Holding

Payments to the truck operators constitute payments to sub‑contractors under Section 194C, and the failure to deduct TDS triggers disallowance under Section 40(a)(ia) for both payable and already paid amounts, applicable to AY 2005‑06; therefore, the disallowance is proper.

Summary

Shree Choudhary Transport Company (the appellant) entered into a contract to transport cement for a consignor and hired independent truck operators to perform the work. The appellant received freight charges from the consignor after TDS was deducted, but failed to deduct TDS on payments to the truck operators where each payment exceeded Rs.20,000. The Assessing Officer, CIT(A) and ITAT disallowed Rs.57,11,625 of such payments under Section 40(a)(ia) of the Income Tax Act, 1961, holding that the truck operators were sub‑contractors within the meaning of Section 194C. The appellant contended that Section 194C did not apply, that the term “payable” in Section 40(a)(ia) excluded amounts already paid, and that the provision was not applicable to the assessment year in question. The Supreme Court affirmed that the truck operators were sub‑contractors, that Section 40(a)(ia) applies to both payable and paid amounts, and that the amendment effective 01‑04‑2005 applied to AY 2005‑06. Consequently, the disallowance was upheld and the appeal dismissed.

Issues considered

Whether Section 194C of the Income Tax Act applies to payments made by the appellant to truck operators/owners.
Whether the disallowance under Section 40(a)(ia) is limited to amounts ‘payable’ and does not extend to amounts already ‘paid’.
Whether sub‑clause (ia) of Section 40(a), introduced by the Finance (No.2) Act, 2004, is applicable to the assessment year 2005‑06 or only to the financial year 2005‑06.
Whether the payments in question should be allowed as a deduction while computing the appellant’s total income.

Legislation cited

Finance (No.2) Act, 2004
Finance (No. 2) Act, 2014
Income Tax Act, 1961s. 194C, s. 2, s. 200, s. 201, s. 3, s. 4, s. 40A(3), s. 40(a)(ia), s. 43(2)

Subjects

TDSSection 194CSection 40(a)(ia)sub‑contractordisallowance of deductionassessment year 2005‑06Finance Act amendmenttax deduction at source

Judgment

[2020] 8 S.C.R. 165 165

SHREE CHOUDHARY TRANSPORT COMPANY A
v.
INCOME TAX OFFICER
(Civil Appeal No. 7865 of 2009)
JULY 29, 2020 B
[A. M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]
Income Tax Act, 1961:
ss. 40(a)(ia) and 194C – Applicability of – Scope – Deduction
of tax at Source – For the assessment year 2005-2006 – Failure by C
assessee, while making payment to the truck operators engaged by
assessee for the purpose of its contract for transportation of goods
– Deduction claimed by assessee on account of such payment –
Revenue disallowed deduction of payments made to the Truck
operators exceeding Rs. 20,000/- without TDS in terms of s. 40(a)(ia)
D
– Appellate Authority held that assessee’s case was squarely covered
by the provisions of s. 194C and in view of mandatory provisions of
s. 40(a)(ia), the payments in question cannot be allowed as deduction
while computing the total income of the assessee – Appellate Tribunal
as also High Court affirmed the findings of the Authorities – Appeal
to Supreme Court – Held: The contract of assessee with consignor E
company for transport of goods could not have been accomplished
without a contract with the truck operator – Thus the truck operators
answered the description of ‘sub-contractor’ for the purpose of s.
194(2) – Thus, in assessee’s case s. 194C was applicable and hence
it was obliged to deduct tax at source – The disallowance u/s.
40(a)(ia) is not limited to the amount outstanding i.e. ‘payable’, it F
equally applies to the amount already incurred and paid by the
assessee – Sub-clause (ia) of s. 40(a) has been consciously made
applicable by legislature effective from 01.04.2005 and hence would
be applicable for the assessment year in question i.e. 2005-2006 –
The payments in question have rightly been disallowed from G
deduction while computing the total income of assessee.
Dismissing the appeal, the Court
HELD: 1. The nature of contract entered into by the
appellant with the consignor company makes it clear that the
H
165
166 SUPREME COURT REPORTS [2020] 8 S.C.R.

A appellant was to transport the goods (cement) of the consignor
company; and in order to execute this contract, the appellant
hired the transport vehicles, namely, the trucks from different
operators/owners. The appellant received freight charges from
the consignor company, who indeed deducted tax at source while
B making such payment to the appellant. Thereafter, the appellant
paid the charges to the persons whose vehicles were hired for
the purpose of the said work of transportation of goods.
Indisputably, it was the responsibility of the appellant-assessee
to transport the goods (cement) of the company; and how to
accomplish this task of transportation was a matter exclusively
C within the domain of the appellant. Hence, hiring the services of
truck operators/owners for this purpose could have only been
under a contract between the appellant and the said truck
operators/owners. Whether such a contract was reduced into
writing or not carries hardly any relevance. In the given scenario
D and set up, the said truck operators/owners answered to the
description of “sub-contractor” for carrying out the whole or part
of the work undertaken by the contractor (i.e., the appellant) for
the purpose of Section 194C(2) of the Income Tax Act, 1961.
Thus, the provisions of Section 194C were applicable and the
assessee-appellant was under obligation to deduct the tax at
E source in relation to the payments made by it for hiring the
vehicles for the purpose of its business of transportation of goods.
[Paras 15.1 and 20][197-G-H][198-A-C; 220-D-E]
Palam Gas Service v. Commissioner of Income-Tax
(2017) 394 ITR 300 – relied on.
F Commissioner of Income-Tax v. Hardarshan Singh
(2013) 350 ITR 427 – distinguished.
2.1 Disallowance under Section 40(a)(ia) of the Act is not
limited only to the amount outstanding and this provision equally
applies in relation to the expenses that had already been incurred
G and paid by the assessee. Section 194C is placed in Chapter XVII
of the Act on the subject “Collection and Recovery of Tax”; and
specific provisions are made in the Act to ensure that the
requirements of Section 194C are met and complied with, while
also providing for the consequences of default. Section 200
H specifically provides for the duties of the person deducting tax to
SHREE CHOUDHARY TRANSPORT COMPANY v. \ 167
INCOME TAX OFFICER

deposit and submit the statement to that effect. The A
consequences of failure to deduct or pay the tax are then provided
in Section 201 of the Act which puts such defaulting person in the
category of “the assessee in default in respect of the tax” apart
from other consequences which he or it may incur. [Para 16][200-
D-F]
B
2.2. Section 40(a)(ia) provides for the consequences of
default in the case where tax is deductible at source on any
interest, commission, brokerage or fees but had not been so
deducted, or had not been paid after deduction (during the
previous year or in the subsequent year before expiry of the
prescribed time) in the manner that the amount of such interest, C
commission, brokerage or fees shall not be deducted in computing
the income chargeable under “profits and gains of business or
profession”. In other words, it shall be computed as income of
the assessee because of his default in not deducting the tax at
source. In the overall scheme of the provisions relating to D
collection and recovery of tax, it is evident that the object of
legislature in introduction of the provisions like sub-clause (ia)
of clause (a) of Section 40 had been to ensure strict and punctual
compliance of the requirement of deducting tax at source. In the
proviso added to clause (ia) of Section 40(a) of the Act, it was
provided that where in respect of the sum referable to TDS E
requirement, tax has been deducted in any subsequent year, or
has been deducted during the previous year but paid in any
subsequent year after the expiry of the time prescribed in Section
200(1), such sum shall be allowed as a deduction in computing
the income of the previous year in which such tax has been paid. F
[Paras 16.1 and 16.2][200-F-H; 201-A-C]
Commissioner of Income-Tax v. Calcutta Export
Company: (2018) 404 ITR 654 – relied on.
2.3 The term “payable” has been used in Section 40(a)(ia)
of the Act only to indicate the type or nature of the payments by G
the assessees to the payees referred therein. In other words,
the expression “payable” is descriptive of the payments which
attract the liability for deducting tax at source and it has not been
used in the provision in question to specify any particular class of
default on the basis as to whether payment has been made or H
168 SUPREME COURT REPORTS [2020] 8 S.C.R.

A not. It is not correct to say that the expression “payable” should
be read in contradistinction to the expression “paid”. Reference
to the definition of the term “paid” in Section 43(2) of the Act is
of no assistance to the appellant. [Para 16.11][209-G-H]
*Palam Gas Service v. Commissioner of Income-Tax :
B (2017) 394 ITR 300 – relied on.
J.K. Synthetics Limited v. Commercial Taxes Officer:
(1994) 4 SCC 276 – distinguished.
P.M.S. Diesels and Ors. v. Commissioner of Income-Tax:
(2015) 374 ITR 562 – approved.
C
P.M.S. Diesels and Ors. v. Commissioner of Income-Tax:
(2015) 374 ITR 562; Commissioner of Income-Tax,
Kolkata-XI v. Crescent Export Syndicate: (2013) 216
Taxman 258; Institute of Chartered Accountants of
India v. Price Waterhouse (1997) 93 Taxman 588 –
D referred to.
2.4 There is no substance in the plea that the decision in
*Palam Gas Service case requires reconsideration. The decision
of Co-ordinate Bench in Palam Gas Service case on the core
question of law is equally binding on this Bench and could be
E doubted only if the view, as taken, is shown to be not in conformity
with any binding decision of the Larger Bench or any statutory
provisions or any other reason of the like nature. The Court finds
none. [Para 16.8][206-F-H]
2.5 It is not correct that scope of Section 40(a)(ia) of the
F Act cannot be decided on the basis of Section 194C. Section
40(a)(ia) is not a stand-alone provision but provides one of those
additional consequences as indicated in Section 201 of the Act
for default by a person in compliance of the requirements of the
provisions contained in Part B of Chapter XVII of the Act. The
scheme of these provisions makes it clear that the default in
G
compliance of the requirements of the provisions contained in
Part B of Chapter XVII of the Act (that carries Sections 194C,
200 and 201) leads, inter alia, to the consequence of Section
40(a)(ia) of the Act. Hence, the contours of Section 40(a)(ia) of

H
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 169
TAX OFFICER

the Act could be aptly defined only with reference to the A
requirements of the provisions contained in Part B of Chapter
XVII of the Act, including Sections 194C, 200 and 201. When the
obligation of Section 194C of the Act is the foundation of the
consequence provided by Section 40(a)(ia) of the Act, reference
to the former is inevitable in interpretation of the latter.
B
[Para 16.10][207-D-F]
3.1. In income tax matters, the law to be applied is that in
force in the assessment year in question, unless stated otherwise
by express intendment or by necessary implication. As per
Section 4 of the Act of 1961, the charge of income tax is with
reference to any assessment year, at such rate or rates as provided C
in any central enactment for the purpose, in respect of the total
income of the previous year of any person. The expression
“previous year” is defined in Section 3 of the Act to mean ‘the
financial year immediately preceding the assessment year’; and
the expression “assessment year” is defined in clause (9) of D
Section 2 of the Act to mean ‘the period of twelve months
commencing on the 1st day of April every year’. Sub-clause (ia)
was inserted to clause (a) of Section 40 of the Act with effect from
01.04.2005 by Finance (No.2) Act, 2004. The provision in question,
having come into effect from 01.04.2005, would apply from and
for the assessment year 2005-2006 and would be applicable for E
the assessment in question. The legislature consciously made
the said sub-clause (ia) of Section 40(a) of the Act effective from
01.04.2005, meaning thereby that the same was to be applicable
from and for the assessment year 2005-2006; and neither there
had been express intendment nor any implication that it would F
apply only from the financial year 2005-2006. [Paras 17.4, 17.1
and 17.6][210-B-D; 208-D]
3.2. The requirement of deducting tax at source was already
existing as per Section 194C of the Act and it was the bounden
duty of the appellant to make such deduction of TDS and to make G
over the same to the revenue. Section 201 was also in existence
which made it clear that default in making deduction in accordance
with the provisions of the Act would make the appellant “an
assessee in default”. The appellant cannot suggest that even if
the obligation of TDS on the payments made by him was existing
H
170 SUPREME COURT REPORTS [2020] 8 S.C.R.

