M/S. PALAM GAS SERVICEversusCOMMISSIONER OF INCOME TAX

                             [2017] 3 S.C.R. 836


A                       MIS. PALAM GAS SERVICE
                                       v.
                    COMMISSIONER OF INCOME TAX
                       (Civil Appeal No. 5512 of 2017)
B                               MAY03,2017
              [A. k SIKRI AND ASHOK BHUSHAN, J;J.)
          lncoine Tax Act, 1961 - s.40(a)(ia) and s.197 - Whether the
   provisions of s.40(a)(ia) shall be attracted when the amount is not
c payable to a contractor or sub-contractor but has been actually
   paid - Question is when the word used in s.40(a)(ia) is 'payable',
    whether this Section would cover only those contingencies where
    the amount is due and still payable or it would also cover the
   situations where the amount is already paid but no advance tax is
   deducted thereupon - Held: The provision would cover even those
D cases where the amount stands paid -As per s.194C, iax has to be
   deducted when the amount is credited to the account of the contractor
   or when the payment is actually made and by virtue of s.200,
   assessee is required to deposit that amount to the credit of Central
   Government within the stipulated time as mentioned in r.30(2) -
E 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 s.40(a)(ia) refers
   to _only those cases where the amount is yet to be paid and does not
   cover the cases where the amount is actually paid - Otherwise,
  .even when it is found that a person, like the appellant, has violated
F the provisions of Chapter XVllB (or specifically ss. 194C and 200
   in the instant case), he would still go scot free, withoul suffering the
   consequences of such monetary default in spite of specific provisions
   laying down these consequences - Income Tax Rules - r. 30(2).
          Dismissing the appeal, the Court
G
          HELD: 1. As per Section 194C of the Income Tax Act, it is
    the statutory obligation of a person, who is making payment to
    the sub-contractor, to deduct tax at source at the rates specified
    therein. Plain language of the Section suggests that such a tax at
    source is to be deducted at the time of credit of such sum to the
H
                                     836
MIS. PALAM GAS SERVICE v. COMMISSIONER OF INCOME                  837
                       TAX

account of the contractor or at the time of payment thereof, A
whichever is earlier. Thus, tax has to be deducted in both the
contingencies, namely, when the amount is credited to the account
of the contractor or when the payment is actually made. Section
200 of the Act imposes further obligation on the person deducting
tax at source, to deposit the same with the Central Government B
or as the Board directs, within the prescribed time. A conjoint
reading of these two Sections would suggest that not only a
person, who is paying to the contractor, is supposed to deduct
tax at source on the said payment whether credited in the account
or actual payment made, but also deposit that amount to the credit
of the Central Government within the stipulated time. The time C
within which the payment is to be deposited with the Central
Government is mentioned in. Ruic 30(2) of the Rules. [Para
10][842-G-H; 843-A-C)
        2. Section 40(a)(ia) covers not only those cases where the
amount is payable but also when it is paid. Certain consequences D
of failure to deduct tax at source from the payments made, where
tax was to be deducted at source or failure to pay tJle same to the
credit of the Central Government, are stipulated in Section 201
of the Act. This Section provides .that in that contingency, such a
person would be deemed to be an assessee in default in respect
of such tax.' While stipulating this consequence, Section ZOl E
 categorically states that the aforesaid Sections would be without
 prejudice to any other consequences which that defaulter may
 incur. Other consequences are provided under Section 40(a)(ia)
 of the Act, namely, payments made by such a person to a contractor
 shall not be treated as deductible expenditure. When read in F .
 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 XVIIB (in the instant case Sections 194C and 200, which
provisions are in the aforesaid 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 ·G
 the word 'payable' occurring in Section 40(a)(ia) refers to only
 those cases where the amount is yet to be paid and does not
 cover the cases where the amount is actually paid.[Para 15](847-
A-F]
838              SUPREME COURT REPORTS                           [2017) 3 S.C.R.


