REPORTABLE IN 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, assessee-appellant has called in question order dated 15.05.2009 passed in Income Tax Appeal No. 164 of 2008 whereby, High Court of Judicature for Rajasthan at Jodhpur has summarily dismissed appeal against order dated 29.08.2008 passed in ITA No. 117/JU/2008 by Income Tax Appellate Tribunal, Jodhpur Bench at Jodhpur; and thereby, High Court has upheld computation of total income of assessee-appellant for assessment year 2005-2006 with disallowance of payments to tune of Rs. 57,11,625/-, essentially in terms of Section 40(a)(ia) of Income Tax Act, 1961 1, for failure of assessee- appellant to deduct requisite tax at source2. Signature Not Verified Digitally signed by DEEPAK SINGH Date: 2020.07.29 14:15:34 IST Reason: 1 Hereinafter referred to as Act of 1961 or simply Act . 2 Tax deducted at source being referred as TDS 1 2. We may take note of relevant factual and background aspects of case while keeping in view root point calling for determination in this appeal, that is, as to whether payments in question have rightly been disallowed from deduction in computation of total income of appellant? Relevant factual and background aspects; impugned order of assessment 3. In brief outline of relevant factual aspects, it could be noticed that assessee-appellant, partnership firm, had entered into contract with M/s Aditya Cement Limited, Shambupura, District Chittorgarh3 for transporting cement to various places in India. As appellant was not having transport vehicles of its own, it had engaged services of other transporters for purpose. cement marketing division of M/s Aditya Cement Limited, namely, M/s Grasim Industries Limited, effected payments towards transportation charges to appellant after due deduction of TDS, as shown in Form No. 16A issued by company. 4. On 28.10.2005, assessee-appellant filed its return for assessment year 2005-2006, showing total income at Rs. 2,89,633/- in financial year 2004-2005 arising out of business of transport contract . 5. In course of assessment proceedings, Assessing Officer 4 examined dispatch register maintained by appellant for period 3 Hereinafter also referred to as consignor company or company . 4 AO for short 2 01.04.2004 to 31.03.2005, containing all particulars as regards trucks hired, date of hire, bilty and challan numbers, freight and commission charges, net amount payable, dates on which payments were made, and destination of each truck etc. contents of 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 same or other destination/trip as per separate challan/bilty. commission charged by appellant from truck operators/owners ranged from Rs. 100/- to Rs. 250/- per trip. 5.1. On verifying contents of record placed before him, AO observed that while making payment to truck operators/owners, appellant had not deducted tax at source even if net payment exceeded Rs. 20,000/-. Following this, notice dated 05.11.2007 was issued to appellant, requiring details of amount paid to truck operators/owners, TDS thereupon, and date of depositing same in Government account. In reply, by its letters dated 12.11.2007 and 15.11.2007, appellant contended, inter alia, that trucks hired were belonging to different operators/owners who were not sub-contractors or contractors; that they came from different parts of India and mostly required cash payment for diesel and other running expenses; that appellant had no liability to deduct tax at source because it had not made payments exceeding Rs. 20,000/- in single transaction; and that provisions of Section 40(a)(ia) were not applicable to appellant. 3 5.2. While drawing up assessment order dated 22.11.2007, AO observed that payments to different truck operators/owners were made directly by appellant firm and not consignor company; that appellant firm was responsible for transportation of goods of company as per contract for which, appellant received payment from company after tax being deducted at source therefrom. AO also observed that appellant firm paid freight charges to truck operators/owners from income so earned; and remaining amount was shown as commission. Looking to nature of dealings of parties, AO observed that there existed contract between appellant and truck operators/owners in respect of each challan/bilty for transportation. AO also referred to Circular bearing No. 715 dated 08.08.1995 issued by Central Board of Direct Taxes5, to observe that each goods receipt could be considered separate contract. While further observing that contract may be written or oral, AO held that when truck operators/owners in case at hand were not to be considered as contractors, they were undoubtedly sub- contractors of appellant. AO also pointed out that despite sufficient opportunity being given, copy of agreement of appellant firm with company for providing transportation services was not furnished. 5.3. Having perused material placed before him, AO held on appellant s responsibility for deducting tax at source while making payment to truck operators/owners where such payment exceeded Rs. 20,000/- on single bilty/challan or goods receipt in following words:- 5 CBDT for short 4 dispatch register of assessee firm as well as cash book clearly establish beyond doubt that payment to truck operators was made by assessee firm. In other words, assessee firm was person responsible for deducting tax at source therefrom within meaning of Section 194C of Act. Since goods were transported by trucks and every truck transported goods under separate bilty and challan to particular destination, there was contract or sub-contract between assessee firm and truck operator as per provisions of Section 194C of Act and Board s circular supra, and assessee should have deducted tax at source while making payment to truck operators as per provisions of Section 194C(3) of Act where amount of any sum credited or paid or likely to be credited or paid to account of, or to contractor or sub-contractor exceeded twenty thousand rupees. *** *** *** From facts and circumstances of case discussed above final position emerging is that in view of provisions of Section 194C of Act assessee was liable to deduct tax at source while making payment to truck owners/operators where such payment exceeded Rs. 20,000/- on basis of single bilty/challan or GR. 5.4. After examining details contained in dispatch register, cash book and payment vouchers, AO found that tax was not deducted at source by appellant while making payment to truck operator/owner, even though payment under single goods receipt (challan/bilty) exceeded sum of Rs. 20,000/-. Thereupon, assessee-appellant was called upon to explain as to why deduction claimed on account of such payment from income be not disallowed in terms of Section 40(a)(ia) of Act. In order of assessment, AO took note of and dealt with various submissions made on behalf of assessee-appellant in this regard as follows:- 5 Since assessee failed to deduct tax at source while making payment to truck owners/ operators exceeding Rs. 20,000/-, assessee was asked to explain as to why deduction claimed on account of such payments from income be not disallowed within meaning of Section 40(a) (ia) of Act. learned counsel of assessee firm stated that there was no payment exceeding Rs. 20,000/-. In this regard he furnished photocopy of extract of cash book and also payment vouchers which indicate that each payment exceeding Rs. 20,000/- was shown in cash book in two parts though paid on same date and assessee made two separate vouchers for such payment just to give impression that payment to truck owners/ operators was not exceeding Rs. 20,000/-. In this regard it is pertinent to mention that merely by showing payment of one challan/ bilty in two pieces assessee cannot absolve itself of provisions of Section 40(a)(ia) inasmuch as Section 194C(3)(i) clearly speaks of amount of any sum credited or paid or likely to be credited or paid to account of, or to, Contractor or sub-contractor, if such sum does not exceed twenty thousand rupees . learned counsel further submitted that receipts of assessee firm are full vouched and verifiable and subject to TDS and payments to truck owners/ operators are made by assessee firm from such receipts and as such there as no need for further TDS. He further stated that assessee firm prepares bills for claiming payments from company on basis of freight charges payable to various truck owners/ operators and when payment is received on basis of such bills, further payment is made to truck owners/ operators and nominal commission is retained by assessee and, therefore, payment made to truck owners/ operators was out of purview of Section 194C of Act. He further stated that it is not practical to deduct tax at source while making payment to truck owner/ operator because no truck owner accepts payment after TDS. This argument put forth on behalf of assessee firm is not acceptable inasmuch as Section 194C(1) clearly says that - Any person responsible for paying any sum to any resident . Since assessee firm was responsible for making payment to truck owners operators, it was mandatory on part of assessee to deduct tax at source while making such payment. Further there is no direct nexus between Company and truck owners/operators and thus it cannot be said that 6 assessee firm was mediator between company and truck owners/ operators ... (emphasis in bold supplied) 5.5. In view of above, AO proceeded to disallow deduction of payments made to truck operators/owners exceeding Rs. 20,000/- without TDS, which in total amounted to Rs. 57,11,625/-; and added same back to total income of assessee-appellant. AO also disallowed lump sum of Rs. 20,000/- from various expenses debited to Profit and Loss Account and finalised assessment, accordingly, as under:- Therefore, considering provisions of Section 194C, Section 40(a)(ia) and Board s Circular No. 715, dated 08.8.1995, payment made to truck owners/operators, exceeding to Rs. 20,000/- without deducting tax at source is disallowed and added back to total income of assessee firm which works out to Rs. 57,11,625/-, supra. assessee has shown total payments in Truck Freight Account at Rs. 1,37,71,206/- and total receipts from company at Rs. 1,43,90,632/-. assessee has shown commission income of Rs. 6,23,300/- on which net profit of Rs. 2,89,694/- has been shown giving N.P. rate of 46.47% as against N.P. rate of 50.91% declared in immediate preceding year on commission income of Rs. 6,00,450/-. N.P. rate declared this year is on lower side. Considering nature of various expenses debited to Profit and Loss Account like Staff Welfare Expenses, Telephone Expenses, Travelling expenses, Motor Cycle Repairs etc. where involvement of personal element cannot be ruled out, lump sum disallowance of Rs. 20,000/- is made to declared income. Before Commissioner of Income Tax (Appeals), Jodhpur 6. Aggrieved by order so passed by Assessing Officer, assessee-appellant preferred appeal before Commissioner of Income 7 Tax (Appeals)6, being Appeal No. 183 of 2007-08, that was considered and dismissed on 15.01.2008. 