A by virtue of Section 194C(2), he would have honoured such an
obligation only if being aware of the drastic consequence of default
that such payment shall not be deducted for the purpose of drawing
up the assessment. [Para 17.7][211-H; 212-A-B]
3.3. By the amendment in question, clause (ia) was added
B to Section 40(a) of the Act with a proviso to the effect that where,
in respect of the sum referable to TDS requirement, tax has been
deducted in any subsequent year, or has been deducted during
the previous year but paid in any subsequent year after expiry of
the time prescribed in Section 200(1), such sum shall be allowed
as a deduction in computing the income of the previous year in
C which such tax has been paid. The proviso effectively took care
of the case of any bonafide assessee who would earnestly comply
with the requirement of deducting the tax at source. The
relaxation by way of the proviso/s to Section 40(a)(ia) of the Act
had further been modulated by way of various subsequent
D amendments to further mitigate the hardships of bonafide
assessees. [Para 17.7.1][212-C-E]
3.4 If sub-clause (ia) of Section 40(a) of the Act is held
applicable only from the financial year 2005-2006, the result would
be that this provision would apply only from the assessment year
E 2006-2007. Such a result is neither envisaged nor could be
countenanced. Hence, the contention that sub-clause (ia), of
clause (a) of Section 40 of the Act would apply only from the
financial year 2005-2006 and cannot apply to the present case
pertaining to the financial year 2004-2005 stands rejected.
[Para 17.8][212-F-G]
F
3.5 It is also not correct that disallowance cannot be applied
to the payments already made prior to 10.09.2004, the date on
which the Finance (No.2) Act, 2004 received the assent of the
President of India. The said date of assent of the President of
India to Finance (No.2) Act, 2004 is not the date of applicability
G of the provision in question, for the specific date having been
provided as 01.04.2005. Of course, the said date relates to the
assessment year commencing from 01.04.2005 (i.e., assessment
year 2005-2006). [Para 18][212-G-H; 213-A-B]

H
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 171
TAX OFFICER

3.6 Even if it be assumed that the requirements of Section A
40(a)(ia) became known on 10.09.2004, the appellant could have
taken all the requisite steps to make deductions or, in any case,
to make payment of the TDS amount to the revenue during the
same financial year or even in the subsequent year, as per the
relaxation available in the proviso to Section 40(a)(ia) of the Act
B
but, the appellant simply avoided his obligation and attempted to
suggest that it had no liability to deduct the tax at source at all.
Such an approach of the appellant, when standing at conflict with
law, the consequence of disallowance under Section 40(a)(ia) of
the Act remains inevitable. [Para 18.1][213-B-C]
3.7 The appellant is not correct in saying that the C
amendment by way of Finance (No.2) Act, 2014, whereby
disallowance under Section 40(a)(ia) has been limited to 30% of
the sum payable, deserves to be held retrospective in operation.
The amendment was specifically made applicable w.e.f. 01.04.2015
and clearly represents the will of the legislature as to what is to D
be deducted or what percentage of deduction is not to be allowed
for a particular eventuality, from the assessment year 2015-2016.
[Paras 19 and 19.2][213-D; 216-E]
Commissioner of Income-Tax v. Calcutta Export
Company (2018) 404 ITR 654 – distinguished. E
3.8 The assessee-appellant was either labouring under the
mistaken impression that he was not required to deduct TDS or
under the mistaken belief that the methodology of splitting a single
payment into parts below Rs. 20,000/- would provide him escape
from the rigour of the provisions of the Act providing for F
disallowance. In either event, the appellant had not been a bonafide
assessee who had made the deduction and deposited it
subsequently. Obviously, the appellant could not have derived
the benefits that were otherwise available by the curative
amendments of 2008 and 2010. Having defaulted at every stage,
the attempt on the part of assessee-appellant to seek some succor G
in the amendment of Section 40(a)(ia) of the Act by the Finance
(No.2) Act, 2014 could only be rejected as entirely baseless,
rather preposterous. [Para 19.6][220-A-C]

H
172 SUPREME COURT REPORTS [2020] 8 S.C.R.

A Karimtharuvi Tea Estate Ltd. v. State of Kerala (1966)
60 ITR 262 – followed.
Commissioner of Income-Tax, West Bengal v. Isthmian
Steamship Lines (1951) 20 ITR 572 – relied on.
PIU Ghosh v. Deputy Commissioner of Income-Tax &
B Ors. (2016) 386 ITR 322 – not approved.
4. The payments in question have rightly been disallowed
from deduction while computing the total income of the assessee-
appellant. The Court does not find any case of prejudice or legal
grievance with the appellant. In the first place, it is clear from
C the provisions dealing with disallowance of deductions in part D
of Chapter IV of the Act, particularly those contained in Sections
40(a)(ia) and 40A(3) of the Act, that the said provisions are
intended to enforce due compliance of the requirement of other
provisions of the Act and to ensure proper collection of tax as
D also transparency in dealings of the parties. The necessity of
disallowance comes into operation only when default of the nature
specified in the provisions takes place. Looking to the object of
these provisions, the suggestions about prejudice or hardship
carry no meaning at all. Secondly, by way of the proviso as originally
inserted and its amendments in the years 2008 and 2010, requisite
E relief to a bonafide tax payer who had collected TDS but could
not deposit within time before submission of the return was also
provided; and as regards the amendment of 2010, this Court ruled
it to be retrospective in operation. The proviso so amended,
obviously, safeguarded the interest of a bonafide assessee who
F had made the deduction as required and had paid the same to the
revenue. The appellant having failed to avail the benefit of such
relaxation too, cannot now raise a grievance of alleged hardship.
Thirdly, the appellant had shown total payments in Truck Freight
Account at Rs. 1,37,71,206/- and total receipts from the company
at Rs. 1,43,90,632/-. What has been disallowed is that amount of
G Rs. 57,11,625/- on which the appellant failed to deduct the tax at
source and not the entire amount received from the company or
paid to the truck operators/owners. [Para 21][221-A-E]

H
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 173
TAX OFFICER

Case Law Reference A
(2013) 350 ITR 427 distinguished Para 15.3
(2017) 394 ITR 300 relied on Para 15.4
(2018) 404 ITR 654 relied on Para 16.3
B
(2017) 394 ITR 300 relied on Para 16.4
(2015) 374 ITR 562 referred to Para 16.5
(2015) 374 ITR 562 approved Para 16.5.1
C
(2013) 216 Taxman 258 referred to Para 16.5.1
(1994) 4 SCC 276 distinguished Para 16.11
(1997) 93 Taxman 588 referred to Para 16.11
(2016) 386 ITR 322 not approved Para 17.1 D
(1951) 20 ITR 572 relied on Para 17.5
(1966) 60 ITR 262 followed Para 17.5
(2018) 404 ITR 654 distinguished Para 19
E
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7865
of 2009.
From the Judgment and Order dated 15.05.2009 of the Rajasthan
High Court at Jodhpur in D.B. Income Tax Appeal No. 164 of 2008.
F
Vikramjit Banerjee, ASG, V. Shekhar, Sr. Adv., Puneet Jain, H.D.
Thanvi, Rishi Matoliya, Ms. Christi Jain, Shashank Shekhar,
Ms. Sheetal Rajput, Sarad Kumar Singhania, Ms. Praveena Gautam,
Ms. Purnima Bhat Kak, Ms. Siddhartha Sinha, Abhishek Mahajan,
Mrs. Anil Katiyar, B. V. Balaram Das Advs. for the appearing parties.
G

H
174 SUPREME COURT REPORTS [2020] 8 S.C.R.

A The Judgment of the Court was delivered by
DINESH MAHESHWARI, J.
Preliminary
1. By way of this appeal, the assessee-appellant has called in
B question the order dated 15.05.2009 passed in Income Tax Appeal No.
164 of 2008 whereby, the High Court of Judicature for Rajasthan at
Jodhpur has summarily dismissed the appeal against the orderdated
29.08.2008 passed in ITA No. 117/JU/2008 by the Income Tax Appellate
Tribunal, Jodhpur Bench at Jodhpur; and thereby, the High Court has
upheld the computation of total income of the assessee-appellant for the
C assessment year 2005-2006 with disallowance of payments to the tune
of Rs. 57,11,625/-, essentially in terms of Section 40(a)(ia) of the Income
Tax Act, 19611,for failure of the assessee-appellant to deduct the requisite
tax at source2.
2. We may take note of the relevant factual and background
D aspects of the case while keeping in view the root point calling for
determination in this appeal, that is,as to whether the payments in question
have rightly been disallowed from deduction in computation of total income
of the appellant?
Relevant factual and background aspects; the impugned
E order of assessment
3. In a brief outline of the relevant factual aspects, it could be
noticed that the assessee-appellant, a partnership firm, had entered into
contract with M/s Aditya Cement Limited, Shambupura, District
Chittorgarh3 for transporting cement to various places in India. As the
F appellant was not having the transport vehicles of its own, it had engaged
the services of other transporters for the purpose.The cement marketing
division of M/s Aditya Cement Limited, namely, M/s Grasim Industries
Limited,effected payments towards transportation charges to the appellant
after due deduction of TDS, as shown in Form No. 16A issued by the
G company.
4. On 28.10.2005, the assessee-appellant filed its return for the
assessment year 2005-2006, showing total income at Rs. 2,89,633/- in
1
Hereinafter referred to as ‘the Act of 1961’ or simply ‘the Act’.
2
‘Tax deducted at source’ being referred as ‘TDS’
3
H Hereinafter also referred to as “the consignor company” or “the company’’.
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 175
TAX OFFICER [DINESH MAHESHWARI, J.]

the financial year 2004-2005 arising out of the business of ‘transport A
contract’.
5. In the course of assessment proceedings, the Assessing Officer4
examined the dispatch register maintained by the appellant for the period
01.04.2004 to 31.03.2005, containing all particulars as regards the trucks
hired, date of hire, biltyand challan numbers, freight and commission B
charges, net amount payable, the dates on which the payments were
made, and the destination of each truck etc. The contents of the register
also indicated that each truck was sent only to one destination under one
challan/bilty;and if one truck was hired again, it was sent to the same or
other destination/trip as per separate challan/bilty. The commission
charged by the appellant from the truck operators/owners ranged from C
Rs. 100/- to Rs. 250/-per trip.
5.1. On verifying the contents of record placed before him, the
AO observed that while making payment to the truck operators/owners,
the appellant had not deducted tax at source even if the net payment
exceeded Rs. 20,000/-. Following this, a notice dated 05.11.2007 was D
issued to the appellant, requiring the details of amount paidto the truck
operators/owners, TDS thereupon, and date of depositing the same in
the Government account. In reply, by its letters dated 12.11.2007 and
15.11.2007, the appellant contended, inter alia, that the trucks hired
were belonging to different operators/owners who were not the sub- E
contractors or contractors; that they came from different parts of India
and mostly required cash payment for diesel and other running expenses;
thatthe appellant had no liability to deduct tax at source because it had
not made payments exceeding Rs. 20,000/- in a single transaction; and
that the provisions of Section 40(a)(ia) were not applicable to the appellant.
F
5.2. While drawing up the assessment order dated 22.11.2007,
the AO observed that the payments to different truck operators/owners
were made directly by the appellant firm and not the consignor company;
that the appellant firm was responsible for transportation of goods of the
company as per the contract for which, the appellant received payment
from the company after tax being deducted at source therefrom. The G
AO also observed that the appellant firm paid freight charges to the
truck operators/owners from the income so earned; and the remaining
amount was shown as commission. Looking to the nature of dealings of
the parties, the AO observed that there existed a contract between the
4
‘AO’ for short H
176 SUPREME COURT REPORTS [2020] 8 S.C.R.

A appellant and the truck operators/owners in respect of each challan/bilty
for transportation. The AO also referred to the Circular bearing No. 715
dated 08.08.1995 issued by the Central Board of Direct Taxes5, to observe
that each goods receipt could be considered a separate contract. While
further observing that a contract may be written or oral, the AO held
that when the truck operators/owners in the case at hand were not to be
B
considered as contractors, they were undoubtedly the sub-contractors
of the appellant. The AO also pointed out that despite sufficient
opportunity being given, a copy of the agreement of the appellant firm
with the company for providing transportation services was not furnished.
5.3. Having perused the material placed before him, the AO held
C on the appellant’s responsibility for deducting tax at source while making
payment to the truck operators/owners where such payment exceeded
Rs. 20,000/- on a single bilty/challan or goods receipt in the following
words:-
“The dispatch register of the assessee firm as well as the cash
D book clearly establish beyond doubt that payment to the truck
operators was made by the assessee firm. In other words, the
assessee firm was the person responsible for deducting the tax at
source therefrom within the meaning of Section 194C of the Act.
Since the goods were transported by trucks and every truck
E transported goods under a separate bilty and challan to a particular
destination, there was a contract or sub-contract between the
assessee firm and the truck operator as per the provisions of
Section 194C of the Act and Board’s circular supra, and the
assessee should have deducted tax at source while making payment
to the truck operators as per the provisions of Section 194C(3) of
F the Act where the amount of any sum credited or paid or likely to
be credited or paid to the account of, or to the contractor or sub-
contractor exceeded twenty thousand rupees.
*** *** ***

G From the facts and circumstances of the case discussed above
the final position emerging is that in view of the provisions of
Section 194C of the Act the assessee was liable to deduct tax at
source while making payment to truck owners/operators where
such payment exceeded Rs. 20,000/- on the basis of single bilty/
challan or GR.”
H 5
‘CBDT’ for short
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 177
TAX OFFICER [DINESH MAHESHWARI, J.]

5.4. After examining the details contained in the dispatch register, A
cash book and payment vouchers, the AO found that tax was not deducted
at source by the appellant while making payment to the truck operator/
owner, even though the payment under a single goods receipt (challan/
bilty) exceeded the sum of Rs. 20,000/-. Thereupon, the assessee-
appellant was called upon to explain as to why deduction claimed on
B
account of such payment from the income be not disallowed in terms of
Section 40(a)(ia) of the Act. In the order of assessment, the AO took
note of and dealt with various submissions made on behalf of the
assessee-appellant in this regard as follows:-
“Since the assessee failed to deduct the tax at source while making
payment to truck owners/ operators exceeding Rs. 20,000/-, the C
assessee was asked to explain as to why deduction claimed on
account of such payments from the income be not disallowed
within the meaning of Section 40(a)(ia) of the Act. The learned
counsel of the assessee firm stated that there was no payment
exceeding Rs. 20,000/-. In this regard he furnished photocopy of D
extract of cash book and also payment vouchers which indicate
that each payment exceeding Rs. 20,000/- was shown in the cash
book in two parts though paid on the same date and the assessee
made two separate vouchers for such payment just to give an
impression that payment to truck owners/ operators was not
exceeding Rs. 20,000/-. In this regard it is pertinent to mention E
that merely by showing payment of one challan/ bilty in two
pieces the assessee cannot absolve itself of the provisions
of the Section 40(a)(ia) inasmuch as Section 194C(3)(i) clearly
speaks of – “the amount of any sum credited or paid or likely to
be credited or paid to the account of, or to, the Contractor or sub- F
contractor, if such sum does not exceed twenty thousand rupees”.
The learned counsel further submitted that the receipts of the
assessee firm are full vouched and verifiable and subject to TDS
and the payments to truck owners/ operators are made by the
assessee firm from such receipts and as such there as no need
for further TDS. He further stated that the assessee firm prepares G
bills for claiming payments from the company on the basis of
freight charges payable to various truck owners/ operators and
when the payment is received on the basis of such bills, further
payment is made to the truck owners/ operators and nominal
commission is retained by the assessee and, therefore, the payment H
178 SUPREME COURT REPORTS [2020] 8 S.C.R.