A             V.M Salgaocar & Bros. (P) Ltd. v. Commissioner of
              Income Tax (2000) 243 ITR 383; Supreme Court
              Employees Welfare Association v. Union of India (1989)
              4 SCC 187 : [1989) 3 SCR 488 - relied on.
               P.MS. Diesels & Ors. v. Commissioner of Income Tax
B             - 2, Jalandhar & Ors. (2015) 374 ITR 562 - approved.
              CITv. Vector Shipping Services (P) Ltd. (2013) 357 ITR
              642 - overruled.
                               Case Law Reference
              (2015) 374 ITR 562         approved                   Para 11
 c
              (2000) 243 ITR 383         relied on                  Para 17
              [1989) 3 SCR 488           relied on                  Para 17
              (2013) 357 ITR 642         overruled                  Para 18
              CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5512
D        of2017.
              From the Judgment and Order dated 25. 06.2014 of the High Court
     . · ofHimachal Pradesh at Shimla in ITA No. 9 of2014.
     I. ..
               Raj Kumar Mehta, Mrelangbam Premjit Singh, Ms. Himanshi
         Andley, Advs. for the Appellant.
 E
               Bhuvan Mishra, Ms. Bhakti Pasrija Sethi, Ritesh Kumar, Mrs.
         Anil Katiyar, Ad vs. for the Respondent.
              The Judgment of the Court was delivered by
           A. K. SIKRI, J. I. The neat question which arises for
 F , consideration in this appeal relates to the interpretation of Section 40(a)(ia)
     of the Income Tax Act, 1961 (hereinafter referred to as the 'Act').
     Section l 97C of the Act has also some bearing on the issue involved.
          2. Section 40 of the Act enumerates certain situations wherein
   expenditure incurred.by the assessee, in the course of his business, will
 G not be allowed to be deducted in computing the income chargeable under
   the head 'Profits and Gains from Business or Profession'. One such
   contingency is provided in clause (ia) of sub-section (a) of Section 40.
   This provision reads as under:
               "S. 40 -Amounts not deductible:
 H
 MIS. PALAM GAS SERVICE v. COMMISSIONER OF INCOME                               839
                 TAX [A. K. SIKRI, J.]

       Notwithstanding anything to the contrary in Sections 30 to [38),         A
       the following amounts shall not be deducted in computing the
       income chargeable under the head "Profits and gains of business
       or profession",-
                          xxx               xxx              xxx
       (ia) any interest; commission or brokerage, fees for professional B
       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 oflabour for carrying .
       out any work), on which tax is deductible at source und~ Chapter
       XVII-B and such tax has not been deducted or, after deduction, c
       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;                                          ·
       Provided that where in respect of any such sum, tax has been
       deducted in any subsequent year or has been deducted in the D
       previous year but paid in any subsequent year after the expiry of
       the time prescribed under sub-section (1) of sectioQ 200, such
       sum shall be·allowed as a deduction in computing the income of·
       the previous year in which such tax has been paid.
                           xxx              xxx               xxx''             E
        3. As per clause (ia); certain payments made, which includes
 amounts payable to a contractor or sub-contractor, would not be allowed
 as expenditure in case the tax is deductible at source on the said payment
 under Chapter XVIIB of the Act and such tax has not been deducted or,
 after deduction, has not been paid during the previous year or in the
                                                                                F
..subsequent year before the expiry of the time prescribed under sub-
 section (1) of Section 200 of the Act. In the instant case, certain payments
 were made by the appellant assessee, in the Assessment Year 2006-
 2007 but the tax at source was not deducted and deposited. We may
 point out here itself that as per Section l 94C of the Act, payments to
 contractors and sub-contractors are subject to tax deduction at source.        G
 The Income Tax Department/Revenue has, therefore, not allowed the
 amounts paid to the sub-contracton• as deduction while computing the
 income chargeable to tax at the hands of the assessee in the said
 Assessment Year.
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840            SUPREME COURT REPORTS                          [2017) 3 S.C.R.


