Commissioner Of Income Tax-I, New Central Revenue Building ,Statue Circle, Jaipur(Raj v. M/S Daulat Enterprises

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR (1)D.B. Income Tax Appeal No. 3 / 2011 Commissioner of Income Tax-I, New Central Revenue Building ,Statue Circle, Jaipur(Raj) ----Appellant Versus M/s Daulat Enterprises , 15, Cosmo Colony, Amrapali, Marg,Vaishali Nagar, Jaipur ----Respondent Connected With (2) D.B. Income Tax Appeal No. 202 / 2011 Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur ----Appellant Versus M/s Daulat Enterprises, 15, Cosmo Colony, Amrapali Marg, VaishaliNagar, Jaipur ----Respondent (3) D.B. Income Tax Appeal No. 295 / 2011 Commissioner of Income Tax-I, New Central Revenue Building , Statue Circle, Jaipur(Raj) ----Appellant Versus M/s Daulat Enterprises, 15, Cosmo Colony, Amrapali Marg, VaishaliNagar, Jaipur ----Respondent (4) D.B. Income Tax Appeal No. 383 / 2011 Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur ----Appellant Versus M/s Daulat Enterprises, 15, Cosmo Colony , Amrapali Marg, Vaishali Nagar, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay.For Respondent(s) : Mr. Sanjay Jhanwar. _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Judgment 31/07/2017 1.In all these appeals, common questions of law and facts areinvolved, hence they are decided by this common judgment. 2.By way of these appeals, the appellant has challenged thejudgment and order of the Tribunal whereby the tribunal hasdismissed the appeal of the department and allowed the appeal ofthe assessee. 3.While admitting the appeals, this court framed the followingsubstantial questions of law:- (1)Income Tax Appeal No.3/2011 admitted on 06.07.2012. “(i)Whether the Tribunal was right and justified indeleting the disallowance of payment ofRs.2,14,63,446/- which was made by the AssessingOfficer as the assessee failed to deduct tax on source(T.D.S.) U/s. 194C of the Act while making payment tothe transporters, which is mandatory in view ofSection 40(a) (ia) of the Act for claiming theexpenditure? (ii)Whether on the facts and circumstances of thecase, the Tribunal was right and justified in allowingthe payment of Rs.2,14,63,446/- made by theassessee in violation of the provisions of Section 40(a)(ia) of the Act, without deducting T.D.S. U/s.194C ofthe Act, even when on the payment made to theassessee by M/s. Mangalam Cement entire TDS asapplicable on transporters has been deducted?” (2)Income Tax Appeal No.202/2011 admittedon 19.01.2012 “(i) Whether on the facts and circumstances of thecase, the Tribunal was right and justified in deletingthe disallowance of payment of Rs.30,99,961/- whichwas made by the Assessing Officer and confirmed bythe CIT(A) as the assessee failed to deduct tax onsource (T.D.S.) U/S 194C of the Act while makingpayment to the transporters, which is mandatory inview of Section 40(a) (ia) of the Act for claiming theexpenditure. (ii) Whether on the facts and circumstances of thecase, the Tribunal was right and justified is not onlyupholding the reduction in disallowance of payment ofRs.1,06,82,965/-, but even deleting the balanceaddition of Rs.30,99,961/-, confirmed by the CIT(A),which was made by the Assessing Officer as theassessee failed to deduct tax on source (T.D.S.) U/S194C of the Act while making payment to thetransporters, which is mandatory in view of Section40(a)(ia) of the Act for claiming the expenditure. (ii) Whether on the facts and circumstances of thecase, the Tribunal was right and justified is not onlyupholding the reduction in disallowance of payment ofRs.1,06,82,965/-, but even deleting the balanceaddition of Rs.30,99,961/-, confirmed by the CIT(A),which was made by the Assessing Officer as theassessee failed to deduct tax on source (T.D.S.) U/S194C of the Act while making payment to thetransporters, which is mandatory in view of Section40(a)(ia) of the Act for claiming the expenditure. (iii) Whether on the facts and circumstances of thecase, the Tribunal was right and justified in allowingthe payment of Rs.1,37,82,626/- made by theassessee in violation of the provisions of Section 40(a) (ia) of the Acdt, without deducting T.D.S. U/S 194Cof the Act, even when on the payment made to theassessee by M/s. Mangalam Cement entire T.D.S. asapplicable on transporters has been deducted.” (3)Income Tax Appeal No.295/2011 admittingon 06.07.2012 (i) Whether on the facts and circumstances of thecase, the Tribunal was right and justified in upholdingthe reduction in disallowance of payment ofRs.1,06,82,965/- which