2015 (3) TMI 490 - AT - Income Tax

Transportation charges paid to GAIL - TDS liability u/s 194C or u/s 1941 - CIT(A) deleting the amount of TDS liability determined by the ITO(TDS) u/s 1941 - Held that - As relying on asseessee's own case 2013 (7) TMI 1 - ITAT LUCKNOW 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 of the Act as per circular No. 9 of 2012 of CBDT. From a careful perusal of the orders of the lower authorities, we 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, we are of the considered opinion that 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. Accordingly, we set aside the order of CIT(A) and restore the matter to the file of the Assessing Officer with the direction to reexamine the issue afresh in the terms indicated above. If it is proved that the assessee has deducted the TDS on the transmission charges paid to GAIL for transmission of gas purchased from other agencies, no disallowance can be made, otherwise the Assessing Officer is required to act in accordance with law. - Decided in favour of revenue for statistical purposes. Validity of rectification u/s 154 - Assessee in default on non-deduction of TDS on the payment of transmission charges - AO passed an order under section 154 and substituted section 194C by section 194I having noted that by typographical mistake in the order, section 194C was mentioned in place of section 194I - CIT (Appeal) deleting the amount of TDS liability for the A.Y. 2010-11 determined by the ITO(TDS) U/s 1941 - Held that - Having carefully examined the order of the ld. CIT(A), we find that the ld. CIT(A) has disposed of the appeal in the light of the Tribunal s order for assessment years 2007-08 to 2009-10, in which the Tribunal has given a specific finding that TDS is not required to be deducted in case the purchase is made from GAIL. With certain directions, the Tribunal has also set aside the order of the ld. CIT(A) and restored the matter to the Assessing Officer. In the light of these facts, the rectification application is not sustainable. We accordingly find no infirmity in the order of the ld. CIT(A) and we confirm the same. - Decided against revenue.

Summary

Issues Involved:
1. Whether the transportation charges paid to GAIL are subject to TDS under Section 194I or Section 194C of the Income Tax Act, 1961.
2. Whether the transportation charges are part of a composite contract for the purchase of gas or constitute rent.
3. The applicability of Section 194C versus Section 194I for TDS deduction on transportation charges.
4. The delay in filing the appeal by the Revenue and its condonation.

Detailed Analysis:

1. Transportation Charges and TDS Applicability:
The primary issue revolves around whether the transportation charges paid to GAIL by the assessee should attract TDS under Section 194I (rent) or Section 194C (contract) of the Income Tax Act, 1961. The Revenue argued that the transportation charges should be treated as rent under Section 194I, while the CIT(A) held that these charges fall under Section 194C as part of a composite contract for the purchase of gas.

2. Composite Contract or Rent:
The CIT(A) concluded that the transportation charges were part of a composite contract under Section 194C and not rent under Section 194I. This conclusion was based on the fact that the pipelines used for transportation were capital assets of GAIL and were exclusively used for delivering gas to the assessee. The Tribunal agreed with the CIT(A), referencing a Board Circular dated 17.10.2012, which clarified that if the transportation charges are embedded in the cost of gas, it remains a contract for sale and not a works contract.

3. Section 194C vs. Section 194I:
The Tribunal examined the nature of the contract and the relationship between the assessee and GAIL. It noted that the transportation charges were embedded in the cost of gas, making the contract essentially one for the sale of gas. The Tribunal cited the case of Krishak Bharati Co-operative Ltd. vs. CIT, where the Gujarat High Court held that transportation charges in such contracts are part of the sale transaction and not separate works contracts. The Tribunal also referenced CBDT Circular No. 9 of 2012, which supported this view, stating that transportation charges paid to the seller of gas do not attract TDS under Section 194C if they are part of a sale contract.

4. Condonation of Delay:
The appeals were filed late by 14 days, and the Revenue sought condonation of the delay, attributing it to the non-receipt of scrutiny reports. The Tribunal found the reasons for the delay to be bona fide and condoned the delay, admitting the appeals for hearing.

Conclusion:
The Tribunal upheld the CIT(A)'s decision that the transportation charges paid to GAIL should be considered under Section 194C and not Section 194I. It emphasized that the nature of the contract was for the sale of gas, with transportation charges being a part of the composite contract. The Tribunal directed the Assessing Officer to re-examine the issue and ascertain the correct application of TDS provisions based on the nature of the transactions and the relationship between the parties. The appeals were allowed for statistical purposes, and the matter was remanded for further verification.