M/S. PALAM GAS SERVICE versus COMMISSIONER OF INCOME TAX

Citation: [2017] 3 S.C.R. 836 · Decided: 03-05-2017 · Supreme Court of India · Bench: A.K. SIKRI · Disposal: Dismissed

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Judgment (excerpt)

A 
B 
[2017] 3 S.C.R. 836 
MIS. PALAM GAS SERVICE 
v. 
COMMISSIONER OF INCOME TAX 
(Civil Appeal No. 5512 of 2017) 
MAY03,2017 
[A. k SIKRI AND ASHOK BHUSHAN, J;J.) 
lncoine Tax Act, 1961 - s.40(a)(ia) and s.197 - Whether the 
provisions of s.40(a)(ia) shall be attracted when the amount is not 
c payable to a contractor or sub-contractor but has been actually 
paid - Question is when the word used in s.40(a)(ia) is 'payable', 
whether this Section would cover only those contingencies where 
the amount is due and still payable or it would also cover the 
situations where the amount is already paid but no advance tax is 
deducted thereupon - Held: The provision would cover even those 
D cases where the amount stands paid -As per s.194C, iax has to be 
deducted when the amount is credited to the account of the contractor 
or when the payment is actually made and by virtue of s.200, 
assessee is required to deposit that amount to the credit of Central 
Government within the stipulated time as mentioned in r.30(2) -
E 
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 be held that the word 'payable' occurring in s.40(a)(ia) refers 
to _only those cases where the amount is yet to be paid and does not 
cover the cases where the amount is actually paid - Otherwise, 
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G 
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.even when it is found that a person, like the appellant, has violated 
the provisions of Chapter XVllB (or specifically ss. 194C and 200 
in the instant case), he would still go scot free, withoul suffering the 
consequences of such monetary default in spite of specific provisions 
laying down these consequences - Income Tax Rules - r. 30(2). 
Dismissing the appeal, the Court 
HELD: 1. As per Section 194C of the Income Tax Act, it is 
the statutory obligation of a person, who is making payment to 
the sub-contractor, to deduct tax at source at the rates specified 
therein. Plain language of the Section suggests that such a tax at 
source is to be deducted at the time of credit of such sum to the 
836 
MIS. PALAM GAS SERVICE v. COMMISSIONER OF INCOME 
837 
TAX 
account of the contractor or at the time of payment thereof, A 
whichever is earlier. Thus, tax has to be deducted in both the 
contingencies, namely, when the amount is credited to the account 
of the contractor or when the payment is actually made. Section 
200 of the Act imposes further obligation on the person deducting 
tax at source, to deposit the same with the Central Government B 
or as the Board directs, within the prescribed time. A conjoint 
reading of these two Sections would suggest that not only a 
person, who is paying to the contractor, is supposed to deduct 
tax at source on the said payment whether credited in the account 
or actual payment made, but also deposit that amount to the credit 
of the Central Government within the stipulated time. The time 
C 
within which the payment is to be deposited with the Central 
Government is mentioned in. Ruic 30(2) of the Rules. [Para 
10][842-G-H; 843-A-C) 
2. Section 40(a)(ia) covers not only those cases where the 
amount is payable but also when it is paid. Certain consequences D 
of failure to deduct tax at source from the payments made, where 
tax was to be deducted at source or failure to pay tJle 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 ZOl 
E 
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 
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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 XVIIB (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 be held that · G 
the word 'payable' occurring in Section 40(a)(ia) refers to only 
those cases where the amount is yet to be paid and does not 
cover the cases where the 

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