2015 (8) TMI 80 - AT - Income Tax

Assessee's 1% TDS deduction on subcontract transactions upheld by ITAT, Revenue appeals dismissed

The ACIT (TDS), Jaipur Versus M/s Rajasthan Small Industries Corp Ltd Udyog

The ITAT upheld the decision of the ld. CIT(A) that the assessee correctly deducted TDS at 1% as the transactions with M/s. Max Logistics (P) Ltd. were in ... Liability to deduct tax at source - @ 1% or 2% u/s 194C - whether payments made by the assessee to M/s. Max Logistics (P) Ltd. treating it as a subcontractor instead of contractor - Held that:- The nature should not merely be decided on the basis of book entries or use of common terminology. The word ‘Custodian’ is used in the public notice is emphasized by ld. AO to hold that there is no contract between custom and assessee. On reading of the above mentioned clauses, the public notice gives a clear indication that the assessee was in charge of handling of the cargo as sole assignee which in the notice has been referred to as custodian. The purposive reading of terms we hold that the assessee was acting as a contractor for the Commissioner of Customs in this behalf. In order to efficiently discharge its contractual obligation, the eligible assessee further assigned the work to M/s. Max Logistic (P) Ltd. as per their agreement. In consideration of entirety of facts and circumstances we are of the view that the M/s. Max Logistic (P) Ltd. with assessee was that of a sub-contractor. This being so, the TDS liability of the assessee in terms of Section 194C is exigible @ 1% which has rightly been upheld by the ld. CIT(A). Hence, we find no infirmity in order of the ld. CIT(A) which is upheld. - Decided against revenue. Issues:Assessment of TDS liability under Section 194C of the Income Tax Act on payments made by the assessee to a third party, whether as a contractor or a sub-contractor.Detailed Analysis:1. The case involved four appeals by the Revenue against two different orders passed by ld. CIT(A)-III, Jaipur and ld. CIT(A), Alwar. The primary issue raised in all appeals was whether the assessee was liable to deduct tax at source at 1% or 2% under Section 194C of the Income Tax Act on payments made to M/s. Max Logistics (P) Ltd. The AO held that the assessee was in default for deficit TDS of 1% and charged interest under Section 201(1A) of the Act.2. In the first appeal, the ld. CIT(A) analyzed the agreements, notifications, and submissions made by the assessee and held that the transactions between the assessee and M/s. Max Logistics (P) Ltd. were in the nature of a sub-contract. The ld. CIT(A) concluded that the TDS deducted at 1% was correct, and there was no justification for raising a demand under Section 201(1) of the Act. Interest under Section 201(1A) was to be computed accordingly.3. The Revenue contended that the relationship between the assessee and M/s. Max Logistics (P) Ltd. should be considered a contract, not a sub-contract, based on a survey conducted at the premises of the assessee. The Revenue argued that the payments were for work done under a contract liable for TDS at 2% under Section 194C of the Act.4. The assessee, a State Govt. Undertaking, argued that it held a bona fide belief that M/s. Max Logistics (P) Ltd. was a sub-contractor and deducted TDS accordingly. The assessee highlighted that M/s. Max Logistics (P) Ltd. had paid all due taxes on its income, invoking relevant Supreme Court judgments.5. The ITAT analyzed the public notice appointing the assessee as a custodian of cargo handling and concluded that the assessee acted as a contractor for the Commissioner of Customs. The eligible assessee then assigned the work to M/s. Max Logistic (P) Ltd. as a sub-contractor. The ITAT upheld the ld. CIT(A)'s decision that the TDS liability at 1% was correct. The appeals of the Revenue were dismissed.In conclusion, the ITAT upheld the decision of the ld. CIT(A) that the assessee correctly deducted TDS at 1% as the transactions with M/s. Max Logistics (P) Ltd. were in the nature of a sub-contract. The ITAT dismissed the appeals of the Revenue, emphasizing the contractual relationship between the parties and the applicability of Section 194C of the Income Tax Act.