6.1. CIT(A) re-examined record and rejected contentions of appellant that it had only received commission income and was not liable to deduct tax at source on payments made to truck owners while observing as under:- On careful consideration of material facts, it is observed that appellant entered into contract for transportation of goods (cement) with M/s Aditiya Cement Limited in order to honour contract, appellant hired various trucks all through out year for purpose of transportation of cement. appellant received freight charges from M/s Aditiya Cement Limited on which tax was deducted. appellant paid freight charges to individual truck owners, after transportation of goods. There was no nexus between truck owners/ operators and M/s Aditiya Cement Limited. How appellant transported goods (cement) was exclusive domain of appellant firm. Under such circumstances, gross freight received by appellant from M/s Aditiya Cement Limited represents gross income of appellant firm. Since appellant made payments to various truck owners/ operators. Such payments represent expenditure. It may be mentioned here that payments to truck owners/ operators were made only after goods were transported by them satisfactorily at given destinations. In other words, there existed contract or sub-contract between appellant firm and transporters. Under such circumstances, appellant was required to deduct tax at source on payments made to truck drivers/ owners within meaning of provisions of Section 40(a)(ia) read with Section 194C of Act. Under no circumstances, it can be said that appellant only received commission income and therefore provisions of Section 194C are not applicable. (emphasis in bold supplied) 6.2. In regard to contention that appellant was not required to deduct tax at source when no payment exceeded Rs. 20,000/-, CIT(A) 6 CIT(A) for short 8 found that appellant had, for its convenience and to avoid rigour of Section 40A(3) of Act, chose to split payments into two parts but entries of such split payments were available consecutively in cash book. Thus, while not accepting such methodology, CIT(A) observed that even in split payments, it was required of appellant to deduct tax at time of making final payment. relevant observation of CIT(A) read as under:- facts have been gone through and it is observed that appellant made payments in manner according to which individual payment to truck owner(s) did not exceed Rs. 20,000/-. In other words, payment was splitted into two parts. However, total amount paid to truck owner(s) for individual contract exceeded Rs. 20,000/-. For instance, cashbook dated 31-1-2005 of appellant shows payments of Rs. 14,750/- and Rs. 10,510/- to Truck No.RJ14-G-5599 for transport of cement from premises of Cement Company to Bhatinda. same cashbook page also shows payments of Rs. 14,750/- and Rs. 9,431/- to Truck No.RJ23- G-3041 for transport of cement. It is argument that since individual payment did not exceed Rs. 20,000/-, provisions of Section 194C are not applicable. On careful consideration of material facts, it is observed that both entries are consecutive in cashbook and, therefore, it is observed that appellant, for its convenience and to avoid rigors of provisions of Section 40A(3), splitted payments into two parts. Had payments been really made in two parts, both entries should not have been consecutive. It is also not understood as to why truck owners after completing contract, would accept amount in two parts and why they would come to office of appellant twice for seeking payments. theory of making payments in two parts is merely story, which is capable neither on facts nor on practicability. It is also surprising to note that in none of case appellant made fully payment to any truck owner all through out year exceeding Rs.20,000/. (emphasis in bold supplied) 6.3. CIT(A) also examined in detail question as to whether transport contracts were subject to deduction of tax at source and, with 9 reference to clause (c) of Explanation (iii) of Section 194C of Act as also to CBDT Circular Nos. 558 dated 28.03.1990 and 681 dated 08.03.1994, held that provisions of Section 194C of Act were applicable to contracts for transportation of goods; and appellant was required to deduct tax at source if gross credited or paid or likely to be credited or paid exceeded limit of Rs. 20,000/-. Having found that appellant s case was squarely covered within provisions of Section 194C of Act, CIT(A) held that in view of mandatory provisions of Section 40(a)(ia) of Act, payments in question cannot be allowed as deduction while computing total income. Thus, CIT(A) proceeded to dismiss appeal while holding, inter alia, as under:- It is, therefore, clear that appellant s case was squarely covered within provisions of Section 194C and, therefore, it was required to deduct tax at sources while making payments to truck owners. Provisions of Section 40(a)(ia) clearly provide that if any amount payable to contractor or subcontractor 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 during previous year, or in subsequent year before expiry of time prescribed under sub-section (1) of Section 200, such sum shall not be allowed as deduction while computing total income. As can be seen, provisions are mandatorily to be complied with in case default and question of existence of any reasonable cause has got no meaning. In light of entire discussion as above, I hold that appellant was required by provisions of Act to deduct tax on freight payments totalling to Rs.57,11,625/-. Since appellant failed to deduct tax at source sum of Rs.57,11,625/- was rightly disallowed by Ld. AO. Ld. AO rightly invoked provisions of Section 40(a)(ia) of Act. Therefore, on given facts as also in law, ground of appeal fails. 10 Before Income Tax Appellate Tribunal, Jodhpur Bench 7. Aggrieved again, appellant approached Income Tax Appellate Tribunal, Jodhpur Bench7 in further appeal, being ITA No. 117/JU/2008. This appeal was considered and dismissed by ITAT by way of its order dated 29.08.2008. 7.1. ITAT pointed out that by application dated 16.07.2008, appellant sought permission to produce additional evidence i.e., agreement dated 01.04.2003 executed between itself and M/s Grasim Industries Limited, and as Department had no-objection, same was admitted as additional evidence by order dated 17.07.2008 but, another application for admission of evidence in shape of affidavit of partner of appellant firm, was objected to by Department and was rejected. 7.2. ITAT found that agreement in question was on principal to principal basis whereby, appellant was awarded work of transporting cement from Shambupura but, as appellant did not own any trucks, it had engaged services of other truck operators/owners for transporting cement; and such transaction was separate contract between appellant and truck operator/owner. ITAT, therefore, endorsed findings of AO and CIT(A) in following words:- 13. perusal of agreement on record reveals that assessee was awarded works contract by M/s. Grasim Industries Limited, cement marketing division of M/s. Aditya Cement Ltd. This agreement was on principal to principal basis whereby appellant was awarded cement transportation work and in terms of agreement scope of 7 ITAT for short 11 work was to include placement of trucks for cement transportation from their plant at Shambupura on regular basis in state of Rajasthan. In case assessee failed to provide trucks as per contractual obligation, company was free to hire trucks from market at prevailing prices and amount of expenses incurred if any was to be debited to assessee s account terming him to be transporter. assessee merely acted as independent contractor while carrying on aforesaid work contract awarded to it by M/s. Grasim Industries Limited. Admittedly, appellant did not own trucks of its own for carrying out such transportation contract and has engaged services of other truck owners/operators for lifting goods from premises of M/s Grasim Industries Limited and transporting same to various sites in Rajasthan. Goods receipt [GR]/bilty were prepared and same was to be taken as contract between appellant and such truck owners/operators. clarification to this effect given vide Board Circular No. 715 dated 8.8.1995 has been brought on record by Revenue and strongly relied upon by assessing authority as well so as to consider goods carried under particular goods/receipt/bilty as separate contract. assignment of such contract by appellant to truck operators/owners was rightly taken as sub contract for carrying out job awarded to assessee by M /s. Grasim Industries Limited. Provisions of Section 194C were duly attracted to such payments which have been made/credited or was likely to be paid on account of obligation under each goods receipt/bilty. assessing authority has found that payments made and credited with respect to each of such contracts involving aggregate payment of Rs. 20,000/- on particular day amounted to Rs. 57,11,625/-. In light of clear provisions contained in Section 194C of Act and having regard to fact that both amounts actually paid or credited or likely to be paid on account of each contract exceeded Rs. 20,000/- on single day. Section 194C has rightly found applicable. We, therefore, do not find any wrong committed by ld. CIT(A) in holding that assessee has committed default in making deduction with respect to payments aggregating to Rs. 57,11,625/- without deduction of tax at source. 7.3. ITAT also negated argument that by time of issuance of Circular No. 5 dated 15.07.2005, time for payment of tax at source had expired and that Section 40(a)(ia) would only be applicable from 12 assessment year 2006-2007 and not from assessment year 2005-2006. ITAT also referred to proviso to Section 40(a)(ia) of Act and pointed out that thereunder, assessee was eligible to get deduction of such expenditure in subsequent year in which TDS was actually paid to Government. ITAT observed in regard to these two aspects concerning applicability of provision in question as also effect of proviso thereto, in following passage:- 15. assessee s counsel also raised plea that Circular No. 5 was issued only on 15-7-2005 by which date time for payment of tax at source has also expired and as such it was contended that provisions as contained in Section 40(a)(ia) of Act would be applicable not from A.Y. 2005-06 but from 2006-07. We, however, do not subscribe to view so canvassed by assessee. Finance (No.2) Act 2004 has brought amendment in Section 40 of Act making it applicable w.e.f. 01/04/2004 (sic)8. Since this amendment came before close of financial year ended on 31/03/2005 in statute books, assessee cannot be held to be ignorant of its liability to deduct tax at source. subsequent board circular issued is merely clarificatory. amendment in Section 40 of Act does not take away right of assessee to claim deduction for such expenses for all times to come. It only mandates that deduction shall not be allowed in relevant year in which there was liability to deduct and pay tax at source but same has not been paid before expiry of time prescribed under sub-section (1) of Section 200 of act. It also had proviso clause whereby assessee was eligible to get deduction of such expenditure in subsequent year in which such tax deducted at source has actually been paid. plea raised by assessee, therefore, does not support claim. (emphasis in bold supplied) 8 extraction is from typed copy of order of ITAT, placed on record as Annexure P-5 ( at page 84 of paper book) but there is obvious typographical error on this date 01.04.2004 because amendment of Section 40 of Act of 1961 by Finance (No.2) Act, 2004 was made applicable with effect from 01.04.2005 . effect and implication of relevant date is examined in Question No. 3 infra. 13 7.4. ITAT further rejected contention that amount of expenditure was not charged to Profit and Loss Account and only commission was shown as income. ITAT observed that mere reflection in two different account books would not qualify for distinct and different treatment since both freight paid and freight charged partake same character. ITAT, accordingly, dismissed appeal. Before High Court 8. Aggrieved yet again, appellant approached High Court in D.B. Income Tax Appeal No. 164 of 2008 against order passed by ITAT. However, appeal so filed was dismissed summarily by High Court, by its short order dated 15.05.2009 that reads as under:- In our view, on language of Section 194C(2), and fact that good received were sent through truck owners by appellant, and there was no privity of direct contract between truck owners and cement factory. According to contract between appellant and cement factory, it was appellant s responsibility to transport cement, and for that appellant hired services of truck owners, obviously as sub-contractors. In that view of matter, we do not find any error in impugned order of Tribunal. appeal is, therefore, dismissed summarily. 9. Thus, net result of proceedings aforesaid had been that consistent views of AO, CIT(A) and ITAT, that deduction, of payments made to truck operators/owners, cannot be allowed while computing total income of assessee-appellant, came to be affirmed by High Court. Rival Submissions Appellant 14 10. Assailing order so passed by High Court in summary dismissal of appeal as also views expressed in assessment and appellate orders, learned counsel for assessee-appellant has urged before us multiple contentions on scope and applicability of Section 194C of Act as also Section 40(a)(ia) thereof and has argued that these provisions could not have been applied to case at hand. 10.1. Learned counsel for appellant has strenuously argued that provisions of Section 194C of Act of 1961, particularly sub-section (2) thereof, were not applicable to present case for there was no oral or written contract of appellant with truck operators/owners, whose vehicles were engaged to execute work of transportation of goods. It has been contended that liability under Section 194C(2) would have arisen only if payments were made to sub-contractor and that too in pursuance of contract for purpose of carrying whole or any part of work undertaken by contractor . learned counsel for appellant would argue that when there had not been any specific contract between appellant and truck owners, whose vehicles were hired by appellant on freelance and need basis, ingredients of Section 194C(2) were not satisfied and obligation of deducting tax at source could not have been fastened on appellant. 