2016 (2) TMI 883 - AT - Income Tax

TDS u/s 194I or 194C - logistic service for carrying goods by sea route in containers - Held that - The use of containers is incidental to the whole process of transportation of goods between ship and shore and it cannot be considered as a standalone transaction in its own character. The question of tax deduction under section 194I could have, if at all, arisen only when it was a rental simplictor of the equipment. That is not even the case here. No doubt the bills have been raised on the basis of the size of the container because irrespective of the weight of the container, it is size which determines how much space is taken by the goods transported. The billing on the basis of the size of the container cannot lead to the conclusion that the billing is for container rental rather than transportation of goods contained in the container. The very foundation of the impugned demands raised by the Assessing Officer is thus devoid of any legally sustainable foundation. The activity, for which the impugned payments are made, is the activity of transporting the goods which is a service in nature. The assessee was thus quite justified in deducting tax at source under section 194C. What is to be seen is whether use of the asset which is said to have been used, is incidental activity for attaining some other goal or is it the core activity which can be viewed on standalone basis in its own character. On the facts of this case, as we have held earlier in the order, the use of containers is only incidental and cannot be viewed as a core or standalone activity. It is merely incidental to transportation of, or loading and unloading of, cargo. The payments cannot, therefore, be treated as constituting payment for rent of containers. In any event, tax deduction at source liability is only a vicarious liability and when the principal liability of the assessee is discharged, it ceases exist. In the present case, the assessee has filed tax returns of the recipient to demonstrate that the recipient has duly included the payments in question in the computation of his income, and duly discharged tax liability on the same. No infirmity is pointed out in the information so furnished. The Assessing Officer was, for this reason also, not justified in raising the demands in question. He had noted the contention of the assessee, in this respect, but left it at that. Such an approach cannot meet any judicial approval.

Summary

Issues involved:
Interpretation of tax withholding provisions under section 194I and 194C of the Income Tax Act, 1961 regarding payments made for transportation services involving containers.

Analysis:

1. Common Issue of Tax Withholding:
The appeals involved a common issue concerning tax withholding demands raised under section 201 r.w.s. 194I of the Income Tax Act, 1961, for the assessment years 2008-09 and 2009-10. The central question was whether the tax was required to be deducted at source under section 194I from payments made for logistic services involving the transportation of goods by sea route in containers.

2. Nature of Arrangement and Tax Deduction:
The assessee, engaged in cargo handling for shipments, utilized the services of a company for transporting goods from shore to ship and vice versa. The Assessing Officer contended that tax should have been deducted under section 194I instead of section 194C, as the activity was deemed as rental of containers. The demands for short deduction of tax at source under section 201 r.w.s 194I were raised, leading to the appeal before the CIT(A).

3. Tribunal's Analysis and Decision:
The Tribunal analyzed the facts and concluded that the payments were for transportation of goods, not merely rental of containers. It emphasized that the use of containers was incidental to the transportation process and not a standalone transaction. The Tribunal held that the activity of transporting goods was a service in nature, justifying the tax deduction under section 194C. It further highlighted that the use of containers was incidental and not a core standalone activity, thus rejecting the Assessing Officer's basis for the demands.

4. Legal Precedents and Tax Deduction Liability:
The Tribunal referenced judicial precedents, including the Supreme Court's judgment, to support its decision. It emphasized that tax deduction at source liability is vicarious and ceases to exist when the principal liability of the assessee is discharged. The Tribunal noted that the assessee had filed tax returns of the recipient to demonstrate the discharge of tax liability on the payments in question, highlighting the lack of infirmity in the information provided.

5. Conclusion and Dismissal of Appeals:
Based on the discussions and considering the entirety of the case, the Tribunal approved the conclusions of the CIT(A) and declined to interfere in the matter. Consequently, both appeals were dismissed, affirming the decision that tax deduction under section 194I was not warranted for the payments made for transportation services involving containers.

This detailed analysis of the legal judgment highlights the key issues, arguments, and the Tribunal's reasoning leading to the dismissal of the appeals.