A           4. It can be seen that Section 40(a)(ia) uses the expression
      'payable' and on that basis the question which is raised for consideration
      is:
            "Whether the provisions of Section 40(a)(ia) shall be attracted
            when the amount is not 'payable' to a contractor or sub-contractor
B           but has been actually paid?"
             5. Some facts which will have bearing on the aforesaid issue need
      to be mentioned at this stage:
            The appellant-assessee is engaged in the business of purchase
    and sale of LPG cylinders under the name and style of Mis. Palam Gas
 c Service at Palampur. During the course of assessment proceedings, it
  - was noticed by the Assessing Officer that the main contract of the
    assessee for carriage of LPG was with the Indian Oil Corporation, Baddi.
    The assessee had received the total freight payments from the IOC
    Baddi to the tune ofRs.32,04,140/-. The assessee had, in turn, got the
 D transportation of LPG done through three persons, namely, Bimla Devi,
    Sanjay Kumar and Ajay to whom he made the freight payment amounting
    to Rs. 20,97,689/-. The Assessing Officer observed that the assessee
    had made a sub-contract with the said three persons within the meaning
    of Section l 94C of the Act and, therefore, he was liable to deduct tax at
    source from the payment of Rs. 20,97,689/-. On account of his failure
 E to do so the said freight expenses were disallowed by the Assessing
    Officer as per the provisions of Section 40(a)(ia) of the Act. Against
    the order of the Assessing Officer, the assessee preferred an appeal
    before the Commissioner oflncome Tax (Appeals), Shimla who vi de its
    order datedAugust 17, 2012 upheld the order dated November 30, 2011.
 F The matter thereafter came up in appeal before the Income Tax Appellate
    Tribunal (for short 'ITAT') which too met with the same fate.
              In further appeal to the High Court under Section 260A of the
      Act, the outcome remained unchanged as the High Court of Himachal
      Pradesh also dismissed the appeal affirming the order of the ITAT,
 G          6. It may be pertinent to observe that the question raised now and
      formulated above was specifically raised before the authorities below,
      including the High Court.
             7. The question is, as noted above, when the word used in Section
      40(a)(ia) is 'payable', whether this Section would cover only those
 H
 MIS. PALAM GAS' SERVICE v. COMMISSIONER OF INCOME                             841
                  TAX [A. K. SIKRI, J.]

contingencies where the amount is due and still payable or it would also A
cover the situations where the amount is already paid but no advance
tax was deducted thereupon. This issue has come up for hearing before
various High Courts and there are divergent views of the High Courts
there upon. In fact, most of the High Courts have taken the view that
the aforesaid provision would cover even those cases where the amount B
stands paid. This is the view of the Madras, Calcutta and Gujarat High
Courts. Contrary view is taken by the Allahabad High Court. In a
recent judgment, the Punjab & Haryana High Court took note of the
judgments of the aforesaid High Courts and concurred with the view
taken by the Madras, Calcutta and Gujarat High Comis and showed its
_reluctance to follow the view taken by the Allahabad High Court.        C
      8. In this scenario, we would like to first discuss the reasons given
by the High Courts in two sets of judgments, arriving at a contrary
conclusion. Before that, we would also like to reproduce relevant portions
of Section 194C and 200 of the Act as well as Rule 30(2) of the Income
Tax Rules, since they are also relevant to decide the controversy. These       D
provisions make the following reading:
      "194-C. Payments to contractors.-( 1) Any person responsible
      for paying any sum to any resident (hereafter in this section referred
      to as the contractor) for carrying out any work (including supply
      of labour for carrying out any work) in pursuance of a contract          E
      between the contractor and a specified person shall, at the time
      of credit of such sum to the account of the 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-
                                                                               F

      200. Duty of person deducting tax.-( 1) Any person deducting
      any sum in accordance with the foregoing provisions of this
      chapter] shall pay within the prescribed time, the sum so deducted
      to the credit of the Central Government or as the Board directs.         G -
      (2) Any person being an employer, referred to in subsection (I-
      A) of Section 192 shall pay, within the prescribed time, the tax to
      the credit of the Central Govern~ent or as the Board directs.
       (3) Any person deducting any sum on or after the l'' day of April,
                                                                               H
842            SUPREME COURT REPORTS                            [2017] 3 S.C.R.