10.1.1. learned counsel has supported his contentions against applicability of Section 194C of Act to present case with reference to decision of Delhi High Court in case of Commissioner of Income-Tax v. Hardarshan Singh: (2013) 350 ITR 427 wherein it was held that when 15 assessee merely acted as facilitator or intermediary in process of transportation of goods, he had no liability to deduct TDS under Section 194C of Act. 10.2. main plank of submissions of learned counsel for appellant has been that disallowance under Section 40(a)(ia) of Act is confined to expenses that are booked during year but remain payable or outstanding and not expenses that had already been paid. learned counsel has referred to decision of this Court in case of J.K. Synthetics Limited v. Commercial Taxes Officer: (1994) 4 SCC 276; and definition of term paid in Section 43(2) of Act to submit that two expressions payable and paid are of entirely different connotations. learned counsel has painstakingly referred to contents of Bill introducing Finance (No.2) Act of 2004 where expressions credited or paid were used but in provision as enacted, expression payable has occurred. According to learned counsel, if legislature intended to disallow deduction towards payments made and incurred, it would have used expression paid , which term has been specifically defined for purposes of Sections 28 to 41 of Act but use of expression payable makes it clear that coverage of provision is restricted and in any case, it is not applicable over amount already paid. learned counsel has also attempted to draw support to his contentions with reference to contents of proviso to Section 40(a)(ia) of Act with submissions that meaning and scope of main provision is accentuated 16 by scope of proviso wherein, expression paid is used while giving out circumstances when deduction, not allowed under main provision, could be claimed in subsequent year. 10.2.1. Taking this line of argument further, learned counsel would contend that scope of Section 40(a)(ia) of Act cannot be decided on basis of scope of Section 194C of Act. Learned counsel would submit that Section 201 of Act provides for consequence of non-deduction of TDS either at time of payment or booking, whichever is earlier; and thus, said provision would apply to both situations where expenses amount has been paid or is payable . However, according to learned counsel, additional consequence of default as provided in Section 40(a)(ia) of Act would come into operation only if alleged default strictly falls within language of this provision, which is limited to amount payable . Learned counsel would submit that scope of Section 40(a)(ia) of Act cannot be expanded beyond its language merely because as per Section 194C, liability to deduct tax is at time of credit of such amount to account of contractor or at time of payment whichever is earlier. With reference to decision of this Court in case of Institute of Chartered Accountants of India v. Price Waterhouse: (1997) 93 Taxman 588, learned counsel has argued that when words are clear and there is no obscurity, intention of legislature has to be inferred only from words used in provision. 17 10.2.2. Thus, learned counsel for appellant has strenuously argued that Section 40(a)(ia) of Act remains limited in its scope and does not apply to amount already paid . However, being aware of position that substratum of such contentions does not stand in conformity with view already taken by this Court in case of Palam Gas Service v. Commissioner of Income-Tax : (2017) 394 ITR 300, learned counsel has made elaborate submissions that said decision in Palam Gas Service requires reconsideration. According to learned counsel, such reconsideration is necessitated because of factors that: (a) taxing provision for disallowance has to be strictly construed as per language used and there is no scope for adopting so-called purposive construction; (b) change of words used in Bill credited or paid to word payable has been ignored; (c) effect of proviso making it clear that intent of main provision is only to disallow outstanding or payable amounts has not been considered; and (d) Court has widened scope of consequences provided under Section 40(a)(ia) of Act based on scope of Sections 194C and 201 of Act, although such approach is impermissible while interpreting provision in taxing statute. 10.3. Learned counsel for appellant has argued in alternative that said sub-clause (ia), having been inserted to clause (a) of Section 40 of Act with effect from 01.04.2005 by Finance (No.2) Act, 2004, would apply only from financial year 2005-2006 and hence, cannot apply to present case pertaining to financial year 2004-2005. In support, learned 18 counsel has referred to and relied upon decision of Calcutta High Court in case of PIU Ghosh v. Deputy Commissioner of Income-Tax & Ors.: (2016) 386 ITR 322. Supplemental to these contentions, learned counsel has also argued that, in any case, Finance (No.2) Act, 2004 received assent of President of India on 10.09.2004 and hence, rigour of sub- clause (ia) of Section 40(a) of Act cannot be applied in relation to payments already made before 10.09.2004, date of introduction of this provision. 10.3.1. In yet another alternative, learned counsel for appellant has referred to amendment made to Section 40(a)(ia) of Act by Finance (No.2) Act, 2014, restricting and limiting extent of disallowance to 30% of expenditure and has submitted that said amendment, being curative in nature and having been introduced to ameliorate hardships faced by assessees, deserves to be applied retrospectively and from date of introduction of sub-clause (ia) to Section 40(a) of Act. learned counsel has developed this argument by relying on decision in Commissioner of Income-Tax v. Calcutta Export Company: (2018) 404 ITR 654, wherein this Court has held remedial amendment of Section 40(a)(ia) of Act by Finance Act, 2010 to be retrospective in nature and applicable from date of insertion of said provision. 10.4. Learned counsel for appellant has lastly submitted that result of applying provisions in question to entire payment practically leads to highly incongruous position that whole of receipt from company is treated 19 as income of appellant and taxed accordingly, but without due provision towards necessary expenses. According to learned counsel, in such contracts, annual income of transport contractor like appellant cannot be, and is not, to extent of about Rs. 57 lakhs, as sought to be taxed in present matter. Respondent 11. Per contra, learned counsel for respondent-revenue has duly supported orders impugned, essentially with reference to reasonings therein and also with reference to decision of this Court in Palam Gas Service (supra). 11.1. Learned counsel for revenue has, in first place, contended with reference to decided cases that concurrent findings of fact recorded by authorities and ITAT, as affirmed by High Court call for no interference for no case of apparent perversity being made out. 11.2. Learned counsel has further submitted that appellant admittedly carried out work of transportation by hiring trucks and made payments to operators/owners while issuing invoice/bilty/challan for every such hiring, which constituted separate contract/sub-contract. According to learned counsel, in such dealings, appellant was required to deduct tax at source in terms of Section 194C of Act when making payment to any truck operator/owner in sum exceeding Rs. 20,000/-; and appellant having failed to do so, provisions of Section 40(a)(ia) have rightly been invoked. 20 11.3. Learned counsel for revenue has made elaborate reference to decision of this Court in case of Palam Gas Service (supra) and has submitted that principal contention on part of appellant, that expression payable , as occurring in Section 40(a)(ia) of Act, refers only to those cases where amount is yet to be paid and does not cover cases where amount is actually paid, has been duly considered and specifically rejected by this Court; and said decision squarely covers present matter. learned counsel has argued that in case of Palam Gas Service (supra), this Court having holistically examined scheme of provisions in question, there is no scope for reconsideration of said decision; and this appeal deserves to be dismissed for question sought to be raised as regard interpretation of Section 40(a)(ia) of Act being no more res integra. 11.4. Learned counsel for revenue has further contended that amendment to Section 40(a) of Act with insertion of sub-clause (ia) by Finance (No. 2) Act, 2004 with effect from 01.04.2005 directly applies to assessment year 2005-2006; and for appellant having failed to deduct tax at source from payment made to sub-contractors for work of transportation, deduction of such payment has rightly been disallowed. 11.5. learned counsel has also argued that proviso to Section 40(a)(ia) of Act, as inserted by Finance Act, 2014, does not apply to case at hand pertaining to assessment year 2005-2006 and hence, 21 argument for curative benefit with reference to said proviso does not hold ground. Questions for determination 12. Having regard to submissions made by learned counsel for parties and observations occurring in orders impugned, principal questions arising for determination in this appeal could be stated as follows:- 1. As to whether Section 194C of Act does not apply to present case? 2. As to whether disallowance under Section 40(a)(ia) of Act is confined/limited to amount payable and not to amount already paid ; and whether decision of this Court in Palam Gas Service v. Commissioner of Income-Tax: (2017) 394 ITR 300 requires reconsideration? 3. As to whether sub-clause (ia) of Section 40(a) of Act, as inserted by Finance (No. 2) Act, 2004 with effect from 01.04.2005, is applicable only from financial year 2005-2006 and, hence, is not applicable to present case relating to financial year 2004-2005; and, at any rate, whole of rigour of this provision cannot be applied to present case? 4. As to whether payments in question have rightly been disallowed from deduction while computing total income of assessee-appellant? 22 Relevant Provisions 13. For determination of questions aforesaid, we need to closely look at statutory provisions in Act of 1961 which have material bearing on this case. 13.1. It is noticed that elaborate provisions have been made in Chapter XVII of Act of 1961 for Collection and Recovery of Tax and Part B thereof carries provisions concerning Deduction at Source . Sections 194C, 200 and 201, which have come in reference in present matter, are contained in this part and same, as existing at relevant point of time pertaining to assessment year 2005-2006, may be usefully noticed. 13.1.1. liability against appellant has basically arisen because of its alleged non-compliance of requirements of Section 194C of Act. At relevant point of time, this provision read as under:- 194C. Payments to contractors and sub-contractors.