5. Shree
Choudhary Transport Company vs. Income Tax Officer Civil Appeal No. 7865 of 2009 Date of order: 29th July, 2020
Disallowance
of expenditure – Section 40(a)(ia) – The provisions relating to liability to
deduct tax at source are mandatory in nature – The expression ‘payable’ used in
this provision, that section 40(a)(ia) covers not only those cases where the
amount is payable but also when it is paid – Sub-clause (ia), having been
inserted to clause (a) of section 40 of the Act with effect from 1st
April, 2005 by the Finance (No. 2) Act, 2004 would apply from the assessment
year 2005-06 – The date of assent of the President of India to the Finance (No.
2) Act, 2004 is not the date of applicability of any provision, for the
specific date is provided in the Finance Act – The amendment by the Finance
(No. 2) Act, 2014 limiting the disallowance to 30% of the sum payable is of the
substantive provision and cannot be applied retrospectively – Defaulting
assessee cannot claim prejudice or hardship
The
assessee-appellant, a partnership firm, had entered into a contract with M/s
Aditya Cement Limited, Shambupura, District Chittorgarh, for transporting
cement to various places in India. As the appellant did not have its own
transport vehicles, 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.
On 28th
October, 2005 the assessee-appellant filed its return for the assessment year
2005-2006 showing total income at Rs. 2,89,633 in the financial year 2004-2005
arising out of the business of ‘transport contract’.
In the course
of assessment proceedings, the A.O. examined the dispatch register maintained
by the appellant for the period 1st April, 2004 to 31st March,
2005 containing all particulars as regards the trucks hired, date of hire,
memos (or biltis) and challan numbers, freight and commission
charges, net amount payable, the dates on which the payments were made, the
destination of each truck, etc. The contents of the register also indicated
that each truck was sent only to one destination under one challan / bilty;
and if one truck was hired again, it was sent to the same or other destination
/ trip as per a separate challan. The commission charged by the
appellant from the truck operators / owners ranged from Rs. 100 to Rs. 250 per
trip.
On verifying
the contents of the record placed before him, the A.O. observed that while
making payments to the truck operators / owners, the appellant had not deducted
tax at source even if the net payment exceeded Rs. 20,000. The A.O. therefore
proceeded to disallow the deduction of payments made to the truck operators /
owners exceeding Rs. 20,000 without TDS, which in total amounted to Rs.
57,11,625, and added the same back to the total income of the
assessee-appellant. The A.O. also disallowed a lump sum of Rs. 20,000 from
various expenses debited to the profit & loss account and finalised the
assessment.
Aggrieved by
this order, the assessee-appellant preferred an appeal before the Commissioner
of Income Tax (Appeals) that was considered and dismissed on 15th
January, 2008.
Still
aggrieved, the appellant approached the Income Tax Appellate Tribunal, Jodhpur
Bench in further appeal. This appeal was considered and dismissed by ITAT by an
order dated 29th August, 2008.
The ITAT found
that the agreement in question was on a 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; such a transaction was a
separate contract between the appellant and the truck operator / owner. The
ITAT, therefore, endorsed the findings of the A.O. and the CIT(A).
The aggrieved
appellant now approached the High Court against the ITAT order. However, this
appeal was dismissed summarily by the High Court by its short order dated 15th
May, 2009.
On further
appeal, the Supreme Court was of the view that the principal questions arising
for its determination in this appeal were as follows:
1. As to whether section 194C of
the Act does not apply to the present case?
2. Whether disallowance u/s
40(a)(ia) of the Act is confined / limited to the amount ‘payable’ and not to
the amount ‘already paid’; and whether the decision of this Court in Palam
Gas Service vs. Commissioner of Income-Tax (2017) 394 ITR 300 requires
reconsideration?
3. As to whether sub-clause (ia)
of section 40(a) of the Act, as inserted by the Finance (No. 2) Act, 2004 with
effect from 1st April, 2005 is applicable only from the financial
year 2005-2006 and, hence, is not applicable to the present case relating to
the financial year 2004-2005; and, at any rate, the whole of the rigour of this
provision cannot be applied to the present case?
4. And whether the payments in
question have rightly been disallowed from deduction while computing the total
income of the assessee?
Question No.