A made to the truck owners/ operators was out of the purview of
Section 194C of the Act. He further stated that it is not practical
to deduct tax at source while making payment to a truck owner/
operator because no truck owner accepts payment after TDS.
This argument put forth on behalf of the assessee firm is not
acceptable inasmuch as Section 194C(1) clearly says that - “Any
B
person responsible for paying any sum to any resident…….” Since
the assessee firm was responsible for making payment to
the truck owners operators, it was mandatory on the part
of the assessee to deduct tax at source while making such
payment. Further there is no direct nexus between the
C Company and the truck owners/operators and thus it cannot
be said that the assessee firm was a mediator between the
company and the truck owners/ operators…...”
(emphasis in bold supplied)
5.5. In view of the above, the AO proceeded to disallow the
D deduction of payments made to the truck operators/owners exceeding
Rs. 20,000/- without TDS, which in total amounted to Rs. 57,11,625/-;
and added the same back to the total income of the assessee-appellant.
The AO also disallowed a lump sum of Rs. 20,000/- from various expenses
debited to the Profit and Loss Account and finalised the assessment,
E accordingly, as under:-
“Therefore, considering the provisions of Section 194C, Section
40(a)(ia) and Board’s Circular No. 715, dated 08.8.1995, the
payment made to the truck owners/operators, exceeding to Rs.
20,000/- without deducting tax at source is disallowed and added
F back to the total income of the assessee firm which works out to
Rs. 57,11,625/-, supra. The assessee has shown total payments
in Truck Freight Account at Rs. 1,37,71,206/- and total receipts
from the company at Rs. 1,43,90,632/-.
The assessee has shown commission income of Rs. 6,23,300/- on
G 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 the
immediate preceding year on commission income of Rs. 6,00,450/
-. The N.P. rate declared this year is on the lower side. Considering
the nature of various expenses debited to the Profit and Loss
Account like Staff Welfare Expenses, Telephone Expenses,
H Travelling expenses, Motor Cycle Repairs etc. where involvement
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 179
TAX OFFICER [DINESH MAHESHWARI, J.]

of personal element cannot be ruled out, a lump sum disallowance A
of Rs. 20,000/- is made to the declared income.”
Before the Commissioner of Income Tax (Appeals), Jodhpur
6. Aggrieved by the order so passed by the Assessing Officer, the
assessee-appellant preferred an appeal before the Commissioner of
Income Tax (Appeals)6, being Appeal No. 183 of 2007-08, that was B
considered and dismissed on 15.01.2008.
6.1. The CIT(A) re-examined the record and rejected the
contentions of the appellant that it had only received commission income
and was not liable to deduct tax at source on payments made to the
truck owners while observing as under:- C

“On careful consideration of the material facts, it is observed that
the appellant entered into a contract for transportation of goods
(cement) with M/s Aditiya Cement Limited in order to honour the
contract, the appellant hired various trucks all through out the
year for the purpose of transportation of cement. The appellant D
received freight charges from M/s Aditiya Cement Limited on
which tax was deducted. The appellant paid freight charges to
individual truck owners, after transportation of goods. There was
no nexus between the truck owners/operators and
M/s Aditiya Cement Limited. How the appellant transported E
the goods (cement) was the exclusive domain of the
appellant firm. Under such circumstances, the gross freight
received by the appellant from M/s Aditiya Cement Limited
represents gross income of the appellant firm. Since the
appellant made payments to various truck owners/
operators. Such payments represent expenditure. It may F
be mentioned here that the payments to the truck owners/
operators were made only after the goods were transported by
them satisfactorily at the given destinations. In other words, there
existed a contract or a sub-contract between the appellant firm
and the transporters. Under such circumstances, the appellant G
was required to deduct tax at source on the payments made to
truck drivers/ owners within the meaning of provisions of Section
40(a)(ia) read with Section 194C of the Act. Under no
circumstances, it can be said that the appellant only received
6
‘CIT(A)’ for short H
180 SUPREME COURT REPORTS [2020] 8 S.C.R.

A commission income and therefore provisions of Section 194C are
not applicable.”
(emphasis in bold supplied)
6.2. In regard to the contention that the appellant was not required
to deduct tax at source when no payment exceeded Rs. 20,000/-, the
B CIT(A) found that the appellant had, for its convenience and to avoid
the rigour of Section 40A(3) of the Act, chose to split the payments into
two parts but the entries of such split payments were available
consecutively in the cash book. Thus, while not accepting such
methodology, the CIT(A) observed that even in the split payments, it
C was required of the appellant to deduct tax at the time of making final
payment. The relevant observation of the CIT(A)read as under:-
“The facts have been gone through and it is observed that the
appellant made payments in a manner according to which individual
payment to the truck owner(s) did not exceed Rs. 20,000/-. In
D other words, the payment was splitted into two parts. However,
the total amount paid to the truck owner(s) for individual contract
exceeded Rs. 20,000/-. For instance, cashbook dated 31-1-2005
of the appellant shows payments of Rs. 14,750/- and Rs. 10,510/
- to Truck No.RJ14-G-5599 for transport of cement from the
premises of the Cement Company to Bhatinda. The same
E 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 the
argument that since the individual payment did not exceed Rs.
20,000/-, the provisions of Section 194C are not applicable. On
careful consideration of the material facts, it is observed that
F both the entries are consecutive in the cashbook and,
therefore, it is observed that the appellant, for its
convenience and to avoid rigors of the provisions of Section
40A(3), splitted the payments into two parts. Had the
payments been really made in two parts, both the entries should
not have been consecutive. It is also not understood as to why the
G truck owners after completing the contract, would accept the
amount in two parts and why they would come to the office of the
appellant twice for seeking payments. The theory of making
payments in two parts is merely a story, which is capable
neither on facts nor on practicability. It is also surprising to
H
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 181
TAX OFFICER [DINESH MAHESHWARI, J.]

note that in none of the case the appellant made fully payment to A
any truck owner all through out the year exceeding Rs.20,000/.”
(emphasis in bold supplied)
6.3. The CIT(A) also examined in detail the question as to whether
transport contracts were subject to deduction of tax at source and, with
reference to clause (c) of Explanation (iii) of Section 194C of the Act B
as also to CBDT Circular Nos. 558 dated 28.03.1990 and 681 dated
08.03.1994, held that the provisions of Section 194C of the Act were
applicable to the contracts for transportation of goods; and the appellant
was required to deduct tax at source if the gross credited or paid or
likely to be credited or paid exceeded the limit of Rs. 20,000/-. Having C
found that the appellant’s case was squarely covered within the provisions
of Section 194C of the Act, the CIT(A) held that in view of the mandatory
provisions of Section 40(a)(ia) of the Act, the payments in question cannot
be allowed as deduction while computing total income. Thus, the CIT(A)
proceeded to dismiss the appeal while holding, inter alia, as under:-
D
“It is, therefore, clear that the appellant’s case was squarely
covered within the provisions of the Section 194C and, therefore,
it was required to deduct tax at sources while making payments
to the truck owners.
Provisions of Section 40(a)(ia) clearly provide that if any amount E
payable to a 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 the previous year, or in the subsequent year before
the expiry of the time prescribed under sub-section (1) of Section
200, such sum shall not be allowed as a deduction while computing F
the total income. As can be seen, the provisions are mandatorily
to be complied with in the case a default and the question of
existence of any reasonable cause has got no meaning.
In the light of the entire discussion as above, I hold that the
appellant was required by the provisions of the Act to deduct tax G
on freight payments totalling to Rs.57,11,625/-. Since the appellant
failed to deduct tax at source the sum of Rs.57,11,625/- was rightly
disallowed by the Ld. AO. The Ld. AO rightly invoked the
provisions of Section 40(a)(ia) of the Act. Therefore, on the given
facts as also in law, the ground of appeal fails.”
H
182 SUPREME COURT REPORTS [2020] 8 S.C.R.

A Before the Income Tax Appellate Tribunal, Jodhpur Bench
7. Aggrieved again, the appellant approached the 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.
B 7.1. The ITAT pointed out that by an application dated 16.07.2008,
the appellant sought permission to produce additional evidence i.e., the
agreement dated 01.04.2003 executed between itself and M/s Grasim
Industries Limited, and as the Department had no-objection, the same
was admitted as additional evidence by the order dated 17.07.2008but,
C another application for admission of evidence in shape of affidavit of
partner of the appellant firm,was objected to by the Department and
was rejected.
7.2. The ITAT found that the agreement in questionwas on principal
to principal basis whereby, the appellant was awarded the work of
D transporting cement from Shambupura but, as the appellant did not own
any trucks, it had engaged the services of other truck operators/owners
for transporting the cement; and such a transaction was a separate
contract between the appellant and the truck operator/owner. The ITAT,
therefore, endorsed the findings of AO and CIT(A) in the following
words:-
E
“13.The perusal of agreement on record reveals that the assessee
was awarded a works contract by M/s. Grasim Industries Limited,
a cement marketing division of M/s. Aditya Cement Ltd. This
agreement was on principal to principal basis whereby the appellant
was awarded the cement transportation work and in terms of
F agreement the scope of work was to include placement of trucks
for cement transportation from their plant at Shambupura on
regular basis in the state of Rajasthan. In case the assessee failed
to provide trucks as per contractual obligation, the company was
free to hire trucks from market at prevailing prices and the amount
G of expenses incurred if any was to be debited to the assessee’s
account terming him to be a transporter. The assessee merely
acted as an independent contractor while carrying on the aforesaid
work contract awarded to it by M/s. Grasim Industries Limited.
Admittedly, the appellant did not own trucks of its own for carrying
7
H ‘ITAT’ for short
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 183
TAX OFFICER [DINESH MAHESHWARI, J.]

out such transportation contract and has engaged the services of A
other truck owners/operators for lifting goods from the premises
of M/s Grasim Industries Limited and transporting the same to
various sites in Rajasthan. Goods receipt [GR]/bilty were prepared
and the same was to be taken as a contract between the appellant
and such truck owners/operators. A clarification to this effect
B
given vide Board Circular No. 715 dated 8.8.1995 has been brought
on record by the Revenue and strongly relied upon by the assessing
authority as well so as to consider the goods carried under particular
goods/receipt/bilty as a separate contract. The assignment of such
contract by the appellant to the truck operators/owners was rightly
taken as a sub contract for carrying out the job awarded to the C
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. The assessing authority has found
that the payments made and credited with respect to each of
D
such contracts involving aggregate payment of Rs. 20,000/- on a
particular day amounted to Rs. 57,11,625/-. In the light of clear
provisions contained in Section 194C of the Act and having regard
to the fact that both the amounts actually paid or credited or likely
to be paid on account of each contract exceeded Rs. 20,000/- on
a single day. Section 194C has rightly found applicable. We, E
therefore, do not find any wrong committed by the ld. CIT(A) in
holding that the 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. The ITAT also negated the argument that by the time of F
issuance of Circular No. 5 dated 15.07.2005, the time for payment of
tax at source had expired and that Section 40(a)(ia) would only be
applicable from the assessment year 2006-2007 and not from the
assessment year 2005-2006. The ITAT also referred to the proviso to
Section 40(a)(ia) of the Act and pointed out that thereunder, the assessee
was eligible to get deduction of such expenditure in a subsequent year in G
which TDS was actually paid to the Government. The ITAT observed in
regard to these two aspects concerning applicability of the provision in
question as also the effect of proviso thereto, in the following passage:-

H
184 SUPREME COURT REPORTS [2020] 8 S.C.R.

A “15. The assessee’s counsel also raised a plea that Circular No. 5
was issued only on 15-7-2005 by which date the time for payment
of tax at source has also expired and as such it was contended
that the provisions as contained in Section 40(a)(ia) of the Act
would be applicable not from A.Y. 2005-06 but from 2006-07.
We,however, do not subscribe to the view so canvassed by the
B
assessee. The Finance (No.2) Act 2004 has brought an
amendment in Section 40 of the Act making it applicable w.e.f.
01/04/2004 (sic)8. Since this amendment came before close
of the financial year ended on 31/03/2005 in the statute
books, the assessee cannot be held to be ignorant of its
C liability to deduct tax at source. The subsequent board circular
issued is merely clarificatory. The amendment in Section 40 of
the Act does not take away the right of the assessee to claim
deduction for such expenses for all times to come. It only mandates
that the deduction shall not be allowed in the relevant year in
which there was liability to deduct and pay tax at source but the
D
same has not been paid before the expiry of the time prescribed
under sub-section (1) of Section 200 of the act. It also had
proviso clause whereby the assessee was eligible to get
deduction of such expenditure in a subsequent year in which
such tax deducted at source has actually been paid. The
E plea raised by the assessee, therefore, does not support the claim.”
(emphasis in bold supplied)
7.4. The ITAT further rejected the contention that the amount of
expenditure was not charged to the Profit and Loss Account and only
commission was shown as income. The ITAT observed that mere
F reflection in two different account books would not qualify for distinct
and different treatment since both freight paid and freight charged partake
the same character. The ITAT, accordingly, dismissed the appeal.
Before the High Court

G 8. Aggrieved yet again, the appellant approached the High Court
in D.B. Income Tax Appeal No. 164 of 2008 against the order passed by
8
The extraction is from the typed copy of the order of ITAT, placed on record as
Annexure P-5 (at page 84 of the paper book) but there is obvious typographical error
on this date “01.04.2004” because the amendment of Section 40 of the Act of 1961 by
the Finance (No.2) Act, 2004 was made applicable with effect from “01.04.2005“. The
H effect and implication of the relevant date is examined in Question No. 3 infra.
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 185
TAX OFFICER [DINESH MAHESHWARI, J.]