- (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of contract between contractor and- (a) Central Government or any State Government; or (b) any local authority; or (c) any corporation established by or under Central, State or Provincial Act; or (d) any company; or (e) any co-operative society; or (f) any authority, constituted in India by or under any law, engaged either for purpose of dealing with and satisfying need for housing accommodation or for purpose of planning, development or improvement of cities, towns and villages, or for both; or 23 (g) any society registered under Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or (h) any trust; or (i) any University established or incorporated by or under Central, State or Provincial Act and institution declared to be University under section 3 of University Grants Commission Act, 1956 (3 of 1956); or (j) any firm, shall, at time of credit of such sum to account of contractor or at time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct amount equal to- (i) one per cent in case of advertising, (ii)in any other case two per cent, of such sum as income-tax on income comprised therein. (2) Any person (being contractor and not being individual or Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as sub-contractor) in pursuance of contract with sub-contractor for carrying out, or for supply of labour for carrying out, whole or any part of work undertaken by contractor or for supplying whether wholly or partly any labour which contractor has undertaken to supply shall, at time of credit of such sum to account of sub- contractor or at time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct amount equal to one per cent of such sum as income-tax on income comprised therein: Provided that individual or Hindu undivided family, whose total sales, gross receipts or turnover from business or profession carried on by him exceed monetary limits specified under clause (a) or clause (b) of section 44AB during financial year immediately preceding financial year in which such sum is credited or paid to account of sub-contractor, shall be liable to deduct income-tax under this sub-section. Explanation I.- For purposes of sub-section (2), expression contractor shall also include contractor who is carrying out any work (including supply of labour for carrying out any work) in pursuance of contract between contractor and Government of foreign State or foreign enterprise or any association or body established outside India. 24 Explanation II. -For purposes of this section, where any sum referred to in sub-section (1) or sub-section (2) is credited to any account, whether called Suspense account or by any other name, in books of account of person liable to pay such income, such crediting shall be deemed to be credit of such income to account of payee and provisions of this section shall apply accordingly. Explanation III. For purposes of this section, expression Work shall also include- (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods and passengers by any mode of transport other than by railways; (d) catering. (3) No deduction shall be made under sub-section (1) or sub-section (2) from- (i) amount of any sum credited or paid or likely to be credited or paid to account of, or to, contractor or sub- contractor, if such sum does not exceed twenty thousand rupees: Provided that where aggregate of amounts of such sums credited or paid or likely to be credited or paid during financial year exceeds fifty thousand rupees, person responsible for paying such sums referred to in sub-section (1) or, as case may be, sub-section (2) shall be liable to deduct income-tax under this section; or (ii) any sum credited or paid before 1 st day of June, 1972; or (iii) any sum credited or paid before 1 st day of June, 1973, in pursuance of contract between contractor and co- operative society or in pursuance of contract between such contractor and sub-contractor in relation to any work (including supply of labour for carrying out any work) undertaken by contractor for co-operative society. 13.1.2. Sections 200 and 201 of Act, respectively dealing with duty of person deducting tax and consequences on failure to deduct or pay, as applicable at relevant time, could also be reproduced as under:- 200. Duty of person deducting tax. 25 (1) Any person deducting any sum in accordance with foregoing provisions of this Chapter 9, shall pay within prescribed time, sum so deducted to credit of Central Government or as Board directs. (2) Any person being employer, referred to in sub-section (1A) of section 192 shall pay, within prescribed time, tax to credit of Central Government or as Board directs.10 (3) Any person deducting any sum on or after 1st day of April, 2005 in accordance with foregoing provisions of this Chapter or, as case may be, any person being employer referred to in sub-section (1A) of section 192 shall, after paying tax deducted to credit of Central Government within prescribed time, prepare quarterly statements for period ending on 30 th June, 30th September, 31st December and 31st March in each financial year and deliver or cause to be delivered to prescribed income-tax authority or person authorised by such authority such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed.11 201. Consequences of failure to deduct or pay. (1) If any such person referred to in section 200 and in cases referred to in section 194, principal officer and company of which he is principal officer does not deduct whole or any part of tax or after deducting fails to pay tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be assessee in default in respect of tax: Provided that no penalty shall be charged under section 221 from such person, principal officer or company unless Assessing Officer is satisfied that such person or principal officer or company, as case may be, has without good and sufficient reasons failed to deduct and pay tax. (1A) Without prejudice to provisions of sub-section (1), if any such person, principal officer or company as is referred 9 words foregoing provisions of this Chapter were substituted for previous expressions carrying various provisions of Act, by Finance (No. 2) Act, 2004, w.e.f. 01.10.2004. 10 Sub-section (2) was inserted by Finance Act, 2002. 11 Sub-section (3) was inserted by Finance (No.2) Act, 2004, w.e.f. 01.04.2005. 26 to in that sub-section does not deduct whole or any part of tax or after deducting fails to pay tax as required by or under this Act, he or it shall be liable to pay simple interest at twelve per cent per annum on amount of such tax from date on which such tax was deductible to date on which such tax is actually paid. (2) Where tax has not been paid as aforesaid after it is deducted, amount of tax together with amount of simple interest thereon referred to in sub-section (1A) shall be charge upon all assets of person, or company, as case may be, referred to in sub-section (1). 13.2. Chapter IV of Act of 1961 deals with subject Computation of Total Income and Section 40 occurs in Part D thereof, carrying provisions relating to Profits and Gains of Business or Profession . Even when Sections 30 to 38 provide for various allowances and deductions in computation of income from profits and gains of business or profession, Section 40 specifically ordains that certain amounts shall not be deducted, notwithstanding anything to contrary contained in said Sections 30 to 38 of Act. In present matter, we are concerned with provisions contained in sub-clause (ia) of clause (a) of Section 40 of Act, which was inserted by Finance (No. 2) Act, 2004 with effect from 01.04.2005. Hence, extraction hereunder is essentially of provision that could be read as Section 40(a)(ia) of Act after insertion by Finance (No. 2) Act, 2004: - 40. Amounts not deductible. - Notwithstanding anything to contrary in sections 30 to 38, following amounts shall not be deducted in computing income chargeable under head Profits and gains of business or profession ,- (a) in case of any assessee- *** *** *** (ia) any interest, commission or brokerage, fees for professional services or fees for technical services payable 27 to resident, or amounts payable to 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 during previous year, or in subsequent year before expiry of time prescribed under sub-section (1) of section 200: Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in previous year but paid in any subsequent year after expiry of time prescribed under sub-section (1) of section 200, such sum shall be allowed as deduction in computing income of previous year in which such tax has been paid. Explanation.- For purposes of this sub-clause,- (i) commission or brokerage shall have same meaning as in clause (i) of Explanation to section 194H; (ii) fees for technical services shall have same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (iii) professional services shall have same meaning as in clause (a) of Explanation to section 194J; (iv) work shall have same meaning as in Explanation III to section 194C; *** *** *** 12 13.3. Section 43 in very same Part D of Chapter IV of Act of 1961 defines various terms relevant to income from profits and gains of business or profession; and clause (2) thereof, carrying definition of expression paid , having been referred in present matter, could also be usefully reproduced as under:- 43. Definitions of certain terms relevant to income from profits and gains of business or profession. - In sections 12 We may usefully indicate that Section 40(a)(ia) of Act has undergone several amendments from time to time and in one segment of arguments, amendments as made in years 2010 and 2014, have been referred on behalf of appellant. We shall refer to relevant contents of this provision after such amendments while dealing with that part of arguments at appropriate juncture hereafter later. 28 28 to 41 and in this section, unless context otherwise requires- *** *** *** (2) paid means actually paid or incurred according to method of accounting upon basis of which profits or gains are computed under head Profits and gains of business or profession ; *** *** *** 13.4. For their relevance in relation to another segment of arguments, we may also take note of meaning assigned to expression assessment year in clause (9) of Section 2; and to expression previous year in Section 3 of Act of 1961 as follows: - 2. Definitions.- In this Act, unless context otherwise requires,- *** *** *** (9) assessment year means period of twelve months commencing on 1st day of April every year; *** *** *** 3. Previous year defined.- For purposes of this Act, previous year means financial year immediately preceding assessment year: *** *** *** 14. We may now take up questions involved in this matter ad seriatim. Question No.1 15. In order to maintain that appellant was under no obligation to make any deduction of tax at source, it has been argued that there was no oral or written contract of appellant with truck operators/owners, whose vehicles were engaged to execute work of transportation of goods only on freelance and need basis. submission has been that question of TDS under Section 194C(2) would have arisen only if payment was made 29 to sub-contractor and that too, in pursuance of contract for purpose of carrying whole or any part of work undertaken by contractor . In our view, submissions so made remain entirely baseless. 15.1. nature of contract entered into by appellant with consignor company makes it clear that appellant was to transport goods (cement) of consignor company; and in order to execute this contract, appellant hired transport vehicles, namely, trucks from different operators/owners. appellant received freight charges from consignor company, who indeed deducted tax at source while making such payment to appellant. Thereafter, appellant paid charges to persons whose vehicles were hired for purpose of said work of transportation of goods. Thus, goods in question were transported through trucks employed by appellant but, there was no privity of contract between truck operators/owners and said consignor company. Indisputably, it was responsibility of appellant to transport goods (cement) of company; and how to accomplish this task of transportation was matter exclusively within domain of appellant. Hence, hiring services of truck operators/owners for this purpose could have only been under contract between appellant and said truck operators/owners. Whether such contract was reduced into writing or not carries hardly any relevance. In given scenario and set up, said truck operators/owners answered to description of sub-contractor for carrying out whole or 30 part of work undertaken by contractor (i.e., appellant) for purpose of Section 194C(2) of Act. 15.2. suggestions on behalf of appellant that said truck operators/owners were not bound to supply trucks as per need of appellant nor freight payable to them was pre-determined, in our view, carry no meaning at all. Needless to observe that if particular truck was not engaged, there existed no contract but, when any truck got engaged for purpose of execution of work undertaken by appellant and freight charges were payable to its operator/owner upon execution of work, i.e., transportation of goods, all essentials of making of contract existed; and, as aforesaid, said truck operator/owner became sub-contractor for purpose of work in question. AO, CIT(A) and ITAT have concurrently decided this issue against appellant with reference to facts of case, particularly after appreciating nature of contract of appellant with consignor company as also nature of dealing of appellant, while holding that truck operators/owners were engaged by appellant as sub-contractors. same findings have been endorsed by High Court in its short order dismissing appeal of appellant. We are unable to find anything of error or infirmity in these findings. 