2015 (5) TMI 111 - AT - Income Tax

TDS on hiring of pipeline for transportation of gas - TDS u/s 194C or u/s 194I - Issue clarified in Circular no. 9/2012, dated 17-10-2012 - Held that - It is an undisputed fact that Assessee has used the pipeline owned by GSPL for the transportation of gas. It is also a fact that the ownership of the pipeline always remained with GSPL and in possession of GSPL. We find that ld. CIT(A) while allowing the appeal of the Assessee has given a finding that the pipeline was used only for transmission of gas and did not give any inclusive right or interest to the Assessee. We further find that Circular No. 9/2012 dated 17.10.2012 issued by CBDT in the context of deduction of tax at source on payment of Gas Transportation Charges has clarified that in case transportation charges paid to a third party transporter of gas, either by the owner/ seller of the gas shall continue to be governed by the appropriate provisions of the act 1.e. 194C shall be deductible on such payments at the applicable rates. In the case of Kribhco Shyam Fertilizers Ltd. 2015 (3) TMI 490 - ITAT LUCKNOW , it was held that from Circular No. 9/2012 issued by CBDT it was clear that whenever gas is transported by seller to point of delivery, transportation charges of gas would be embedded in cost of gas, though transportation charges are claimed separately or along with cost of gas in sale bill and nature of such contract essentially remains a contract for sale and not a works contract - But wherever transportation of gas is made by third person apart from seller of gas, transportation charges paid by buyer to transporter shall be governed by provisions of section 194C - TDS shall be deductible on such payment to third party by buyer at applicable rates. Revenue has not brought any material on record to controvert the findings of CIT(A) nor has brought any contrary binding decision in its support. In view of the these facts, we find no reason to interfere with the order of CIT(A) and thus this ground of Revenue is dismissed. - Decided against the revenue.

Summary

Issues:
1. Correct application of tax deduction provisions under Section 194C or Section 194I for transportation charges paid by the Assessee to Gujarat State Petronet Ltd. (GSPL).
2. Interpretation of the agreement between the Assessee and GSPL for hiring gas pipeline equipment and its implications on tax deduction.
3. Determination of whether the payments made by the Assessee for hiring pipelines fall under Section 194C or Section 194I of the Income Tax Act.
4. Consideration of Circular No. 9/2012 issued by CBDT regarding tax deduction at source on gas transportation charges.

Analysis:
1. The appeal by the Revenue challenges the CIT(A)'s order allowing the Assessee's correct application of Section 194C for tax deduction on transportation charges paid to GSPL, instead of Section 194I. The Assessee argued that the hiring of pipelines for gas transportation constituted a works contract under Section 194C, not a lease or rental arrangement under Section 194I. The CIT(A) upheld the Assessee's position based on the agreement's terms and the nature of the transaction.

2. The Revenue contended that the Assessee should have applied tax deduction under Section 194I for hiring gas pipelines from GSPL. However, the CIT(A) analyzed the agreement between the parties and determined that the transaction primarily involved the transmission of gas through the pipeline, not a lease or rental of the pipeline itself. The CIT(A) emphasized that the agreement did not grant the Assessee any exclusive rights or possession over the pipeline.

3. The CIT(A) referred to the definitions of "rent" under Section 194I and "work" under Section 194C to differentiate between lease payments and works contracts. The CIT(A) highlighted that each section under Chapter XVII of the Income Tax Act deals with specific types of payments, excluding others. Therefore, the correct application of Section 194C by the Assessee for transportation charges was deemed appropriate, and the Revenue's appeal was dismissed.

4. The CBDT's Circular No. 9/2012 clarified the treatment of gas transportation charges in cases where the gas owner sells and transports gas to the purchaser. The circular specified that such transactions are essentially contracts for sale, not works contracts under Section 194C. The circular emphasized that transportation charges paid to third-party transporters would be governed by the relevant provisions of the Act, requiring TDS at applicable rates.

5. The Tribunal found no merit in the Revenue's appeal, as it failed to provide evidence contradicting the CIT(A)'s findings or present any contrary binding decisions. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on the grounds of correct application of tax deduction provisions for gas transportation charges.

This detailed analysis of the judgment highlights the key legal issues, interpretations, and relevant precedents considered in the case, ultimately leading to the dismissal of the Revenue's appeal.