1
According to
the Supreme Court, the nature of the contract entered into by the appellant
with the consignor company made it clear that the appellant was to transport
the goods (cement) of the consignor company and in order to execute this
contract the appellant hired the transport vehicles, namely, the trucks from
different operators / owners. The appellant received freight charges from the
consignor company, who indeed deducted tax at source while making such payment
to the appellant. Thereafter, the appellant paid the charges to the persons
whose vehicles were hired for the purpose of the said work of transportation of
goods. Thus, the goods in question were transported through the trucks employed
by the appellant but there was no privity of contract between the truck operators
/ owners and the said consignor company. It was the responsibility of the
appellant to transport the goods (cement) of the company; how to accomplish
this task of transportation was a matter exclusively within the domain of the
appellant. Hence, hiring the services of truck operators / owners for this
purpose could have only been under a contract between the appellant and the
said truck operators / owners. Whether such a contract was reduced into writing
or not was hardly of any relevance. In the given scenario and set-up, the said
truck operators / owners answered to the description of ‘sub-contractor’ for
carrying out the whole or part of the work undertaken by the contractor (i.e.,
the appellant) for the purpose of section 194C(2).
The Supreme
Court was of the view that the decision of the Delhi High Court in the case of Commissioner
of Income-Tax vs. Hardarshan Singh (2013) 350 ITR 427 relied upon by
the appellant had no application to the facts of the present case. The Supreme
Court observed that in that case, as regards the income of the assessee
relatable to transportation through other transporters, it was found that the
assessee had merely acted as a facilitator or as an intermediary between the
two parties (i.e., the consignor company and the transporter) and had no
privity of contract with either of such parties.
According to the Supreme Court, in Palam
Gas Service vs. Commissioner of Income-Tax (2017) 394 ITR 300, the
facts of that case were akin to the facts of the present case and of apposite
illustration. Therein, the assessee was engaged in the business of purchase and
sale of LPG cylinders whose main contract for carriage of LPG cylinders was
with Indian Oil Corporation, Baddi (Himachal Pradesh) and for which the
assessee received freight payments from the principal. The assessee got the
transportation of LPG done through three persons to whom he made the freight
payments. The A.O. had held that the assessee had entered into a sub-contract
with the said three persons within the meaning of section 194C. These findings
of the A.O. were concurrently upheld up to the High Court and, after
interpretation of section 40(a)(ia), this Court also approved the decision of
the High Court while dismissing the appeal with costs. The Supreme Court rejected
the contention of the appellant attempting to distinguish 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 a contract, whereas the present appellant was free to
hire the services of any truck operator / owner and, in fact, the appellant
hired the trucks only on need basis.
The Supreme
Court therefore affirmed the concurrent findings in regard to the applicability
of section 194C to the present case. Question No. 1 was, therefore, answered in
the negative – that is, against the assessee-appellant and in favour of the
Revenue.
Question No.
2.
According to
the Supreme Court, the decision in Palam Gas Service (Supra)
was a direct answer to all the contentions urged on behalf of the appellant in
the present case. In that case, the Supreme Court approved the views of the
Punjab and Haryana High Court in the case of P.M.S. Diesels and Ors. vs.
Commissioner of Income-Tax (2015) 374 ITR 562 as regards the mandatory
nature of the provisions relating to the liability to deduct tax at source.
Having said that deducting tax at source is obligatory, the Supreme Court in
that case had proceeded to deal with the issue as to whether the word ‘payable’
in section 40(a)(ia) would cover only those cases where the amount is payable
and not where it has actually been paid. It took note of the exhaustive
interpretation of various aspects related with this issue by the Punjab and
Haryana High Court in the case of P.M.S. Diesels (Supra) as also
by the Calcutta High Court in the case of Commissioner of Income-Tax,
Kolkata-XI vs. Crescent Export Syndicate (2013) 216 Taxman 258, and
while approving the same it held, as regards implication and connotation of the
expression ‘payable’ used in this provision, that section 40(a)(ia) covers not
only those cases where the amount is payable but also when it is paid.
According to
the Supreme Court, it was ex facie evident that the term ‘payable’ has
been used in section 40(a)(ia) only to indicate the type or nature of the
payments by the assessees to the payees referred therein. In other words, the
expression ‘payable’ is descriptive of the payments which attract the liability
for deducting tax at source and it has not been used in the provision in
question to specify any particular class of default on the basis of whether
payment has been made or not.
The Supreme
Court agreed with the observations in Palam Gas Service that the
enunciations in P.M.S. Diesels had been of correct interpretation
of the provisions contained in section 40(a)(ia). According to the Supreme
Court, the decision in Palam Gas Service did not require any
reconsideration. That being the position, the contention urged on behalf of the
appellant that disallowance u/s 40(a)(ia) did not relate to the amount already
paid, was rejected.
In view of the
above, Question No. 2 was also answered in the negative – against the
assessee-appellant and in favour of the Revenue.
Question No.
3
Conscious of
the position that the decision of this Court in Palam Gas Service
practically covers the substance of the present matter against the assessee,
the assessee-appellant made a few alternative attempts to argue against the
disallowance in question.
It was
submitted that the said sub-clause (ia) having been inserted to clause (a) of
section 40 with effect from 1st April, 2005 by the Finance (No. 2)
Act, 2004, would apply only from the financial year 2005-2006 and, hence, could
not apply to the present case pertaining to the financial year 2004-2005.
