Computation of total Income with disallowance of payment u/s 40

The Supreme Court considered whether payments made by Shree Choudhary Transport Company for hiring vehicles were rightly disallowed as a deduction. The disallowance was based on the company's failure to deduct tax at source (TDS) under Section 40(a)(ia) of the Income Tax Act, 1961. The company argued that payments did not exceed Rs. 20,000 in a single transaction and that the vehicle owners were not contractors.

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No. 7865 OF 2009 

SHREE CHOUDHARY TRANSPORT COMPANY …Appellant(s)
Vs
INCOME TAX OFFICER …Respondent(s)
JUDGMENT 

Dinesh Maheshwari, J.
Preliminary

1. By way of this appeal, the assessee-appellant has called in question the order dated 15.05.2009 passed in Income Tax Appeal No. 164 of 2008 whereby, the High Court of Judicature for Rajasthan at Jodhpur has summarily dismissed the appeal against the order dated 29.08.2008 passed in ITA No. 117/JU/2008 by the Income Tax Appellate Tribunal, Jodhpur Bench at Jodhpur; and thereby, the High Court has upheld the computation of total income of the assessee-appellant for the assessment year 2005-2006 with disallowance of payments to the tune of Rs. 57,11,625/-, essentially in terms of Section 40(a)(ia) of the Income Tax Act, 19611, for failure of the assessee appellant to deduct the requisite tax at source

2. We may take note of the relevant factual and background aspects of the case while keeping in view the root point calling for determination in this appeal, that is, as to whether the payments in question have rightly been disallowed from deduction in computation of total income of the appellant? Relevant factual and background aspects; the impugned order of assessment

3. In a brief outline of the relevant factual aspects, it could be noticed that the assessee-appellant, a partnership firm, had entered into contract with M/s Aditya Cement Limited, Shambupura, District Chittorgarh3 for transporting cement to various places in India. As the appellant was not having the transport vehicles of its own, 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.

4. On 28.10.2005, 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’.

5. In the course of assessment proceedings, the Assessing Officer4 examined the dispatch register maintained by the appellant for the period 01.04.2004 to 31.03.2005, containing all particulars as regards the trucks hired, date of hire, bilty and challan numbers, freight and commission charges, net amount payable, the dates on which the payments were made, and 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 separate challan/bilty. The commission charged by the appellant from the truck operators/owners ranged from Rs. 100/- to Rs. 250/- per trip.

5.1. On verifying the contents of record placed before him, the AO observed that while making payment to the truck operators/owners, the appellant had not deducted tax at source even if the net payment exceeded Rs. 20,000/-. Following this, a notice dated 05.11.2007 was issued to the appellant, requiring the details of amount paid to the truck operators/owners, TDS thereupon, and date of depositing the same in the Government account.

In reply, by its letters dated 12.11.2007 and 15.11.2007, the appellant contended, inter alia, that the trucks hired were belonging to different operators/owners who were not the sub-contractors or contractors; that they came from different parts of India and mostly required cash payment for diesel and other running expenses; that the appellant had no liability to deduct tax at source because it had not made payments exceeding Rs. 20,000/- in a single transaction; and that the provisions of Section 40(a)(ia) were not applicable to the appellant.

To read the full judgement, find the enclosed file