Kerala H.C : Whether second proviso to section 40(a)(ia) giving concession to assessee in case receipient of amount had already paid tax on such amount is applicable with effect from 1-4-2013 only and, therefore, benefit of said proviso was not available to assessee in relevant assessment year

High Court Of Kerala

Prudential Logistics And Transports vs. ITO

Assessment Year : 2007-08

Section : 40(a)(ia)

Dr. Manjula Chellur, CJ. And A.M. Shaffique, J.

IT Appeal No. 1 Of 2014

January 13, 2014


Dr. Manjula Chellur, CJ. -Though the appeal is directed against common order for the assessment years 2006-07 and 2007-08, we are only concerned with the order for the assessment year 2007-08.

2. The entire issue revolves around a sum of Rs. 16,79,345, deduction claimed as payment of freight charges under section 40(a)(ia) of the Income-tax Act, 1961. Initially, the appellant-firm engaged in transport contract with M/s. Indian Potash Ltd. did not reflect the above said amount as freight charges paid to three different persons of which one was their partner, that is, Sri Koyakutty and others were two outsiders, Smt. Jabeena and Smt. Sabira. So far as the partner is concerned, the amount claimed to be freight charges is Rs. 7,02,010.

3. When the matter was taken up for scrutiny, it was found that the firm did not deduct TDS on the above said amount. According to the appellant-firm, as indicated in the orders of the Assessing Officer, Rs. 16,79,345 was the amount accepted by the assessee as loan and, therefore, they had shown the repayment. However, on verification, when explanation was called for, the assessee explained that although the said amount has been classified as loan, the amount credited in their names actually represents lorry hire charges and they proceeded to submit further that they have obtained Form No. 15-I from those parties, and filed Form No. 15J. In the statement of accounts pertaining to Smt. Jabeena and Smt. Sabira filed by the assessee, they claim that the said amounts reflected as freight charges payable by the appellant-firm. In the account of the firm also, the said amounts were reflected as freight charges payable by the appellant-firm. Balance freight charges payable to the above persons were shown as the firm’s liability and reflected in the balance-sheet as sundry creditors. However, the Assessing Officer accepted the same, i.e., sundry creditors as freight charges payable or unpaid during the year 2007-08. According to the assessee, no tax was deducted as freight charges payable to Sri Koyakutty, as he was their partner and Sri Koyakutty and others have shown this amount as freight charges and have paid tax on such amounts pertaining to their returns.

4. The issue before us is whether the assessee gets any benefit or his obligation is absolved if the recipient of the said amount has already paid taxes on the amounts received by them in the light of the amendment to the second proviso to section 40(a)(ia). Section 40(a)(ia) reads as under :

“40.(a)(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.”

The second proviso to section 40(a)(ia) is relevant for the purpose of this case which reads as under :

“Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.”

It is inserted by the Finance Act of 2012 with effect from April 1, 2013. In order to understand the concession available to the assessee-firm, one has to again refer to section 201(1) and the proviso which reads as under :

“201. (1) Where any person, including the principal officer of a company,—

(a) who is required to deduct any sum in accordance with the provisions of this Act ; or

(b) referred to in sub-section (1A) of section 192, being an employer,

does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax :

Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident-

(i) has furnished his return of income under section 139 ;

(ii)has taken into account such sum for computing income in such return of income ; and

(iii)has paid the tax, due on the income declared by him in such return of income,

and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed :

Provided further that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person without good and sufficient reasons, has failed to deduct and pay such tax.”

5. Reading of section 40(a)(ia) along with the second proviso and section 201(1) along with the proviso, it would mean that the mandate or requirement on the part of the payer to deduct tax at source is not so strict if they are able to show that the payee or the recipient of the amounts has paid tax in accordance with the provisions of section 201(1) and the proviso.

6. This was not the claim made by the assessee before the Assessing Officer. The claim was on a different stand, initially reflecting the amounts as loan in the account books though shown as freight charges in the returns and later explained that it was not the loan amount but freight charges. It was never the case of the assessee that there was no mandate subsequent to the amendment, to deduct tax as TDS in the light of above provisions. The assessment year in question is 2007-08 and the amendment giving breathing space to payer of amounts is with effect from April 1, 2013. Therefore, the said benefit is not applicable to the assessee. Even otherwise, on factual situation, the very fact that these amounts were claimed as loan initially, till the scrutiny came up for consideration before the assessing authority would only indicate the real intention of the assessee-firm, i.e., not to disclose this amount as freight charges but something else as repayment of loan.

7. In the light of the above observations, we are of the opinion that the Tribunal did not err so far as the assessment year 2007-08 with reference to disallowance under section 40(a)(ia).

According this appeal is dismissed.

[Citation : 364 ITR 689]