2015 (2) TMI 1187 - AT - Income Tax

TDS u/s 194C - disallowance under section 40(a)(ia) - Held that - There is no need to deviate from the order of Ld. CIT(A). Even though new provisions were introduced and assessees were made liable to deduct tax on the payments made to transporters, provisions of section 194C(6) gives exemption to the persons not to deduct the amount, in case they obtain/furnish the PAN. Assessee has complied with these provisions. Therefore, there is no need to deduct any tax and disallowance under section 40(a)(ia) does not arise. Even though it was stated in sub section (7) that 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 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. Even otherwise, as rightly pointed out by the Ld. CIT(A) provisions of section 194C(6) are independent of section 194C(7). Just because there is violation of provisions of section 194C(7), disallowance under section 40(a)(ia) does not arise, if assessee complies with the provisions of section 194C(6). In view of this, we do not find any merit in Revenue appeal. - Decided against revenue.

Summary

Issues:
1. Interpretation of provisions of section 194C regarding liability to deduct tax.
2. Application of section 40(a)(ia) in case of non-deduction of tax at source.
3. Exemption under section 194C(6) for obtaining PAN of contractors.
4. Effect of non-compliance with section 194C(7) on disallowance under section 40(a)(ia).

Issue 1: Interpretation of provisions of section 194C regarding liability to deduct tax

The case involved a dispute regarding the liability to deduct tax at source under section 194C of the Income Tax Act. The Assessing Officer (A.O.) disallowed a significant amount under section 40(a)(ia) due to the non-deduction of tax on transport charges paid to certain transporters. The appellant argued that as per section 194C(6), no deduction is required if the Permanent Account Number (PAN) of the contractors is obtained. The appellant contended that once the PAN is acquired, the liability to deduct tax ceases, and subsequent non-compliance with section 194C(7) does not reinstate this liability.

Issue 2: Application of section 40(a)(ia) in case of non-deduction of tax at source

The dispute further revolved around the application of section 40(a)(ia) which deals with disallowance of expenses for non-deduction of tax at source. The A.O. disallowed a substantial amount under this section due to the appellant's failure to deduct tax under section 194C(1). However, the appellant argued that the exemption provided under section 194C(6), by obtaining the PAN of the contractors, absolved them from the obligation to deduct tax at source.

Issue 3: Exemption under section 194C(6) for obtaining PAN of contractors

The appellant relied on section 194C(6) to support their contention that obtaining the PAN of the transporters exempted them from the requirement to deduct tax at source. The appellant successfully argued before the Ld. CIT(A) that since they had obtained the PAN of the contractors, they were not liable to any disallowance under section 40(a)(ia). The Ld. CIT(A) agreed with this interpretation, emphasizing that the liability to deduct tax ceases upon obtaining the PAN of the contractors.

Issue 4: Effect of non-compliance with section 194C(7) on disallowance under section 40(a)(ia)

The A.O. invoked section 44AE to suggest that the transporters did not qualify for the exemption under section 194C(6). However, the Ld. CIT(A) analyzed the provisions in detail and concluded that the appellant had met the requirements of section 194C(6) by obtaining the PAN of the transporters. The Ld. CIT(A) highlighted that non-compliance with section 194C(7) does not lead to disallowance under section 40(a)(ia) if the appellant complies with section 194C(6). The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing the independence of sections 194C(6) and 194C(7) and dismissing the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s order that the appellant was not liable to deduct tax at source under section 194C due to compliance with section 194C(6) by obtaining the PAN of the contractors. The judgment clarified the interplay between different sections of the Income Tax Act and emphasized the importance of strict compliance with statutory provisions to avoid disallowances under section 40(a)(ia).