15.3. decision of Delhi High Court in case of Hardarshan Singh (supra), in our view, has no application whatsoever to facts of present case. assessee therein, who was in business of transporting goods, had four trucks of his own and was also acting as commission agent by 31 arranging for transportation through other transporters. As regards income of assessee relatable to transportation through other transporters, it was found that assessee had merely acted as facilitator or as intermediary between two parties (i.e., consignor company and transporter) and had no privity of contract with either of such parties inasmuch as he only collected freight charges from clients who intended to transport their goods through other transporters; and amount thus collected from clients was paid to those transporters by assessee while deducting his commission. Looking to nature of such dealings, said assessee was held to be not person responsible for making payments in terms of Section 194C of Act and hence, having no obligation to deduct tax at source. In contradistinction to said case of Hardarshan Singh, appellant of present case was not acting as facilitator or intermediary between consignor company and truck operators/owners because those two parties had no privity of contract between them. contract of company, for transportation of its goods, had only been with appellant and it was appellant who hired services of trucks. payment made by appellant to such truck operator/owner was clearly payment made to sub-contractor. 15.4. Though decision of this Court in case of Palam Gas Service (supra) essentially relates to interpretation of Section 40(a)(ia) of Act and while relevant aspects concerning said provision shall be examined in next question but, for present purpose, facts of that 32 case could be usefully noticed, for being akin to facts of present case and being of apposite illustration. Therein, assessee was engaged in business of purchase and sale of LPG cylinders whose main contract for carriage of LPG cylinders was with Indian Oil Corporation, Baddi wherefor, assessee received freight payments from principal. assessee got transportation of LPG done through three persons to whom he made freight payments. Assessing Officer held that assessee had entered into sub-contract with said three persons within meaning of Section 194C of Act. Such findings of AO were concurrently upheld up to High Court and, after interpretation of Section 40(a)(ia), this Court also approved decision of High Court while dismissing appeal with costs. Learned counsel for appellant has made attempt to distinguish nature of contract in Palam Gas Service by suggesting that therein, assessee s sub-contractors were specific and identified persons with whom assessee had entered into contract whereas present appellant was free to hire service of any truck operator/owner and, in fact, appellant hired trucks only on need basis. In our view, such attempt of differentiation is totally baseless and futile. Whether appellant had specific and identified trucks on its rolls or had been picking them up on freelance basis, legal effect on status of parties had been same that once particular truck was engaged by appellant on hire charges for carrying out part of work undertaken by it (i.e., transportation of goods of company), 33 operator/owner of that truck became sub-contractor and all requirements of Section 194C came into operation. 15.5. Thus, we have no hesitation in affirming concurrent findings in regard to applicability of Section 194C to present case. Question No.1 is, therefore, answered in negative; against assessee-appellant and in favour of revenue. Question No.2. 16. While taking up question of interpretation of Section 40(a)(ia), it may be usefully noticed that Section 194C is placed in Chapter XVII of Act on subject Collection and Recovery of Tax ; and specific provisions are made in Act to ensure that requirements of Section 194C are met and complied with, while also providing for consequences of default. As noticed, Section 200 specifically provides for duties of person deducting tax to deposit and submit statement to that effect. consequences of failure to deduct or pay tax are then provided in Section 201 of Act which, as noticed, puts such defaulting person in category of assessee in default in respect of tax apart from other consequences which he or it may incur. aspect relevant for present purpose is that Section 40 of Act, and particularly provision contained in sub-clause (ia) of clause (a) thereof, indeed provides for one of such consequences. 16.1. Section 40(a)(ia) provides for consequences of default in case where tax is deductible at source on any interest, commission, brokerage 34 or fees but had not been so deducted, or had not been paid after deduction (during previous year or in subsequent year before expiry of prescribed time) in manner that amount of such interest, commission, brokerage or fees shall not be deducted in computing income chargeable under profits and gains of business or profession . In other words, it shall be computed as income of assessee because of his default in not deducting tax at source. 16.2. In overall scheme of provisions relating to collection and recovery of tax, it is evident that object of legislature in introduction of provisions like sub-clause (ia) of clause (a) of Section 40 had been to ensure strict and punctual compliance of requirement of deducting tax at source. In other words, consequences, as provided therein, had underlying objective of ensuring compliance of requirements of TDS. It is also noteworthy that in proviso added to clause (ia) of Section 40(a) of Act, it was provided that where in respect of sum referable to TDS requirement, tax has been deducted in any subsequent year, or has been deducted during previous year but paid in any subsequent year after expiry of time prescribed in Section 200(1), such sum shall be allowed as deduction in computing income of previous year in which such tax has been paid. 16.3. purpose and coverage of this provision as also protection therein have been tersely explained by this Court in case of Calcutta Export Company (supra), which has been cited by learned counsel for appellant in support of another limb of submissions which we shall be dealing 35 with in next question. For present purpose, we may notice relevant observations of this Court in Calcutta Export Company as regards Section 40(a)(ia) of Act as follows (at p. 662 of ITR):- 16. purpose is very much clear from above referred explanation by Memorandum that it came with purpose to ensure tax compliance. fact that intention of Legislature was not to punish assessee is further reflected from bare reading of provisions of section 40(a)(ia) of Income-tax Act. It only results in shifting of year in which expenditure can be claimed as deduction. In case where tax deducted at source was duly deposited with Government within prescribed time, said amount can be claimed as deduction from income in previous year in which TDS was deducted. However, when amount deducted in form of TDS was deposited with Government after expiry of period allowed for such deposit then deductions can be claimed for such deposited TDS amount only in previous year in which such payment was made to Government. 16.4. Taking up question as to whether disallowance under Section 40(a)(ia) of Act is confined to amount payable and not to amount already paid , we find that these aspects of interpretation do not require much dilation in view of ratio of decision of this Court in case of Palam Gas Service (supra). 16.5. In fact, decision in Palam Gas Service (supra) is direct answer to all contentions urged on behalf of appellant in present case. In that case, this Court approved views of Punjab and Haryana High Court in case of P.M.S. Diesels and Ors. v. Commissioner of Income-Tax: (2015) 374 ITR 562 as regards mandatory nature of provisions relating to liability to deduct tax at source in following words (at pp. 306-308 of ITR):- 36 11. Punjab & Haryana High Court in P.M.S. Diesels v. CIT [2015] 374 ITR 562 (P&H), has held these provisions to be mandatory in nature with following observations: liability to deduct tax at source under provisions of Chapter XVII is mandatory. person responsible for paying any sum is also liable to deposit amount in Government account. All sections in Chapter XVII-B require person to deduct tax at source at rates specified therein. requirement in each of sections is preceded by word shall . provisions are, therefore, mandatory. There is nothing in any of sections that would warrant our reading word shall as may . point of time at which deduction is to be made also establishes that provisions are mandatory. For instance, under section 194C, person responsible for paying sum is required to deduct tax "at time of credit of such sum to account of contractor or at time of payment thereof. ...... 12. While holding aforesaid view, Punjab and Haryana High Court discussed judgments of Calcutta and Madras High Courts, which had taken same view, and concurred with same, which is clear from following discussion contained in judgment of Punjab and Haryana High Court: Division Bench of Calcutta High Court in CIT v. Crescent Export Syndicate [2013] 216 Taxman 258 (Cal) held : 13. term shall used in all these sections make it clear that these are mandatory provisions and applicable to entire sum contemplated under respective sections. These sections do not give any leverage to assessee to make payment without making TDS. On contrary, intention of Legislature is evident from fact that timing of deduction of tax is earliest possible opportunity to recover tax, either at time of credit in account of payee or at time of payment to payee, whichever is earlier. Ms. Dhugga invited our attention to judgment of Division Bench of Madras High Court in Tube Investments of India Ltd. v. Asst. CIT (TDS) [2010] 325 ITR 610 (Mad). Division Bench referred to 37 statistics placed before it by Department which disclosed that TDS collection had augmented revenue. gross collection of advance tax, surcharge, etc. was Rs 2,75,857.70 crores in financial year 2008-09 of which TDS component alone constituted Rs 1,30,470.80 crores. Division Bench observed that introduction of section 40(a)(ia) had achieved objective of augmenting TDS to substantial extent. Division Bench also observed that when provisions and procedures relating to TDS are scrupulously applied, it also ensured identification of payees thereby confirming network of assessees and that once assessees are identified it would enable tax collection machinery to bring within its fold all such persons who are liable to come within network of taxpayers. These objects also indicate legislative intent that requirement of deducting tax at source is mandatory. liability to deduct tax at source is, therefore, mandatory. 