2016 (2) TMI 1280 - AT - Income Tax

TDS u/s 194C - default fur non-deduction of tax on payments made to the transport cooperative societies for carrying out transportation work - payments made to the Himachal Pradesh Road Transport Corporation (HRTC) as a trust registered u/s 12A - CIT- A treating the appellant as an assessee in default fur non-deduction of tax u/s 194C - HELD THAT - CIT(A) has taken a correct view that that there is no provision in the Income Tax Act, 1961 to the effect that tax is deductable at source in case of exempt income. The assessee claimed that the deductee HRTC is registered as a Trust and enjoyed the benefit of exempt income as per sections 11 12 - In our opinion, the taxability of income or exemptions u/s 11 12 is subject to various conditions and subject to assessment of income by the Assessing officer. Deductor (assessee) cannot assume that since HRTC is a Trust / Charitable Institution registered u/s 12A of the Act and its income is non-taxable. We do not see any infirmit y to the above extent in the order of the CIT(A) on this issue as he has correctl y directed the ITO (TDS) to find out the extent of quantum of tax paid by the payees. CIT(A) has also directed the ITO (TDS) that if entire tax amount has been claimed from the deductor has been paid by the deductees, then for that amount the deductor cannot be treated as assessee in default. Accordingly, the CIT(A) has directed the AO to give relief subject to verification as above. In our opinion, before deciding the issue the Assessing officer should give an opportunity of being heard to the assessee. AO is further directed to decide the issue keeping in view the relevant provisions of Income-tax Act, 1961 applicable to the facts of the present case. Remand this issue to the Assessing officer for a fresh decision. Accordingly, the order of the C IT(A) is modified to the above extent. Ground allowed for statistical purposes.

Summary

Issues Involved:
1. Non-deduction of tax under Section 194C on payments made to transport cooperative societies.
2. Non-deduction of tax under Section 194C on payments made to Himachal Pradesh Road Transport Corporation (HRTC).

Issue 1: Non-deduction of tax under Section 194C on payments made to transport cooperative societies.

The appellant, a Public Limited Company engaged in manufacturing and other activities, was required to deduct tax at source under Section 194C of the Income Tax Act, 1961, on payments made to various transport cooperative societies for transportation work. A TDS survey/inspection was conducted, and the Income Tax Officer (TDS) issued a show-cause notice to the appellant for non-deduction of tax. Despite the appellant's detailed reply, the ITO (TDS) passed an order under Sections 201(1) and 201(1A), creating a demand for the assessment years 2010-11 and 2011-12. The CIT(A) upheld this order, leading to the appellant's appeal before the Tribunal.

The appellant argued that under Section 194C(6), substituted by Finance (No.2) Act, 2009, tax is not required to be deducted on payments made to contractors engaged in the business of plying, hiring, and leasing goods carriages. The transport societies were engaged in such business, and thus, no tax was deducted. The appellant cited a precedent from the Tribunal in the case of M/s ACC Limited, Barmana, where a similar issue was decided in favor of the assessee.

The Tribunal, after considering the rival submissions, observed that the CIT(A) in Chandigarh had deleted similar demands in the case of M/s ACC Limited, while the CIT(A) in Shimla had upheld them. The Tribunal found that the CIT(A) Shimla's decision was not based on a correct appreciation of facts and law. Following the precedent set in M/s ACC Limited, the Tribunal set aside the CIT(A) Shimla's order and deleted the demands created under Sections 201(1) and 201(1A) for the assessment years 2010-11 and 2011-12.

Issue 2: Non-deduction of tax under Section 194C on payments made to Himachal Pradesh Road Transport Corporation (HRTC).

The appellant had an agreement with HRTC for bus services, allowing its employees and their families to travel. The appellant did not deduct tax under Section 194C, believing that HRTC, registered as a trust and enjoying exempt income under Sections 11 and 12, was not subject to TDS. The ITO (TDS) treated the appellant as an assessee in default, stating that HRTC's registration as a trust does not exempt it from TDS under Section 194C.

On appeal, the CIT(A) held that the appellant's submission was contrary to Section 190(1), which requires tax deduction at source regardless of the income's exempt status. The CIT(A) directed the ITO (TDS) to verify the extent of tax paid by the deductees and provide relief to the appellant if the tax had been paid by the deductees.

The Tribunal agreed with the CIT(A) that there is no provision in the Income Tax Act exempting TDS on exempt income. The taxability or exemption under Sections 11 and 12 is subject to assessment by the Assessing Officer, and the appellant cannot assume non-taxability. The Tribunal upheld the CIT(A)'s directions for verification by the ITO (TDS) and remanded the issue for a fresh decision, ensuring the appellant is given an opportunity to be heard.

Other Grounds:

The appellant did not press the grounds related to the computation of interest under Section 201(1A) and the holding that the deductor shall not be treated as an assessee in default if the entire TDS liability has been paid by the deductee. These grounds were dismissed as not pressed.

Conclusion:

The appeals were allowed partly and partly for statistical purposes, with the Tribunal setting aside the CIT(A) Shimla's order on the first issue and remanding the second issue for fresh consideration by the Assessing Officer. The order was pronounced in the Open Court on 04.02.2016.