ITAT. However, the appeal so filed was dismissed summarily by the A
High Court,by its short order dated 15.05.2009 that reads as under:-
“In our view, on the language of Section 194C(2), and the fact
that the good received were sent through truck owners by the
appellant, and there was no privity of direct contract between the
truck owners and the cement factory. According to the contract B
between the appellant and the cement factory, it was the appellant’s
responsibility to transport the cement, and for that the appellant
hired the services of the truck owners, obviously as sub-
contractors. In that view of the matter, we do not find any error in
the impugned order of the Tribunal. The appeal is, therefore,
dismissed summarily.” C

9. Thus, the net result of the proceedings aforesaid had been that
theconsistent views of the AO, CIT(A) and ITAT, that deduction, of the
payments made to the truck operators/owners, cannot be allowed while
computing the total income of the assessee-appellant, came to be affirmed
by the High Court. D

Rival Submissions
Appellant
10. Assailing the order so passed by the High Court in summary
dismissal of the appeal as also the views expressed in the assessment E
and appellate orders, learned counsel for the assessee-appellant has urged
before us multiple contentions on the scope and applicability of Section
194C of the Act as also Section 40(a)(ia) thereof and has argued that
these provisions could not have been applied to the case at hand.
10.1. Learned counsel for the appellant has strenuously argued F
that the provisions of Section 194C of the Act of 1961, particularly sub-
section (2) thereof,were not applicable to the present case for there was
no oral or written contract of the appellant with the truck operators/
owners, whose vehicles were engaged to execute the work of
transportation of the goods. It has been contended that the liability under
G
Section 194C(2) would have arisen only if payments were made to “sub-
contractor” and that too “in pursuance of a contract” for the purpose of
“carrying whole or any part of work undertaken by the contractor”. The
learned counsel for the appellant would argue that when there had not
been any specific contract between the appellant and the truck owners,
whose vehicles were hired by the appellant on freelance and need basis, H
186 SUPREME COURT REPORTS [2020] 8 S.C.R.

A the ingredients of Section 194C(2) were not satisfied and the obligation
of deducting tax at source could not have been fastened on the appellant.
10.1.1. The learned counsel has supported his contentions against
the applicability of Section 194C of the Act to the present case with
reference to the decision of Delhi High Court in the case of
B Commissioner of Income-Tax v. Hardarshan Singh: (2013) 350
ITR 427 wherein it was held that when the assessee merely acted as
facilitator or intermediary in the process of transportation of goods, he
had no liability to deduct TDS under Section 194C of the Act.
10.2. The main plank of the submissions of learned counsel for
C the appellant has been that disallowance under Section 40(a)(ia) of the
Act is confined to the expenses that are booked during the year but
remain payable or outstanding and not the expenses that had already
been paid. The learned counsel has referred to the decision of this Court
in the case of J.K. Synthetics Limited v. Commercial Taxes Officer:
(1994) 4 SCC 276; and the definition of the term “paid” in Section
D 43(2) of the Act to submit that the two expressions “payable” and “paid”
are of entirely different connotations. The learned counsel has
painstakingly referred to the contents of the Bill introducing the Finance
(No.2) Act of 2004 where the expressions”credited or paid”were used
but in the provision as enacted, the expression “payable” has occurred.
E According to the learned counsel, if the legislature intended to disallow
the deduction towards the payments made and incurred, it would have
used the expression “paid”, which term has been specifically defined for
the purposes of Sections 28 to 41 of the Act but the use of expression
“payable” makes it clear that the coverage of the provision is restricted
and in any case, itis not applicable over the amount already paid. The
F learned counsel has also attempted to draw support to his contentions
with reference to the contents of the proviso to Section 40(a)(ia) of the
Act with the submissions that the meaning and scope of the main provision
is accentuated by the scope of proviso wherein, the expression “paid” is
used while giving out the circumstances when a deduction, not allowed
G under the main provision, could be claimed in the subsequent year.
10.2.1. Taking this line of argument further, learned counsel would
contend that the scope of Section 40(a)(ia) of the Act cannot be decided
on the basis of the scope of Section 194C of the Act. Learned counsel
would submit that Section 201 of the Act provides for consequence of
H non-deduction of TDS either at the time of payment or booking, whichever
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 187
TAX OFFICER [DINESH MAHESHWARI, J.]

is earlier; and thus, the said provision would apply to both the situations A
where the expenses amount has been “paid” or is “payable”. However,
according to the learned counsel, the additional consequence of default
as provided in Section 40(a)(ia) of the Actwould come into operation
only if the alleged default strictly falls within the language of this provision,
which is limited to the amount “payable”. Learned counsel would submit
B
that the scope of Section 40(a)(ia) of the Act cannot be expanded beyond
its language merely because as per Section 194C, the liability to deduct
tax is at the time of “credit of such amount to the account of a contractor”
or at the time of “payment” whichever is earlier. With reference to the
decision of this Court in the case of Institute of Chartered Accountants
of India v. Price Waterhouse: (1997) 93 Taxman 588, the learned C
counsel has argued that when the words are clear and there is no obscurity,
the intention of legislature has to be inferred only from the words used in
the provision.
10.2.2. Thus, learned counsel for the appellant has strenuously
argued that Section 40(a)(ia) of the Act remains limited in its scope and D
does not apply to the amount already “paid”. However, being aware of
the position that the substratum of such contentions does not stand in
conformity with the view already taken by this Court in the case of
Palam Gas Service v. Commissioner of Income-Tax : (2017)394
ITR 300, the learned counsel has made elaborate submissions that the
said decision in Palam Gas Service requires reconsideration. According E
to the learned counsel, such reconsideration isnecessitated because of
the factorsthat: (a) the taxing provision for disallowance has to be strictly
construed as per the language used and there is no scope for adopting
the so-called purposive construction; (b) the change of words used in
the Bill “credited or paid” to the word “payable” has been ignored; (c) F
the effect of proviso making it clear that the intent of the main provision
isonly to disallow the outstanding or payable amounts has not been
considered; and (d) the Court has widened the scope of consequences
provided under Section 40(a)(ia) of the Act based on the scope of Sections
194C and 201 of the Act, although such an approach is impermissible
while interpreting a provision in the taxing statute. G

10.3. Learned counsel for the appellant has argued in the
alternative that the said sub-clause (ia), having been inserted to clause
(a) of Section 40 of the Act with effect from 01.04.2005 by the Finance
(No.2) Act, 2004, would apply only from the financial year 2005-2006
H
188 SUPREME COURT REPORTS [2020] 8 S.C.R.

A and hence, cannot apply to the present case pertaining to the financial
year 2004-2005. In support, the learned counsel has referred to and
relied upon the decision of Calcutta High Court in the case of PIU Ghosh
v. Deputy Commissioner of Income-Tax & Ors.: (2016) 386 ITR
322. Supplemental to these contentions, the learned counsel has also
argued that, in any case, the Finance (No.2) Act, 2004 received the
B
assent of the President of India on 10.09.2004 and hence, the rigour of
sub-clause (ia) of Section 40(a) of the Act cannot be applied in relation
to the payments already made before 10.09.2004, the date of introduction
of this provision.
10.3.1. In yet another alternative, learned counsel for the appellant
C has referred to the amendment made to Section 40(a)(ia) of the Act by
the Finance (No.2) Act, 2014,restricting and limiting the extent of
disallowance to 30% of the expenditure and has submitted that the said
amendment, being curative in nature and having been introduced to
ameliorate the hardships faced by the assessees, deserves to be applied
D retrospectively and from the date of introduction of sub-clause (ia) to
Section 40(a)of the Act. The learned counsel has developed this argument
by relying on the decision in Commissioner of Income-Tax v. Calcutta
Export Company: (2018) 404 ITR 654, wherein this Court has held
the remedial amendment of Section 40(a)(ia) of the Act by the Finance
Act, 2010 to be retrospective in nature and applicable from the date of
E insertion of the said provision.
10.4. Learned counsel for the appellant has lastly submitted that
the result of applying the provisions in question to the entire payment
practically leads to a highly incongruous position thatwhole of the receipt
from company is treated as the income of the appellantand taxed
F accordingly, but without due provision towards necessary expenses.
According to the learned counsel, in such contracts, the annual income
of the transport contractor like the appellant cannot be, and is not, to the
extent of about Rs. 57 lakhs, as sought to be taxed in the present matter.
Respondent
G
11. Per contra, the learned counsel for respondent-revenue has
duly supported the orders impugned, essentially with reference to the
reasonings therein and also with reference to the decision of this Court
in Palam Gas Service (supra).

H
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 189
TAX OFFICER [DINESH MAHESHWARI, J.]

11.1. Learned counsel for the revenue has, in the first place, A
contended with reference to the decided cases that the concurrent
findings of fact recorded by the authorities and ITAT, as affirmed by the
High Court call for no interference for no case of apparent perversity
being made out.
11.2. Learned counsel has further submitted that the appellant B
admittedly carried out the work of transportation by hiring the trucks
and made payments to the operators/owners while issuing an invoice/
bilty/challan for every such hiring, which constituted a separate contract/
sub-contract. According to the learned counsel, in such dealings, the
appellant was required to deduct tax at source in terms of Section 194C
of the Act when making payment to any truck operator/owner in the C
sum exceeding Rs. 20,000/-; and the appellant having failed to do so, the
provisions of Section 40(a)(ia) have rightly been invoked.
11.3. Learned counsel for the revenue hasmade elaborate
reference to the decision of this Court in the case of Palam Gas Service
(supra) and has submitted that the principal contention on the part of the D
appellant, that the expression “payable”, as occurring in Section 40(a)(ia)
of the Act, refers only to those cases where the amount is yet to be paid
and does not cover the cases where the amount is actually paid, has
been duly considered and specifically rejected by this Court; and the
said decision squarely covers the present matter. The learned counsel E
has argued that in the case of Palam Gas Service (supra), this Court
having holistically examined the scheme of the provisions in question,
there is no scope for reconsideration of the said decision; and this appeal
deserves to be dismissed for the question sought to be raised as regard
interpretation of Section 40(a)(ia) of the Act being no more res integra.
F
11.4. Learned counsel for the revenue has further contended that
the amendment to Section 40(a) of the Act with insertion of sub-clause
(ia) by the Finance (No. 2) Act, 2004 with effect from 01.04.2005 directly
applies to the assessment year 2005-2006; and for the appellant having
failed to deduct tax at source from the payment made to the sub-
contractors for the work of transportation, deduction of such payment G
has rightly been disallowed.
11.5. The learned counsel has also argued that the proviso to
Section 40(a)(ia) of the Act, as inserted by the Finance Act, 2014, does
not apply to the case at hand pertaining to the assessment year 2005-
H
190 SUPREME COURT REPORTS [2020] 8 S.C.R.

A 2006 and hence, the argument for curative benefit with reference to the
said proviso does not hold the ground.
Questions for determination
12. Having regard to the submissions made by the learned counsel
for the parties and the observations occurring in the orders impugned,
B the principal questions arising for determination in this appeal could be
stated as follows:-
1. As to whether Section 194C of the Act does not apply to the
present case?

C 2. As to whether disallowance under Section 40(a)(ia) of the Act
is confined/limited to the amount “payable” and not to the amount
“already paid”; and whether the decision of this Court in Palam
Gas Service v. Commissioner of Income-Tax: (2017) 394 ITR
300 requires reconsideration?

D 3. As to whether sub-clause (ia) of Section 40(a) of the Act, as
inserted by the Finance (No. 2) Act, 2004 with effect from
01.04.2005, is applicable only from the financial year 2005-2006
and, hence, is not applicable to the present case relating to the
financial year 2004-2005; and, at any rate, whole of the rigour of
this provision cannot be applied to the present case?
E
4. As to whether the payments in question have rightly been
disallowed from deduction while computing the total income of
the assessee-appellant?
Relevant Provisions
F 13. For determination of the questions aforesaid, we need to closely
look at the statutory provisions in the 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 the Act of 1961 for “Collection and Recovery of Tax”
G and Part B thereof carries the provisions concerning “Deduction at
Source”. Sections 194C, 200 and 201, which have come in reference in
the present matter, are contained in this part and the same, as existing at
the relevant point of time pertaining to the assessment year 2005-2006,
may be usefully noticed.

H
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 191
TAX OFFICER [DINESH MAHESHWARI, J.]

13.1.1. The liability against the appellant has basically arisen A
because of its alleged non-compliance of the requirements of Section
194C of the Act. At the relevant point of time,this provision readas 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 the contractor) for carrying B
out any work (including supply of labour for carrying out any work)
in pursuance of a contract between the contractor and-
(a) the Central Government or any State Government; or
(b) any local authority; or
C
(c) any corporation established by or under a Central, State or
Provincial Act; or
(d) any company; or
(e) any co-operative society; or
D
(f) any authority, constituted in India by or under any law, engaged
either for the purpose of dealing with and satisfying the need
for housing accommodation or for the purpose of planning,
development or improvement of cities, towns and villages, or
for both; or
E
(g) any society registered under the 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 a F
Central, State or Provincial Act and an institution declared to
be a University under section 3 of the University Grants
Commission Act, 1956 (3 of 1956); or
(j) any firm,
shall, at the time of credit of such sum to the account of the G
contractor or at the time of payment thereof in cash or by issue of
a cheque or draft or by any other mode, whichever is earlier,
deduct an amount equal to-
(i) one per centin case of advertising,
H
192 SUPREME COURT REPORTS [2020] 8 S.C.R.

A (ii) in any other case two per cent,
of such sum as income-tax on income comprised therein.
(2) Any person (being a contractor and not being an individual or
a Hindu undivided family) responsible for paying any sum to any
resident (hereafter in this section referred to as the sub-contractor)
B in pursuance of a contract with the sub-contractor for carrying
out, or for the supply of labour for carrying out, the whole or any
part of the work undertaken by the contractor or for supplying
whether wholly or partly any labour which the contractor has
undertaken to supply shall, at the time of credit of such sum to the
C account of the sub-contractor or at the time of payment thereof in
cash or by issue of a cheque or draft or by any other mode,
whichever is earlier, deduct an amount equal to one per cent of
such sum as income-tax on income comprised therein:
Provided that an individual or a Hindu undivided family, whose
D total sales, gross receipts or turnover from the business or
profession carried on by him exceed the monetary limits specified
under clause (a) or clause (b) of section 44AB during the financial
year immediately preceding the financial year in which such sum
is credited or paid to the account of the sub-contractor, shall be
liable to deduct income-tax under this sub-section.
E
Explanation I.- For the purposes of sub-section (2), the expression
“contractor” shall also include a contractor who is carrying out
any work (including supply of labour for carrying out any work) in
pursuance of a contract between the contractor and the
Government of a foreign State or a foreign enterprise or any
F association or body established outside India.
Explanation II. -For the 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 the books of account of the person liable to pay such income,
G such crediting shall be deemed to be credit of such income to the
account of the payee and the provisions of this section shall apply
accordingly.
Explanation III. – For the purposes of this section, the expression
“Work” shall also include-
H
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 193
TAX OFFICER [DINESH MAHESHWARI, J.]

