2017 (1) TMI 325 - AT - Income Tax

TDS u/s 194C - non deduction of tds on payments towards freight charges - Held that - The assessee categorically submitted that the payment was made to M/s. Exim Services towards freight charges that too for carriage of goods by rail. This claim of the assessee is not disputed by the tax authorities except stating that the payment is not made directly to the railways but to the Agent. In our considered opinion the opening part of Section 194C refers to payments made to contractors but at the same time makes an exception to the payments made to such contractors if that amount has to be utilised for payment of rail fares. If the intention of the legislature was to make the payment directly to the railway authorities, then the exception provided in the Explanation should not have been introduced in Section 194C of the Act. Thus, on a conspectus of the matter, we are of the view that even if payment is made to an Agent so long as the payment is meant for meeting the expenditure in the form of payment to the railways, it stands excluded from the provisions of Section 194C of the Act. Under these circumstances, we accept the plea of the assessee by holding that there was no need to deduct tax at source with respect to the impugned payment to the contractor. - As in the case of ACIT, Central Circle-2, Hyderabad vs., M/s. Janapriya Properties Pvt. Ltd., Hyderabad 2015 (1) TMI 1208 - ITAT HYDERABAD Section 40(a)(ia) cannot be invoked in respect of payments already made before the end of the accounting year. - Decided in favour of assessee

Summary

Issues:
1. Application of Section 194C to payments made to railways through agents.
2. Disallowance under Section 40(a)(ia) for non-deduction of TDS on payments to agents.
3. Interpretation of "payable" under Section 40(a)(ia).

Issue 1: Application of Section 194C to payments made to railways through agents:

The assessee contended that payments made to M/s. Exim Services for freight charges for goods transported by rail should be exempt from Section 194C. However, both the Assessing Officer (A.O.) and the Commissioner of Income Tax (CIT) rejected this argument, deeming the payments to agents as falling under Section 194C. The Tribunal analyzed Section 194C and held that the exception in the provision for payments meant for rail fares indicates that even if payments are made to agents, as long as they are for railway expenses, they are excluded from Section 194C. The Tribunal accepted the assessee's plea, ruling that TDS deduction was not required for such payments.

Issue 2: Disallowance under Section 40(a)(ia) for non-deduction of TDS on payments to agents:

The assessee argued that Section 40(a)(ia) should not apply as the payments were already made, not payable. Citing precedents like the case of M/s. Merilyn Shipping & Transport, the assessee contended that Section 40(a)(ia) does not apply to payments made before the end of the accounting year. The Tribunal agreed with the assessee, following the decision of the ITAT Special Bench and held that Section 40(a)(ia) cannot be invoked for payments already made. Consequently, the Tribunal dismissed the appeals of the revenue on this issue.

Issue 3: Interpretation of "payable" under Section 40(a)(ia):

The Departmental Representative (D.R.) argued that Section 194C should apply only to direct payments to railways, not to payments through middlemen. The D.R. also asserted that non-deduction of TDS triggers Section 40(a)(ia). However, the Tribunal disagreed, emphasizing that the intention of the legislature, as reflected in the exception in Section 194C, supports the exclusion of payments for rail expenses from TDS requirements. The Tribunal rejected the D.R.'s arguments and upheld the assessee's position on the interpretation of "payable" under Section 40(a)(ia).

This judgment clarifies the application of Section 194C to payments made to railways through agents, the disallowance under Section 40(a)(ia) for non-deduction of TDS, and the interpretation of "payable" under the said section. The Tribunal's decision favored the assessee, emphasizing the legislative intent and following relevant precedents to support its conclusions.