13. aforesaid interpretation of sections 194C conjointly with section 200 and rule 30(2) is unblemished and without any iota of doubt. We, thus, give our imprimatur to view taken ... (emphasis in bold supplied) 16.5.1. Having said that deducting tax at source is obligatory, this Court proceeded to deal with issue as to whether word 'payable' in Section 40(a)(ia) would cover only those cases where amount is payable and not where it has actually been paid. This Court took note of exhaustive interpretation of various aspects related with this issue by Punjab and Haryana High Court in case of P.M.S. Diesels (supra) as also by Calcutta High Court in case of Commissioner of Income-Tax, Kolkata- XI v. Crescent Export Syndicate: (2013) 216 Taxman 258; and while approving same, this Court held, as regards implication and connotation of expression payable used in this provision, as follows (at p. 310 of ITR):- 38 15. We approve aforesaid view as well. As fortiori, it follows that section 40(a)(ia) covers not only those cases where amount is payable but also when it is paid. In this behalf, one has to keep in mind purpose with which section 40 was enacted and that has already been noted above. We have also to keep in mind provisions of sections 194C and 200. Once it is found that aforesaid sections mandate person to deduct tax at source not only on amounts payable but also when sums are actually paid to contractor, any person who does not adhere to this statutory obligation has to suffer consequences which are stipulated in Act itself. Certain consequences of failure to deduct tax at source from payments made, where tax was to be deducted at source or failure to pay same to credit of Central Government, are stipulated in section 201 of Act. This section provides that in that contingency, such person would be deemed to be assessee in default in respect of such tax. While stipulating this consequence, section 201 categorically states that 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 Act, namely, payments made by such person to contractor shall not be treated as deductible expenditure. When read in this context, it is clear that section 40(a)(ia) deals with nature of default and consequences thereof. Default is relatable to Chapter XVII-B (in instant case sections 194C and 200, which provisions are in aforesaid Chapter). When entire scheme of obligation to deduct tax at source and paying it over to Central Government is read holistically, it cannot be held that word payable occurring in section 40(a)(ia) refers to only those cases where amount is yet to be paid and does not cover cases where amount is actually paid. If provision is interpreted in manner suggested by appellant herein, then even when it is found that person, like appellant, has violated provisions of Chapter XVII-B (or specifically sections 194C and 200 in instant case), he would still go scot-free, without suffering consequences of such monetary default in spite of specific provisions laying down these consequences ... (emphasis in bold supplied) 16.6. We may profitably observe that in case of P.M.S. Diesels (supra), Punjab and Haryana High Court had extensively dealt with myriad 39 features of Section 40(a)(ia) of Act, including term payable used therein as also proviso thereto; and expounded on entire gamut of this provision while making reference to Finance (No. 2) Bill of 2004 introducing provision and while also drawing support from views expressed by Calcutta High Court in case of Crescent Export Syndicate (supra). As regards interpretation of term payable , it was observed in P.M.S. Diesels as under (at pp. 574-575 of ITR):- 21. Section 40(a)(ia), therefore, applies not merely to assessees following mercantile system but also to assessees following cash system. If this view is correct and indeed we must proceed on footing that it is, it goes long way in indicating fallacy in appellant's main contention, namely, if payments have already been made by assessee to payee/contracting party, provisions of section 40(a)(ia) would not be attracted even if tax is not deducted and/or paid over to Government account. 22. Section 40(a)(ia) refers to nature of default and consequence of default. default is failure to deduct tax at source under Chapter XVII-B or after deduction failure to pay over same to Government account. term "payable" only indicates type or nature of payments by assessees to persons/payees referred to in section 40(a)(ia), such as, contractors. It is not in respect of every payment to payee referred to in Chapter XVII-B that assessee is bound to deduct tax. There may be payments to persons referred to in Chapter XVII-B, which do not attract provisions of Chapter XVII-B. consequences under section 40(a)(ia) would only operate on account of failure to deduct tax where tax is liable to be deducted under provisions of Act and in particular Chapter XVII-B thereof. It is in that sense that term "payable" has been used. term "payable" is descriptive of payments which attract liability to deduct tax at source. It does not categorize defaults on basis of when payments are made to payees of such amounts which attract liability to deduct tax at source. (emphasis in bold supplied) 40 16.7. We find above-extracted observations and reasonings, which have already been approved by this Court in Palam Gas Service (supra), to be precisely in accord with scheme and purpose of Section 40(a)(ia) of Act; and are in complete answer to contentions urged by learned counsel for appellant. It is ex facie evident that term "payable" has been used in Section 40(a)(ia) of Act only to indicate type or nature of payments by assessees to payees referred therein. In other words, expression "payable" is descriptive of payments which attract liability for deducting tax at source and it has not been used in provision in question to specify any particular class of default on basis as to whether payment has been made or not. semantical suggestion by learned counsel for appellant, that this expression payable be read in contradistinction to expression paid , sans merit and could only be rejected. In nutshell, while respectfully following Palam Gas Service (supra), we could only iterate our approval to interpretation by Punjab and Haryana High Court in P.M.S. Diesels (supra). 16.8. Faced with position that declaration of law in Palam Gas Service (supra) practically covers this matter, learned counsel for appellant has endeavoured to submit that decision in Palam Gas Service, requires reconsideration for reason that certain aspects of law have not been considered therein and correct principles of interpretation have not been applied. We are unable to find substance in any of these contentions. decision of Co-ordinate Bench in Palam Gas Service (supra) on core 41 question of law is equally binding on this Bench and could be doubted only if view, as taken, is shown to be not in conformity with any binding decision of Larger Bench or any statutory provisions or any other reason of like nature. We find none. In fact, close look at decision of P.M.S. Diesels (supra), which has been totally approved by this Court in Palam Gas Service, makes it clear that therein, every aspect of matter, from wide range of angles, was examined by Punjab and Haryana High Court while drawing support from decisions of other High Courts, particularly that of Calcutta High Court in case of Crescent Export Syndicate (supra). 16.9. We are in respectful agreement with observations in Palam Gas Service that enunciations in P.M.S. Diesels had been of correct interpretation of provisions contained in Section 40(a)(ia) of Act. decision in Palam Gas Service covers entire matter and said decision, in our view, does not require any reconsideration. That being position, contention urged on behalf of appellant that disallowance under Section 40(a)(ia) does not relate to amount already paid stands rejected. 16.10. Another contention in regard to Section 40(a)(ia) of Act, that its scope cannot be decided on basis of Section 194C, has only been noted to be rejected. interplay of these provisions is not far to seek where Section 40(a)(ia) is not stand-alone provision but provides one of those additional consequences as indicated in Section 201 of Act for default by person in compliance of requirements of provisions contained in Part B of Chapter XVII of Act. scheme of these provisions makes it clear that 42 default in compliance of requirements of provisions contained in Part B of Chapter XVII of Act (that carries Sections 194C, 200 and 201) leads, inter alia, to consequence of Section 40(a)(ia) of Act. Hence, contours of Section 40(a)(ia) of Act could be aptly defined only with reference to requirements of provisions contained in Part B of Chapter XVII of Act, including Sections 194C, 200 and 201. Putting it differently, when obligation of Section 194C of Act is foundation of consequence provided by Section 40(a)(ia) of Act, reference to former is inevitable in interpretation of latter. 16.11. In view of above, reference to definition of term paid in Section 43(2) of Act is of no assistance to appellant. Similarly, observations in case of J.K. Synthetics (supra), as regards difference in connotation of expressions payable and paid , in context of liability to pay interest on tax payable under Rajasthan Sales Tax Act, 1954, has no co-relation whatsoever to present case. Further, when it is found that process of interpretation of Section 40(a)(ia) of Act in P.M.S. Diesels (supra), as approved by this Court in Palam Gas Service (supra), had been with due application of relevant principles, reference to decision in case of Institute of Chartered Accountants of India (supra), on general principles of interpretation, does not advance case of appellant in any manner. 16.12. In view of above, Question No.2 is also answered in negative; against assessee-appellant and in favour of revenue. 43 Question No.3 17. Quite conscious of position that decision of this Court in Palam Gas Service (supra) practically covers substance of present matter against assessee, learned counsel for assessee-appellant has made few alternative attempts to argue against disallowance in question. 17.1. learned counsel would submit that said sub-clause (ia), having been inserted to clause (a) of Section 40 of Act with effect from 01.04.2005 by Finance (No.2) Act, 2004, would apply only from financial year 2005-2006 and hence, cannot apply to present case pertaining to financial year 2004-2005. learned counsel, of course, drew support to this contention from decision of Calcutta High Court in case of PIU Ghosh (supra). 17.1.1. Before proceeding further, it appears apposite to observe, as indicated in paragraph 7.3 hereinbefore, that in copy of order passed by ITAT in this case, there is obvious typographical error on date of coming into force of amendment to Section 40 of Act of 1961 by Finance (No.2) Act, 2004 inasmuch as said amendment was made applicable with effect from 01.04.2005 and not 01.04.2004, as appearing copy of order of ITAT. However, this error is not of material bearing because amendment in question was applicable from and for assessment year 2005-2006, for reasons occurring infra. 17.2. Reverting to contentions urged in this case, there is no doubt that in PIU Ghosh (supra), Calcutta High Court, indeed, took view 44 which learned counsel for appellant has canvassed before us. Calcutta High Court observed that said Finance (No.2) Act, 2004 got presidential assent on 10.09.2004 and it was provided that provision in question shall stand inserted with effect from 01.04.2005. According to Calcutta High Court, assessee could not have foreseen prior to 10.09.2004 that any amount paid to contractor without deducting tax at source was likely to become not deductible in computation of income under Section 40 and that legislature, being conscious of likely predicament, provided that provision shall become operative from 01.04.2005. High Court further proceeded to observe that any other interpretation would amount to punishing assessee for no fault of his. High Court further observed that Section 11 of said Finance Act, inserting sub-clause (ia), did not provide that same was to become effective from assessment year 2005-2006. We may usefully reproduce opinion of Calcutta High Court in case of PIU Ghosh, as under (at p. 326 of ITR):- 9. Admittedly, Finance Act, 2004 got presidential assent on September 10, 2004. assessee could not have foreseen prior to September 10, 2004 that any amount paid to contractor without deducting tax at source was likely to become not deductible under section 40. It is difficult to assume that Legislature was not aware or did not foresee aforesaid predicament. Legislature therefore provided that Act shall become operative on April 1, 2005. Any other interpretation shall amount to "punishing assessee for no fault of his" following judgment in case of Hindustan Electro Graphites Ltd. (supra). 10. On top of that, section 4 relied upon by Mr. Agarwal merely provides for enactment as regards rate of tax to be charged in any particular assessment year which has no application to case before us. Section 11 of Finance (No. 2) Act, 2004 by which sub-clause (ia) was added to 45 section 40(a) of Income-tax Act does not provide that same was to become effective from assessment year 2005-06. It merely says it shall become effective on April 1, 2005 which for reasons already discussed should mean to refer to financial year. There is, as such, no scope for any ambiguity nor is there any scope for confusion ... 