was made by the AssesingOfficer as the assessee failed to deduct tax on source(T.D.S.) U/S. 194C of the Act while making payment tothe transporters which is mandatory in view of Section40(a) (ia) of the Act for claiming the expenditure? (ii)Whether on the facts and circumstances of thecase, the Tribunal was right and justified in not onlyupholding the reduction in disallowance of payment ofRs.1,06,82,965/-, but even deleting the balanceaddition of Rs.30,99,661/-, confirmed by the CIT(A),which was made by the Assessing Officer as theassessee failed to deduct tax on source I(T.D.S.) U/S.194C of the Act while making payment to thetransporters, which is mandatory in view of Section40(a) (ia) of the Act for claiming the expenditure? (iii) Whether on the facts and circumstances of the case, the Tribunal was right and justified in allowingthe payment of Rs.1,37,82,626/- made by theassessee in violation of the provisions of Section 40(a)(ia) of the Act, without deducting T.D.S. U/s.194C ofthe Act, even when on the payment made to theassessee by M/s. Magalam Cement entire T.D.S. asapplicable on transporters has been deducted?” (4)Income Tax Appeal No.383/2011 admittingon 06.07.2012 “(i)Whether the Tribunal was right and justified indeleting the disallowance of payment ofRs.50,25,303/- made by the Assessing Officer, as theassessee failed to deduct tax on source I(T.D.S.) U/S.194C of the Act while making payment to thetransporters, which is mandatory in view of Section40(a) (ia) of the Act for claiming the expenditure? (ii)Whether on the facts and circumstances of thecase, the Tribunal was right and justified in allowingthe payment of Rs.50,25,303/- made by the assesseein violation of the provisions of Section 40(a) (ia) ofthe Act, without deducting T.D.S. U/s.194C of the Act,even when on the payment made to the assessee byM/s. Magalam Cement entire T.D.S. as applicable ontransporters has been deducted?” 4.While arguing the matter of earlier occasion Mr. Singhi, counsel for the appellant pointed out the observations made bythe Assessing Officer which reads as under:- (ii)Whether on the facts and circumstances of thecase, the Tribunal was right and justified in allowingthe payment of Rs.50,25,303/- made by the assesseein violation of the provisions of Section 40(a) (ia) ofthe Act, without deducting T.D.S. U/s.194C of the Act,even when on the payment made to the assessee byM/s. Magalam Cement entire T.D.S. as applicable ontransporters has been deducted?” 4.While arguing the matter of earlier occasion Mr. Singhi, counsel for the appellant pointed out the observations made bythe Assessing Officer which reads as under:- “It is seen that during the year the assessee receivedtransportation receipts from various companies at Rs45694860/- and made total payment ofRs.44584847/- as transportation expenses to variouspersons/truck owners. The assessee received thetransportation charges as contractor of variouscompanies i.e. Binani Cement, ACC Ltd, MangalamCement, Shree Cement Ltd etc. The assessee firmthen made payment to various persons/truck ownersfor carrying out the work as sub contractor.Accordingly the firm was liable to make TDS on suchpayments made to Sub contractors. As per theinformation filed it is seen that the assessee hasdeducted tax on payment of Rs.27687695/- only. Itdid not deduct tax on payments made for carrying outwork of Mangalam Cement. The total of such expenseswere Rs 13782626/-. There were some otherpayments also on which TDS was not made. Therefore vide this office letter dated 20-12-07 the assessee wasrequired to show cause as to why the such amount,i.e., Rs.16897152/- be not disallowed and added backin the total income of the assessee for non deductionof tax in view of provision of section 40(a)(ia). Inresponse to this assessee furnished written submissionon 27-12-2007 relevant portion is as under:- “In case of Mangalam Cement Ltd., Freight to thetrucks was directly padi by Mangalam Cement Ltd. thepayment of our bills were made after deduction oftruck freight paid by them and TDS on out bills, hencewe were receiving only the balance amount as thehandling charges. We have done only the book entries with regards tothe freight paid by mangalam Cement Ltd. directly tothe trucks in the account of mangalam Cement Ltd. inrespect of the bills raised by us. As we have not paidfreight to the trucks, hence section 194C is notapplicable to us in this respect. We further state that neither we have paid the freightto the trucks nor we have credited the freight to thetrucks. We credited the freight to the account ofMangalam Cement Ltd. who have directly paid thefreight to the trucks and as such this act does notcome under sub-contract. M/s Mangalam Cement Ltd.has bifurcated the total amount in two ways, i.e.freight to the trucks and balance amount to us and assuch section 194C is not applicable to us. We submitthe ledger account of Mangalam Cement Ltd. for yourkind perusal.” 