Business expenditure- TDS- Disallowance- Section 40(a)(ia) of I. T. Act, 1961- A. Y. 2006- 07- Freight charges- Supplier making payments to transporters- Assessee, buyer, reimbursing transportation expenses- Liability to deduct TDS on supplier under agreement- No liability on assessee to deduct tax and disallowance u/s. 40(a) (ia) not attracted-

For the A. Y. 2006-07, the Assessing Officer disallowed the payments made by the assessee on account of freight charges on the ground that it had failed to deduct tax at source u/s. 194C of the Income-tax Act, 1961. In its appeal before CIT(A) and the Tribunal the assesee submitted that its supplier, IPCL, had reimbursed the total freight charges in its invoices and had paid them to the transporter, RLL after deducting tax at source which had been deposited by the supplier with the Department. The Commissioner (Appeals) and the Tribunal upheld the disallowance.

On appeal by the assessee, the Calcutta High Court reversed the decision of the Tribunal and held as under:

“i) Under the contract of sale, the seller was bound to send the goods to the buyer. The relevant part of the price list had showed that the seller was bound to pay the transportation charges to the transport agency and was entitled to recover it from the buyer. The assessee had merely reimbursed the cost of transportation incurred by the seller. The liability to deduct and pay the tax was that of the seller who have admitted to have done that. In case the seller was unable to show that he had made the deduction, section 40(a)(ia) might be applied to his case but not to the case of the assessee who was the buyer.

ii) Even if it was assumed that the supplier, when it had transported the goods to the assessee, had acted as an agent of the assessee and the assessee had reimbursed the freight charges to the supplier, who in turn had paid to the transporters as the Tribunal had held, it was conceptually correct and no other conclusion was possible. The agent being the supplier had admittedly paid to the transporters and had also deducted tax at source. When the agent had complied with the provision, the principal could not have been visited with penal consequences. For one payment there could not have been two deductions. Moreover, when a person acted through another, in law, he acted himself.

iii) The Tribunal was wrong in holding that the assessee was liable to deduct tax at source in respect of the freight component. When the assessee was not liable to make any deduction u/s. 194C the rigours of section 40(a)(ia) could not have been applied to it. The question is answered in favour of the assessee.”