2016 (2) TMI 1280 - AT - Income Tax

Tribunal partially allows appeal on tax deduction, remands issue, dismisses interest computation grounds.

The Tribunal allowed the appeal partly by setting aside the CIT(A) Shimla's order regarding non-deduction of tax on payments made to transport cooperative ... Tax deduction at source under section 194C(6) in relation to transport contractors - Definition of 'goods carriage' and scope of Explanation to section 44AE - Assessee in default and liability under sections 201(1) and 201(1A) - Exemption under sections 11 & 12 and its effect on TDS obligation - Remand for verification of tax paid by the deductee before treating deductor as assessee in defaultTax deduction at source under section 194C(6) in relation to transport contractors - Definition of 'goods carriage' and scope of Explanation to section 44AE - Assessee in default and liability under sections 201(1) and 201(1A) - Whether the assessee was an assessee in default for not deducting TDS under section 194C on payments made to transport cooperative societies - HELD THAT: - The Tribunal applied its earlier decision in M/s ACC Limited (order dated 29.10.2015 / 29.01.2016) and examined section 194C(6) read with the Explanation referencing section 44AE. It held that the reference to section 44AE is confined to the definition of 'goods carriage' (clause (a) of the Explanation) and does not import the ownership/deemed ownership condition contained in clause (b) of the Explanation to section 44AE(7). Consequently, where the payee-societies were shown to be engaged in the business of plying, hiring or leasing goods carriages, had furnished PAN and the goods carriages met the statutory definition, the payer was not obliged to deduct TDS under section 194C(6) for the relevant period (prior to the 2015 amendment that introduced an ownership condition). Following the precedent of the Bench, the Tribunal set aside the CIT(A)'s contrary view and deleted the demands raised under sections 201(1)/201(1A). [Paras 7, 8]Demand created under sections 201(1) and 201(1A) for payments to transport cooperative societies deleted.Exemption under sections 11 & 12 and its effect on TDS obligation - Assessee in default and liability under sections 201(1) and 201(1A) - Remand for verification of tax paid by the deductee before treating deductor as assessee in default - Whether the assessee was an assessee in default for not deducting TDS on payments to Himachal Road Transport Corporation (HRTC) relied upon as a trust registered under section 12A - HELD THAT: - The Tribunal agreed with the CIT(A) that registration as a trust under section 12A and claimed exemption under sections 11 & 12 cannot be assumed by the deductor to negate TDS liability because taxability or exemption is subject to conditions and assessment. The CIT(A) had directed the AO to ascertain whether the deductees themselves had paid the tax in respect of amounts claimed from the deductor, and to grant relief to the deductor to the extent tax was so paid. The Tribunal found no infirmity in this approach but emphasised that the Assessing Officer must provide the assessee an opportunity of being heard and decide the matter afresh in accordance with law. Accordingly the issue was remanded to the AO for verification and fresh decision on the extent of relief. [Paras 11, 12]Issue remanded to the Assessing Officer to verify the quantum of tax paid by the payees and to decide afresh; relief to the deductor to be given to the extent tax was paid by the deductees.Final Conclusion: Appeals allowed in part: demands under sections 201(1)/201(1A) in respect of payments to transport cooperative societies deleted; the question of non-deduction on payments to HRTC remanded to the AO for verification of tax paid by the deductees and fresh decision, with directions to afford opportunity of hearing. Issues Involved:1. Non-deduction of tax under Section 194C on payments made to transport cooperative societies.2. Non-deduction of tax under Section 194C on payments made to Himachal Pradesh Road Transport Corporation (HRTC).Issue 1: Non-deduction of tax under Section 194C on payments made to transport cooperative societies.The appellant, a Public Limited Company engaged in manufacturing and other activities, was required to deduct tax at source under Section 194C of the Income Tax Act, 1961, on payments made to various transport cooperative societies for transportation work. A TDS survey/inspection was conducted, and the Income Tax Officer (TDS) issued a show-cause notice to the appellant for non-deduction of tax. Despite the appellant's detailed reply, the ITO (TDS) passed an order under Sections 201(1) and 201(1A), creating a demand for the assessment years 2010-11 and 2011-12. The CIT(A) upheld this order, leading to the appellant's appeal before the Tribunal.The appellant argued that under Section 194C(6), substituted by Finance (No.2) Act, 2009, tax is not required to be deducted on payments made to contractors engaged in the business of plying, hiring, and leasing goods carriages. The transport societies were engaged in such business, and thus, no tax was deducted. The appellant cited a precedent from the Tribunal in the case of M/s ACC Limited, Barmana, where a similar issue was decided in favor of the assessee.The Tribunal, after considering the rival submissions, observed that the CIT(A) in Chandigarh had deleted similar demands in the case of M/s ACC Limited, while the CIT(A) in Shimla had upheld them. The Tribunal found that the CIT(A) Shimla's decision was not based on a correct appreciation of facts and law. Following the precedent set in M/s ACC Limited, the Tribunal set aside the CIT(A) Shimla's order and deleted the demands created under Sections 201(1) and 201(1A) for the assessment years 2010-11 and 2011-12.Issue 2: Non-deduction of tax under Section 194C on payments made to Himachal Pradesh Road Transport Corporation (HRTC).The appellant had an agreement with HRTC for bus services, allowing its employees and their families to travel. The appellant did not deduct tax under Section 194C, believing that HRTC, registered as a trust and enjoying exempt income under Sections 11 and 12, was not subject to TDS. The ITO (TDS) treated the appellant as an assessee in default, stating that HRTC's registration as a trust does not exempt it from TDS under Section 194C.On appeal, the CIT(A) held that the appellant's submission was contrary to Section 190(1), which requires tax deduction at source regardless of the income's exempt status. The CIT(A) directed the ITO (TDS) to verify the extent of tax paid by the deductees and provide relief to the appellant if the tax had been paid by the deductees.The Tribunal agreed with the CIT(A) that there is no provision in the Income Tax Act exempting TDS on exempt income. The taxability or exemption under Sections 11 and 12 is subject to assessment by the Assessing Officer, and the appellant cannot assume non-taxability. The Tribunal upheld the CIT(A)'s directions for verification by the ITO (TDS) and remanded the issue for a fresh decision, ensuring the appellant is given an opportunity to be heard.Other Grounds:The appellant did not press the grounds related to the computation of interest under Section 201(1A) and the holding that the deductor shall not be treated as an assessee in default if the entire TDS liability has been paid by the deductee. These grounds were dismissed as not pressed.Conclusion:The appeals were allowed partly and partly for statistical purposes, with the Tribunal setting aside the CIT(A) Shimla's order on the first issue and remanding the second issue for fresh consideration by the Assessing Officer. The order was pronounced in the Open Court on 04.02.2016.