2016 (10) TMI 55 - AT - Income Tax

Appeal success: Authorities' additions removed. Compliance with PAN requirements under Tax Laws upheld.

Soma Rani Ghosh Versus Deputy Commissioner of Income Tax

The appeal was allowed, and the additions made by the authorities under section 40(a)(ia) were deleted. The Tribunal held that the Assessee complied with ... TDS u/s 194C - payments made by the assessee towards Carriage Inward and Carriage Outward - non deduction of tds - Held that:- As in the context of Section 194C(1), person undertaking to do the work is the Contractor and the person so engaging the contractor is the contractee. As by virtue of the Amendment introduced by Finance Act (No.2) 2009, the distinction between a contractor and a sub-contractor has been done away with and Cl. (iii) of Explanation under 194C(7) now clarifies that 'contract' shall include sub-contract. Subject to compliance with the provisions of Section 194C(6), immunity from TDS under sec. 194C(1) in relation to payments to transporters, applies transporter and non-transporter contractees alike; iv) under Sec. 194C(6), as it stood prior to the amendment in 2015, in order to get immunity from the obligation of TDS, filing of PAN of the Payee-Transporter alone is sufficient and no confirmation letter as required by the learned CIT is required. Sections 194C(6) and Section 194C(7) are independent of each other, and cannot be read together to attract disallowance u/s 40(a)(ia) read with Section 194C of the Act. If the assessee complies with the provisions of Section 194C(6), no disallowance u/s 40(a)(ia) of the Act is permissible, even there is violation of the provisions of Section 194C(7) of the Act. Consequent to our findings in the preceding paragraphs, we reach a conclusion that the authorities below are not justified in treating the expense incurred by the assessee for Carriage inward and carriage outward as disallowable under section 40(a)(ia) of the Act, and adding back ₹ 1,63,78,648/- claimed as expense towards Carriage Inward and ₹ 1,13,00,980/- claimed as expense towards Carriage Outward, and such additions shall stand deleted. - Decided in favour of assessee. Issues Involved:1. Whether the authorities were justified in disallowing expenses under section 40(a)(ia) of the Income Tax Act for non-deduction of TDS on transport charges.2. Interpretation and application of sections 194C(6) and 194C(7) of the Income Tax Act.3. The impact of amendments to section 194C by the Finance Act, 2009 on the obligation to deduct TDS.Issue-Wise Detailed Analysis:1. Disallowance of Expenses under Section 40(a)(ia):The primary issue was whether the authorities were justified in disallowing Rs. 1,63,78,648/- towards Carriage Inward and Rs. 1,13,00,980/- towards Carriage Outward under section 40(a)(ia) for non-deduction of TDS on transport charges. The Assessee argued that by virtue of section 194C(6), she was not liable to deduct TDS as the transporters had furnished their PANs. The authorities, however, disallowed the expenses citing non-compliance with section 194C(7).2. Interpretation and Application of Sections 194C(6) and 194C(7):The Assessee contended that section 194C(6) provides immunity from TDS on payments to transporters upon furnishing their PAN. The authorities argued that section 194C(6) and 194C(7) must be read together, implying that the benefit under section 194C(6) is contingent upon compliance with section 194C(7), which requires furnishing particulars to the prescribed authority.The Tribunal noted that:- Section 194C(6) states that no deduction shall be made from any sum credited or paid to a contractor during the course of business of plying, hiring, or leasing goods carriages, on furnishing of his PAN.- The Tribunal emphasized that section 194C(6) as it stood prior to the amendment in 2015 required only the PAN for immunity from TDS, without the need for additional declarations.- The Tribunal referred to judicial precedents, including the Gujarat High Court's decision in CIT vs. Valibhai Khanbhai Mankad, which held that compliance with section 194C(6) suffices for immunity from TDS, and non-compliance with section 194C(7) does not attract disallowance under section 40(a)(ia).3. Impact of Amendments to Section 194C by Finance Act, 2009:The Tribunal analyzed the amendments introduced by the Finance Act, 2009, which eliminated the distinction between a contractor and a sub-contractor. The Tribunal noted:- The amendment brought clarity that the term 'contract' includes 'sub-contract'.- The Tribunal highlighted that the amendment aimed to simplify the TDS provisions and reduce disputes regarding the classification of contracts and sub-contracts.- The Tribunal concluded that the benefit of section 194C(6) extends to both contractors and sub-contractors, provided the PAN is furnished.Conclusion:The Tribunal concluded that:- The authorities were not justified in disallowing the expenses under section 40(a)(ia) as the Assessee complied with section 194C(6) by furnishing the PANs of the transporters.- Sections 194C(6) and 194C(7) are independent, and non-compliance with section 194C(7) does not negate the immunity provided under section 194C(6).- The amendments to section 194C by the Finance Act, 2009, support the Assessee's position that the distinction between contractor and sub-contractor is irrelevant for the purpose of TDS deduction.Order:The appeal by the Assessee was allowed, and the additions made by the authorities under section 40(a)(ia) were deleted. The Tribunal's decision emphasized the importance of interpreting tax provisions in a manner consistent with legislative intent and judicial precedents.