5.He has also taken us to the observations made by the CIT(A) which reads as under:- “The contention of the A/R is that the appellantdispatched the material to ACC Ltd., Binani CementLtd. and Shree Cement Ltd. during the year. Under thecontract, for handling charges, the appellant alsoorganized trucks for dispatch of material on behalf ofMangalam Cement Ltd. The total freight/handlingcharges amounting to Rs.4,45,84,847/- were paidduring the F.Y. 2004-05 by the appellant and by M/sMangalam Cement Ltd. as per the followingbifurcation:- (i) Freight paid by M/s Daulat Enterprises directly to truck owners/drivers. Rs.3,08,48,375 (ii) Freight paid by M/s Mangalam 6.He further contended that in view of the observations made by the Mangalam Cement Ltd. in clause 3 (Annexure-4) which reads as under:- which reads as under:- “The contention of the A/R is that the appellantdispatched the material to ACC Ltd., Binani CementLtd. and Shree Cement Ltd. during the year. Under thecontract, for handling charges, the appellant alsoorganized trucks for dispatch of material on behalf ofMangalam Cement Ltd. The total freight/handlingcharges amounting to Rs.4,45,84,847/- were paidduring the F.Y. 2004-05 by the appellant and by M/sMangalam Cement Ltd. as per the followingbifurcation:- (i) Freight paid by M/s Daulat Enterprises directly to truck owners/drivers. Rs.3,08,48,375 (ii) Freight paid by M/s Mangalam 6.He further contended that in view of the observations made by the Mangalam Cement Ltd. in clause 3 (Annexure-4) which reads as under:- “3.We shall pay to Rs. 20 per tonne as handlingcharges for arranging the trucks for transportation ofGypsum on our behalf. Service tax will be paid by thecompany, if applicable and ITDS will be deducted asper Income Tax Rules.” 7.The deduction was on the basis of additional document which reads as under:- Sub: Furnishing of confirmation regarding TDS certificate issuedfrom 01.04.04 to 31.03.05 to Daulat Enterprises, Near Raj MandirCinema, M.I. Road, Jaipur. Dear Sir, This is in reference to your letter No. ITO/Wd-3(1)/JPR/2007-08/3477 dt 3.12.07 received on 06.12.07 regarding verification ofTDS certificates issued to aforesaid party for the period 01.04.04to 31.03.05. We hereby confirm that we have issued TDScertificate for Rs.324002/- deducted from the payment ofRs.14411317/- to aforesaid party for the above period. Hope, this will serve your purpose. Thanking You, Yours faithfully, Authorised Signatory.” 8.He has also contended that TDS was deducted in favour of payment to contractor and complete payment was made to himand TDS ought to have been deducted by Annexure 9, whichreads as under:- ORDER U/S 154 OF THE I.T. ACT 1961 “The assessee firm filed its ROI on 31-10-2005declaring therein total income of Rs.4,04,538/-. Theassessee firm is transporter and handling agent. In this case assessment u/s 143(3) the Act wascompleted on 28-12-2007 at total income ofRs.14230790/- as against returned income ofRs.404538/-. While completing the assessment. U/s143(3) addition of Rs. 13782626/- was made by wayof disallowances u/s 40(a)(ia) of the Act. Addition wasmade since the assessee has failed to deduct tax onpayment amounting to Rs 13782626/- made to subcontractors for transportation. Facts of the case in brief are that the assesseereceived the transportation charges as contractor ofvarious companies i.e. Binani Cement, ACC Ltd,Mangalam Cement, Shree Cement Ltd etc. Theassessee firm then made payment to variouspersons/truck owners for carrying out the work as subcontractor. Accordingly the firm was liable to makeTDS on such payments made to Sub contractors. Asper the information filed it was seen that the assesseedid not deduct tax on payments made for carrying outwork of Mangalam Cement. The total of suchexpenses were Rs 13782626/-. Therefore additionwas made by way of disallowance. Against this order the assessee filed application u/s154 of the Act on 07-01-2008 and again on 18-02-08(dated 31-01-08). It is stated that total transportationfreight paid to trucks directly by M/s Mangalamcement Ltd includes following details of twoschedules- Freight paid by Manglam Cement