TaxTMI 
TaxTMI 
2022 (11) TMI 364
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....s justified in deleting the addition of Rs. 12,42,498/- made by the AO u/s. 40(a)(ia) of the Act on account of non-deduction of TDS on carting expenses, without appreciating that assessee has failed to furnish the details of PANs of the carting parties before the AO during the original assessment proceedings and therefore failed to comply the provisions of sec. 194C(6) of the Act? 2. It is, therefore, prayed that the order of the Ld. CIT(A) maybe set aside and that of Assessing Officer may be restored to the above extent." 3. The facts necessary for disposal of the appeals are stated in brief. Assessee before us is a Private Limited Company and engaged in civil construction activities. The assessee-company filed its original return of income on 29.09.2011, declaring total income of Rs. 1,79,660/-. The scrutiny assessment under section 143(3) of the Act, was completed on 30.01.2014. However, later on, the Revenue Audit Party has raised an objection that assessee-company had failed to deduct Tax Deducted at Source (TDS) on carting payments given to two parties, during the year under consideration namely: (i) M/s. Patel Carting of Rs. 6,21,415/- and (ii) Shri Subash G. May....
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....." 5. Aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us. 6. Learned Senior Departmental Representative (Ld. Sr. DR) for the Revenue, pleaded that Ld. CIT(A) allowed the appeal of assessee, holding that assessee-company has provided PAN details of these parties and therefore the assessee has complied with the provision of section 194C(6) of the Act and hence Ld. CIT(A) deleted the addition. The Ld. DR stated that decision of Ld. CIT(A) is not acceptable since the assessee-company had no PAN details of the parties at the time of payment and therefore assessee was required to deduct TDS at the time of payment to the payees. It is also pertinent to mention that assessee has not provided any details according to the provision of section 194C(6) or 194C(7) of the Act. During the course of re-assessment proceedings, the Assessing Officer has realized that at the time of payment, the company had no details of PAN of the two parties. Hence, assessee has failed to comply the provision of section 194C(6) of the Act and whatever payment made as carting expenses are liable for TDS as per section 40(a)(ia) r.w.s. 194C(6) of the Act. Accordingly, the Assessing Officer....
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.... assessee failed to deduct the same, learned AO disallowed the expenses of Rs. 1,63,78,648/- claimed as expense towards Carriage Inward and Rs. 1,13,00,980/- claimed as expense towards Carriage Outward, treating such expense disallowable under section 40(a)(ia) of the Act. 8. Assessee contended before the learned CIT that because of the provision of Section 194C(6), she was not liable to deduct TDS on payments to transporters who had submitted their PAN, and those details of PAN and addressees of the transporters were filed during the course of scrutiny assessment before the AO. Relevant portion of the appellate order is as follows: "To decide the issue, we need to read the entire section 194C together to understand its true interpretation. 194C(1) reads as under: (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 contractor 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 ca....
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....on 194C(1) that if the person is making payment for transportation charges, then it should deduct TDS and in Section 194C(6), it would say that no TDS deduction would be made if the payment is given to a contractor in the business of transportation on furnishing of his PAN. Further, the provisions of Section 194C(6) and 194C(7) have to be read together. Section 194C(7) read as under: (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 authority or the person authorised by it, such particulars, in such from and within such time as may be prescribed.". Thus, the benefits of Section 194C(6) can be availed only then the assessee fulfills the conditions laid down in Section 194C(7). However, in this case, the assessee has not fulfilled the conditions as she has not furnished the requisite particulars in such form to the prescribed income-tax authority within the stipulated time period. This logic is also indirectly confirmed by the order of ITAT Hyderabad in ITA No. 1536/Hyd/2014 in the case of Mr. Muhammad Suhail, on which the assessee had relied during th....