The Supreme
Court held that it is well settled that in income tax matters the law to be
applied is that in force in the assessment year in question, unless stated
otherwise by express intendment or by necessary implication. The provision in
question, having come into effect from 1st April, 2005 would apply
from and for the assessment year 2005-2006 and would be applicable for the
assessment in question.
According to
the Supreme Court, the supplemental submission that in any case disallowance
could not be applied to the payments already made prior to 10th
September, 2004, the date on which the Finance (No. 2) Act, 2004 received the
assent of the President of India, was equally baseless. The said date of assent
of the President of India to Finance (No. 2) Act, 2004 is not the date of
applicability of the provision in question, for the specific date had been
provided as 1st April, 2005.
In yet another
alternative attempt, the appellant argued that by way of Finance (No. 2) Act,
2014, disallowance u/s 40(a)(ia) has been limited to 30% of the sum payable and
the said amendment deserves to be held retrospective in operation.
According to
the Supreme Court since this is not a curative amendment relating to the
procedural aspects concerning deposit of the deducted TDS, it cannot be applied
retrospectively. The amendment is of the substantive provision by the Finance
(No. 2) Act, 2014.
The Supreme
Court in passing observed 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 Rs. 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 bona fide assessee who had made the deduction and deposited it
subsequently. Having defaulted at every stage, the attempt on the part of the
assessee-appellant to seek some succour in the amendment of section 40(a)(ia)
by the Finance (No. 2) Act, 2014 could only be rejected as entirely baseless,
even preposterous.
Hence, Question
No. 3 was also answered in the negative – that is, against the
assessee-appellant and in favour of the Revenue.
Question No.
4
According to
the Supreme Court, the answers to Question Nos. 1 to 3 practically conclude the
matter but it had formulated Question No. 4 essentially to deal with the last
limb of submissions regarding the prejudice likely to be suffered by the
appellant.
The Supreme
Court was of the view that the suggestion on behalf of the appellant about the
likely prejudice because of disallowance deserved to be rejected for three
major reasons. In the first place, the said provisions are intended to enforce
due compliance of the requirement of other provisions of the Act and to ensure
proper collection of tax as also transparency in the dealings of the parties.
The necessity of disallowance comes into operation only when a default of the
nature specified in the provisions takes place. Looking to the object of these
provisions, the suggestions about prejudice or hardship carry no meaning at
all. Secondly, by way of the proviso as originally inserted and its
amendments in the years 2008 and 2010, requisite relief to a bona fide
taxpayer who had collected TDS but could not deposit it within time before
submission of the return was also provided; and as regards the amendment of
2010, the Supreme Court ruled it to be retrospective in operation. The proviso
so amended, obviously, safeguarded the interest of a bona fide 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, the appellant had
shown total payments in truck freight account at Rs. 1,37,71,206 and total
receipts from the company at Rs. 1,43,90,632. What has been disallowed was that
amount of Rs. 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, there was no case of prejudice or
legal grievance with the appellant.
Hence, the
answer to Question No. 4 was clearly in the affirmative – that is, against the
appellant and in favour of the Revenue and that the payments in question had
rightly been disallowed from deduction while computing the total income of the
assessee-appellant.
6. The Assistant Commissioner of
Income-Tax-12(3)(2) vs. Marico Ltd. Special Leave Petition (Civil) Diary No. 7367/2020 Date of order: 1st June, 2020
(Arising out of order dated 21st
August, 2019 in WP No. 1917/2019 passed by the Bombay High Court)
Reassessment –
Change of opinion – The non-rejection of the explanation in the Assessment
Order would amount to the A.O. accepting the view of the assessee, thus taking
a view / forming an opinion – Once an opinion is formed during the regular
assessment proceedings, the A.O. cannot reopen the same only on account of a
different view
For the
assessment year 2014-15 the petitioner filed its revised return of income
declaring a total income of Rs. 418.04 crores under normal provisions of the
Act and Rs. 670.82 crores as book profits u/s 115JB. In its return, the
petitioner had inter alia claimed a deduction of Rs. 47.04 crores on
account of amortisation of brand value, while computing book profits at Rs.
670.82 crores u/s 115JB.
The Respondent
No.1 passed an assessment order dated 30th January, 2018 u/s 143(3)
r/w/s 144C. The above assessment order accepted the petitioner’s claim for
allowing depreciation for amortisation of brand value to determine book profits
u/s 115JB at Rs. 684.04 crores after examination.
Thereafter, on
27th March, 2019 the impugned notice was issued seeking to reopen
the assessment for the A.Y. 2014-15. The assessment was sought to be reopened
for the reason that the assessee company had claimed deduction of Rs.