Ltd directly to truckshaving freight value less than 20,000 in one time and not exceedingRs.50,000/- during the yearas per details enclosed onwhich the TDS is not deductibleby them u/s 194C. 10441608 Against this order the assessee filed application u/s154 of the Act on 07-01-2008 and again on 18-02-08(dated 31-01-08). It is stated that total transportationfreight paid to trucks directly by M/s Mangalamcement Ltd includes following details of twoschedules- Freight paid by Manglam Cement Ltd directly to truckshaving freight value less than 20,000 in one time and not exceedingRs.50,000/- during the yearas per details enclosed onwhich the TDS is not deductibleby them u/s 194C. 10441608 Freight paid by M/s ManglamCement Ltd directly to the truckshaving freight value exceeding Rs.50,000/-during the year as per details enclosed.3294864The assessee claimed that TDS is not deductible on Rs10441608/- in view of provisions of section 194C andtherefore disallowance of freight expenses u/s 40 (a)(ia) of Rs.10441608/- is a mistake apparent from theasstt. Record against the provision of sec.194C. Vide another application dated 31-01-08 received on18-02-08 the assessee again stated that thedisallowance has wrongly been made. In thisapplication the assessee relied upon the agreemententered into with M/s Manglam Cement Ltd and hasclaimed that it was not bound to deduct tax at sourceas per agreement. It is further stated that neither theyhave paid freight to the trucks not they have creditedfreight to the trucks and as such this act does notcome under the sub contract. It is also stated that M/s Manglam Cement Ltd hasbifurcated the payment of total freight includinghandling charges in two ways, ie. payment of freight tothe trucks directly and balance amount to us, as suchthe provisions of Section 194C for deduction of taxfrom sub contractor & provisions of section 40(a)(ia)are not applicable in our case. In view of above arguments the assessee requested torectify the mistake. In view of assessee’s application, case was fixed forhearing on 25-03-2008. On this that date Shri G.D.Rathi CA/AR of the assessee attended and matter wasdiscussed with him. The assessee’s claim that the addition ofRs.13782626/- made by way of disallowance u/s40(a)(ia) is a mistake apparent from record is not correct.The contention raised by the assessee have been dulyconsidered and not found acceptable. The additiondisputed by the assessee was made u/s 143(3) afterduly considering the reply filed by the assessee regarding its liability to deduct TDS on freightpayments made for carrying out the work of ManglamCement, Regarding assessee’s claim that they havedone only book entries with regard to the freight paidby M/s Manglam Cement Ltd it may be stated that theassessee has shown receipt from this company in itsP&L account. As per TDS certificate issued by M/sManglam Cement Ltd also such payments were madeto the assessee firm. As a matter of fact M/s ManglamCement Ltd appointed the assessee firm itsagent/contractor for transportation work and toregulate the work made payment directly to truckowners/transporter/argent of the assessee on behalf ofthe assessee firm. Therefore the argument does nothold good that the section 194C is not applicable on itsince they have not made paid freight to the trucks.Sufficient evidence was not produced to conclude thatone particular person was made payment during theyear below the prescribed limit for making TDS. Theaddition was made after duly considering the facts andlegality to the case. Thus the issue raised by theassessee is not a mistake apparent from the recordtherefore not covered in the purview of section 154 ofthe Act. In view of above discussion, the applications (dated 7-01-08 and 31-01-08) filed by the assessee are herebyrejected.” 9.He has also drew our attention to Annexure-10 where expenses towards transportation and handling receipts is shown as under:- “For the current year 46188731.0 – 44584847.0= 1603884” 10.He has also taken us the provision of Section 40(a) which reads as under:- “(a) in the case of any assessee- In view of above discussion, the applications (dated 7-01-08 and 31-01-08) filed by the assessee are herebyrejected.” 