A           2005 in accordance with the foregoing provisions of this chapter
            or, as the case may be, any person being an 'employer referred to
            in sub-section (I-A) of Section 192 shall, after paying the tax
            deducted to the credit of the Central Government within the
            prescribed time, prepare such statements for such period as may
            be prescribed] and deliver or cause to be delivered to the prescribed
B
            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."
 C        . 9. Rule 30(2) of the Income Tax Rules which stipulates the time
      prescribed for payment of the tax deducted to the credit of the Central
      Government as required by Section 200( I) and relevant portion thereof
      reads as under:
            "Time and mode of payment to Government account of tax
            deducted at source or tax paid under sub-section (IA) of
D           section 192.
            30(1) All sums deducted in accordance with the provisions of
            Chapter XVII-B by an office of the Government shall be paid to
            the credit of the Central Government-
 E           ................................ .
            (2) All sums deducted in accordance with the provisions of Chapter
            XVII-B by deductors-other than an office. of the Government .
            shall be paid to the credit of the CentraJ·Government-
             (a) on or before 301h day ofApril where the income or amount is
.F              credited or paid in the month of March; and      ~
             (b) in any other case, on or before seven days from the end of the
                 month in which-
                    (i) the deduction is made; or
                    (ii) income-tax is due under s"ub-section( IA) of section 192."
              I0. As per Section l 94C, it is the statutory obligation of a person,
      who
      ,    is making payment to the sub-contractor, to deduct tax at source at
      the rates specified therein. Plain language of the Section suggests that
      such a tax at source is to he deducted at the time of credit of such sum
 H
 M/S. PALAM GAS SERVICE v. COMMISSIONER OF INCOME                           843
                 TAX [A. K. SIKRI, J.]

to the account of the contract or at the time of payment thereof, whichever · A
is earlier. Thus, tax has to be deducted in both the contingencies, namely
, when the amount is credited to the account of the contractor or when
the payment is actually made. Section 200 of the Act imposes further
obligation on the person. deducting tax at source, to deposit the same
with the Central Government or as the Board directs, within the prescribed B
time.
       A conjoint reading of these two Sections would suggest that not .
only a person, who is paying to the contractor, is supposed to deduct tax
at source on the said payment whether credited in the account or actual
payment made, but also deposit that amount to the credit of the Central
Government within the stipulated time. The time within which the payment C
is to be deposited with the Central Government is mentioned in Rule
30(2) of the Rules.
      11. The Punjab & Haryana High Court in P.M.S. Diesels & Ors.
v. Commissioner of Income Tax - 2, Jalandhar & Ors., (2015) 374
ITR 562, has held these provisions to be mandatory in nature with the        D
following observations:
       "13. The liability to deduct tax at source under the provisions of
       Chapter XVII is mandatory. A person responsible.for paying 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 E
       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 the weird "shall" as "may"., The
       point of time at which the deduction is to be made also establishes F
       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 or at the time of the payment thereof....... "
       12. While holding the aforesaid view, the Punjab & Haryana High       G
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 in the judgment of the
Punjab & Haryana High Court:
       "14. A Division Bench of the Calcutta High Court i11 Commissioner H
844           SUPREME COURT REPORTS                            [2017] 3 S.C.R.


A .,       ofIncome Tax v. Crescent Export Syndicate, (2013) 216 Taxman
           258 (Calcutt&) held:-
              "13. ...................... ·.· ........ .
              The term 'shall' used in all these sections make it clear that
              these are mandatory provisions and applicable to the entire
B             sum contemplated under the respective sections. 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
c             the time of creuit in the account of payee or at the time of
              payment to payee, whichever is earlier."
           15. Ms. Dhugga invited our attention to a judgment of the Division
           Bench of Madras High Court in Tube Investments of India
           Ltd. v. Assistant Commissioner ofIncome-Tax (TDS), [201OJ325
D          ITR 610 (Mad). The Division Bench referred to the statistics
           placed before it by the 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
 E         that 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 asses~,ees and that
 F ,_      once the assessees are identified it would enable the tr.x collection
           machinery to bring within its fold all such persons who are liable·
           to come within the network of tax payers. These objects also
           indicate the legislative intent that the requirement of deducting ·
           tax at source is mandatory.
 G          16. The liability to deduct tax at source is, therefore, mandatory."
          13. The aforesaid interpretation of Sections l 94C 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. As would be noticed
   and discussed in little detail hereinafter, theAllahabad High Court, while
 H interpreting Section 40(a)(ia), did not deal with this aspect at all, even
 MIS. PALAM GAS SERVICE v. COMMISSIONER OF INCOME                         845
                 TAX [A. K. SIKRI, J.]

