2016 (7) TMI 1187 - AT - Income Tax

Payments for infrastructure not subject to TDS under Section 194C - Tribunal rules against default and interest imposition

Indian Oil Corporation Ltd. Versus DCIT, Circle-58 (TDS), Kolkata

The Tribunal held that payments made for availing infrastructure facilities were not subject to TDS under Section 194C of the Income Tax Act. As a result, ... TDS liability - tds on terminalling charges - segregation of agreement into purchase and works contract - Held that:- From the facts we find that in the instant case the assessee was buying the petroleum products from BRPL. Besides the above the loading services were also provided by BRPL in connection with the purchase of the petroleum product. For the loading services the assessee was making the payment separately to BRPL. The petroleum products were purchased by the assessee in bulk and regular basis for which loading facility was provided by BRPL. The assessee for availing the loading facility was making the payment to the same party from which he was buying the products i.e. BRPL. Thus the loading facility was intricately linked with the every purchase of the products. It was not possible for the assessee to purchase the products without availing the infrastructure facility of BRPL. Thus in our view it shall not be inappropriate to treat the expenses on infrastructure facility at par with the purchase. The method for the payment of infrastructure facility and entering into a separate agreement cannot be the sole basis to treat the transaction independent of the purchase. In the case on hand, the rate lump sum consideration was fixed for the infrastructure facility. No direct labour was involved in the case on hand. The claim of the assessee that other companies to whom identical payments were made by the assessee have furnished the form 197/197A of the Act for non-deduction of tax, in our view the mere furnishing of form 197A of the Act cannot change the character of the transactions. The ld. AR also submitted that in the earlier years the identical payments were made for the availing of infrastructure facilities but no disallowance was warranted. The ld. DR failed to bring anything on record contrary to the arguments advanced by the ld. AR.Therefore, in our considered view, the provision of Sec. 194C, in the instant case is not applicable to the assessee. Accordingly, we reverse the orders of Authorities Below and grounds raise by assessee are allowed Issues Involved:1. Applicability of Section 194C of the Income Tax Act on terminalling charges.2. Nature of payments made to BRPL and IBP Ltd.3. Non-deduction of TDS and resultant demand under Section 201(1) and interest under Section 201(1A) of the Act.4. Confirmation of levy of interest under Section 201(1A) of the Act.Issue-wise Detailed Analysis:1. Applicability of Section 194C on Terminalling Charges:The core issue revolves around whether the terminalling charges paid to BRPL are liable for TDS deduction under Section 194C of the Income Tax Act. The assessee argued that these charges were part of the purchase price of petroleum products, thus falling outside the purview of Section 194C. The AO, however, contended that these payments were for services rendered and thus subject to TDS under Section 194C. The CIT(A) upheld the AO's view, stating that the agreement between the assessee and BRPL clearly indicated that the payments were for terminalling services, thus attracting TDS under Section 194C.2. Nature of Payments Made to BRPL and IBP Ltd.:The assessee maintained that the payments to BRPL were for marketing rights and the use of loading infrastructure, not for any work contract, and thus not liable for TDS under Section 194C. The AO rejected this, noting that similar payments to Indian Oil Petronas Pvt. Ltd. were subjected to TDS. The CIT(A) supported the AO, emphasizing that the payments were for terminalling services, which fall under the ambit of Section 194C.3. Non-deduction of TDS and Resultant Demand under Section 201(1) and Interest under Section 201(1A):The AO held the assessee in default under Section 201(1) for failing to deduct TDS on terminalling charges and levied interest under Section 201(1A). The CIT(A) concurred, dismissing the assessee's arguments that the payments were not for work contracts. The assessee contended that BRPL had accounted for these payments as income and paid taxes accordingly, but the AO noted discrepancies in BRPL’s tax payments, reinforcing the default status.4. Confirmation of Levy of Interest under Section 201(1A):The AO's imposition of interest under Section 201(1A) was upheld by the CIT(A), who found the assessee's failure to deduct TDS as mandated by Section 194C justified the interest levy. The assessee's appeal argued that since the payments were not liable for TDS under Section 194C, the interest under Section 201(1A) should not apply.Tribunal's Findings:The Tribunal examined the nature of the payments and the relevant agreements. It found that the payments were indeed for availing infrastructure facilities and not for any work contract as specified under Section 194C. The Tribunal noted that the legislative amendment to Section 194-I, effective from 1-6-2007, which could cover such payments, was not applicable for the assessment years in question (2002-03, 2003-04, and 2004-05). Consequently, the Tribunal held that the payments did not attract TDS under Section 194C, reversing the orders of the lower authorities.Conclusion:The Tribunal concluded that the provisions of Section 194C were not applicable to the payments made for availing infrastructure facilities. Consequently, the assessee was not in default under Section 201(1), and the levy of interest under Section 201(1A) was also unwarranted. All appeals by the assessee were allowed.