17.3. Learned counsel for appellant has submitted that revenue has accepted said decision and has not filed any appeal against same. It appears, however, that amount of deduction in said case was only sum of Rs. 4,30,386/- and obviously, net tax effect in that case, decided on 12.07.2016, was on lower side. In any case, said decision cannot be treated as final declaration of law on subject merely because same has not been appealed against. Having examined law applicable, with respect, we find it difficult to approve above-quoted opinion of Calcutta High Court, particularly when it does not appear standing in conformity with scheme of assessment of income tax under Act of 1961 and where High Court seems to have not noticed proviso to clause (ia) of Section 40(a) of Act forming part of amendment in question. 17.4. It needs hardly any detailed discussion that in income tax matters, law to be applied is that in force in assessment year in question, unless stated otherwise by express intendment or by necessary implication. As per Section 4 of Act of 1961, charge of income tax is with reference to any assessment year, at such rate or rates as provided in any central enactment for purpose, in respect of total income of previous year of any person. expression previous year is defined in Section 3 of Act to mean financial year immediately preceding assessment year ; 46 and expression assessment year is defined in clause (9) of Section 2 of Act to mean period of twelve months commencing on 1 st day of April every year . 17.5. In case of Commissioner of Income-Tax, West Bengal v. Isthmian Steamship Lines: (1951) 20 ITR 572, 3-Judge Bench of this Court exposited on fundamental principle that in income-tax matters law to be applied is law in force in assessment year unless otherwise stated or implied. This decision and various other decisions were considered by Constitution Bench of this Court in case of Karimtharuvi Tea Estate Ltd. v. State of Kerala: (1966) 60 ITR 262 and principles were laid down in following terms (at pp. 264-266 of ITR):- Now, it is well-settled that Income-tax Act, as it stands amended on first day of April of any financial year must apply to assessments of that year. Any amendments in Act which come into force after first day of April of financial year, would not apply to assessment for that year, even if assessment is actually made after amendments come into force. *** *** *** High Court has, however relied upon decision of this court in Commissioner of Income-tax v. Isthmian Steamship Lines, where it was held as follows : "It will be observed that we are here concerned with two datum lines : (1) 1st of April, 1940, when Act came into force, and (2) 1st of April, 1939, which is date mentioned in amended proviso. first question to be answered is whether these dates are to apply to accounting year or year of assessment. They must be held to apply to assessment year, because in income-tax matters law to be applied is law in force in assessment year unless otherwise stated or implied. first datum line therefore affected only assessment year of 1940-41, because amendment did not come into force till 1st of 47 April 1940. That means that old law applied to every assessment year up to and including assessment year 1939-40." This decision is authority for proposition that though subject of charge is income of previous year, law to be applied is that in force in assessment year, unless otherwise stated or implied. facts of said decision are different and distinguishable and High Court was clearly in error in applying that decision to facts of present case. (emphasis in bold supplied) 17.6. We need not multiply on case law on subject as principles aforesaid remain settled and unquestionable. Applying these principles to case at hand, we are clearly of view that provision in question, having come into effect from 01.04.2005, would apply from and for assessment year 2005-2006 and would be applicable for assessment in question. Putting it differently, legislature consciously made said sub-clause (ia) of Section 40(a) of Act effective from 01.04.2005, meaning thereby that same was to be applicable from and for assessment year 2005-2006; and neither there had been express intendment nor any implication that it would apply only from financial year 2005-2006. 17.7. observations of Calcutta High Court in case of PIU Ghosh (supra) as regards likely prejudice to assessee in relation to financial year 2004-2005, in our view, do not relate to any legal grievance or legal prejudice. requirement of deducting tax at source was already existing as per Section 194C of Act and it was bounden duty of appellant to make such deduction of TDS and to make over same to revenue. Section 201 was also in existence which made it clear that default in 48 making deduction in accordance with provisions of Act would make appellant assessee in default . appellant cannot suggest that even if obligation of TDS on payments made by him was existing by virtue of Section 194C(2), he would have honoured such obligation only if being aware of drastic consequence of default that such payment shall not be deducted for purpose of drawing up assessment. 17.7.1. Apart from above, significant it is to notice that by amendment in question, clause (ia) was added to Section 40(a) of Act with proviso to effect that where, in respect of sum referable to TDS requirement, tax has been deducted in any subsequent year, or has been deducted during previous year but paid in any subsequent year after expiry of time prescribed in Section 200(1), such sum shall be allowed as deduction in computing income of previous year in which such tax has been paid. proviso effectively took care of case of any bonafide assessee who would earnestly comply with requirement of deducting tax at source. It is evident that said proviso has totally escaped attention of Calcutta High Court in case of PIU Ghosh (supra). In fact, relaxation by way of proviso/s to Section 40(a)(ia) of Act had further been modulated by way of various subsequent amendments to further mitigate hardships of bonafide assessees, as noticed hereafter later. Suffice it to observe for present purpose that said decision in PIU Ghosh cannot be regarded as correct on law. 49 17.8. In fact, if contention of learned counsel for appellant read with proposition in PIU Ghosh (supra) is accepted and said sub-clause (ia) of Section 40(a) of Act is held applicable only from financial year 2005-2006, result would be that this provision would apply only from assessment year 2006-2007. Such result is neither envisaged nor could be countenanced. Hence, contention that sub-clause (ia), of clause (a) of Section 40 of Act would apply only from financial year 2005-2006 and cannot apply to present case pertaining to financial year 2004-2005 stands rejected. 18. supplemental submission that in any case, disallowance cannot be applied to payments already made prior to 10.09.2004, date on which Finance (No.2) Act, 2004 received assent of President of India, remains equally baseless. said date of assent of President of India to Finance (No.2) Act, 2004 is not date of applicability of provision in question, for specific date having been provided as 01.04.2005. Of course, said date relates to assessment year commencing from 01.04.2005 (i.e., assessment year 2005-2006). 18.1. Even if it be assumed, going by suggestions of appellant, that requirements of Section 40(a)(ia) became known on 10.09.2004, appellant could have taken all requisite steps to make deductions or, in any case, to make payment of TDS amount to revenue during same financial year or even in subsequent year, as per relaxation available in proviso to Section 40(a)(ia) of Act but, appellant simply 50 avoided his obligation and attempted to suggest that it had no liability to deduct tax at source at all. Such approach of appellant, when standing at conflict with law, consequence of disallowance under Section 40(a)(ia) of Act remains inevitable. 19. In yet another alternative attempt, learned counsel for appellant has argued that by way of Finance (No.2) Act, 2014, disallowance under Section 40(a)(ia) has been limited to 30% of sum payable and said amendment deserves to be held retrospective in operation. This line of argument has been grafted with reference to decision in Calcutta Export Company (supra) wherein, another amendment of Section 40(a)(ia) by Finance Act of 2010 was held by this Court to be retrospective in operation. submission so made is not only baseless but is bereft of any logic. Neither amendment made by Finance (No.2) Act, 2014 could be stretched anterior date of its substitution so as to reach assessment year 2005-2006 nor said decision in Calcutta Export Company has any correlation with case at hand or with amendment made by Finance (No.2) Act of 2014. 19.1. By amendment brought about in year 2014, legislature reduced extent of disallowance under Section 40(a)(ia) of Act and limited it to 30% of sum payable. On other hand, by Finance Act of 2010, which was considered in case of Calcutta Export Company (supra), proviso to Section 40(a)(ia) of Act was amended so as to provide relief to bonafide assessee who could not make deposit of deducted 51 tax within prescribed time. In fact, even before year 2010, said proviso was amended by Finance Act 2008 and that amendment of year 2008 was provided retrospective operation by legislature itself. For ready reference, we may reproduce in juxtaposition main part of Section 40(a) (ia) of Act as it would read after amendments of 2008, 2010 and 2014 respectively, as under13:- (i) After amendment by Finance Act, 2008 40. Amounts not deductible. - Notwithstanding anything to contrary in sections 30 to 38, following amounts shall not be deducted in computing income chargeable under head Profits and gains of business or profession ,- (a) in case of any assessee- *** *** *** (ia) any interest, commission or brokerage, rent, royalty 14, fees for professional services or fees for technical services payable to resident, or amounts payable to 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,- (A) in case where tax was deductible and was so deducted during last month of previous year, on or before due date specified in sub-section (1) of section 139; or (B) in any other case, on or before last day of previous year: Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted (A) during last month of previous year but paid after said due date; or (B) during any other month of previous year but paid after end of said previous year, 13 Explanation part of provision is omitted, for being not relevant for present purpose. 14 expressions rent, royalty were inserted in year 2006. 52 such sum shall be allowed as deduction in computing income of previous year in which such tax has been paid. *** *** *** (ii) After amendment by Finance Act, 2010 40. Amounts not deductible. - Notwithstanding anything to contrary in sections 30 to 38, following amounts shall not be deducted in computing income chargeable under head Profits and gains of business or profession ,- (a) in case of any assessee- *** *** *** (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to resident, or amounts payable to 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 due date specified in sub-section (1) of section 139: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during previous year but paid after due date specified in sub-section (1) of section 139, such sum shall be allowed as deduction in computing income of previous year in which such tax has been paid: *** *** *** (iii) After amendment by Finance (No.2) Act, 2014 40. Amounts not deductible. - Notwithstanding anything to contrary in sections 30 to 38, following amounts shall not be deducted in computing income chargeable under head Profits and gains of business or profession ,- (a) in case of any assessee- *** *** *** (ia) thirty per cent. of any sum payable to resident, 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 due date specified in sub-section (1) of section 139: 53 Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during previous year but paid after due date specified in sub-section (1) of section 139, thirty per cent. of such sum shall be allowed as deduction in computing income of previous year in which such tax has been paid15: Provided further that where assessee fails to deduct whole or any part of tax in accordance with provisions of Chapter XVII-B on any such sum but is not deemed to be assessee in default under first proviso to sub-section (1) of section 201, then, for purpose of this sub-clause, it shall be deemed that assessee has deducted and paid tax on such sum on date of furnishing of return of income by resident payee referred to in said proviso.16 *** *** *** 19.2. aforesaid amendment by Finance (No.2) Act of 2014 was specifically made applicable w.e.f. 01.04.2015 and clearly represents will of legislature as to what is to be deducted or what percentage of deduction is not to be allowed for particular eventuality, from assessment year 2015-2016. 