SHREE CHOUDHARY TRANSPORT COMPANY versus INCOME TAX OFFICER

Citation: [2020] 8 S.C.R. 165 · Decided: 29-07-2020 · Supreme Court of India · Bench: A.M. KHANWILKAR · Disposal: Dismissed

Judgment (excerpt)

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SHREE CHOUDHARY TRANSPORT COMPANY
v.
INCOME TAX OFFICER
(Civil Appeal No. 7865 of 2009)
JULY 29, 2020
[A. M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]
Income Tax Act, 1961:
ss. 40(a)(ia) and 194C – Applicability of – Scope – Deduction
of tax at Source – For the assessment year 2005-2006 – Failure by
assessee, while making payment to the truck operators engaged by
assessee for the purpose of its contract for transportation of goods
– Deduction claimed by assessee on account of such payment –
Revenue disallowed deduction of payments made to the Truck
operators exceeding Rs. 20,000/- without TDS in terms of s. 40(a)(ia)
– Appellate Authority held that assessee’s case was squarely covered
by the provisions of s. 194C and in view of mandatory provisions of
s. 40(a)(ia), the payments in question cannot be allowed as deduction
while computing the total income of the assessee – Appellate Tribunal
as also High Court affirmed the findings of the Authorities – Appeal
to Supreme Court – Held: The contract of assessee with consignor
company for transport of goods could not have been accomplished
without a contract with the truck operator – Thus the truck operators
answered the description of ‘sub-contractor’ for the purpose of s.
194(2) – Thus, in assessee’s case s. 194C was applicable and hence
it was obliged to deduct tax at source – The disallowance u/s.
40(a)(ia) is not limited to the amount outstanding i.e. ‘payable’, it
equally applies to the amount already incurred and paid by the
assessee – Sub-clause (ia) of s. 40(a) has been consciously made
applicable by legislature effective from 01.04.2005 and hence would
be applicable for the assessment year in question i.e. 2005-2006 –
The payments in question have rightly been disallowed from
deduction while computing the total income of assessee.
Dismissing the appeal, the Court
HELD: 1. The nature of contract entered into by the
appellant with the consignor company makes it clear that the
[2020] 8 S.C.R. 165
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SUPREME COURT REPORTS
[2020] 8 S.C.R.
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.
Indisputably, it was the responsibility of the appellant-assessee
to transport the goods (cement) of the company; and 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 carries hardly 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) of the Income Tax Act, 1961.
Thus, the provisions of Section 194C were applicable and the
assessee-appellant was under obligation to deduct the tax at
source in relation to the payments made by it for hiring the
vehicles for the purpose of its business of transportation of goods.
[Paras 15.1 and 20][197-G-H][198-A-C; 220-D-E]
Palam Gas Service v. Commissioner of Income-Tax
(2017) 394 ITR 300  – relied on.
Commissioner of Income-Tax v. Hardarshan Singh
(2013) 350 ITR 427 – distinguished.
2.1 Disallowance under Section 40(a)(ia) of the Act is not
limited only to the amount outstanding and this provision equally
applies in relation to the expenses that had already been incurred
and paid by the assessee. Section 194C is placed in Chapter XVII
of the Act on the subject “Collection and Recovery of Tax”; and
specific provisions are made in the Act to ensure that the
requirements of Section 194C are met and complied with, while
also providing for the consequences of default. Section 200
specifically provides for the duties of the person deducting tax to
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deposit and submit the statement to that effect. The
consequences of failure to deduct or pay the tax are then provided
in Section 201 o

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