TaxTMI 
TaxTMI 
TaxTMI 
2016 (10) TMI 55
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.... the assessee was required to deduct tax at source on the expenses incurred under the head Transport Charges under the provisions of section 194C of the Act and since the assessee failed to deduct the same, treated such expense incurred for Carriage inward and carriage outward as disallowable under section 40(a)(ia) of the Act, added back Rs. 1,63,78,648/- claimed as expense towards Carriage Inward and Rs. 1,13,00,980/- claimed as expense towards Carriage Outward, to the income of the assessee. 3. Appeal carried to the learned CIT ended up in confirmation of the additions made by the learned AO. Learned CIT held that the benefit under section 194C (6) is available only when the assessee fulfils the conditions laid down in sub-section 194C(7) of the Act, and since the assessee has not fulfilled the conditions laid down in 194C(7), and thus committed the default of non-deduction of TDS in the case of the transporters for both Carriage Inward and Carriage Outward, the learned AO was justified in disallowing the said sums u/s 40(a)(ia) of the Act. 4. Aggrieved by the impugned order of the learned CIT, the assessee preferred this appeal on the following grounds: 1. For that under th....
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....orters, consequent upon due furnishing and corresponding availability of their respective PAN copies with them, by virtue of Sec. 194C(6) of the Income Tax Act, 1961 providing for mandatory non-deduction of Tax at the time of crediting/making payment to account of a Contractor undertaking carriage of Goods. He further submits that by virtue of sec. 194C(6) on furnishing the PAN, the carriage inward amount of Rs. 16312648.00 and the carriage outward amount of Rs. 6517325.00 had become immune from Deduction of Tax at source, as such, the rigour and adversity of its disallowance under sec. 40(a) (ia) could not be invoked. On the other side, learned DR vehemently relied upon the orders of the authorities below. 6. Basing on the above rival contentions, the issue that arises for our consideration is whether the authorities below are justified in disallowing u/s 40(a)(ia) of the Act an amount of Rs. 1,63,78,648/- claimed as expense towards Carriage Inward and Rs. 1,13,00,980/- claimed as expense towards Carriage Outward? 7. Facts are simple and mostly admitted. Assessee carrying on proprietary export business in export of Chemical, Surgical and Clinical Goods had to incur Transport Cha....
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....ition of "work" and thus transportation charges is liable for TDS. In the present case, the assessee becomes "contractor" who is making the payment to the transporter for carrying of goods and was thus liable to deduct TDS on such payment. Section 194C( 6) reads as under: "(6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum. " It thus, means that if a transporter is making any further payment for hiring/leasing of vehicles during the course of his business then it would not deduct TDS if the sub-contractors have supplied their PAN to it. Thus 194C( 6) is applicable to a transporter who during the course of his business of plying, hiring or leasing goods carriages, makes payment to another contractor for hiring of vehicles, then he is not supposed to deduct the TDS. This sub-section will not apply to payments made by a person who himself is not a transport, to another sub-contractor for plying, hiring or leasing....
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....le for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed Income Tax Authority or the person authorised by it, such particulars in such form within such time as may be prescribed, this provision was not made applicable for the impugned assessment year as the relevant notification was not issued immediately. In fact, the Board has given notification on 15.10.2010, which was made effective for the forthcoming second quarter statement due on 15th October, 2010. Since CBDT itself has issued notification in a later year, assessee's contention that in the impugned assessment year, no such prescribed authority was stated has to be accepted. " The second judgement relied upon by the assessee in the case of Vijay Siddharaj Bashte (49 taxmann.com 334, Pune), is not applicable in this case. There has been no finding pertaining to the applicability of Section 194C(7). In view of the above discussion, it is held that the assessee has not fulfilled the conditions laid down in sub-section 194C(7) and thus committed the default of non-deduction of TDS in the case of the transporters for both carriage inward and carriage outward. Henc....
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.... case two per cent, of such sum as income-tax on income comprised therein: Provided that no individual or a Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.] 11. The expressions "Any person responsible for paying any sum" and "to any resident (hereafter in this section referred to as the contractor)", used in this section plainly makes it clear that the receiver of the payment is the contractor, and the person making such payment is the contractee. It goes without saying that the person who in pursuance of a contract, is responsible for payment is the contractee and the person carrying out any work (including supply of labour for carrying out any work) is a contractor. As a matter of fact, these expressions in the context of section do not admit of any other interpretation. 12. Our understanding of the terms "Contractee" and "Contractor" is fortified by the judgement of Allahabad High Court in Moradbad Chartered Accountants vs Central Board of Direct Taxes And Anr. - 264 ITR 374....
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....out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax on income comprised therein After Amendment by Finance Act (No.2), 2009 it is reading like, (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- ... ... ..." (7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authorit....
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....een the previous and prevailing provision 18. On this aspect, we are fortified in our conclusion by the decision of a coordinate Bench of the Mumbai Tribunal in the case of HCC-L&T Purulia Joint Venture v JCIT (ITA Nos. 1644, 3041/MUM/2010), wherein it was held as follows: "The provisions of section 194 C as substituted by the Finance Act 2 of 2009 w.e.f. 1/10/2009 has now not made any distinction between a payment to a contractor or sub-contractor and all payments for carrying out any work in pursuance of contract are covered within the fold o f section 194C (1) of the Act. Further Explanation (iii) also provides that a contract include sub- contract. Thus on and from 1/10/2009 payments made by sub-contractor to a sub sub-contractor would also be covered under section 194C of the Act". 19. Further, CBDT Circular No. 05/2010 F.No.l42/13/2010- SO (TPL), dated 3Td June, 2010, in the context of the Explanatory Notes on Finance Act (No.2) 2009, clearly delineates reason for removal of dividing line between a Contractor and a Sub-Contractor by the Finance Act, (No.2) , 2009 in the following terms: "Under the existing provisions of section 194C of the Income-tax Act, TDS at the ra....