(a) advertising; A
(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;
B
(d) catering.
(3) No deduction shall be made under sub-section (1) or sub-
section (2) from-
(i) the amount of any sum credited or paid or likely to be credited
or paid to the account of, or to, the contractor or sub-contractor, if C
such sum does not exceed twenty thousand rupees:
Provided that where the aggregate of the amounts of such sums
credited or paid or likely to be credited or paid during the financial
year exceeds fifty thousand rupees, the person responsible for
paying such sums referred to in sub-section (1) or, as the case D
may be, sub-section (2) shall be liable to deduct income-tax under
this section; or
(ii) any sum credited or paid before the 1st day of June, 1972; or
(iii) any sum credited or paid before the 1st day of June, 1973, in
pursuance of a contract between the contractor and a co-operative E
society or in pursuance of a contract between such contractor
and the sub-contractor in relation to any work (including supply of
labour for carrying out any work) undertaken by the contractor
for the co-operative society.”
13.1.2. Sections 200 and 201 of the Act, respectively dealing with
F
the duty of the person deducting tax and consequences on failure to
deduct or pay, as applicable at the relevant time,could also be reproduced
as under:-
“200. Duty of person deducting tax.
(1) Any person deducting any sum in accordance with the foregoing G
provisions of this Chapter9, shall pay within the prescribed time,
the sum so deducted to the credit of the Central Government or
as the Board directs.
9
The words “the foregoing provisions of this Chapter” were substituted for the previous
expressions carrying various provisions of the Act, by the Finance (No. 2) Act, 2004,
w.e.f. 01.10.2004. H
194 SUPREME COURT REPORTS [2020] 8 S.C.R.

A (2) Any person being an employer, referred to in sub-section (1A)
of section 192 shall pay, within the prescribed time, the tax to the
credit of the Central Government or as the Board directs.10
(3) Any person deducting any sum on or after the 1st day of April,
2005 in accordance with the foregoing provisions of this Chapter
B or, as the case may be, any person being an employer referred to
in sub-section (1A) of section 192 shall, after paying the tax
deducted to the credit of the Central Government within the
prescribed time, prepare quarterly statements for the period ending
on the 30th June, the 30th September, the 31st December and the
31st March in each financial year and deliver or cause to be
C delivered to the prescribed income-tax authority or the 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.
D
(1) If any such person referred to in section 200 and in the cases
referred to in section 194, the principal officer and the company
of which he is the principal officer does not deduct the whole or
any part of the tax or after deducting fails to pay the tax as required
by or under this Act, he or it shall, without prejudice to any other
E consequences which he or it may incur, be deemed to be an
assessee in default in respect of the tax:
Providedthat no penalty shall be charged under section 221 from
such person, principal officer or company unless the Assessing
Officer is satisfied that such person or principal officer or company,
F as the case may be, has without good and sufficient reasons failed
to deduct and pay the tax.
(1A) Without prejudice to the provisions of sub-section (1), if any
such person, principal officer or company as is referred to in that
sub-section does not deduct the whole or any part of the tax or
G after deducting fails to pay the tax as required by or under this
Act, he or it shall be liable to pay simple interest at twelveper cent
per annum on the amount of such tax from the date on which

10
Sub-section (2) was inserted by the Finance Act, 2002.
11
H Sub-section (3) was inserted by the Finance (No.2) Act, 2004, w.e.f. 01.04.2005
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 195
TAX OFFICER [DINESH MAHESHWARI, J.]

such tax was deductible to the date on which such tax is actually A
paid.
(2) Where the tax has not been paid as aforesaid after it is deducted,
the amount of the tax together with the amount of simple interest
thereon referred to in sub-section (1A) shall be a charge upon all
the assets of the person, or the company, as the case may be, B
referred to in sub-section (1).”
13.2. Chapter IV of the Act of 1961 deals with the subject
“Computation of Total Income” and Section 40 occurs in Part D thereof,
carrying the provisions relating to the “Profits and Gains of Business
or Profession”. Even when Sections 30 to 38 provide for various C
allowances and deductions in computation of the income from profits
and gains of business or profession, Section 40 specifically ordains that
certain amounts shall not be deducted, notwithstanding anything to the
contrary contained in the said Sections 30 to 38 of the Act. In the present
matter, we are concerned with the provisions contained in sub-clause
(ia) of clause (a) of Section 40of the Act, which was inserted by the D
Finance (No. 2) Act, 2004 with effect from 01.04.2005. Hence, the
extraction hereunder is essentially of the provision that could be read as
Section 40(a)(ia) of the Act after insertion by the Finance (No. 2) Act,
2004: -
“40. Amounts not deductible. -Notwithstanding anything to the E
contrary in sections 30 to 38, the following amounts shall not be
deducted in computing the income chargeable under the head
“Profits and gains of business or profession”,-
(a) in the case of any assessee-
F
*** *** ***
(ia) any interest, commission or brokerage, fees for professional
services or fees for technical services payable to a resident, or
amounts payable to a contractor or sub-contractor, being resident,
for carrying out any work (including supply of labour for carrying
G
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 the previous year, or in the subsequent
year before the expiry of the time prescribed under sub-section
(1) of section 200:
H
196 SUPREME COURT REPORTS [2020] 8 S.C.R.

A Provided that where in respect of any such sum, tax has been
deducted in any subsequent year or, has been deducted in the
previous year but paid in any subsequent year after the expiry of
the time prescribed under sub-section (1) of section 200, such
sum shall be allowed as a deduction in computing the income of
the previous year in which such tax has been paid.
B
Explanation.-For the purposes of this sub-clause,-
(i) “commission or brokerage” shall have the same meaning
as in clause (i) of the Explanation to section 194H;
(ii) “fees for technical services” shall have the same meaning
C as in Explanation 2 to clause (vii) of sub-section (1) of
section 9;
(iii) “professional services” shall have the same meaning as in
clause (a) of the Explanation to section 194J;

D (iv) “work” shall have the same meaning as in Explanation III
to section 194C;
*** *** ***”12
13.3. Section 43 in the very same Part D of Chapter IV of the
Act of 1961 defines various terms relevant to the income from profits
E and gains of business or profession; and clause (2) thereof, carrying the
definition of the expression “paid”, having been referred in the 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 28 to
F 41 and in thissection, unless the context otherwise requires-
*** *** ***
(2) “paid” means actually paid or incurred according to the method
of accounting upon the basis of which the profits or gains are
computed under the head “Profits and gains of business or
G profession”;
*** *** ***”
12
We may usefully indicate that Section 40(a)(ia) of the Act has undergone several
amendments from time to time and in one segment of arguments, the amendments as
made in the years 2010 and 2014, have been referred on behalf of the appellant. We shall
H refer to the relevant contents of this provision after such amendments while dealing
with that part of arguments at the appropriate juncture hereafter later.
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 197
TAX OFFICER [DINESH MAHESHWARI, J.]

13.4. For their relevance in relation to another segment of A
arguments, we may also take note of the meaning assigned to the
expression “assessment year” in clause (9) of Section 2; and to the
expression “previous year” in Section 3 of the Act of 1961 as follows: -
“2. Definitions.-In this Act, unless the context otherwise
requires,- B
*** *** ***
(9) “assessment year” means the period of twelve months
commencing on the 1st day of April every year;
*** *** ***” C
“3. “Previous year” defined.- For the purposes of this Act,
“previous year” means the financial year immediately preceding
the assessment year:
*** *** ***”
D
14. We may now take up the questions involved in this matter ad
seriatim.
Question No.1
15. In order to maintain that the appellant was under no obligation
to make any deduction of tax at source, it has been argued that there E
was no oral or written contract of the appellant with the truck operators/
owners, whose vehicles were engaged to execute the work of
transportation of the goodsonly on freelance and need basis. The
submission has been that the question of TDS under Section 194C(2)
would have arisen only if the payment was made to a “sub-contractor”
and that too,in pursuance of a contract for the purpose of “carrying F
whole or any part of work undertaken by the contractor”. In our view,
the submissions so made remain entirely baseless.
15.1. The nature of contract entered into by the appellant with the
consignor company makes it clear that the appellant was to transport
the goods (cement) of the consignor company; and in order to execute G
this contract, the appellant hired the transport vehicles, namely, the trucks
from different operators/owners. The appellant received freight charges
from the consignor company, who indeed deducted tax at source while
making such payment to the appellant. Thereafter, the appellant paid the
charges to the persons whose vehicles were hired for the purpose of the H
198 SUPREME COURT REPORTS [2020] 8 S.C.R.

A said work of transportation of goods. Thus, the goods in question were
transported through the trucks employed by the appellant but, there was
no privity of contract between the truck operators/owners and the said
consignor company. Indisputably, it was the responsibility of the appellant
to transport the goods (cement) of the company; and how to accomplish
this task of transportation was a matter exclusively within the domain of
B
the appellant. Hence, hiring the services of truck operators/owners for
this purposecould have only been under a contract between the appellant
and the said truck operators/owners. Whether such a contract was
reduced into writing or not carries hardly any relevance. In the given
scenario and set up, the said truck operators/owners answered to the
C description of “sub-contractor” for carrying out the whole or part of the
work undertaken by the contractor (i.e., the appellant) for the purpose
of Section 194C(2) of the Act.
15.2. The suggestions on behalf of the appellant that the said truck
operators/owners were not bound to supply the trucks as per the need
D of the appellant nor the freight payable to them was pre-determined, in
our view, carry no meaning at all. Needless to observe that if a particular
truck was not engaged, there existed no contract but, when any truck
got engaged for the purpose of execution of the work undertaken by the
appellant and freight charges were payable to its operator/owner upon
execution of the work, i.e., transportation of the goods, all the essentials
E of making of a contract existed; and, as aforesaid, the said truck operator/
owner became a sub-contractor for the purpose of the work in question.
The AO, CIT(A) and the ITAT have concurrently decided this issue
against the appellant with reference to the facts of the case, particularly
after appreciating the nature of contract of the appellant with the consignor
F company as also the nature of dealing of the appellant, while holding that
the truck operators/owners were engaged by the appellant as sub-
contractors. The same findings have been endorsed by the High Court
in its short order dismissing the appeal of the appellant. We are unable to
find anything of error or infirmity in these findings.
G 15.3. The decision of Delhi High Court in the case of Hardarshan
Singh (supra), in our view, has no application whatsoever to the facts of
the present case. The assessee therein, who was in the business of
transporting goods, had four trucks of his own and was also acting as a
commission agent by arranging for transportation through other
transporters. As regards the income of assessee relatable to transportation
H
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 199
TAX OFFICER [DINESH MAHESHWARI, J.]

through other transporters, it was found that the assessee had merely A
acted as a facilitator or as an intermediary between the two parties (i.e.,
the consignor company and the transporter) and had no privity of contract
with either of such parties inasmuch as he only collected freight charges
from the clients who intended to transport their goods through other
transporters; and the amount thus collected from the clients was paid to
B
those transporters by the assessee while deducting his commission.
Looking to the nature of such dealings, the said assessee was held to be
“not the person responsible” for making payments in terms of Section
194C of the Act and hence, having no obligation to deduct tax at source.
In contradistinction to the said case of Hardarshan Singh, the appellant
of the present case was not acting as a facilitator or intermediary between C
the consignor company and the truck operators/owners because those
two parties had no privity of contract between them. The contract of the
company, for transportation of its goods, had only been with the appellant
and it was the appellant who hired the services of the trucks. The payment
made by the appellant to such a truck operator/owner was clearly a
D
payment made to a sub-contractor.
15.4. Though the decision of this Court in the case of Palam
Gas Service (supra) essentially relates to the interpretation of Section
40(a)(ia) of the Act and while the relevant aspects concerning the said
provision shall be examined in the next question but, for the present
purpose, the facts of that case could be usefully noticed, for being akin E
to the facts of the present case and being of apposite illustration. Therein,
the assessee was engaged in the business of purchase and sale of LPG
cylinders whose main contract for carriage of LPG cylinders was with
Indian Oil Corporation, Baddi wherefor, the assessee received freight
payments from the principal.The assessee got the transportation of LPG F
done through three persons to whom he made the freight payments. The
Assessing Officer held that the assessee had entered into a sub-contract
with the said three persons within the meaning of Section 194C of the
Act. Such findings of AO were concurrently upheld upto the High Court
and, after interpretation of Section 40(a)(ia), this Court also approved
the decision of the High Court while dismissing the appeal with costs. G
Learned counsel for the appellant has made an attempt to distinguish the
nature of contract in Palam Gas Service by suggesting that therein, the
assessee’s sub-contractors were specific and identified persons with
whom the assessee had entered into contract whereas the present
appellant was free to hire the service of any truck operator/owner and, H
200 SUPREME COURT REPORTS [2020] 8 S.C.R.

