2010 (11) TMI 692 - AT - Income Tax

Payments made to NSICT for the movement of the containers from or up to the vessel - TDS u/s 194C or u/s 194J - Amount of tax u/s.201(1) and interest u/s.201(1A) - held that - the assessee rightly deducted tax at source u/s.194C and there was no liability to deduct tax at source u/s.194J, this ground challenging the demand of differential amount of tax u/s.201(1) and interest u/s.201(1A) has become infructuous Time limit for passing decision u/s 201(1) or 201(1A) - held that - both the initiation of proceedings u/s. 201(1) as well as the completion of such proceedings by passing order have to be prior to the time limit within which the tax can be determined in the hands of the payee. It cannot be beyond such period. If the payee has included the amount received from payer in his total income but the tax has not been paid in full or part then the payer can be treated as assessee in default to the extent of the non-payment of tax on the sum paid to him provided the tax is not recovered from the payee - Thus the maximum time limit for initiating and completing the proceedings u/s. 201(1) has to be at par with the time limit available for initiating and completing the reassessment. This is the view which has been canvassed by the special bench of the tribunal in Mahindra and Mahirdra (2009 -TMI - 59571 - ITAT BOMBAY-H). - Decided in favor of assessee.

Summary

Issues Involved:
1. Applicability of Section 194C vs. Section 194J for tax deduction at source.
2. Liability of the assessee under Section 201(1) and 201(1A) despite payment of tax by the recipient.
3. Timeliness of the order passed under Sections 201(1) and 201(1A).

Issue-Wise Detailed Analysis:

1. Applicability of Section 194C vs. Section 194J for tax deduction at source:
The primary issue was whether payments made by the assessee to NSICT should be treated under Section 194C or Section 194J for tax deduction purposes. The Assessing Officer (AO) argued that the services provided by NSICT were technical and specialized, thus falling under Section 194J. However, the assessee contended that the payments were for container movement services, which should be covered under Section 194C. The CIT(A) sided with the assessee, stating that the nature of services provided by NSICT involved the movement of containers using cranes and manpower, which did not qualify as technical services under Section 194J. The Tribunal upheld this view, emphasizing that the payments were for using a standard facility provided by NSICT for container movement and not for availing any technical services. The Tribunal also noted that NSICT was registered under "Port Services" for service tax purposes, further supporting the applicability of Section 194C.

2. Liability of the assessee under Section 201(1) and 201(1A) despite payment of tax by the recipient:
The assessee argued that since NSICT had paid taxes on the income received from the assessee, there should be no liability under Section 201(1) for short deduction of tax. The CIT(A) disagreed, stating that the liability for deducting tax at source was independent of the recipient's tax payment. The Tribunal, however, referred to the Supreme Court's decision in Hindustan Coca Cola Beverage P. Ltd. vs. CIT, which held that an assessee could not be treated as in default under Section 201(1) if the recipient had paid the due taxes. Therefore, the Tribunal concluded that the assessee could not be held liable under Section 201(1) as NSICT had paid the taxes. However, the Tribunal maintained that interest under Section 201(1A) was still payable for the period between the date the tax was deductible and the date it was actually paid by the recipient.

3. Timeliness of the order passed under Sections 201(1) and 201(1A):
The assessee contended that the order passed by the AO was time-barred as it was issued after four years from the end of the financial year. The Tribunal referred to the Special Bench decision in Mahindra and Mahindra vs. DCIT, which held that the time limit for passing an order under Section 201(1) should be aligned with the time limit for making an assessment of the payee. Since the order was passed within six years from the end of the relevant assessment year, the Tribunal concluded that the order was not time-barred.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that the payments made to NSICT were covered under Section 194C and not Section 194J. The Tribunal also partly allowed the assessee's cross-objection, concluding that there was no liability under Section 201(1) due to the recipient's tax payment, but interest under Section 201(1A) was still applicable. The order passed by the AO was deemed timely.