9.He has also drew our attention to Annexure-10 where expenses towards transportation and handling receipts is shown as under:- “For the current year 46188731.0 – 44584847.0= 1603884” 10.He has also taken us the provision of Section 40(a) which reads as under:- “(a) in the case of any assessee- (i)any interest (not being interest on a loan issuedfor public subscription before the 1st day of April,1938), royalty, fees for technical services or other sumchargeable under this Act, which is payable outsideIndia, on which tax has not been paid or deductedunder Chapter XVII- B: Provided that where in respect of any such sum, tax has been paid or deducted underChapter XVII- B in any subsequent year, such sumshall be allowed as a deduction in computing theincome of the previous year in which such tax hasbeen paid or deducted. Explanation.- For the purposesof this sub- clause,- (A)" royalty" shall have the same meaning as inExplanation 2 to clause (vi) of sub- section (1) ofsection 9; (B)" fees for technical services" shall have the samemeaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9” 11.He relied upon the judgment in Palam Gas Service vs. Commissioner of Income Tax reported in 2017 394 ITR 300, where it has been held as under:- “Palam Gas Service vs. Commissioner ofIncome Tax (03.05.2017 – SC) “10. As per Section 194C, it is the statutory obligationof a person, who is making payment to the sub-contractor, to deduct tax at source at the ratesspecified therein. Plain language of the Sectionsuggests that such a tax at source is to be deductedat the time of credit of such sum to the account of thecontract or at the time of payment thereof, whicheveris earlier. Thus, tax has to be deducted in both thecontingencies, namely, when the amount is creditedto the account of the contractor or when the paymentis actually made. Section 200 of the Act imposesfurther obligation on the person deducting tax atsource, to deposit the same with the CentralGovernment or as the Board directs, within theprescribed time. 15. We approve the aforesaid view as well. As afortiorari, it follows that Section 40(a)(ia) covers notonly those cases where the amount is payable butalso when it is paid. In this behalf, one has to keep inmind the purpose with which Section 40 was enactedand that has already been noted above. We have alsoto keep in mind the provisions of Sections 194C and200. Once it is found that the aforesaid Sectionsmandate a person to deduct tax at source not only onthe amounts payable but also when the sums areactually paid to the contractor, any person who doesnot adhere to this statutory obligation has to sufferthe consequences which are stipulated in the Act 15. We approve the aforesaid view as well. As afortiorari, it follows that Section 40(a)(ia) covers notonly those cases where the amount is payable butalso when it is paid. In this behalf, one has to keep inmind the purpose with which Section 40 was enactedand that has already been noted above. We have alsoto keep in mind the provisions of Sections 194C and200. Once it is found that the aforesaid Sectionsmandate a person to deduct tax at source not only onthe amounts payable but also when the sums areactually paid to the contractor, any person who doesnot adhere to this statutory obligation has to sufferthe consequences which are stipulated in the Act itself. Certain consequences of failure to deduct tax atsource from the payments made, where tax was to bededucted at source or failure to pay the same to thecredit of the Central Government, are stipulated inSection 201 of the Act. This Section provides that inthat contingency, such a person would be deemed tobe an Assessee in default in respect of such tax. Whilestipulatingthisconsequence,Section201categorically states that the aforesaid Sections wouldbe without prejudice to any other consequences whichthat defaulter may incur. Other consequences areprovided Under Section 40(a)(ia) of the Act, namely,payments made by such a person to a contractor shallnot be treated as deductible expenditure. When readin this context, it is clear that Section 40(a)(ia) dealswith the nature of default and the consequencesthereof. Default is relatable to Chapter XVIIB (in theinstant case Sections 194C and 200, which provisionsare in the aforesaid Chapter). When the entirescheme of obligation to deduct the tax at source andpaying it over to the Central Government is readholistically, it cannot be held that the word 'payable'occurring in Section 40(a)(ia) refers to only thosecases where the amount is yet to be paid and doesnot cover the cases where the amount is actuallypaid. If the provision is interpreted in the mannersuggested by the Appellant herein, then even when itis found that a person, like the Appellant, has violatedthe provisions of Chapter XVIIB (or specificallySections 194C and 200 in the instant case), he wouldstill