A in fact, the appellant hired the trucks only on need basis. In our view,
such an attempt of differentiation is totally baseless and futile. Whether
the appellant had specific and identified trucks on its rolls or had been
picking them up on freelance basis, the legal effect on the status of
parties had been the same that once a particular truck was engaged by
the appellant on hire charges for carrying out the part of work undertaken
B
by it (i.e., transportation of the goods of the company), the operator/
owner of that truck became the sub-contractor and all the requirements
of Section 194C came into operation.
15.5. Thus, we have no hesitation in affirming the concurrent
findings in regard to the applicability of Section 194C to the present
C case. Question No.1 is, therefore, answered in the negative; against the
assessee-appellant and in favour of the revenue.
Question No.2.
16. While taking up the question of interpretation of Section
D 40(a)(ia), it may be usefully noticed that Section 194C is placed in Chapter
XVII of the Act on the subject “Collection and Recovery of Tax”; and
specific provisions are made in the Act to ensure that the requirements
of Section 194C are met and complied with, while also providing for the
consequences of default. As noticed, Section 200 specifically provides
for the duties of the person deducting tax to deposit and submit the
E statement to that effect. The consequences of failure to deduct or pay
the tax are then provided in Section 201 of the Act which, as noticed,
puts such defaulting person in the category of “the assessee in default in
respect of the tax” apart from other consequences which he or it may
incur. The aspect relevant for the present purpose is that Section 40 of
F the Act, and particularly the 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 the consequences of default
in the case where tax is deductible at source on any interest, commission,
brokerage or fees but had not been so deducted, or had not been paid
G after deduction (during the previous year or in the subsequent year before
expiry of the prescribed time) in the manner that the amount of such
interest, commission, brokerage or fees shall not be deducted in computing
the income chargeable under “profits and gains of business or profession”.
In other words, it shall be computed as income of the assessee because
of his default in not deducting the tax at source.
H
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 201
TAX OFFICER [DINESH MAHESHWARI, J.]

16.2. In the overall scheme of the provisions relating to collection A
and recovery of tax, it is evident that the object of legislature in introduction
of the provisions like sub-clause (ia) of clause (a) of Section 40 had
been to ensure strict and punctual compliance of the requirement of
deducting tax at source. In other words, the consequences, as provided
therein, had the underlying objective of ensuring compliance of the
B
requirements of TDS. It is also noteworthy that in the proviso added to
clause (ia) of Section 40(a) of the Act, it was provided that where in
respect of the sum referable to TDS requirement, tax has been deducted
in any subsequent year, or has been deducted during the previous year
but paid in any subsequent year after the expiry of the time prescribed in
Section 200(1), such sum shall be allowed as a deduction in computing C
the income of the previous year in which such tax has been paid.
16.3. The purpose and coverage of this provision as also
protection therein have been tersely explained by this Court in the case
of Calcutta Export Company (supra), which has been cited by learned
counsel for the appellant in support of another limb of submissions which D
we shall be dealing with in the next question. For the present purpose,
we may notice the relevant observations of this Court in Calcutta Export
Company as regards Section 40(a)(ia) of the Act as follows (at p. 662
of ITR):-
“16. The purpose is very much clear from the above referred E
explanation by the Memorandum that it came with a purpose to
ensure tax compliance. The fact that the intention of the Legislature
was not to punish the assessee is further reflected from a bare
reading of the provisions of section 40(a)(ia) of the Income-tax
Act. It only results in shifting of the year in which the expenditure
can be claimed as deduction. In a case where the tax deducted at F
source was duly deposited with the Government within the
prescribed time, the said amount can be claimed as a deduction
from the income in the previous year in which the TDS was
deducted. However, when the amount deducted in the form of
TDS was deposited with the Government after the expiry of period G
allowed for such deposit then the deductions can be claimed for
such deposited TDS amount only in the previous year in which
such payment was made to the Government.”
16.4. Taking up the question as to whether disallowance under
Section 40(a)(ia) of the Act is confined to the amount “payable” and not H
202 SUPREME COURT REPORTS [2020] 8 S.C.R.

A to the amount “already paid”, we find that these aspects of interpretation
do not require much dilation in view of the ratio of the decision of this
Court in the case of Palam Gas Service (supra).
16.5. In fact, the decision in Palam Gas Service(supra) is a direct
answer to all the contentions urged on behalf of the appellant in the
B present case. In that case, this Court approved the views of Punjab and
Haryana High Court in the case of P.M.S. Diesels and Ors. v.
Commissioner of Income-Tax: (2015) 374 ITR 562as regards
mandatory nature of the provisions relating to the liability to deduct tax
at source in the following words (at pp. 306-308 of ITR):-
C “11.The 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 the following observations:
“The liability to deduct tax at source under the provisions of
Chapter XVII is mandatory. A person responsible for paying
D any sum is also liable to deposit the amount in the Government
account. All the sections in Chapter XVII-B require a person
to deduct the tax at source at the rates specified therein. The
requirement in each of the sections is preceded by the word
‘shall’. The provisions are, therefore, mandatory. There is
nothing in any of the sections that would warrant our reading
E the word ‘shall’ as ‘may’. The point of time at which the
deduction is to be made also establishes that the provisions are
mandatory. For instance, under section 194C, a person
responsible for paying the sum is required to deduct the tax “at
the time of credit of such sum to the account of the contractor
F or at the time of the payment thereof. ......’”
12. While holding the aforesaid view, the Punjab and Haryana
High Court discussed the judgments of the Calcutta and Madras
High Courts, which had taken the same view, and concurred with
the same, which is clear from the following discussion contained
G in the judgment of the Punjab and Haryana High Court:
“A Division Bench of the Calcutta High Court in CIT v. Crescent
Export Syndicate[2013] 216 Taxman 258 (Cal) held :
‘13. …
‘The term “shall” used in all these sections make it clear
H that these are mandatory provisions and applicable to the
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 203
TAX OFFICER [DINESH MAHESHWARI, J.]

entire sum contemplated under the respective sections. A
These sections do not give any leverage to the assessee to
make the payment without making TDS. On the contrary,
the intention of the Legislature is evident from the fact that
timing of deduction of tax is earliest possible opportunity to
recover tax, either at the time of credit in the account of
B
payee or at the time of payment to payee, whichever is
earlier.’
Ms.Dhugga invited our attention to a judgment of the Division
Bench of the Madras High Court in Tube Investments of India
Ltd. v. Asst. CIT (TDS) [2010] 325 ITR 610 (Mad). The Division
Bench referred to the statistics placed before it by the C
Department which disclosed that TDS collection had
augmented the revenue. The gross collection of advance tax,
surcharge, etc. was Rs 2,75,857.70 crores in the financial year
2008-09 of which the TDS component alone constituted Rs
1,30,470.80 crores. The Division Bench observed that D
introduction of section 40(a)(ia) had achieved the objective of
augmenting the TDS to a substantial extent. The Division Bench
also observed that when the provisions and procedures relating
to TDS are scrupulously applied, it also ensured the
identification of the payees thereby confirming the network of
assessees and that once the assessees are identified it would E
enable the tax collection machinery to bring within its fold all
such persons who are liable to come within the network of
taxpayers. These objects also indicate the legislative intent that
the requirement of deducting tax at source is mandatory.
The liability to deduct tax at source is, therefore, mandatory.” F

13. The 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 the view
taken…...”
G
(emphasis in bold supplied)
16.5.1. Having said that deducting tax at source is obligatory, this
Court proceeded to deal with the issue as to whether the word ‘payable’
in Section 40(a)(ia) would cover only those cases where the amount is
payable and not where it has actually been paid. This Court took note of
H
204 SUPREME COURT REPORTS [2020] 8 S.C.R.

A the exhaustive interpretation of various aspects related with this issue
by the Punjab and Haryana High Court in the case of P.M.S. Diesels
(supra) as also by the Calcutta High Court in the case of Commissioner
of Income-Tax, Kolkata-XI v. Crescent Export Syndicate: (2013)
216 Taxman 258; and while approving the same, this Court held, as
regards implication and connotation of the expression “payable” used in
B
this provision, as follows (at p. 310 of ITR):-
“15. We approve the aforesaid view as well. As a fortiori, it
follows that section 40(a)(ia) covers not only those cases
where the amount is payable but also when it is paid. In this
behalf, one has to keep in mind the purpose with which section 40
C was enacted and that has already been noted above. We have
also to keep in mind the provisions of sections 194C and 200.
Once it is found that the aforesaid sections mandate a person to
deduct tax at source not only on the amounts payable but also
when the sums are actually paid to the contractor, any person
D who does not adhere to this statutory obligation has to suffer
the consequences which are stipulated in the Act itself. Certain
consequences of failure to deduct tax at source from the payments
made, where tax was to be deducted at source or failure to pay
the same to the credit of the Central Government, are stipulated
in section 201 of the Act. This section provides that in that
E contingency, such a person would be deemed to be an assessee in
default in respect of such tax. While stipulating this consequence,
section 201 categorically states that the aforesaid sections would
be without prejudice to any other consequences which that
defaulter may incur. Other consequences are provided under
F section 40(a)(ia) of the Act, namely, payments made by such a
person to a contractor shall not be treated as deductible
expenditure. When read in this context, it is clear that section
40(a)(ia) deals with the nature of default and the consequences
thereof. Default is relatable to Chapter XVII-B (in the instant
case sections 194C and 200, which provisions are in the aforesaid
G Chapter). When the entire scheme of obligation to deduct
the tax at source and paying 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
H not cover the cases where the amount is actually paid. If
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 205
TAX OFFICER [DINESH MAHESHWARI, J.]

the provision is interpreted in the manner suggested by the appellant A
herein, then even when it is found that a person, like the appellant,
has violated the provisions of Chapter XVII-B (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…...”
B
(emphasis in bold supplied)
16.6. We may profitably observe that in the case of P.M.S.
Diesels (supra), the Punjab and Haryana High Court had extensively
dealt with myriad features of Section 40(a)(ia) of the Act, including the
term “payable” used therein as also the proviso thereto; and expounded C
on the entire gamut of this provision while making reference to Finance
(No. 2) Bill of 2004 introducing the provision and while also drawing
support from the views expressed by Calcutta High Court in the case of
Crescent Export Syndicate (supra). As regards the interpretation of
the term “payable”, it was observed in P.M.S. Diesels as under(at pp.
574-575 of ITR):- D

“21. Section 40(a)(ia), therefore, applies not merely to assessees
following the mercantile system but also to assessees following
the cash system.
If this view is correct and indeed we must proceed on the footing E
that it is, it goes a long way in indicating the fallacy in the appellant’s
main contention, namely, if the payments have already been made
by the assessee to the payee/contracting party, the provisions of
section 40(a)(ia) would not be attracted even if the tax is not
deducted and/or paid over to the Government account.
F
22. Section 40(a)(ia) refers to the nature of the default and the
consequence of the default. The default is a failure to deduct the
tax at source under Chapter XVII-B or after deduction the failure
to pay over the same to the Government account. The term
“payable” only indicates the type or nature of the payments
by the assessees to the persons/payees referred to in G
section 40(a)(ia), such as, contractors. It is not in respect of
every payment to a payee referred to in Chapter XVII-B that an
assessee is bound to deduct tax. There may be payments to
persons referred to in Chapter XVII-B, which do not attract the
provisions of Chapter XVII-B. The consequences under section
H
206 SUPREME COURT REPORTS [2020] 8 S.C.R.

A 40(a)(ia) would only operate on account of failure to deduct tax
where the tax is liable to be deducted under the provisions of the
Act and in particular Chapter XVII-B thereof. It is in that sense
that the term “payable” has been used. The term “payable”
is descriptive of the payments which attract the liability to
deduct tax at source. It does not categorize defaults on the
B
basis of when the payments are made to the payees of such
amounts which attract the liability to deduct tax at source.”
(emphasis in bold supplied)
16.7. We find the above-extracted observations and
C reasonings,which have already been approved by this Court in Palam
Gas Service (supra), to be precisely in accord with the scheme and
purpose of Section 40(a)(ia) of the Act; and are in complete answer to
the contentions urged by the learned counsel for the appellant.It is ex
facie evident that the term “payable” has been used in Section 40(a)(ia)
of the Act only to indicate the type or nature of the payments by the
D assessees to the payees referred therein. In other words, the expression
“payable” is descriptive of the payments which attract the liability for
deducting tax at source and it has not been used in the provision in
question to specify any particular class of default on the basis as to
whether payment has been made or not. The semantical suggestion by
E the learned counsel for the appellant, that this expression “payable” be
read in contradistinction to the expression “paid”,sans merit and could
only be rejected.In a nutshell, while respectfully following Palam Gas
Service (supra), we could only iterate our approval to the interpretation
by the Punjab and Haryana High Court in P.M.S. Diesels (supra).

F 16.8. Faced with the position that declaration of law in Palam
Gas Service (supra) practically covers this matter, learned counsel for
the appellant has endeavoured to submit that the decision in Palam Gas
Service, requires reconsideration for the reason that certain aspects of
law have not been considered thereinand correct principles of
interpretation have not been applied. We are unable to find substance in
G any of these contentions.The decision of Co-ordinate Bench in Palam
Gas Service (supra) on the core question of law is equally binding on
this Bench and could be doubted only if the view, as taken, is shown to
be not in conformity with any binding decision of the Larger Bench or
any statutory provisions or any other reason of the like nature. We find
H none. In fact, a close look at the decision of P.M.S. Diesels (supra),
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 207
TAX OFFICER [DINESH MAHESHWARI, J.]

which has been totally approved by this Court in Palam Gas Service, A
makes it clear that therein, every aspect of the matter, from a wide
range of angles, was examined by the Punjab and Haryana High Court
while drawing support from the decisions of other High Courts, particularly
that of the Calcutta High Court in the case of Crescent Export Syndicate
(supra).
B
16.9. We are in respectful agreement with the observations in
Palam Gas Service that the enunciations in P.M.S. Diesels had been
of correct interpretation of the provisions contained in Section 40(a)(ia)
of the Act. The decision in Palam Gas Service covers the entire matter
and the said decision, in our view, does not require any
reconsideration.That being the position, the contention urged on behalf C
of the appellant that disallowance under Section 40(a)(ia) does not relate
to the amount already paid stands rejected.
16.10. Another contention in regard to Section 40(a)(ia) of the
Act, that its scope cannot be decided on the basis of Section 194C, has
only been noted to be rejected. The interplay of these provisions is not D
far to seek where Section 40(a)(ia) is not a stand-alone provision but
provides one of those additional consequences as indicated in Section
201 of the Act for default by a person in compliance of the requirements
of the provisions contained in Part B of Chapter XVII of the Act. The
scheme of these provisions makes it clear that the default in compliance E
of the requirements of the provisions contained in Part B of Chapter
XVII of the Act (that carries Sections 194C, 200 and 201) leads, inter
alia, to the consequence of Section 40(a)(ia) of the Act. Hence,the
contours of Section 40(a)(ia) of the Act could be aptly defined only with
reference to the requirements of the provisions contained in Part B of
Chapter XVII of the Act, including Sections 194C, 200 and 201. Putting F
it differently, when the obligation of Section 194C of the Act is the
foundation of the consequence provided by Section 40(a)(ia) of the Act,
reference to the former is inevitable in interpretation of the latter.
16.11. In view of the above, reference to the definition of the term
“paid” in Section 43(2) of the Act is of no assistance to the appellant. G
Similarly, the observations in the case of J.K. Synthetics (supra), as
regards the difference in connotation of the expressions “payable” and
“paid”, in the context of liability to pay interest on the tax payable under
the Rajasthan Sales Tax Act, 1954, has no co-relation whatsoever to the
present case. Further, when it is found that the process of interpretation H
208 SUPREME COURT REPORTS [2020] 8 S.C.R.

