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2013 (7) TMI 1 - AT - Income TaxTransmission charges being part of purchase price of gas - Non deduction of TDS u/s 194C - assessee company, engaged in manufacturing of fertilizers, had purchased natural gas from GAIL same transported to the manufacturing unit of the assessee through the pipeline of GAIL for which the assessee had paid the transmission charges to GAIL - Held that - In the instant case GAIL has not only supplied/transported the gas sold by it but also the gas purchased by the assessee from other sellers. In those cases the transmission charges paid by the assessee to GAIL certainly attracts the provisions of section 194C as per circular no. 9/2012 F.No. 275/11/2012-IT(B) dated 17.10.2012 of CBDT. From a careful perusal of the orders of the lower authorities, it is find that the assessee has also admitted in his written submissions filed before the CIT(A) that it has also purchased the gas from other sellers i.e. Reliance Industries Ltd. apart from the GAIL but the same was transported by the GAIL and the assessee had paid transmission charges to the GAIL and also deducted TDS on the payment but this aspect has not been clarified by any of the lower authorities as they have treated the entire payment of transmission charges as has been made u/s 194I or 194C of the Act. In the light of these facts, this aspect is required to be examined by the lower authorities as to how much transmission charges are paid by the assessee to GAIL for transportation of the gas purchased by it from GAIL and also the amount of transmission charges paid by the assessee to GAIL for transportation of gas purchased from other agencies - restore the matter to the file of AO with the direction to reexamine the issue afresh - in favour of assessee for statistical purposes.
Issues Involved:
1. Liability to deduct tax under section 194C on transmission charges. 2. Recovery of tax and interest under section 201(1A). 3. Applicability of CBDT Circular No. 9/2012. 4. Relevance of the Gujarat High Court decision in CIT(TDS) vs. Krishak Bharati Co-op. Ltd. 5. Interpretation of judgments and circulars by CIT(A). 6. Nature of the contract between the assessee and GAIL. 7. Characterization of transmission charges as part of the purchase price or as a service. 8. Impact of service tax on transmission charges. 9. Definition of service from the Service Tax Act. 10. Applicability of section 194C read with Explanation (iv). 11. TDS on payments to Bihar State Warehousing Corporation. 12. Lower tax deduction orders under section 197. 13. Clear findings on tax recovery under sections 194C and 201(1A). 14. Clear findings on tax recovery under sections 194C and 194I. 15. Material facts ignored by CIT(A). Detailed Analysis: 1. Liability to Deduct Tax under Section 194C on Transmission Charges: The primary issue is whether the assessee was liable to deduct TDS on transmission charges paid to GAIL under section 194C. The CIT(A) concluded that the contract between the assessee and GAIL was a composite contract involving the procurement and transmission of gas, thus requiring TDS under section 194C. 2. Recovery of Tax and Interest under Section 201(1A): The CIT(A) directed the AO to recover tax deductible under section 194C on transmission charges and interest under section 201(1A), even though the assessee argued that GAIL had already paid the tax on the received payments. 3. Applicability of CBDT Circular No. 9/2012: The CIT(A) held that the CBDT Circular No. 9/2012, which clarifies that transportation charges embedded in the cost of gas do not require TDS under section 194C, was not applicable to the assessee. The assessee contended that this circular should apply as the transportation charges were part of the sale price. 4. Relevance of the Gujarat High Court Decision: The CIT(A) disregarded the Gujarat High Court's decision in CIT(TDS) vs. Krishak Bharati Co-op. Ltd., which held that transportation charges for gas supply are part of the purchase cost and not subject to TDS under section 194C. The assessee argued that this decision was directly applicable to their case. 5. Interpretation of Judgments and Circulars by CIT(A): The CIT(A)'s interpretation of the High Court judgment and the CBDT circular was challenged by the assessee, arguing that it was not open to the CIT(A) to dissect and reinterpret these authorities. 6. Nature of the Contract between the Assessee and GAIL: The CIT(A) held that the contract between the assessee and GAIL was composite, involving procurement and transmission of gas, thus requiring TDS under section 194C. The assessee argued that the contract was solely for the purchase of gas, with transmission being a step towards the sale. 7. Characterization of Transmission Charges: The CIT(A) characterized the transmission charges as a service provided by GAIL, separate from the purchase price of the gas. The assessee argued that these charges were part of the purchase price, as VAT was paid on them. 8. Impact of Service Tax on Transmission Charges: The CIT(A) held that the imposition of service tax on transmission charges indicated that they were for a service, not part of the cost of gas. The assessee disagreed, stating that service tax did not change the nature of the transaction. 9. Definition of Service from the Service Tax Act: The CIT(A) used the definition of service from the Service Tax Act to hold that transmission charges constituted a work contract. The assessee argued that this interpretation was incorrect and that VAT indicated the charges were part of the sale. 10. Applicability of Section 194C Read with Explanation (iv): The CIT(A) applied section 194C read with Explanation (iv) to hold that TDS was applicable on transmission charges. The assessee argued that this was incorrect as the charges were part of the sale transaction. 11. TDS on Payments to Bihar State Warehousing Corporation: The CIT(A) held that the entire amount paid to Bihar State Warehousing Corporation was rent subject to TDS under section 194I, ignoring the assessee's argument that part of the payment was for handling and transportation charges subject to TDS under section 194C. 12. Lower Tax Deduction Orders under Section 197: The CIT(A) ignored an order under section 197 for lower tax deduction rates on payments to Bihar State Warehousing Corporation. 13. Clear Findings on Tax Recovery under Sections 194C and 201(1A): The CIT(A) did not provide clear findings on whether tax under section 194C or interest under section 201(1A) was to be recovered from the assessee. 14. Clear Findings on Tax Recovery under Sections 194C and 194I: The CIT(A) did not clarify whether tax under sections 194C and 194I or only interest under section 201(1A) was to be recovered from the assessee. 15. Material Facts Ignored by CIT(A): The assessee argued that the CIT(A) ignored several material facts, such as the ownership and risk of gas during transmission, the nature of the contract, and the inclusion of transmission charges in GAIL's tax returns. Conclusion: The Tribunal found that the CIT(A) erred in applying section 194C to the transmission charges and directed the AO to reexamine the issue, considering the nature of the contract and the applicability of the Gujarat High Court decision and CBDT Circular No. 9/2012. The appeals were allowed for statistical purposes, and the stay petitions were dismissed.
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