go scot free, without suffering the consequencesof such monetary default in spite of specific provisionslaying down these consequences. The Punjab &Haryana High Court has exhaustively interpretedSection 40(a)(ia) keeping in mind different aspects.We would again quote the following paragraphs fromthe said judgment, with our complete approvalthereto: 26. Further, the mere incurring of a liability does notrequire an Assessee to deduct the tax at source evenif such payments, if made, would require an Assesseeto deduct the tax at source. The liability to deduct taxat source under Chapter XVII-B arises only uponpayments being made or where so specified under theSections in Chapter XVII, the amount is credited tothe account of the payee. In other words, the liabilityto deduct tax at source arises not on account of theAssessee being liable to the payee but only upon theliability being discharged in the case of an Assesseefollowing the cash system and upon credit being givenby an Assessee following the mercantile system. Thisis clear from every Section in Chapter XVII. 26. Further, the mere incurring of a liability does notrequire an Assessee to deduct the tax at source evenif such payments, if made, would require an Assesseeto deduct the tax at source. The liability to deduct taxat source under Chapter XVII-B arises only uponpayments being made or where so specified under theSections in Chapter XVII, the amount is credited tothe account of the payee. In other words, the liabilityto deduct tax at source arises not on account of theAssessee being liable to the payee but only upon theliability being discharged in the case of an Assesseefollowing the cash system and upon credit being givenby an Assessee following the mercantile system. Thisis clear from every Section in Chapter XVII. 27. Take for instance, the case of an Assessee, whofollows the cash system of accounting and where theAssessee who though liable to pay the contractor, failsto do so for any reason. The Assessee is not thenliable to deduct tax at source. Take also the case of anAssessee, who follows the mercantile system. Such anAssessee may have incurred the liability to payamounts to a party. Such an Assessee is also notbound to deduct tax at source unless he credits suchsums to the account of the party/payee, such as, acontractor. This is clear from Section 194C set outearlier. The liability to deduct tax at source, in thecase of an Assessee following the cash system, arisesonly when the payment is made and in the case of anAssessee following the mercantile system, when hecredits such sum to the account of the party entitledto receive the payment. 28. The government has nothing to do with thedispute between the Assessee and the payee such asa contractor. The provisions of the Act includingSection 40 and the provisions of Chapter XVII do notentitle the tax authorities to adjudicate the liability ofan Assessee to make payment to the payee/othercontracting party. The Appellant's submission, ifaccepted, would require an adjudication by the taxauthorities as to the liability of the Assessee to makepayment. They would then be required to investigateall the records of an Assessee to ascertain its liabilityto third parties. This could in many cases be anextremely complicated task especially in the absenceof the third party. The third party may not press theclaim. The parties may settle the dispute, if any. Thisis an exercise not even remotely required or evencontemplated by the section. 12.Counsel for the respondent Mr. Jhanwar has taken us to theprovision so Section 194(c) read with 204(iii) and contended thatthe amount of Annexure-9 is deducted completely on the paymentwhich is required to be made and if the complete amount is notshown in the books of account and corresponding debit in thebooks of accounts it will not reach to any final decision to match.The Tribunal rightly observed in its judgment which reads asunder:- 12.Counsel for the respondent Mr. Jhanwar has taken us to theprovision so Section 194(c) read with 204(iii) and contended thatthe amount of Annexure-9 is deducted completely on the paymentwhich is required to be made and if the complete amount is notshown in the books of account and corresponding debit in thebooks of accounts it will not reach to any final decision to match.The Tribunal rightly observed in its judgment which reads asunder:- “Thus we concur with the contention of Ld.A.R. thatwhen payment of freight was made by MangalamCement Ltd. directly to the truck owners, it was notpossible for the