47,04,58,042 from the book profits on the ground that after revaluation of the
assets of certain brands having the net book value of Rs. 473 crores were
written off and charged to capital redemption reserve and securities premium
during A.Y. 2007-08. The amount written off pertained to brands Manjal and
Nihar acquired in A.Y. 2006-07 and Fiancee and Haircode acquired in A.Y.
2007-08. According to the A.O., there was no provision in section 115JB for
granting deduction for the amortisation not charged in the profit & loss account
on a notional basis.
The petitioner
by a letter dated 14th May, 2019 objected to the reopening notice on
the ground that it was without jurisdiction inasmuch as it was based on change
of opinion. This very issue / reason for reopening the assessment was the
subject matter of consideration during the regular assessment proceedings,
leading to the assessment order dated 30th January, 2018.
The A.O. by an
order dated 9th June, 2019 rejected the objections by holding that
the basis of the reopening notice was not on account of change of opinion. It
was for the reason that the A.O. had not formed any opinion with regard to the
same in the order dated 30th January, 2018 passed u/s 143(3) as
there was no discussion on it in the impugned order dated 30th
January, 2018.
The High Court,
in a writ challenging the reopening notice, noted that the A.O. during the
course of regular assessment proceedings leading to the assessment order dated
30th January, 2018, on the basis of the profit & loss account
and balance sheet and the practice for the earlier years, i.e. A.Y. 2013-14,
had issued notice on 25th September, 2017 to the petitioner to show
cause why the amount of Rs. 47.04 crores being claimed as book depreciation on
intangibles should not be disallowed to determine book profits u/s 115JB. The
above query of the A.O. was responded to by the petitioner in great detail by
its letters dated 10th October, 2017 and 21st December,
2017. It justified its claim for deductions by placing reliance on the
decisions of the Courts. The A.O. thereafter proceeded to pass an assessment
order dated 30th January, 2018 u/s 143(3) and did not make the
proposed disallowance.
The High Court
observed that a query was raised on the very issue of reopening during regular
assessment proceedings. The parties had responded to it and the assessment
order dated 30th January, 2018 made no reference to the above issue
at all. However, according to the High Court, once a query has been raised by
the A.O. during the assessment proceedings and the assessee has responded to
that query, it would necessarily follow that the A.O. has accepted the
petitioner’s / assessee’s submissions so as to not deal with that issue in the
assessment order.
The High Court
rejected the submission of the Counsel for the Revenue that in the absence of
the A.O. adjudicating upon the issue it cannot be said that he had formed an
opinion during the regular assessment proceedings leading to the order dated 30th
January, 2018. According to the High Court, any adjudication would only be on
such issue where the assessee’s submissions are not acceptable to the Revenue,
then the occasion to decide a lis would arise, i.e. adjudication.
However, where the Revenue accepts the view propounded by the assessee in
response to the Revenue’s query, the A.O. has to form an opinion whether or not
the stand taken by the assessee is acceptable. Therefore, it must follow that
where queries have been raised during the assessment proceedings and the
assessee has responded to the same, then the non-discussion of the same or
non-rejection of the response of the assessee would necessarily mean that the
A.O. has formed an opinion accepting the view of the assessee. Thus, an opinion
is formed during the regular assessment proceedings (and it) bars the A.O. from
reopening the same only on account of a different view.
Therefore, the
High Court quashed and set aside the notice issued u/s 148.
On a Special
Leave Petition by the Revenue, the Supreme Court noted that according to the
record certain queries were raised by the A.O. on 25th September,
2017 during the assessment proceedings which were responded to by the assessee
vide letters dated 10th October, 2017 and 21st November,
2017. After considering the said responses, the assessment order was passed on
30th January, 2018. Subsequently, by a notice dated 27th March,
2019 issued u/s 148, the matter was sought to be reopened.
The Supreme
Court observed that while accepting the challenge to the issuance of notice,
the High Court in paragraph 12 of its judgment observed as under:
‘12. Thus we
find that the reasons in support of the impugned notice is the very issue in
respect of which the Assessing Officer has raised the query dated 25 September
2017 during the assessment proceedings and the Petitioner had responded to the
same by its letters dated 10 December 2017 and 21 December 2017 justifying its
stand. The non-rejection of the explanation in the Assessment Order would
amount to the Assessing Officer accepting the view of the assessee, thus taking
a view / forming an opinion. Therefore, in these circumstances, the reasons in
support of the impugned notice proceed on a mere change of opinion and
therefore would be completely without jurisdiction in the present facts.
Accordingly, the impugned notice dated 27 March 2019 is quashed and set aside.’
According to
the Supreme Court, in the given circumstances there was no reason to interfere
in the matter. The special leave petition was, accordingly, dismissed.
