 10.09.2004 and it was provided that the provision in question shall stand inserted with effect from 01.04.2005. According to the Calcutta High Court, the assessee could not have foreseen prior to 10.09.2004 that any amount paid to a contractor without deducting tax at source was likely to become not deductible in computation of income under Section 40 and that the legislature, being conscious of the likely predicament, provided that the provision shall become operative from 01.04.2005. The High Court further proceeded to observe that any other interpretation would amount to punishing the assessee for no fault of his. The High Court further observed that Section 11 of the said Finance Act, inserting sub-clause (ia), did not provide that the same was to become effective from the assessment year 2005-2006. We may usefully reproduce the opinion of the Calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year in question, unless stated otherwise by express intendment or by necessary implication. As per Section 4 of the Act of 1961, the charge of income tax is with reference to any assessment year, at such rate or rates as provided in any central enactment for the purpose, in respect of the total income of the previous year of any person. The expression previous year is defined in Section 3 of the Act to mean the financial year immediately preceding the assessment year ; and the expression assessment year is defined in clause (9) of Section 2 of the Act to mean the period of twelve months commencing on the 1st day of April every year . 17.5. In the case of Commissioner of Income-Tax, West Bengal v. Isthmian Steamship Lines: (1951) 20 ITR 572 , a 3-Judge Bench of this Court exposited on the fundamental principle that in income-tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied. This decision and various other decisions were considered by the Constitution Bench of this Court in the case of Karimtharuvi Tea Estate Ltd. v. State of Kerala: (1966) 60 ITR 262 and the principles were laid down in the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment year 2005-2006; and neither there had been express intendment nor any implication that it would apply only from the financial year 2005-2006. 17.7. The observations of Calcutta High Court in the case of PIU Ghosh (supra) as regards the likely prejudice to an assessee in relation to the financial year 2004-2005, in our view, do not relate to any legal grievance or legal prejudice. The requirement of deducting tax at source was already existing as per Section 194C of the Act and it was the bounden duty of the appellant to make such deduction of TDS and to make over the same to the revenue. Section 201 was also in existence which made it clear that default in making deduction in accordance with the provisions of the Act would make the appellant an assessee in default . The appellant cannot suggest that even if the obligation of TDS on the payments made by him was existing by virtue of Section 194C(2), he would have honoured such an obligation only if being aware of the drastic consequence of default that such payment shall not be deducted for the purpose of drawing up the assessment. 17.7.1. Apart from the above, significant it is to notice that by the amendment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ia) became known on 10.09.2004, the appellant could have taken all the requisite steps to make deductions or, in any case, to make payment of the TDS amount to the revenue during the same financial year or even in the subsequent year, as per the relaxation available in the proviso to Section 40(a)(ia) of the Act but, the appellant simply avoided his obligation and attempted to suggest that it had no liability to deduct the tax at source at all. Such an approach of the appellant, when standing at conflict with law, the consequence of disallowance under Section 40(a)(ia) of the Act remains inevitable. 19. In yet another alternative attempt, learned counsel for the appellant has argued that by way of Finance (No.2) Act, 2014, disallowance under Section 40(a)(ia) has been limited to 30% of the sum payable and the said amendment deserves to be held retrospective in operation. This line of argument has been grafted with reference to the decision in Calcutta Export Company (supra) wherein, another amendment of Section 40(a)(ia) by the Finance Act of 2010 was held by this Court to be retrospective in operation. The submission so made is not only baseless but is bereft of any logic. Nei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. *** *** *** (ii) After the amendment by Finance Act, 2010 40. Amounts not deductible. - 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- *** *** *** (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 on or before the due date specified in sub-section (1) of section 139: Provided that where in respect of any such sum, tax has been dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... afide tax payer, who had deducted tax at source but could not make deposit within the prescribed time so as to claim deduction. In paragraph 17 of judgment in Calcutta Export Company, this Court took note of the case of genuine hardship, particularly of the assessees who had deducted tax at source in the last month of previous year; and observed in paragraph 18 that the said amendment of the year 2008 was brought about with a view to mitigate such hardship. After reproducing the said amendment of the year 2008 and after noticing its retrospective operation, this Court delved into the position obtaining after 2008, where still remained one class of assessees who could not claim deduction for the TDS amount in the previous year in which the tax was deducted and who could claim benefit of such deduction in the next year only; and, after finding that the amendment of the year 2010 was intended to remedy this position, held that the said amendment, being curative in nature, is required to be given retrospective operation that is, from the date of insertion of Section 40(a)(ia). 19.4. Learned counsel for the appellant has only referred to the concluding part of the decision in Calcutt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y paying the same to the credit of the Government before the due date of filing of their returns under section 139(1) of the Income-tax Act. The disability to claim deductions on account of such lately credited sum of TDS in assessment of the previous year in which it was deducted, was detrimental to the small traders who may not be in a position to bear the burden of such disallowance in the present assessment year. 22. In order to remedy this position and to remove hardshipswhich were being caused to the assessees belonging to such second category, amendments have been made in the provisions of section 40(a) (ia) by the Finance Act, 2010. *** *** *** 24. Thus, the Finance Act, 2010 further relaxed the rigors of section 40(a)(ia) of the Income-tax Act to provide that all TDS made during the previous year can be deposited with the Government by the due date of filing the return of income. The idea was to allow additional time to the deductors to deposit the TDS so made. However, the Memorandum Explaining the Provisions of the Finance Bill, 2010 expressly mentioned as follows: This amendment is proposed to take effect retrospectively from April 1, 2010 and will, acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) dealing with curative amendment, relating more to the procedural aspects concerning deposit of the deducted TDS, be applied to the amendment of the substantive provision by the Finance (No.2) Act, 2014. 19.6. We may in the passing observe that the assessee-appellant was either labouring under the mistaken impression that he was not required to deduct TDS or under the mistaken belief that the methodology of splitting a single payment into parts below ₹ 20,000/- would provide him escape from the rigour of the provisions of the Act providing for disallowance. In either event, the appellant had not been a bonafide assessee who had made the deduction and deposited it subsequently. Obviously, the appellant could not have derived the benefits that were otherwise available by the curative amendments of 2008 and 2010. Having defaulted at every stage, the attempt on the part of assessee-appellant to seek some succor in the amendment of Section 40(a)(ia) of the Act by the Finance (No.2) Act, 2014 could only be rejected as entirely baseless, rather preposterous. 19.7. Hence, Question No.3 is also answered in the negative, i.e., against the assessee-appellant and in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etrospective in operation. The proviso so amended, obviously, safeguarded the interest of a bonafide assessee who had made the deduction as required and had paid the same to the revenue. The appellant having failed to avail the benefit of such relaxation too, cannot now raise a grievance of alleged hardship. Thirdly, as noticed, the appellant had shown total payments in Truck Freight Account at ₹ 1,37,71,206/- and total receipts from the company at ₹ 1,43,90,632/-. What has been disallowed is that amount of ₹ 57,11,625/- on which the appellant failed to deduct the tax at source and not the entire amount received from the company or paid to the truck operators/owners. Viewed from any angle, we do not find any case of prejudice or legal grievance with the appellant. 21.1. Hence, answer to Question No. 4 is clearly in the affirmative i.e., against the appellant and in favour of the revenue that the payments in question have rightly been disallowed from deduction while computing the total income of the assessee-appellant. Conclusion 22. For what has been discussed hereinabove, this appeal fails and is, therefore, dismissed with costs. -- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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