19.3. On other hand, in case of Calcutta Export Company (supra), this Court noticed aforesaid two amendments to Section 40(a)(ia) of Act by Finance Act, 2008 and by Finance Act, 2010, which were intended to deal with procedural hardship likely to be faced by bonafide tax payer, who had deducted tax at source but could not make deposit within prescribed time so as to claim deduction. In paragraph 17 of judgment in Calcutta Export Company, this Court took note of case of genuine hardship, particularly of assessees who had deducted tax at source in 15 This proviso was substituted in year 2008 and again in year 2010; and then, was amended by Finance (No. 2) Act, 2014. 16 This proviso was inserted by Act No. 23 of 2012. 54 last month of previous year; and observed in paragraph 18 that said amendment of year 2008 was brought about with view to mitigate such hardship. After reproducing said amendment of year 2008 and after noticing its retrospective operation, this Court delved into position obtaining after 2008, where still remained one class of assessees who could not claim deduction for TDS amount in previous year in which tax was deducted and who could claim benefit of such deduction in next year only; and, after finding that amendment of year 2010 was intended to remedy this position, held that said amendment, being curative in nature, is required to be given retrospective operation that is, from date of insertion of Section 40(a)(ia). 19.4. Learned counsel for appellant has only referred to concluding part of decision in Calcutta Export Company but, look at entire synthesis by this Court, of reasons for amendments of 2008 and 2010, makes it clear as to why this Court held that amendment of year 2010 would be retrospective in operation. We may usefully reproduce relevant discussion and exposition of this Court in Calcutta Export Company as under:- (at pp. 663-666 of ITR):- 19. above amendments made by Finance Act, 2008 thus provided that no disallowance under section 40(a)(ia) of Income-tax Act shall be made in respect of expenditure incurred in month of March if tax deducted at source on such expenditure has been paid before due date of filing of return. It is important to mention here that amendment was given retrospective operation from date of April 1,2005, i.e., from very date of substitution of provision. 55 20. Therefore, assesses were, after said amendment in 2008, classified in two categories namely: one, those who have deducted that tax during last month of previous year and two, those who have deducted tax in remaining eleven months of previous year. It was provided that in case of assessees falling under first category, no disallowance under section 40(a)(ia) of Income-tax Act shall be made if tax deducted by them during last month of previous year has been paid on or before last day of filing of return in accordance with provisions of section 139(1) of Income-tax Act for said previous year. In case, assessees are falling under second category, no disallowance under section 40(a)(ia) of Income-tax Act where tax was deducted before last month of previous year and same was credited to Government before expiry of previous year. net effect is that assessee could not claim deduction for TDS amount in previous year in which tax was deducted and benefit of such deductions can be claimed in next year only. 21. amendment though has addressed concerns of assesses falling in first category but with regard to case falling in second category, it was still resulting into unintended consequences and causing grave and genuine hardships to assesses who had substantially complied with relevant TDS provisions by deducting tax at source and by paying same to credit of Government before due date of filing of their returns under section 139(1) of Income-tax Act. disability to claim deductions on account of such lately credited sum of TDS in assessment of previous year in which it was deducted, was detrimental to small traders who may not be in position to bear burden of such disallowance in present assessment year. 22. In order to remedy this position and to remove hardships which were being caused to assessees belonging to such second category, amendments have been made in provisions of section 40(a) (ia) by Finance Act, 2010. *** *** *** 24. Thus, Finance Act, 2010 further relaxed rigors of section 40(a)(ia) of Income-tax Act to provide that all TDS made during previous year can be deposited with Government by due date of filing return of income. idea was to allow additional time to deductors to deposit TDS so made. However, Memorandum 56 Explaining Provisions of Finance Bill, 2010 expressly mentioned as follows: "This amendment is proposed to take effect retrospectively from April 1, 2010 and will, accordingly, apply in relation to assessment year 2010-11 and subsequent years." 25. controversy surrounding above amendment was whether amendment being curative in nature should be applied retrospectively, i.e., from date of insertion of provisions of section 40(a)(ia) or to be applicable from date of enforcement. *** *** *** 27. proviso which is inserted to remedy unintended consequences and to make provision workable, proviso which supplies obvious omission in section, is required to be read into section to give section reasonable interpretation and requires to be treated as retrospective in operation so that reasonable interpretation can be given to section as whole. 28. purpose of amendment made by Finance Act, 2010 is to solve anomalies that insertion of section 40(a)(ia) was causing to bona fide tax payer. amendment, even if not given operation retrospectively, may not materially be of consequence to Revenue when tax rates are stable and uniform or in cases of big assessees having substantial turnover and equally huge expenses and necessary cushion to absorb effect. However, marginal and medium taxpayers, who work at low gross product rate and when expenditure which becomes subject matter of order under section 40(a)(ia) is substantial, can suffer severe adverse consequences if amendment made in 2010 is not given retrospective operation, i.e., from date of substitution of provision. Transferring or shifting expenses to subsequent year, in such cases, will not wipe out adverse effect and financial stress. Such could not be intention of Legislature. Hence, amendment made by Finance Act, 2010 being curative in nature is required to be given retrospective operation, i.e., from date of insertion of said provision. 19.5. bare look at extraction aforesaid makes it clear that what this Court has held as regards retrospective operation is that amendment of year 2010, being curative in nature, would be applicable from date of insertion of provision in question i.e., sub-clause (ia) of Section 40(a) of 57 Act. This being position, it is difficult to find any substance in argument that principles adopted by this Court in case of Calcutta Export Company (supra) dealing with curative amendment, relating more to procedural aspects concerning deposit of deducted TDS, be applied to amendment of substantive provision by Finance (No.2) Act, 2014. 19.6. We may in passing observe that assessee-appellant was either labouring under mistaken impression that he was not required to deduct TDS or under mistaken belief that methodology of splitting single payment into parts below Rs. 20,000/- would provide him escape from rigour of provisions of Act providing for disallowance. In either event, appellant had not been bonafide assessee who had made deduction and deposited it subsequently. Obviously, appellant could not have derived benefits that were otherwise available by curative amendments of 2008 and 2010. Having defaulted at every stage, attempt on part of assessee-appellant to seek some succor in amendment of Section 40(a)(ia) of Act by Finance (No.2) Act, 2014 could only be rejected as entirely baseless, rather preposterous. 19.7. Hence, Question No.3 is also answered in negative, i.e., against assessee-appellant and in favour of revenue. Question No. 4 20. Before finally answering root question in matter as to whether payments in question have rightly been disallowed from deduction, we may usefully summarise answers to Question Nos. 1 to 3 that provisions of 58 Section 194C were indeed applicable and assessee-appellant was under obligation to deduct tax at source in relation to payments made by it for hiring vehicles for purpose of its business of transportation of goods; that disallowance under Section 40(a)(ia) of Act is not limited only to amount outstanding and this provision equally applies in relation to expenses that had already been incurred and paid by assessee; that disallowance under Section 40(a)(ia) of Act of 961 as introduced by Finance (No.2) Act, 2004 with effect from 01.04.2005 is applicable to case at hand relating to assessment year 2005-2006; and that benefit of amendment made in year 2014 to provision in question is not available to appellant in present case. These answers practically conclude matter but we have formulated Question No. 4 essentially to deal with last limb of submissions regarding prejudice likely to be suffered by appellant. 21. suggestion on behalf of appellant about likely prejudice because of disallowance deserves to be rejected for three major reasons. In first place, it is clear from provisions dealing with disallowance of deductions in part D of Chapter IV of Act, particularly those contained in Sections 40(a)(ia) and 40A(3)17 of Act, that said provisions are intended to enforce due compliance of requirement of other provisions of Act and to ensure proper collection of tax as also transparency in dealings 17 Section 40A(3) envisaged at relevant time that twenty percent of expenditure exceeding twenty thousand rupees, of which payment was made otherwise than by crossed cheque or bank draft, shall not be allowed as deduction. 59 of parties. necessity of disallowance comes into operation only when default of nature specified in provisions takes place. Looking to object of these provisions, suggestions about prejudice or hardship carry no meaning at all. Secondly, as noticed, by way of proviso as originally inserted and its amendments in years 2008 and 2010, requisite relief to bonafide tax payer who had collected TDS but could not deposit within time before submission of return was also provided; and as regards amendment of 2010, this Court ruled it to be retrospective in operation. proviso so amended, obviously, safeguarded interest of bonafide assessee who had made deduction as required and had paid same to revenue. appellant having failed to avail benefit of such relaxation too, cannot now raise grievance of alleged hardship. Thirdly, as noticed, appellant had shown total payments in Truck Freight Account at Rs. 1,37,71,206/- and total receipts from company at Rs. 1,43,90,632/-. What has been disallowed is that amount of Rs. 57,11,625/- on which appellant failed to deduct tax at source and not entire amount received from company or paid to truck operators/owners. Viewed from any angle, we do not find any case of prejudice or legal grievance with appellant. 21.1. Hence, answer to Question No. 4 is clearly in affirmative i.e., against appellant and in favour of revenue that payments in question have rightly been disallowed from deduction while computing total income of assessee-appellant. 60 Conclusion 22. For what has been discussed hereinabove, this appeal fails and is, therefore, dismissed with costs. .. .J. (A.M. KHANWILKAR) .. . .J. (DINESH MAHESHWARI) New Delhi, Dated: 29th July, 2020. 61 Shree Choudhary Transport Company v. Income-tax Officer