assessee to make any deduction andpayment of tax thereupon. The assessee had onlyreceived handling charges and all other acts andobligations were carried out by Mangalam Cement Ltd.as such neither these was any obligation on the part ofthe assessee nor was it possible for the assessee tomake any deduction of tax thereupon. We thus do notfind justification in the observation of the Ld. CIT(A)that Mangalam Cement Ltd. was making payment totruck owners only on behalf of the assessee andassessee was a contractor and the truck owner weresubcontractors. If there were lapses in making TDS bythe Mangalam Cement Ltd. on all such payments madeto truck owners introduced by the assessee, whereinthe assessee under agreement was getting handlingcharges, the Mangalam Cement Ltd. only isresponsible for and not the assessee. We have come tothis conclusion on the basis that Mangalam CementLtd. had made freight payments to the truck owners astheir not being sub-contractors of the assessee. On thecontrary there was an agreement, as discussed above,between Mangalam Cement Ltd. and assessee thatfreight payment would be made by Mangalam CementLtd. directly to the truck owners and TDS as applicablewill be made by them. In the case of CIT Vs. UnitedRice Land Ltd.(Supra) the A.O. held the assessee liablefor deduction of tax only on assumption that assesseewas having agreement with parties through whomtrucks were arranged for transportation of goods. TheHon’ble Jurisdictional High Court upheld the decision ofthe Tribunal in holding the assessee was not liable todeduct tax u/s 194C from the payments made to thetransporters in absence of oral or written agreementbetween the assessee and the transporters forcarriage of goods nor was it proved that any freightcharges were paid to them in pursuance of a contractfor a specific period, quantity or price. The l.d. CIT(A)was thus not correct in fixing liability on assessee fornon making TDS on the payments of Rs.30,99,661/-as freight by Mangalam Cement Ltd. to the truckowners. We order accordingly, while deletingdisallowance of Rs.30,99,661/- made by the l.d.CIT(A)in this regard. The ground no.1 of the appela preferredby the revenue is thus rejected and ground of theappeal preferred by the assessee is allowed.Consequently, ground no 2 of the appeal preferred bythe revenue is rejected as having become infructuousin view of our finding in ground of appeal preferred bythe assessee on the issue. 13.In view of the observations made by the Tribunal, hecontended that the order passed by the tribunal is just and proper. 14.He also invited our attention to the contract which wasentered between the company and the assessee which reads asunder:- “With reference to the discussion we had withyour representative on the above subject we arepleased to award this contract on the followingterms and conditions:- 1. You will arrange the transportation of Gypsumof good quality from the above mines of M/s.R.S.M.M. Ltd. to our works at Morak. Regardingquantity to be transported we will inform to youfrom time to time.of good quality from the above mines of M/s.R.S.M.M. Ltd. to our works at Morak. Regardingquantity to be transported we will inform to youfrom time to time. 13.In view of the observations made by the Tribunal, hecontended that the order passed by the tribunal is just and proper. 14.He also invited our attention to the contract which wasentered between the company and the assessee which reads asunder:- “With reference to the discussion we had withyour representative on the above subject we arepleased to award this contract on the followingterms and conditions:- 1. You will arrange the transportation of Gypsumof good quality from the above mines of M/s.R.S.M.M. Ltd. to our works at Morak. Regardingquantity to be transported we will inform to youfrom time to time.of good quality from the above mines of M/s.R.S.M.M. Ltd. to our works at Morak. Regardingquantity to be transported we will inform to youfrom time to time. 2. We will inform you about the road freightfrom the mines of R.S.M.M. Ltd to our works atMorak from time to time as per the prevailingrate of market and availability of trucks. 3. We shall pay you Rs.20/- perr tonne ashandling charges for arranging the trucks fortransportation of Gypsum on our behalf. Servicetax will be paid by the company, if applicableand ITDS will be deducted as per Income TaxRules. 4. Freight will be paid after unloading thematerial at our factory at Morak to the truck’sdriver or to the transporter or their authorisedagent as the case may be. TDS as applicable willbe deducted from freight bills as per the IncomeTax Rules. 