Summary
For assessment year 2005–06, payments by the transport contractor to hired truck operators were subcontract payments attracting TDS. Failure to deduct justified disallowance of Rs.57,11,625 under Section 40(a)(ia), including amounts already paid. The provision applied from assessment year 2005–06; the 2014 amendment limiting disallowance to 30% did not apply retrospectively to that year. The Court followed Palam Gas Service and dismissed the assessee’s appeal with costs.
Issues
- Whether hired truck operators were subcontractors requiring TDS.
- Whether disallowance covered sums already paid.
- Which assessment year and later amendments governed the disallowance.
Provisions considered
- Section 194C, as applicable to assessment year 2005–06, Income-tax Act, 1961Required deduction on subcontract payments for the transport work undertaken by the assessee. (¶¶ 13.1.1, 15.1, 15.2, 15.3, 15.4, 15.5)
- Section 40(a)(ia), including its proviso, Income-tax Act, 1961Governed disallowance for TDS default, its commencement and the distinct effects of subsequent amendments. (¶¶ 13.2, 16.1, 16.2, 16.7, 17.6, 19.1, 19.2, 19.5, 20, 21)
Held
- The assessee contracted with the cement company on its own responsibility and hired truck operators to perform that work; those operators had no direct contractual link with the company. Engagement on a need basis and absence of a written subcontract did not remove the TDS obligation. Splitting individual contractual payments below the threshold did not avoid it. (¶¶ 5.4, 6.2, 7.2, 15.1, 15.2, 15.3, 15.4, 15.5, 19.6)
- Section 40(a)(ia) addresses the nature of TDS default and applies to sums already paid as well as sums outstanding. Payable describes the relevant payments, rather than creating an exemption for completed payments. Palam Gas Service was followed and required no reconsideration. (¶¶ 16, 16.1, 16.2, 16.4, 16.5, 16.5.1, 16.6, 16.7, 16.8, 16.9, 16.10, 16.11, 16.12)
- The amendment effective 1 April 2005 applied to assessment year 2005–06, including income of financial year 2004–05. The contrary Piu Ghosh view was disapproved; payments before presidential assent were not separately excluded from the disallowance. (¶¶ 17.1.1, 17.3, 17.4, 17.5, 17.6, 17.7, 17.7.1, 17.8, 18, 18.1)
- The 2014 reduction to 30% disallowance applied from assessment year 2015–16. It differed from the curative 2008 and 2010 changes addressing time for depositing deducted tax. Calcutta Export Company did not justify retrospective application of the substantive 2014 reduction, and this assessee had not made the deductions necessary to obtain the curative relief. (¶¶ 19, 19.1, 19.2, 19.3, 19.4, 19.5, 19.6, 19.7)
- The disallowance covered the specified Rs.57,11,625 of defaulting payments, rather than all receipts or freight expenditure. The statutory compliance purpose and available proviso relief defeated the asserted hardship objection on these facts. (¶¶ 20, 21, 21.1, 22)
Result
Assessee’s appeal dismissed with costs; disallowance of Rs.57,11,625 for assessment year 2005–06 upheld.