Tax Deduction at Source: Key Supreme Court Ruling on Contractor Payments

The recent judgment in the case of Shree Choudhary Transport Company vs. Income Tax Officer has brought clarity to tax deduction at source (TDS) under Section 194C of the Income Tax Act, 1961. The Supreme Court ruled on the issue of whether payments made to truck operators by a transport company engaged in freight transportation require TDS deduction and the implications of non-compliance under Section 40(a)(ia).

The appellant, Shree Choudhary Transport Company, had entered into a contract with M/s Aditya Cement Limited for transporting cement but engaged independent truck operators for this purpose. The tax authorities disallowed certain expenses due to the company’s failure to deduct TDS on payments exceeding Rs. 20,000 made to these truck operators.

Arguments by the Petitioner

The petitioner contended that the truck operators were not sub-contractors and, hence, payments made to them did not require TDS deduction. The appellant further argued that there was no specific contract with the truck owners, as they were engaged on an as-needed basis.

Arguments by the Respondent

The Income Tax Officer argued that the appellant acted as a contractor and the truck operators were sub-contractors. As per Section 194C, TDS was required to be deducted when payments exceeded Rs. 20,000 in a single transaction.

Supreme Court’s Key Findings

• Applicability of Section 194C: The Court ruled that each payment for transportation services was a contract, and truck operators were deemed sub-contractors.
• Interpretation of “Payable” under Section 40(a)(ia): The Court held that disallowance under this section applies to amounts already paid as well as amounts payable.
• Retrospective Application of the 2004 Amendment: The Court held that the amendment applied from April 1, 2005, and was valid for the assessment year 2005-06.
• No Relief under Subsequent Amendments: The 2014 amendment, which limited disallowance to 30% of the total amount, was not applicable retrospectively.

The Supreme Court dismissed the appeal, affirming the decisions of lower authorities and concluding that the payments in question were rightfully disallowed from deduction.

Petitioner Name: Shree Choudhary Transport Company.
Respondent Name: Income Tax Officer.
Judgment By: Justice Dinesh Maheshwari.
Place Of Incident: Jodhpur, Rajasthan.
Judgment Date: 29-07-2020.

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Download Judgment: Shree Choudhary Tran vs Income Tax Officer Supreme Court of India Judgment Dated 29-07-2020.pdf