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....C(1) r/w clause (c) to Explanation given below Sec. 194C(7) the assessee is a contractor making payments to the transporter for carrying of goods and was thus liable to deduct TDS on such payment. According to him, according to Section 194C(6), if a transporter is making any further payment for hiring/leasing of vehicles during the course of his business then he would not deduct TDS if the sub-contractors have supplied their PAN details to the principal transporter. He further observed that Section 194C(6) will not apply to payments made by a person who himself is not a transporter, to another sub-contractor for plying, hiring or leasing goods carriage. Secondly, he stated that provisions of section 194C(6) and 194C(7) have to be read together and the benefit under section 194C(6) is available only when the assessee fulfills the conditions laid down in Section 194C(7) of the Act. On this aspect, he derives strength from the decision in the case of Muhammad Suhail. Now, we shall proceed to appreciate the rival contentions in the light of the provisions of the Act and the decisions rendered by different High Courts and Tribunal. 10. For proper appreciation of the finding of ....
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.... transportation or loading of goods, or for supply of materials. Further it was held in Kirloskar Brothers Limited vs. DCIT (IT AT Pune)- 167 TTJ 102, that in common parlance, a contractor is understood so a person who carries out the assigned work as per the directions given by the contractee. 13. Ld. CIT(A) mistook the expressions "Any person responsible for paying any sum" and "any resident (hereafter in this section referred to as the contractor)", appearing in Sec. 194C(1) and categorized the assessee as the Contractor. Having categorized the assessee as a contractor, the Ld. CIT(A) observed that the immunity from making TDS from the payment under section 194C(6) is available only to a transporter that procured the PAN of the Sub Contract Transporters. 14. The next question, therefore, that arises is whether the difference between "Contractor" and "Sub Contractor" has any impact on the liability to make TDS under Section 194C(1) of the Act. To understand this, it is necessary to refer to the position of law prior to and after amendment to Section 194C of the Act. 15. It is worth noticing that by means of Finance Act (No. 2), 2009, rather than introdu....
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.... For the purposes of this section,-- (i) "specified person" shall mean,- ... ... ... ... ... ... (ii) ... ... ... (iii) "contract" shall include sub-contract; (iv) ... ...." 16. Though the entire Section 194C is Subs, by Finance (No. 2) Act, 2009, s. 61 (w.e.f. 1-10-2009), in so far as the obligation of the person responsible for making payment/crediting the Account of the Payee to deduct TDS when payment/credit is made pursuant to a contract between is concerned, even after amendment, Sec. 194C(1) had remained substantially the same. However, earlier "Contract" and "Sub-Contract" were covered by two different sub-sections, namely, Sec. 194C(1) and Sec. 194C(2) respectively. But, the Amendment, vide Finance Act, 2009 brought in the most significant change by obliterating the difference between Contract and Sub-Contract, by repealing Sec. 194C(2) which was dealing with sub-contractors and simultaneously introducing Sub-Section (7) with Explanation, Clause No. (iii) of which clarifies that "Contract shall include sub-contract". Now as the things stand, there remains no distinction between a Contract and Sub-Contract. Unlike pre-am....
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.... case of a sub-contract, TDS is deducted at the rate of 1%. Further, in the case of payment for an advertising contract, TDS is required to be deducted at the rate of 1%. In order to reduce the scope for disputes regarding classification of contract as sub-contract. The Act has been amended to specify the same rate of TDS for payments to both contractors as well as sub-contractors." 20. It, therefore, flows from our above discussion that 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 subcontract. 21. Now coming to the contention that under Sec. 194C(6) as it stands now, providing for immunity from TDS under sec. 194C(1) in relation to payments to transporters, applies only to a transporter making payment to another subcontractor submitting his PAN to the former, Section 194C(6) does not give any such indication. Section 194C(6) reads as follows: (6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous ye....