when it has a clear bearing while considering the amplitude of the said A
prov1s1on.
       14. In the -aforesaid backdrop, let us now deal with the issue,
namely, the word 'payable 'in Section 40(a)(ia) would mean only when
the amount is payable and not when it is actually paid. Grammatically, it
may be accepted that the two words, i.e. 'payable' and 'paid', denote B
different meanings. The Punjab & Haryana High Court, in P.M.S. Diesels
& Ors., referred to above, rightly remarked that the word 'payable' is,
in fact, an antonym of the word 'paid·. At the same time, it took the
view that it was not significant to the interpretation of Section 40(a)(ia).
Discussing this aspect further, the Punjab & Haryana High Court first
dealt with the contention of the assessee that Section 40(a)(ia) relates C
only to those assessees who follow the mercantile system and does not
cover the cases where the assessees follow the cash system. Those
contention was rejected in the following manner:
        "19. There is nothing that persuades us to accept this submission.
       The purpose of the section is to ensure the recovery of tax. We D
        see no indication in the section that this object was confined to the
        recovery of tax from a particular type of assessee or assessees
        following a particular accounting practice. As far as this provision
        is concerned, it appears to make no difference to the Government
        as to the accounting system followed by the assessees. The E
        Government is interested in the recovery of taxes. If for some
        reason, the Government was interested in ensuring the recovery
        of taxes only from assessees following the mercantile system, we
      , would have expected the provision to so stipulate clearly,, if not
        expressly. It is not suggested that assessees following the cash
        system are not liable to deduct tax at source. It is not suggested F
        that the provisions of Chapter XVII-B do not apply to assessees
        following the cash system. There is nothing in Chapter XVII-B
        either that suggests otherwise.
      20. Our view is fortified by the Explanatory Note to Finance Bill
      (No. 2) of 2004. Sub-clause (ia) of clause (a) of Section 40 was     G
      introduced by the Finance Bill (No. 2) cif 2004 with effect from
      01.04.2005. The Explanatory Note to Finance Bill-2004 stated:-


          With a view to augment compliance ofTDS provisions, it is        H
846       SUPREME COURT REPORTS                              [2017] 3 S.C.R. .


A         proposed to extend the provisions of section 40(a)(i) to payments
          of interest_, commission or brokerage, fees for professional
          services or fees for technical services to residents, and
          payments to a resident contractor or sub-contractor for carrying
          out any work (including supply oflabour for carrying out any
          work), on which tax has not been deducted or after deduction,
B
          has not been paid before the expiry of the time prescribed
          ·~nder sub-section( 1) of section 200 and in accordance with
          the other provisions of Chapter XVIl-B ....... "
       21. The adherence to the provisions ensures not merely the
       collection of tax but also enables the authorities to bring within
c      their fold all such persons who are· liable to come within the
       network of tax payers. The intention was to ensure the collection
       of tax irrespective of the system of accounting followed by the
       assessees. We do not see how this dual purpose of augmenting
       the compliance of Chapter XVII and bringing within the
D      Department's fold tax payers is served by confining the provisions
       of Section 40(a)(ia) to assessees who follow the mercantile system.
       Nor do we find anything that indicates that for some reason the
       legislature intended achieving these objectives only by confining
       the operation of Section 40(a)(ia) to assessees who follow the
       mercantile system.
 E
        22. The same view was taken by a Division Bench of the Calcutta
        High Court in Commissioner of Income Tax v. Crescent Export
      . Syndicate, (supra). It was held:-
          " 12.3. It is noticeable that Section 40( a) is applicable in espective
 F        of the method of accounting followed by an <1ssessee.
          Therefore, by using the term 'payable' legislature included the
          entire accrued liability. If assessee was following mercantile
          system of accounting, then the moment amount was credited
          to the account of payee on accrual ofliability, TDS was required
          to be made but if assessee was following cash system of
 G        accounting, then on making payment TDS was to be made as
          the liability was discharged by making payment. The TDS
          provisions are applicable both in the situation of actual payment
          as well of the credit of the amount. It becomes very clear
          from the fact that the phrase, 'on which tax is deductible at
 H        source under Chapter XVII-B ', was not there in the Bill but
 MIS. PALAM GAS SERVICE v. COMMISSIONER OF INCOME                                  847
                 TAX [A. K. SIKRI, J.]

          incorporated in the Act. This was not without any purpose."              A
        15. We approve the-aforesaid view as well. As a fortiorari, it
wllows 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 was enacted and that has
already been noted above. We have also to keep in mind the provisions              B
of Sections l 94C 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
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               C
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 contingency, such a person would be deemed
to be an assessee in default in respect of such tax. While stipulating this
consequence, Section 20 ! categorically states that the aforesaid Sections         D
would be without prejudice to any other consequences which that defaulter
may incur. Other consequences are provided under 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 XVIIB (in the               E
 instant case Sections l 94C and 200, which provisions are in the aforesaid
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             F
 not cover the cases where the amount is actually paid. If the provision is
 interpreted in the manner suggested by the appellant herein, then even
 when it is found that a person, like the appellant, has violated the provisions
 of Chapter XVIIB (or specifically Sections I 94C 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           G
 consequences. The Punjab & Haryana High Court has exhaustively
 interpreted Section 40(a(ia) keeping in mind different aspects. We would
 again quote the following paragraphs from the said judgment, with our
 complete approval thereto:
                                                                                   H
848      SUPREME COURT REPORTS                            [2017] 3 S.C.R.


