2016 (12) TMI 244 - AT - Income Tax

TDS u/s 194C - demands raised u/s 201/201(1A) - payments made by the assessee towards Carriage Inward and Carriage Outward - Held that - TDS is not to be deducted from the payment made to transporters who furnished PAN. The Assessing Officer has wrongly interpreted that this provision is applicable to tax deducted by assessee who are engaged in transport business. This in my considered opinion is an erroneous interpretation not sustainable in law. In my considered opinion learned CIT(Appeals) has correctly appreciated the law and the facts of the case and the same does not need any interference. When the assessee has satisfied the conditions of Section 194C(3), liability of payee to deduct tax at source would cease and accordingly, application of Section 40(a)(ia) would also not arise. See Soma Rani Ghosh 2016 (10) TMI 55 - ITAT KOLKATA - Decided in favour of assessee

Summary

Issues Involved:
1. Justification of CIT(A) in deleting the demand raised u/s 201/201(1A) of the Act.
2. Interpretation of section 194C(6) regarding the applicability to both principal and contractor.
3. Whether only contractors should be in the business of plying, hiring, and leasing of goods carriages.
4. True spirit and legislative intent behind section 194C(6).
5. Applicability of exemption under section 194C(6) before the amendment on 1-6-2015.
6. Relevance of circular no. 5/2010 in the context of payments to large transporters.
7. Admission of fresh grounds regarding double taxation without giving an opportunity to the A.O.
8. Onus on revenue to demonstrate non-recovery of taxes from the primary liable person.
9. Timeliness of the order passed u/s 201/201A.

Detailed Analysis:

1. Justification of CIT(A) in Deleting the Demand Raised u/s 201/201(1A):
The CIT(A) deleted the demand raised by the AO, who had concluded that the assessee was in default for non-deduction of TDS on freight charges. The CIT(A) held that the AO's interpretation of section 194C(6) was erroneous. The section exempts payments to transport operators from TDS if the transporter furnishes their PAN, which the assessee had complied with.

2. Interpretation of Section 194C(6):
The AO contended that both the principal and the contractor must be engaged in the business of plying, hiring, and leasing goods carriages to avail the benefit of section 194C(6). The CIT(A) disagreed, stating that the section only requires the contractor to furnish their PAN to be exempt from TDS.

3. Business of Plying, Hiring, and Leasing of Goods Carriages:
The AO's interpretation that only contractors should be in the business of plying, hiring, and leasing goods carriages was rejected by the CIT(A). The CIT(A) clarified that section 194C(6) exempts payments to transport operators from TDS if they provide their PAN, regardless of whether the principal is in the same business.

4. True Spirit and Legislative Intent Behind Section 194C(6):
The CIT(A) emphasized the legislative intent to reduce compliance burdens on small transporters. The Finance Act, 2009, and subsequent amendments aimed to exempt transport operators from TDS if they furnished their PAN. The CIT(A) noted that the AO's interpretation was contrary to this intent and binding CBDT circulars.

5. Applicability of Exemption Before Amendment on 1-6-2015:
The CIT(A) explained that the amendment effective from 1-6-2015 clarified that the exemption applies to transporters owning up to ten goods carriages. However, the CIT(A) held that the exemption from TDS was applicable from 1-10-2009 if the transporter furnished their PAN, regardless of the amendment.

6. Relevance of Circular No. 5/2010:
The AO argued that circular no. 5/2010 was irrelevant as most payments were made to large transporters. The CIT(A) disagreed, stating that the circular clarified the legislative intent and the exemption from TDS for transporters furnishing their PAN, which applied to all transporters, irrespective of size.

7. Admission of Fresh Grounds Regarding Double Taxation:
The CIT(A) admitted fresh grounds regarding double taxation without giving an opportunity to the AO. The CIT(A) held that the assessee had provided complete details of transport operators, including their PANs, and the onus was on the AO to verify if taxes were paid by the transport operators.

8. Onus on Revenue to Demonstrate Non-Recovery of Taxes:
The CIT(A) noted that the AO had the details of transport operators and their PANs. The onus was on the AO to demonstrate that taxes were not recovered from the transport operators. The CIT(A) cited case laws supporting this view, including Hindustan Coca Cola Beverages Pvt. Ltd. vs. CIT and Jagran Prakashan Ltd. vs. DCIT.

9. Timeliness of the Order Passed u/s 201/201A:
The CIT(A) held that the order passed by the AO was within the time limit. However, the CIT(A) found that the assessee was not required to deduct TDS as per section 194C(6), making the AO's demand erroneous.

Conclusion:
The Tribunal upheld the CIT(A)'s order, finding no infirmity in the deletion of the demand raised by the AO. The Tribunal noted that identical issues had been decided in favor of the assessee in previous cases, including M/s Raymond UCO Denim Pvt. Ltd. and Soma Rani Ghosh. The appeals filed by the Revenue were dismissed.