2008 (5) TMI 142 - HC - Income Tax

Revenue appeal dismissed; demand under Sections 201(1)/201(1A) for alleged TDS under Section 194C deleted for lack of contract evidence

HC dismissed the revenue appeal and upheld the Tribunal/CIT(A) that deleted the demand under Sections 201(1)/201(1A) for alleged failure to deduct TDS ... Payment made to C/F agent & some transporters - Whether, the Ld. ITAT was right in law in upholding the order of the CIT(A), deleting the demand created by the Assessing Officer under Section 201(1) and 201(1A), as the assessee failed to deduct tax at source as per the provisions of Section 194C of the Act? HELD THAT:- As per provisions of Section 194C of the Income Tax Act, any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract shall at the time of credit of such sum or at the time of payment thereof in cash or by cheque deduct a tax thereon at a prescribed rate. However, no such deduction at source is required to be made, if the sum paid or credited do not exceed Rs.20,000/-. In the present case, the Assessing Officer had held the assessee liable for deduction of tax only on the assumption that assessee was having agreement with the parties through whom trucks were arranged for transportation of goods. However, the CIT(A) has recorded a finding of fact that there was neither any oral or written agreement between the assessee or transporters for carriage of goods nor it has been proved that any sum of money regarding freight charges was paid to them in pursuance of a contract for specific period, quantity or price. This finding of fact was recorded by the CIT(A) after considering the certificate furnished by the transporters. The Tribunal has also recorded a finding of fact that the Department has not controverted the said finding of the CIT(A) even before the Tribunal. While recording this finding of fact, the Tribunal has clearly stated that nothing has been brought on record by the Assessing Officer to prove that there was no written or oral agreement between the alleged parties for carriage of the goods. Thus, we are not inclined to interfere in the finding of fact recorded by the Tribunal. The appeal being without merit is dismissed. Issues:1. Interpretation of Section 194C of the Income Tax Act, 1961 regarding tax deduction at source.2. Whether the assessee was liable for deduction of tax on transportation charges paid to truck owners/operators.3. Determination of liability for deduction of tax on payments made to clearing and forwarding agents.4. Analysis of the findings of the Commissioner of Income-tax (Appeals) and the Income Tax Appellate Tribunal.5. Assessment of the absence of written or oral agreements for carriage of goods between the assessee and transporters.6. Consideration of the threshold for tax deduction at source under Section 194C of the Act.Detailed Analysis:1. The case involved a dispute over the interpretation of Section 194C of the Income Tax Act, focusing on tax deduction at source requirements for payments made for work carried out under a contract. The appellant-revenue challenged the order of the Income Tax Appellate Tribunal, questioning the correctness of upholding the deletion of demand created by the Assessing Officer under Sections 201(1) and 201(1A) of the Act.2. The issue revolved around whether the assessee, a limited company engaged in the business of manufacturing and exporting rice, was liable for tax deduction on transportation charges paid to truck owners/operators. The Assessing Officer found the assessee in default for short deduction of tax under Section 201 of the Act, leading to a demand for tax and interest.3. The Commissioner of Income-tax (Appeals) partially allowed the appeal, holding that the assessee was not required to deduct tax on freight charges paid to truck owners/operators due to the absence of a specific contract for carriage of goods. However, the CIT(A) upheld the liability for tax deduction on other payments made by the assessee to clearing and forwarding agents.4. The revenue filed an appeal before the Tribunal against the CIT(A)'s order. The Tribunal, in its decision, analyzed the provisions of Section 194C and relevant CBDT Circulars to determine the applicability of tax deduction at source. It emphasized the lack of evidence supporting the existence of written or oral agreements between the assessee and transporters for the carriage of goods.5. The Tribunal's findings highlighted that the Assessing Officer's assumption of agreements for transportation services was unfounded, as there was no contractual obligation established between the parties involved. The Tribunal noted that the Department failed to challenge the CIT(A)'s factual findings regarding the absence of agreements for carriage of goods.6. Ultimately, the High Court dismissed the revenue's appeal, affirming the Tribunal's findings of fact. The Court upheld that since there was no proof of written or oral agreements for the carriage of goods between the assessee and transporters, the liability for tax deduction under Section 194C was not applicable, especially considering the threshold of Rs.20,000 for such deductions.