A     "26. Further, the mere incurring of a liability does not require an
      assessee to deduct the tax at source even if such payments, if
      made, would require an assessee to deduct the tax at source. The
      liability to deduct tax at source under Chapter XVII-B arises only
      upon payments being made or where so specified under the
      sections in Chapter XVII, the amount is credited to the account
B
      of the payee. In other words, the liability to deduct tax at source
      arises not on account of the assessee being liable to the payee but
      only upon the liability being discharged in the case of an assessee
      following the cash system and upon credit being given by an
      assessee following the mercantile system. This is clear from every
c     section in Chapter XVII.
      27. Take for instance, the case of an assessee, who follows the
      cash system of accounting and where the assessee who though
      liable to pay the contractor, fails to do so for any reason. The
      assessee is not then liable to deduct tax at source. Take also the
D     case of an assessee, who follows the mercantile system. Such an
      assessee may have incurred the liability to pay amounts to a party.
      Such an assessee is .also not bound to deduct tax at source unless
      he credits such sums to the account of the party/payee, such as, a
      contractor. This is clear from Section l 94C set out earlier. The
      liability to deduct tax at source, in the case of an assessee following
E     the cash system, arises only when the payment is made and in the
      case of an assessee following the mercantile system, when he
      credits such sum to the account of the party entitled to receive
      the payment.
      28. The government has nothing to do with the dispute between
F     the assessee and the payee such as a contractor. The provisions
      of the Act including Section 40 and the provisions of Chapter
      XVII do not entitle the tax authorities to adjudicate the liability of
      an assessee to make payment to the payee/other contracting party.
      The appellant's submission, if accepted, would require an
G     adjudication by the tax authorities as to the liability of the assessee
      to make payment. They would then be required to investigate all
      the records of an assessee to ascertain its liability to third parties.
      This could in many cases be an extremely complicated task
      especially in the absence of the third party. The third party may
      not press the claim. The parties may settle the dispute, if any.
H
 MIS. PALAM GAS SERVICE v. COMMISSIONER OF INCOME                              849
                 TAX [A. K. SIKRI, J.]

       This is an exercise not even remotely required or even                  A
       contemplated by the section."
       16. As mentioned above, the Punjab & Haryana High Court found
support from the judgments of the Madras and Calcutta High Courts
taking identical view and by extensively quoting from the said judgments.
        17. Insofar as judgment of the Allahabad High Court is concerned, B
reading thereof would reflect that the High Court, after noticing the fact
that since the amounts had already been paid, it straightaway concluded,
without any discussion, that Section 40(a)(ia) would apply only when the
amount is 'payable' and dismissed the appeal of the Department stating
that the question of law framed did not arise for consideration. No c
doubt, the Special Leave Petition thereagainst was dismissed by this
Court in limine. However, that would not amount to confirming the
view of the Allahabad High Court (See V.M. Salgaocar & Bros. (P)
Ltd. v. Commissioner ofIncome Tax, (2000) 243 ITR 383 and Supreme
Court Employees Welfare Association v. Unio_n of India, (1989) 4
sec 187.                                                                   D
       18. In view of the aforesaid discussion, we hold that the view
taken by the High Courts of Punjab & Haryana, Madras and Calcutta is
the correct view and the judgment of the Allahabad High Court in CIT
v. Vector Shipping Services (P) Ltd., (2013) 357 ITR 642 did not decide
the question of law correctly. Thus, insofar as the judgment of the            E
Allahabad High Court is concerned, we overrule the same. Consequences
of the aforesaid discussion will be to answer the question against the
appellant/assessee thereby approving the view taken by the High Court.
       19. The appeal is, accordingly, dismissed with costs.
                                                                               F

Devika Gujral                                              Appeal dismissed.