A of Section 40(a)(ia) of the Act in P.M.S. Diesels (supra), as approved
by this Court in Palam Gas Service (supra), had been with due
application of the relevant principles, reference to the decision in the
case of Institute of Chartered Accountants of India (supra), on the
general principles of interpretation, does not advance the case of the
appellant in any manner.
B
16.12.In view of the above, Question No.2 is also answered in
the negative; against the assessee-appellant and in favour of the revenue.
Question No.3
17. Quite conscious of the position that the decision of this Court
C in Palam Gas Service (supra) practically covers the substance of present
matter against the assessee, learned counsel for the assessee-appellant
has made a few alternative attempts to argue against the disallowance
in question.
17.1. The learned counsel would submit that the said sub-clause
D (ia), having been inserted to clause (a) of Section 40 of the Act with
effect from 01.04.2005 by Finance (No.2) Act, 2004, would apply only
from the financial year 2005-2006 and hence, cannot apply to the present
case pertaining to the financial year 2004-2005. The learned counsel, of
course, drew support to this contention from the decision of Calcutta
E High Court in the 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 the copy of order
passed by ITAT in this case, there is obvious typographical error on the
date of coming into force of the amendment toSection 40 of the Act of
F 1961 by the Finance (No.2) Act, 2004 inasmuch as the said amendment
was made applicable with effect from 01.04.2005 and not 01.04.2004,
as appearing the copy of the order of ITAT. However, this error is not of
material bearing because the amendment in question was applicable from
and for the assessment year 2005-2006, for the reasons occurring infra.
17.2. Reverting to the contentions urged in this case, there is no
G
doubt that in PIU Ghosh (supra), the Calcutta High Court, indeed, took
the view which the learned counsel for the appellant has canvassed
before us. The Calcutta High Court observed that the said Finance (No.2)
Act, 2004 got presidential assent on 10.09.2004 and it was provided that
the provision in question shall stand inserted with effect from 01.04.2005.
H According to the Calcutta High Court, the assessee could not have
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 209
TAX OFFICER [DINESH MAHESHWARI, J.]

foreseen prior to 10.09.2004 that any amount paid to a contractor without A
deducting tax at source was likely to become not deductible in computation
of income under Section 40 and that the legislature, being conscious of
the likely predicament, provided that the provision shall become operative
from 01.04.2005. The High Court further proceeded to observe that any
other interpretation would amount to punishing the assessee for no fault
B
of his. The High Court further observed that Section 11 of the said
Finance Act, inserting sub-clause (ia), did not provide that the same was
to become effective from the assessment year 2005-2006. We may
usefully reproduce the opinion of the Calcutta High Court in the case of
PIU Ghosh, as under (at p. 326 of ITR):-
“9. Admittedly, the Finance Act, 2004 got presidential assent on C
September 10, 2004. The assessee could not have foreseen prior
to September 10, 2004 that any amount paid to a contractor without
deducting tax at source was likely to become not deductible under
section 40. It is difficult to assume that the Legislature was not
aware or did not foresee the aforesaid predicament. The D
Legislature therefore provided that the Act shall become operative
on April 1, 2005. Any other interpretation shall amount to “punishing
the assessee for no fault of his” following the judgment in the
case of Hindustan Electro Graphites Ltd. (supra).
10. On top of that, section 4 relied upon by Mr. Agarwal merely E
provides for an enactment as regards rate of tax to be charged in
any particular assessment year which has no application to the
case before us. Section 11 of the Finance (No. 2) Act, 2004 by
which sub-clause (ia) was added to section 40(a) of the Income-
tax Act does not provide that the same was to become effective
from the assessment year 2005-06. It merely says it shall become F
effective on April 1, 2005 which for reasons already discussed
should mean to refer to the financial year. There is, as such, no
scope for any ambiguity nor is there any scope for confusion…...”
17.3. Learned counsel for the appellant has submitted that the
revenue has accepted the said decision and has not filed any appeal G
against the same. It appears, however, that the amount of deduction in
the said case was only a sum of Rs. 4,30,386/- and obviously, the net tax
effect in that case, decided on 12.07.2016, was on the lower side. In any
case, the said decision cannot be treated as final declaration of law on
the subject merely because the same has not been appealed against. H
210 SUPREME COURT REPORTS [2020] 8 S.C.R.

A Having examined the law applicable, with respect, we find it difficult to
approve the above-quoted opinion of the Calcutta High Court, particularly
when it does not appear standing in conformity with the scheme of
assessment of income tax under the Act of 1961 and where the High
Court seems to have not noticed the proviso to clause (ia) of Section
40(a) of the Act forming the part of the amendment in question.
B
17.4. It needs hardly any detailed discussion thatin income tax
matters, the law to be applied is that in force in the assessment year in
question, unless stated otherwise by express intendment or by necessary
implication. As per Section 4 of the Act of 1961, the charge of income
tax is with reference to any assessment year, at such rate or rates as
C provided in any central enactment for the purpose, in respect of the total
income of the previous year of any person. The expression “previous
year” is defined in Section 3 of the Act to mean ‘the financial year
immediately preceding the assessment year’; and the expression
“assessment year” is defined in clause (9) of Section 2 of the Act to
D mean ‘the period of twelve months commencing on the 1st day of
April every year’.
17.5. In the case of Commissioner of Income-Tax, West
Bengal v. Isthmian Steamship Lines: (1951) 20 ITR 572, a 3-Judge
Bench of this Court exposited on the fundamental principle that‘in income-
E tax matters the law to be applied is the law in force in the assessment
year unless otherwise stated or implied.’ This decision and various
other decisions were considered by the Constitution Bench of this Court
in the case of Karimtharuvi Tea Estate Ltd. v. State of Kerala: (1966)
60 ITR 262 and the principles were laid down in the following terms(at
pp. 264-266 of ITR):-
F
“Now, it is well-settled that the Income-tax Act, as it stands
amended on the first day of April of any financial year must
apply to the assessments of that year. Any amendments in
the Act which come into force after the first day of April of
a financial year, would not apply to the assessment for that
G year, even if the assessment is actually made after the
amendments come into force.
*** *** ***
The High Court has, however relied upon a decision of this court
in Commissioner of Income-tax v. Isthmian Steamship Lines,
H
where it was held as follows :
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 211
TAX OFFICER [DINESH MAHESHWARI, J.]

“It will be observed that we are here concerned with two datum A
lines : (1) the 1st of April, 1940, when the Act came into force,
and (2) the 1st of April, 1939, which is the date mentioned in
the amended proviso. The first question to be answered is
whether these dates are to apply to the accounting year or the
year of assessment. They must be held to apply to the
B
assessment year, because in income-tax matters the law to be
applied is the law in force in the assessment year unless
otherwise stated or implied. The first datum line therefore
affected only the assessment year of 1940-41, because the
amendment did not come into force till the 1st of April 1940.
That means that the old law applied to every assessment year C
up to and including the assessment year 1939-40.”
This decision is authority for the proposition that though
the subject of the charge is the income of the previous year,
the law to be applied is that in force in the assessment year,
unless otherwise stated or implied. The facts of the said D
decision are different and distinguishable and the High Court was
clearly in error in applying that decision to the facts of the present
case.”
(emphasis in bold supplied)
17.6. We need not multiply on the case law on the subject as the E
principles aforesaid remainsettled and unquestionable. Applying these
principles to the case at hand, we are clearly of the view thatthe provision
in question, having come into effect from 01.04.2005, would apply from
and for the assessment year 2005-2006 andwould be applicable for the
assessment in question. Putting it differently, the legislature consciously F
made the said sub-clause (ia) of Section 40(a) of the Act effective from
01.04.2005, meaning thereby that the same was to be applicable from
and for the assessment year 2005-2006; and neither there had been
express intendment nor any implication that it would apply only from the
financial year 2005-2006.
G
17.7. The observations of Calcutta High Court in the case of PIU
Ghosh (supra) as regards the likely prejudice to an assessee in relation
to the financial year 2004-2005, in our view, do not relate to any legal
grievance or legal prejudice. The requirement of deducting tax at source
was already existing as per Section 194C of the Act and it was the
bounden duty of the appellant to make such deduction of TDS and to H
212 SUPREME COURT REPORTS [2020] 8 S.C.R.

A make over the same to the revenue. Section 201 was also in existence
which made it clear that default in making deduction in accordance with
the provisions of the Act would make the appellant “an assessee in
default”. The appellant cannot suggest that even if the obligation of TDS
on the payments made by him was existing by virtue of Section 194C(2),
he would have honoured such an obligation only if being aware of the
B
drastic consequence of default that such payment shall not be deducted
for the purpose of drawing up the assessment.
17.7.1. Apart from the above, significant it is to notice that by the
amendment in question, clause (ia) was added to Section 40(a) of the
Act with a proviso to the effect that where, in respect of the sum referable
C to TDS requirement, tax has been deducted in any subsequent year, or
has been deducted during the previous year but paid in any subsequent
year after expiry of the time prescribed in Section 200(1),such sum shall
be allowed as a deduction in computing the income of the previous year
in which such tax has been paid. The proviso effectively took care of
D the case of any bonafide assessee who would earnestly comply with the
requirement of deducting the tax at source. It is evident that the said
proviso has totally escaped the attention of Calcutta High Court in the
case of PIU Ghosh (supra). In fact, the relaxation by way of the proviso/
s to Section 40(a)(ia) of the Act had further been modulated by way of
various subsequent amendments to further mitigate the hardships of
E bonafide assessees, as noticed hereafter later. Suffice it to observe for
the present purpose that the said decision in PIU Ghosh cannot be
regarded as correct on law.
17.8. In fact, if the contention of learned counsel for the appellant
read with the proposition in PIU Ghosh (supra) is accepted and the said
F sub-clause (ia) of Section 40(a) of the Act is held applicable only from
the financial year 2005-2006, the result would be that this provision would
apply only from the assessment year 2006-2007. Such a result is neither
envisaged nor could be countenanced. Hence, the contention that sub-
clause (ia),of clause (a) of Section 40 of the Act would apply only from
G the financial year 2005-2006 and cannot apply to the present case
pertaining to the financial year 2004-2005 stands rejected.
18. The supplemental submission that in any case, disallowance
cannot be applied to the payments already made prior to 10.09.2004, the
date on which the Finance (No.2) Act, 2004 received the assent of the
H President of India, remains equally baseless. The said date of assent of
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 213
TAX OFFICER [DINESH MAHESHWARI, J.]

the President of India to Finance (No.2) Act, 2004 is not the date of A
applicability of the provision in question, for the specific date having
been provided as 01.04.2005. Of course, the said date relates to the
assessment year commencing from 01.04.2005 (i.e., assessment year
2005-2006).
18.1. Even if it be assumed, going by the suggestions of the B
appellant, that the requirements of Section 40(a)(ia) became known on
10.09.2004, the appellant could have taken all the requisite steps to make
deductions or, in any case, to make payment of the TDS amount to the
revenue during the same financial year or even in the subsequent year,
as per the relaxation available in the proviso to Section 40(a)(ia) of the
Act but, the appellant simply avoided his obligation and attempted to C
suggest that it had no liability to deduct the tax at source at all.Such an
approach of the appellant, when standing at conflict with law, the
consequence of disallowance under Section 40(a)(ia) of the Act remains
inevitable.
19. In yet another alternative attempt, learned counsel for the D
appellant has argued that by way of Finance (No.2) Act, 2014,
disallowance under Section 40(a)(ia) has been limited to 30% of the
sum payable and the said amendment deserves to be held retrospective
in operation. This line of argument has beengrafted with reference to
the decision in Calcutta Export Company (supra) wherein, another E
amendment of Section 40(a)(ia) by the Finance Act of 2010 was held by
this Court to be retrospective in operation. The submission so made is
not only baseless but is bereft of any logic. Neither the amendment
made by the Finance (No.2) Act, 2014 could be stretched anterior the
date of its substitution so as to reach the assessment year 2005-2006 nor
the said decision in Calcutta Export Company has any correlation with F
the case at hand or with the amendment made by the Finance (No.2)
Act of 2014.
19.1. By the amendment brought about in the year 2014, the
legislature reduced the extent of disallowance under Section 40(a)(ia)
of the Actand limited it to 30% of the sum payable. On the other hand, G
by the Finance Act of 2010, which was considered in the case of Calcutta
Export Company (supra), the proviso to Section 40(a)(ia) of the Act
was amended so as to provide relief to a bonafide assessee who could
not make deposit of deducted tax within prescribed time. In fact, even
before the year 2010, the said proviso was amended by the Finance Act H
214 SUPREME COURT REPORTS [2020] 8 S.C.R.

