2020 (11) TMI 903 - AT - Income Tax

Tribunal directs verification of TDS payments, excludes genuine petrol reimbursements

M/s. Sri Balaji Prasanna Travels Hemanth Complex Versus ACIT, Circle-6 (3) (1) Bengaluru

The Tribunal partly allowed the appeal, directing the Assessing Officer to verify aggregate payments for TDS under Section 194C and exclude genuine petrol ... TDS u/s 194C - hire charges paid to third party vehicle owners - Non deduction of tds - addition made u/s.40[a][ia] - As per assessee there is no agreement or contract between the assessee and the persons from whom the vehicles have been hired - first argument made by assessee that the second proviso to section 40(a)(ia) of the Act inserted by the Finance Act, 2012 would apply in the instant case - HELD THAT:- If the amount of tax has already been realised from the employees concerned directly, there cannot be any question of further realisation of tax as the same income cannot be taxed twice. If the tax has been realised once, it cannot be realised once again, but that does not mean that the assessee will not be liable for payment of interest or any other legal consequence for their failure to deduct or to pay tax in accordance with law to the revenue.” (emphasis supplied) That such was the legal position was accepted by the Central Board of Direct Taxes in its Circular No.275/201/95-IT(B) dated January 29, 1997. The settled position in law is that if the deductee/payee has paid the tax, no recovery can be made from the person responsible for paying of income from which he failed to deduct tax at source. In a case where the deductee/payee has paid the tax on such income, the person responsible for paying the income is no longer required to deduct or deposit any tax at source. In the similar circumstances, we find that the first proviso to section 40(a)(ia) inserted by the Finance Act, 2010, which has been held to be curative and therefore, retrospective in its operation by CIT v Virgin Creations [2011 (11) TMI 348 - CALCUTTA HIGH COURT] provides for allowance of the expenditure in any subsequent year in which tax has been deducted and deposited. The intention of the legislature clearly is not to disallow legitimate business expenditure. The allowance of such expenditure is sought to be made subject to deduction and payment of tax at source. In a case where the deductee/payee has paid tax and as such the person responsible for paying is no longer required to deduct or pay any tax, legitimate business expenditure would stand disallowed since the situation contemplated by the first proviso viz. deduction and payment of tax in a subsequent year would never come about. Such unintended consequence has been sought to be taken care of by the second proviso inserted in section 40(a)(ia) by the Finance Act, 2012. We restore this issue to the file of the Assessing officer with the direction that the assessee shall provide all the details to the Assessing Officer with regard to the recipients of the income and taxes paid by them. The Assessing Officer shall carry out necessary verification in respect of the payments and taxes of such income and al so filing the return by the recipient. In case, the Assessing Officer finds that the recipient has duly paid the tax es on the income, the addition made by the Assessing Officer shall stand deleted. Thus this ground is allowed for statistical purposes. TDS u/s 194C(6) - Disallowance of reimbursement of petrol & diesel charges on hired vehicles - HELD THAT:- If bills for such expenses incurred by the said cab owners were separately raised by them on the assessee in addition to bills for hire charges and since the amount of bills so raised was towards the actual expenses incurred by them, there was no element of any profit involved in the said bills. It was thus a clear case of reimbursement of actual expenses incurred by the assessee and the same, therefore, was not of the nature of payment covered by section 194C of the Act requiring the assessee to deduct tax at source therefrom, where bills were raised separately by the cab owners for reimbursement of actual expenses incurred by them. The provisions of section 194C of the Act were not applicable to the reimbursement of actual expenses and the assessee was not liable to deduct tax at source from such reimbursement. Accordingly, we direct the A.O. to verify the claim of the assessee in the light of our above observation. See SRI. SINGONAHALLI CHIKKAREVANNA GANGADHARAIAH. [2020 (4) TMI 756 - ITAT BANGALORE] Issues Involved:1. Disallowance under Section 40(a)(ia) of the Income-tax Act due to non-deduction of TDS under Section 194C.2. Applicability of Section 194C versus Section 194I for vehicle hire charges.3. Reimbursement of petrol and diesel expenses and their exemption from TDS.Detailed Analysis:1. Disallowance under Section 40(a)(ia) of the Income-tax Act due to non-deduction of TDS under Section 194C:The appellant challenged the disallowance of Rs. 1,04,44,105/- made under Section 40(a)(ia) for failing to deduct TDS under Section 194C. The CIT(A) upheld the disallowance, asserting that the appellant was liable to deduct TDS on vehicle hire charges. The appellant argued that the payments were revenue shared with third-party vehicle owners and not subject to Section 194C. However, the Tribunal observed that the appellant had hired vehicles with drivers, making Section 194C applicable. The Tribunal noted that even oral contracts could invoke Section 194C, and the aggregate payments to each cab owner should be considered for TDS applicability. The Tribunal directed the A.O. to verify the aggregate payments and apply the TDS provisions accordingly.2. Applicability of Section 194C versus Section 194I for vehicle hire charges:The appellant contended that the payments should fall under Section 194I, which pertains to rent, arguing that there was no contract between the appellant and third-party vehicle owners. The Tribunal rejected this, stating that the hiring of vehicles with drivers constituted a contract under Section 194C. The Tribunal emphasized that a contract need not be in writing and could be inferred from the conduct of the parties. The Tribunal upheld the A.O.'s decision that Section 194C was applicable, as the appellant had made payments for hiring vehicles, thus necessitating TDS deduction.3. Reimbursement of petrol and diesel expenses and their exemption from TDS:The appellant claimed that the reimbursement of petrol and diesel expenses should not attract TDS as these were direct payments to petrol bunks, not to cab owners. The Tribunal noted that the reimbursement of actual expenses incurred by cab owners, if separately billed, did not involve any profit element and thus did not attract TDS under Section 194C. The Tribunal directed the A.O. to verify if the expenses were indeed reimbursements of actual costs and not payments to cab owners, and if so, to exclude these from TDS requirements.Conclusion:The Tribunal partly allowed the appeal for statistical purposes, directing the A.O. to verify the aggregate payments for TDS applicability under Section 194C and to exclude genuine reimbursements of petrol and diesel expenses from TDS. The Tribunal upheld the applicability of Section 194C over Section 194I for vehicle hire charges, emphasizing that oral contracts and the conduct of parties could invoke TDS provisions.