M/s. Palam Gas Service vs. Commissioner of Income Tax
By Aparajita, a penultimate year student of National Law University and Judicial Academy, Assam.
Date of Judgement: 3rd May 2017
Equivalent Citation: Civil Appeal No. 5512 of 2017; MANU/SC/0571/2017
Bench (2): Justice A.K. Sikri, and Justice Ashok Bhushan
Facts of the Case:
The taxpayer-company was engaged in the business of purchase and sale of LPG cylinders. The taxpayer paid freight expenses for transportation of LPG to three persons but failed to deduct TDS under section 194C of the Income-tax Act, 1961 (‘the Act’). The Assessing Officer (‘the AO’) disallowed the freight expense under section 40 (a) (ia) of the Act. The AO’s order was later affirmed by the CIT (A), the Tribunal, and the High Court.
The issue before the Hon’ble Supreme Court was whether Section 40 (a) (ia), which uses the words ‘payable’, would cover only those cases where the amount is due and still payable, or it would also cover the situations where the amount is already paid.
The Supreme Court held as under:
- When the entire scheme of obligation to deduct the tax at source and to pay it over to the Central Government is read holistically, it cannot be held that the word ‘payable’ occurring in Section 40(a) (ia) refers to only those cases where the amount is yet to be paid and does not cover the cases where the amount is actually paid.
- Accordingly, it was held that Section 40(a)(ia) covers not only those cases where the amount is payable but also when it is paid.
- To arrive at the above conclusion, the Court relied on the Judgment of Punjab & Haryana, the Madras and Calcutta High Courts, which have taken an identical view on the same issue.
- With respect to the contrary decision of the Allahabad High Court in the case of CIT v. Vector Shipping Services (P) Ltd., the Court opined that the said decision did not decide the question of law correctly. Accordingly, the said Allahabad High Court decision was overruled.
- Further, the Court opined that if the provision is interpreted in the manner suggested by the appellant herein, then even when it is found that a person, like the appellant, has violated the provisions of Chapter XVIIB (or specifically Sections 194C and 200 in the instant case), he would still go scot-free, without suffering the consequences of such monetary default in spite of specific provisions laying down these consequences.
- Regarding the status of the decision of Allahabad High Court against which SLP was dismissed by the Supreme Court earlier, the Supreme Court clarified that dismissal of SLP would not amount to confirming the view of the Allahabad High Court.
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