A 2008 and that amendment of the year 2008 was provided retrospective
operation by the legislature itself. For ready reference, we may reproduce
in juxtaposition the main part of Section 40(a)(ia) of the Actas it would
read after the amendments of 2008, 2010 and 2014 respectively, as
under13:-
B (i) After the amendment by Finance Act, 2008
“40. Amounts not deductible. -Notwithstanding anything to the
contrary in sections 30 to 38, the following amounts shall not be
deducted in computing the income chargeable under the head
“Profits and gains of business or profession”,-
C (a) in the case of any assessee-
*** *** ***
14
(ia) any interest, commission or brokerage, rent, royalty , fees
for professional services or fees for technical services payable
D to a resident, or amounts payable to a 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 a case where the tax was deductible and was so deducted
E
during the last month of the previous year, on or before the due
date specified in sub-section (1) of section 139; or
(B) in any other case, on or before the last day of the previous
year:
F Provided that where in respect of any such sum, tax has been
deducted in any subsequent year or, has been deducted –
(A) during the last month of the previous year but paid after the
said due date; or
(B) during any other month of the previous year but paid after the
G end of the said previous year,

13
The Explanation part of the provision is omitted, for being not relevant for the
present purpose.
14
The expressions “rent, royalty” were inserted in the year 2006.
H
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 215
TAX OFFICER [DINESH MAHESHWARI, J.]

such sum shall be allowed as a deduction in computing the income A
of the previous year in which such tax has been paid.
*** *** ***”
(ii) After the amendment by Finance Act, 2010
“40. Amounts not deductible. -Notwithstanding anything to the B
contrary in sections 30 to 38, the following amounts shall not be
deducted in computing the income chargeable under the head
“Profits and gains of business or profession”,-
(a) in the case of any assessee-
*** *** *** C
(ia) any interest, commission or brokerage, rent, royalty,fees for
professional services or fees for technical services payable to a
resident, or amounts payable to a 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 D
under Chapter XVII-B and such tax has not been deducted or,
after deduction, has not been paid on or before the 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 the E
previous year but paid after the due date specified in sub-section
(1) of section 139, such sum shall be allowed as a deduction in
computing the income of the previous year in which such tax has
been paid:
*** *** ***” F

(iii) After the amendment by Finance (No.2) Act, 2014
“40. Amounts not deductible. -Notwithstanding anything to the
contrary in sections 30 to 38, the following amounts shall not be G
deducted in computing the income chargeable under the head
“Profits and gains of business or profession”,-
(a) in the case of any assessee-
*** *** ***
H
216 SUPREME COURT REPORTS [2020] 8 S.C.R.

A (ia) thirty per cent. of any sum payable to a 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 the due date specified in sub-section (1) of section 139:
Provided that where in respect of any such sum, tax has been
B deducted in any subsequent year, or has been deducted during the
previous year but paid after the due date specified in sub-section
(1) of section 139, thirty per cent. of such sum shall be allowed as
a deduction in computing the income of the previous year in which
such tax has been paid15:
C Provided further that where an assessee fails to deduct the whole
or any part of the tax in accordance with the provisions of Chapter
XVII-B on any such sum but is not deemed to be an assessee in
default under the first proviso to sub-section (1) of section 201,
then, for the purpose of this sub-clause, it shall be deemed that
the assessee has deducted and paid the tax on such sum on the
D date of furnishing of return of income by the resident payee referred
to in the said proviso.16
*** *** ***”
19.2. The aforesaid amendment by the Finance (No.2) Act of
E 2014 was specifically made applicable w.e.f. 01.04.2015 and clearly
represents the will of the legislature as to what is to be deducted or what
percentage of deduction is not to be allowed for a particular eventuality,
from the assessment year 2015-2016.
19.3. On the other hand, in the case of Calcutta Export Company
F (supra), this Court noticed the aforesaid two amendments to Section
40(a)(ia) of the Act by the Finance Act, 2008 and by the Finance Act,
2010, which were intended to deal with procedural hardship likely to be
faced by the bonafide tax payer, who had deducted tax at source but
could not make deposit within the prescribed time so as to claim deduction.
In paragraph 17 of judgment in Calcutta Export Company, this Court
G took note of the case of genuine hardship, particularly of the assessees
who had deducted tax at source in the last month of previous year; and
observed in paragraph 18 that the said amendment of the year 2008 was
15
This proviso was substituted in the year 2008 and again in the year 2010; and then,
was amended by the Finance (No. 2) Act, 2014.
H 16
This proviso was inserted by Act No. 23 of 2012.
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 217
TAX OFFICER [DINESH MAHESHWARI, J.]

brought about with a view to mitigate such hardship. After reproducing A
the said amendment of the year 2008 and after noticing its retrospective
operation, this Court delved into the position obtaining after 2008, where
still remained one class of assessees who could not claim deduction for
the TDS amount in the previous year in which the tax was deducted and
who could claim benefit of such deduction in the next year only; and,
B
after finding that the amendment of the year 2010 was intended to remedy
this position, held that the said amendment, being curative in nature, is
required to be given retrospective operation that is, from the date of
insertion of Section 40(a)(ia).
19.4. Learned counsel for the appellant has only referred to the
concluding part of the decision in Calcutta Export Company but, a C
look at the entire synthesis by this Court, of the reasons for the
amendments of 2008 and 2010, makes it clear as to why this Court held
that the amendment of the year 2010 would be retrospective in
operation.We may usefully reproduce the relevant discussion and
exposition of this Court in Calcutta Export Company as under:-(at pp. D
663-666 of ITR):-
“19. The above amendments made by the Finance Act, 2008 thus
provided that no disallowance under section 40(a)(ia) of the Income-
tax Act shall be made in respect of the expenditure incurred in the
month of March if the tax deducted at source on such expenditure E
has been paid before the due date of filing of the return. It is
important to mention here that the amendment was given
retrospective operation from the date of April 1,2005, i.e., from
the very date of substitution of the provision.
20. Therefore, the assesses were, after the said amendment in F
2008, classified in two categories namely: one, those who have
deducted that tax during the last month of the previous year and
two, those who have deducted the tax in the remaining eleven
months of the previous year. It was provided that in the case of
assessees falling under the first category, no disallowance under
section 40(a)(ia) of the Income-tax Act shall be made if the tax G
deducted by them during the last month of the previous year has
been paid on or before the last day of filing of return in accordance
with the provisions of section 139(1) of the Income-tax Act for
the said previous year. In case, the assessees are falling under
the second category, no disallowance under section 40(a)(ia) of H
218 SUPREME COURT REPORTS [2020] 8 S.C.R.

A Income-tax Act where the tax was deducted before the last month
of the previous year and the same was credited to the Government
before the expiry of the previous year. The net effect is that the
assessee could not claim deduction for the TDS amount in the
previous year in which the tax was deducted and the benefit of
such deductions can be claimed in the next year only.
B
21. The amendment though has addressed the concerns of the
assesses falling in the first category but with regard to the case
falling in the second category, it was still resulting into unintended
consequences and causing grave and genuine hardships to the
assesses who had substantially complied with the relevant TDS
C provisions by deducting the tax at source and by paying the same
to the credit of the Government before the due date of filing of
their returns under section 139(1) of the Income-tax Act. The
disability to claim deductions on account of such lately credited
sum of TDS in assessment of the previous year in which it was
D deducted, was detrimental to the small traders who may not be in
a position to bear the burden of such disallowance in the present
assessment year.
22. In order to remedy this position and to remove hardships which
were being caused to the assessees belonging to such second
E category, amendments have been made in the provisions of section
40(a) (ia) by the Finance Act, 2010.
*** *** ***
24. Thus, the Finance Act, 2010 further relaxed the rigors of section
40(a)(ia) of the Income-tax Act to provide that all TDS made
F during the previous year can be deposited with the Government
by the due date of filing the return of income. The idea was to
allow additional time to the deductors to deposit the TDS so made.
However, the Memorandum Explaining the Provisions of the
Finance Bill, 2010 expressly mentioned as follows: “This
G amendment is proposed to take effect retrospectively from April
1, 2010 and will, accordingly, apply in relation to the assessment
year 2010-11 and subsequent years.”
25. The controversy surrounding the above amendment was
whether the amendment being curative in nature should be applied
H
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 219
TAX OFFICER [DINESH MAHESHWARI, J.]

retrospectively, i.e., from the date of insertion of the provisions of A
section 40(a)(ia) or to be applicable from the date of enforcement.
*** *** ***
27. A proviso which is inserted to remedy unintended consequences
and to make the provision workable, a proviso which supplies an
obvious omission in the section, is required to be read into the B
section to give the section a reasonable interpretation and requires
to be treated as retrospective in operation so that a reasonable
interpretation can be given to the section as a whole.
28. The purpose of the amendment made by the Finance Act,
2010 is to solve the anomalies that the insertion of section 40(a)(ia) C
was causing to the bona fide tax payer. The amendment, even if
not given operation retrospectively, may not materially be of
consequence to the Revenue when the tax rates are stable and
uniform or in cases of big assessees having substantial turnover
and equally huge expenses and necessary cushion to absorb the D
effect. However, marginal and medium taxpayers, who work at
low gross product rate and when expenditure which becomes the
subject matter of an order under section 40(a)(ia) is substantial,
can suffer severe adverse consequences if the amendment made
in 2010 is not given retrospective operation, i.e., from the date of
substitution of the provision. Transferring or shifting expenses to E
a subsequent year, in such cases, will not wipe out the adverse
effect and the financial stress. Such could not be the intention of
the Legislature. Hence, the amendment made by the Finance Act,
2010 being curative in nature is required to be given retrospective
operation, i.e., from the date of insertion of the said provision.” F
19.5. A bare look at the extraction aforesaid makes it clear that
what this Court has held as regards “retrospective operation” is that the
amendment of the year 2010,being curative in nature, would be applicable
from the date of insertion of the provision in question i.e., sub-clause (ia)
of Section 40(a) of the Act. This being the position, it is difficult to find G
any substance in the argument that the principles adopted by this Court
in the case of Calcutta ExportCompany (supra) dealing with curative
amendment, relating more to the procedural aspects concerning deposit
of the deducted TDS, be applied to the amendment of the substantive
provision by the Finance (No.2) Act, 2014.
H
220 SUPREME COURT REPORTS [2020] 8 S.C.R.

A 19.6. We may in the passing observe that the assessee-appellant
was either labouring under the mistaken impression that he was not
required to deduct TDS or under the mistaken belief that the methodology
of splitting a single payment into parts below Rs. 20,000/- would provide
him escape from the rigour of the provisions of the Act providing for
disallowance. In either event, the appellant had not been a bonafide
B
assessee who had made the deduction and deposited it subsequently.
Obviously, the appellant could not have derived the benefits that were
otherwise available by the curative amendments of 2008 and 2010. Having
defaulted at every stage, the attempt on the part of assessee-appellant
to seek some succor in the amendment of Section 40(a)(ia) of the Act
C by the Finance (No.2) Act, 2014 could only be rejected as entirely
baseless, rather preposterous.
19.7. Hence, Question No.3 is also answered in the negative,
i.e., against the assessee-appellant and in favour of the revenue.
Question No. 4
D
20. Before finally answering the root question in the matter as to
whether the payments in question have rightly been disallowed from
deduction, we may usefully summarisethe answers to Question Nos. 1
to 3 thatthe provisions of Section 194C were indeed applicable and the
assessee-appellant was under obligation to deduct the tax at source in
E relation to the payments made by it for hiring the vehicles for the purpose
of its business of transportation of goods; that disallowance under Section
40(a)(ia) of the Act is not limited only to the amount outstanding and this
provision equally applies in relation to the expenses that had already
been incurred and paid by the assessee; that disallowance under Section
F 40(a)(ia) of the Act of 961 as introduced by the Finance (No.2) Act,
2004 with effect from 01.04.2005 is applicable to the case at hand relating
to the assessment year 2005-2006; and that the benefit of amendment
made in the year 2014 to the provision in question is not available to the
appellant in the present case. These answers practically conclude the
matter but we have formulated Question No. 4 essentially to deal with
G the last limb of submissions regarding the prejudice likely to be suffered
by the appellant.
21. The suggestion on behalf of the appellant about the likely
prejudice because of disallowance deserves to be rejected for three
major reasons.In the first place, it is clear fromthe provisions dealing
H
SHREE CHOUDHARY TRANSPORT COMPANY v. INCOME 221
TAX OFFICER [DINESH MAHESHWARI, J.]

with disallowance of deductions in part D of Chapter IV of the Act, A
particularly those contained in Sections 40(a)(ia) and 40A(3)17 of the
Act, that the said provisions are intended to enforce due compliance of
the requirement of other provisions of the Act and to ensure proper
collection of tax as also transparency in dealings of the parties. The
necessity of disallowance comes into operation only when default of the
B
nature specified in the provisions takes place. Looking to the object of
these provisions, the suggestions about prejudice or hardship carry no
meaning at all. Secondly, as noticed, by way of the proviso as originally
inserted and its amendments in the years 2008 and 2010, requisite relief
to a bonafide tax payer who had collected TDS but could not deposit
within time before submission of the return was also provided; and as C
regards the amendment of 2010, this Court ruled it to be retrospective in
operation. The proviso so amended, obviously, safeguarded the interest
of a bonafide assessee who had made the deduction as required and had
paid the same to the revenue. The appellant having failed to avail the
benefit of such relaxation too, cannot now raise a grievance of alleged
D
hardship. Thirdly, as noticed, the appellant had shown total payments in
Truck Freight Account at Rs. 1,37,71,206/- and total receipts from the
company at Rs. 1,43,90,632/-. What has been disallowed is that amount
of Rs. 57,11,625/- on which the appellant failed to deduct the tax at
sourceand not the entire amount received from the company or paid to
the truck operators/owners. Viewed from any angle, we do not find any E
case of prejudice or legal grievance with the appellant.
21.1. Hence, answer to Question No. 4 is clearly in the affirmative
i.e., against the appellant and in favour of the revenue that the payments
in question have rightly been disallowed from deduction while computing
the total income of the assessee-appellant. F
Conclusion
22. For what has been discussed hereinabove, this appeal fails
and is, therefore, dismissed with costs.

G
Kalpana K. Tripathy Appeal dismissed.

17
Section 40A(3) envisaged at the relevant time that twenty percent of the expenditure
exceeding twenty thousand rupees, of which payment was made otherwise than by a
crossed cheque or bank draft, shall not be allowed as a deduction. H