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....rom the purview of IDS. However, this would only apply in cases where the operator furnishes his Permanent Account Number (PAN) to the deductor. Deductors who make payments to transporters without deducting TDS (as they have quoted PAN) will be required to intimate these PAN details to the Income Tax Department in the prescribed format. C) Applicability - This amendment has been made applicable with effect from 1st October, 2009 and will accordingly apply in relation to the assessment year 2010-2011 and subsequent assessment years." The Circular, while referring to the amendment in Sec. 194C(6) made it plainly clear that from the A.Y. 2010-11 onwards, by virtue thereof when Transport Operators furnish their PAN to the person responsible for making payments to them, the Transport Operators would be outside the purview of TDS u/s. 194C. Needless to say that 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. 25. Next ground of disallowance stated by the learned CIT is that Sec. 194C(6) and 194C(7) are to be read ....
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..... ... ... ... ... ... provided that ... ... Provided further that no deduction shall be made under sub-section (2), from the amount of any sum credited or paid or likely to be credited or paid during the previous year to the account of the sub-contractor during the course of business of plying, hiring or leasing goods carriages, on production of a declaration to the person concerned paying or crediting such sum, in the prescribed form and verified in the prescribed manner and within such time as may eb prescribed, if such sub-contractor is an individual who has not owned more than two goods carriages at anytime during the previous year; Provided also that the person responsible for paying any sum as aforesaid to the sub-contractor referred to in the second proviso shall furnish to the prescribed income-tax authority or the person authorized by it such particulars as maybe prescribed in such form and within such time as may be prescribed; or] (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 c....
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....is held by the Hon'ble Gujarat High Court at Ahmedabad that:- "(6) Section 194C, as already noticed, makes provision where for certain payments, liability-of the payee to deduct tax at source arises. Therefore, if there is any breach of such requirement, question of applicability of section 40(a)(ia) would arise. Despite such circumstances existing, sub-section (3) makes exclusion in cases where such liability would not arise. We are concerned with the further proviso to sub-section (3), which provides that no deduction under sub-section (2) shall be made from the amount of any sum credited or paid or likely to be credited or paid to the sub-contractor during the course of business of plying, hiring or leasing goods carriages, on production of a declaration to the person concerned paying or crediting such sum in the prescribed form and verified it in the prescribed manner within the time as may be prescribed, if such sub-contractor is an individual who has not owned more than two goods carriages at any time during the previous year. (7) The exclusion provided in sub-section (3) of section 194C from the liability to deduct tax at source under sub-section (2) wo....
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....d 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 (Karn.), Hon'ble Karnataka High Court has formulated a question as to whether non-filing of Form No. 15I/J within the prescribed time is only a technical default or the provisions of section 40(a)(ia) of the Act are attracted? and proceeded to answer the same as under:- "Section 40(a)(ia) and Section 194C(3) of the Act reads thus: "Section 40(a)(ia): Any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or subcontractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section(i) of Section 139". Section 194C(3): No deduction shall be made under sub-section (1) or sub-section(2) from- (i) the amount of any sum credited or paid or likely to be credited ....
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....ntractors have filed Form No. 15I 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. 15I. It is only a technical defect as pointed out by the Tribunal in not filing Form No. 15I by the assessee. This matter was extensively considered by the ITAT, Ahmedabad Bench in Valibhai Khanbhai Mankad's case (supra) and the said Judgment has been upheld by the High Court of Gujarat reported in (2013) 216 Taxman 18 (Guj) wherein it is held that once the conditions of Section 194C(3) were satisfied, the liability of the payee to deduct tax at source would cease and accordingly, application of Section 40(a)(ia) would also not arise. The Tribunal, placing reliance on the judgment of the ITAT, Ahmedabad Bench, has dismissed the appeal filed by the Revenue. We agree with the said propositions and hold that filing of Form No. 15I/j is only directory and not mandatory." 31. A Coordinate Bench of this Tribunal in ITA No. 86/VIZ/2013 in the case of ITO vs. Kolli Brothers, order dated 11.12.2013 followed the decision of the Hon'ble High Court of Gujarat in the case of Valibhai Khanbhai Mankad (supra).....