2017 (11) TMI 1676 - HC - Income Tax

TDS u/s 194C - addition u/s 40(a) (ia) - tds liability - Held that - Tribunal was wrong in holding that the appellant was liable to deduct tax at source in respect of the freight component. When the assessee was not liable to make any deduction under Section 194C, the rigours of Section 40(a)(ia) could not have been applied to him. The question is thus answered. The appeal is thus allowed. It will not be out of place to mention that as rightly contended by counsel for the respondent Mr. Jhanwar that Section 194(c) read with 204(iii) will come into operation only on the payment made by assessee and as rightly discussed since payment is not made by the assessee if at all there is default the default is of Mangalam. Since the payment was not received, the same is required to be considered in the books of account since TDS is deducted by the Mangalam on behalf of assessee completely. Therefore, if there is default in payment made, he is entitled to match the balance-sheet and he cannot claim for credit @ ₹ 20 per tonne as handling charges for arranging the truck for transportation. - decided in favour of assessee

Summary

Issues Involved:
1. Whether the ITAT erred in deleting the addition under Section 40(a)(ia) of the Income Tax Act, considering the assessee was not liable to deduct tax at source under Section 194C(2).

Detailed Analysis:

Issue 1: Deletion of Addition under Section 40(a)(ia)
- Background: The appellant challenged the tribunal's decision that reversed the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)], which had added income under Section 40(a)(ia) due to the assessee's failure to deduct tax at source as required under Section 194C(2).
- Facts: The assessee, a transporter contractor, filed a return declaring total income of ?3,68,633/-. During scrutiny, the AO noted discrepancies in Form No. 15-J, which the assessee claimed to have filed. The AO found that the form lacked legal sanctity and was not filed with the appropriate authorities. Consequently, the AO added ?87,97,747/- to the assessee's income under Section 40(a)(ia).
- Appellant's Argument: The appellant argued that the tribunal erred in deleting the addition, relying on the decision in Shree Choudhary Transport Company vs. Income Tax Officer, which held that the assessee was responsible for arranging transportation and thus liable for TDS under Section 194C(2).
- Respondent's Argument: The respondent contended that the tribunal correctly observed that the assessee, acting as an intermediary, did not own trucks but arranged them from the market. The assessee only charged a commission and did not debit freight charges in the Profit & Loss account, making Section 40(a)(ia) inapplicable. The tribunal also noted that the Form No. 15-J was filed with the Addl. CIT and any fault in receipt recording was not the assessee's responsibility.
- Tribunal's Findings: The tribunal found that the assessee was not liable to deduct TDS as he only facilitated transportation and did not own the trucks. The tribunal relied on previous judgments, including the case of Commissioner of Income Tax-1 vs. M/s. Daulat Enterprises, which held that the responsibility for TDS lay with the entity making direct payments to truck owners.
- Court's Conclusion: The court upheld the tribunal's decision, agreeing that the assessee was not liable to deduct TDS under Section 194C(2) as the payments were made directly by the client to the truck owners. The court also referenced the Calcutta High Court decision in Hightension Switchgears (P.) Ltd. vs. CIT, which supported the view that the entity responsible for making payments is liable for TDS.

Judgment:
The appeals were dismissed, with the court ruling in favor of the assessee, affirming that the assessee was not liable to deduct tax at source under Section 194C(2) and thus the addition under Section 40(a)(ia) was rightly deleted by the tribunal.