5. You will raise your bills on the basis ofmonthly receipt at our works and the same willbe paid to you within 15 days from the date ofreceipt of the same. 6. All Trucks will bring necessary transit papersi.e., challan, Mines Rawanna L.R. etc, failingwhich the trucks will be returned to you at yourrisk and cost. 7. All trucks/trailors will be weighed at our weighbridge and the weight recorded thereon will befinal for all purpose and acceptable to you. 8. Our CST No. is 2033/02700 and RST No. is2033/02700, both dated 15.03.1978 and ourTIN. No. is 08442902696 dated 01.04.2003. 9. You will deposit Rs.20,000/- with us beforecommencement of the supply as security depositwhich will not bear any interest and will berefundable only after fulfillment of yourcommitment or may be adjusted against thepenalty, when will be decided by us. (Securitydeposit is already lying with us) 10. In case of any dispute, our decision will befinal and binding on you. 11. For all legal matters the court atRamganjmandi, Dist. Kota (Rajasthan) will onlybe the jurisdiction. 12. This contract may be terminated any timewithout assigning any reason. 13. This Contract is effective from 01.10.2004. 14. This Contract supersedes all our previouscontracts. Please give our acceptance on the copy of thiscontract. 14.1 In support of his submission he relied on decision of CalcuttaHigh Court in Hightension Switchgears (P.) Ltd. vs. CIT, reportedin (2016) 385 ITR 575 (Calcutta) wherein it has been held asunder:- “9. From a combined reading of the provisions set outabove, it would appear that any person responsible forpaying any sum to any resident on account of carriageof goods " shall, at the time of credit of such sum tothe account of the contractor or at the time ofpayment thereof in cash or by issue of a cheque ordraft or by any other mode, whichever is earlier,[deduct an amount equal to - (iii) one per cent in case of advertising, (iv) in any other case two per cent, of such sum asincome-tax on income comprised therein.]" Therefore, the relevant question to be asked is, whowas responsible for paying any sum to any resident forcarriage of goods? The answer obviously is that it wasthe seller who was responsible for paying and theseller admits to have done that. Therefore, the liabilityto deduct tax was that of the seller. In case seller isunable to show that he had made thededuction, Section 40(a)(ia) may be applied to hiscase but not to the case of the buyer/assessee. (iii) one per cent in case of advertising, (iv) in any other case two per cent, of such sum asincome-tax on income comprised therein.]" Therefore, the relevant question to be asked is, whowas responsible for paying any sum to any resident forcarriage of goods? The answer obviously is that it wasthe seller who was responsible for paying and theseller admits to have done that. Therefore, the liabilityto deduct tax was that of the seller. In case seller isunable to show that he had made thededuction, Section 40(a)(ia) may be applied to hiscase but not to the case of the buyer/assessee. 11. In that view of the matter, the question, quotedabove, is answered by holding that the Tribunal waswrong in holding that the appellant was liableto deduct tax at source in respect of the freightcomponent. When the assessee was not liable to makeany deduction under Section 194C, the rigoursof Section 40(a)(ia) could not have been applied tohim. The question is thus answered. The appeal is thusallowed. 15.We have heard counsel for the parties. 15.1 It will not be out of place to mention that as rightlycontended by counsel for the respondent Mr. Jhanwar that Section194(c) read with 204(iii) will come into operation only on thepayment made by assessee and as rightly discussed sincepayment is not made by the assessee if at all there is default thedefault is of Mangalam. Since the payment was not received, thesame is required to be considered in the books of account sinceTDS is deducted by the Mangalam on behalf of assesseecompletely. Therefore, if there is default in payment made, he isentitled to match the balance-sheet and he cannot claim for credit@ Rs. 20 per tonne as handling charges for arranging the truck for transportation. 16.Taking into consideration the above, the view taken by theTribunal is just and proper. The issues are answered in favour ofthe assessee against the department. 17.The appeals stand dismissed. (INDERJEET SINGH)J. (K.S.JHAVERI)J. BMG/M.G.Sr. No.80-83.