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....hall be available to all payers by virtue of 194C(6), in relation to all Goods Transport Charges irrespective of the fact, whether it was under a Contract or a Sub-contract. 24. We wish to refer profitably to Para No. 49.3 of CBDT Circular No. 05 12010 F.No.142/13/2010-S0 (TPL), dated 3rd June, 2010 (Explanatory Notes on Finance Act (No.2) 2009), where under the PAN based immunity and exemption from making TDS to Transporters was extended in all Transport contracts. "49.3 Provisions for payments and tax deducted at source to transporters A) Under Section 194C, tax is required to be deducted on payments to transport contractors engaged in the business of plying, hiring or leasing goods carriages. However if they furnish a statement that they do not own more than two goods carriages, tax is not 63 to be deducted at source. Transport operators are reporting, problem in obtaining TDS certificates as these are not issued immediately by clients and they are not able to approach the client again as they may have to move across the country for their business. B) It is, therefore, the Act has been amended to exempt payments to transport operators (as defined in section 44AE) from t....
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....iling of PAN of the Payee-Transporter alone is sufficient and no confirmation letter as required by the learned CIT is required. 26. On the aspect of observation of the learned CIT that Sections 194C(6) and Section 194C(7) have to be read together to extend the immunity from TDS, our attention is drawn to the fact that though the Finance Act, (N0.2) 2009 introduced, inter alia, Sec. 194C(6) and 194C(7), similar and analogous provision had been very much in existence under proviso 2 and 3 to Section 194C(3) of the Act. Placing such provisions in juxtaposition in the following chart makes it clear that they are very much analogous and the difference is that only in respect of requirement of a declaration and furnishing the particulars to the to the prescribed income-tax authorities under the provisos 2 and 3 of pre-amended section 194C(3) is being replaced by the Permanent Account Number under present Sections 194C(6) and (7) respectively. 194C prior to Amendment by Finance Act, (N0.2) 2009 ) 194C as Amended by Finance Act, (N0.2) 2009 194C(3) No deduction shall be made under subsection (1) or sub-section (2) from- ... ... ... ... ... ... Provided that .... ... Provided furth....
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....ons when the declaration obtained in Form 15I ( requirement similar to the PAN particulars under Sec. 194C(6)) obtained from the Transporter under Second Proviso is not submitted in Form 15J to the Commissioner of Income Tax in Form 15J (requirement similar as is provided under the third proviso and equivalent to the requirement Sec. 194C(7), the Department made attempts to make additions, but such additions have been deleted and rendered invalid. He submitted that the Courts and Tribunals consistently held that on obtaining of either the declaration contemplated under second proviso to the pre-amended section 194C(3) or the PAN details under the present section 194C(6), the assessee was not required to make any deduction at source on the payments made to the contractor or sub-contractor, irrespective of the fact whether or not such information was furnished to the authorities as prescribed under third proviso to the amended section 194C(3) or the present section 194C(7). 29. In CIT -vs.- Valibhai Khanbhai Mankad (Tax Appeal No. 1182 of 2011, order dated 01.10.2012), it is held by the Hon'ble Gujarat High Court at Ahmedabad that :- "(6) Section 194C, as already noticed, makes pr....
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.... would not make the requirement of deduction at source applicable under sub-section (2) of section 194C of the Act. In our view, therefore, the Tribunal was perfectly justified in taking the view in the impugned judgment. It may be that failure to comply such requirement by the payee may result into some other adverse consequences if so provided under the Act. However, fulfilment of such requirement cannot be linked to the declaration of tax at source. Any such failure therefore cannot be visualized by adverse consequences provided under section 40(a)(ia) of the Act. 10) When on the basis of the record it is not disputed that the requirements of further proviso were fulfilled, the assessee was not required to make any deduction at source on the payments made to the sub-contractors. If that be our conclusion, application of section 40(a)(ia) would not arise since, as already noticed, section 40(a)(ia) would apply when there is a requirement of deduction of tax at source and such requirement is either not fulfilled or having deducted tax at source is not deposited within prescribed time". 30. In CIT -vs.- Sri Marikamba Transport Co. in ITA No. 553 of 2013 reported in 379 ITR 129....
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....id before the 1st day of June, 1972; or (iii) any sum credited or paid before the 1st day of June, 1973, in pursuance of a contract between the contractor and a co-operative society or in pursuance of a contract between such contractor and the sub-contractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the co-operative society. " 4. The combined reading of these two provisions make it clear that if there is any breach of requirements of Section 194C(3), the question of applicability of Section 40(a)(ia) arises. The exclusion provided in Sub-Section(3) of Section 194C from the liability to deduct tax at source under sub-section(2) would be complete, the moment the requirements contained therein are satisfied. Once, the declaration forms are filed by the subcontractor, the liability of the assessee to deduct tax on the payments made to the sub-contractor would not arise. As we have examined, the sub-contractors have filed Form No. 1Sl before the assessee. Such being the case, the assessee is not required to deduct tax under Section 194C(3) of the Act and to file Form No.15]. It is only a technical defect as poin....