2016 (7) TMI 340 - HC - Income Tax

TDS u/s 194C - non deduction of tds in respect of freight charges paid - disallowance u/s 40(a)(ia) - responsibility to pay tax - Held that - Answering the question who was responsible for paying any sum to any resident for carriage of goods? the answer obviously is that it was the seller who was responsible for paying and the seller admits to have done that. Therefore the liability to deduct tax was that of the seller. In case seller is unable to show that he had made the deduction Section 40(a)(ia) may be applied to his case but not to the case of the buyer/assessee. Even assuming that the supplier in transporting the goods to the assessee acted as an agent of the assessee and the assessee has reimbursed the freight charges to the suppliers who in turn have paid to the concerned transporters as held by the learned Tribunal is conceptually correct no other conclusion is possible. The agent being the supplier in this case has admittedly paid to the transporters and has also deducted tax at source. When the agent has complied with the provision the principal cannot be visited with penal consequences. For one payment there could not have been two deductions. Moreover when a person acts through another in law he acts himself. Thus the question quoted above is answered by holding that the 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. - Decided in favour of assessee.

Summary

Issues:
- Appeal against judgment of Income Tax Appellate Tribunal regarding TDS deduction on freight charges
- Interpretation of Sections 40(a)(ia) and 194C of the Income Tax Act, 1961
- Liability of the appellant to deduct tax at source on freight component
- Application of Section 40(a)(ia) in the case

Analysis:
The High Court of Calcutta heard an appeal against a judgment of the Income Tax Appellate Tribunal regarding the appellant's liability to deduct TDS on freight charges paid to suppliers. The Tribunal had held that the appellant was liable to deduct TDS under Section 194C of the Income Tax Act, 1961, leading to a disallowance of a specific amount. The Court examined the invoices and bills showing separate freight charges paid by the appellant to suppliers and transporters. The Tribunal found that the suppliers acted as agents for the appellant in transporting goods and reimbursing freight charges. However, discrepancies in TDS deductions by suppliers were noted, leading to the Tribunal's decision.

The primary issue revolved around the interpretation of Sections 40(a)(ia) and 194C of the Income Tax Act. The Court analyzed the contractual arrangements between the appellant and suppliers, highlighting the seller's responsibility to pay transportation charges to the goods transport agency. The Court emphasized that the liability to deduct tax at source rested with the seller, who had acknowledged fulfilling this obligation. Therefore, the Court concluded that the appellant was not liable to deduct TDS on the freight component, as the seller was responsible for making such deductions.

Regarding the application of Section 40(a)(ia), the Court emphasized that if the seller failed to show deductions, this section could be applied to the seller but not to the buyer/appellant. The Court reasoned that when an agent (supplier) had already deducted tax at source, the principal (appellant) should not face penal consequences. The Court highlighted the legal principle that when a person acts through another, legally, it is considered as the person acting themselves. Consequently, the Court allowed the appeal, ruling that the appellant was not liable to deduct tax at source on the freight component, and Section 40(a)(ia) could not be applied to the appellant in this scenario.