2018 (3) TMI 1176 - AT - Income Tax

Liability for collection of TCS u/s 206C(1C) - toll collections / amount received by the concessioner as entry fee at the toll plaza - assessee in default for non deduction of TDS u/s 194C - escrow account whether it is opened in the joint name or in the name of the contractor - Held that - We are of the view that let the issue be remitted to the file of the Assessing Officer for examining whether the escrow account is opened by the concessionaire in its own name or jointly. AO will also examine whether the concessionaire has been granted contract of developing project highway by which project asset shall be created on BOT basis and what will be the use of the project asset so developed by the concessionaire for the purpose of his business including collection of toll to compensate the project expenditure and the profit thereon. AO will also examine whether the concessionaire is entitled to collect toll in view of the terms of the agreement and who has the right to levy fee/toll and who has granted this by the central government or by NHAI. Alternative contention of the assessee also needs examination whether the fee as has been prescribed at ₹ 1 per annum which is payable by the concessionaire to NHAI in consideration of grant of the project highway on BOT basis. This also requires examination. Similar are the facts relating to the issue of TDS under Section 194C - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Collection of Tax Collected at Source (TCS) under Section 206C(1C) of the Income-tax Act, 1961.
2. Non-deduction of Tax Deducted at Source (TDS) under Section 194C of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Collection of TCS under Section 206C(1C):

The primary issue revolves around whether the assessee is liable for the collection of TCS under Section 206C(1C) of the Income-tax Act, 1961. The assessee argued that it neither granted a lease or license nor transferred any right or interest for the use of the toll plaza. The assessee also contended that it was not the owner of the toll plaza, and there was no separate agreement for the grant of lease or license or any other contract of transfer of any right or interest in any toll plaza between the assessee and the concessionaires. Consequently, the transaction was not covered under the purview of Section 206C(1C).

The Department, however, held that the assessee, being the real and actual owner of the toll plaza, was liable to collect TCS on the toll amount collected by the concessionaire. The Assessing Officer (AO) observed that the escrow account was a project account, and the toll collections made were credited to this account, which belonged to NHAI. Therefore, the AO inferred that TCS had to be collected on this toll collection.

The Tribunal noted that the AO misconstrued the facts and did not properly appreciate the agreement with the concessionaire and the purpose of the escrow account. The Tribunal decided to remit the issue back to the AO for fresh examination, specifically to determine whether the escrow account was opened in the joint name or in the name of the contractor, and to examine the terms of the agreement regarding the collection of toll and the right to levy fees.

2. Non-deduction of TDS under Section 194C:

The second issue concerns the non-deduction of TDS under Section 194C of the Income-tax Act, 1961. The AO held that the assessee was in default for not deducting TDS on the amount paid as a grant by the assessee to the concessionaires, which was deposited into an escrow account. The AO considered the payment as a contract for work and thus liable for TDS under Section 194C.

The assessee argued that the payment was in the nature of a capital grant (Viability Gap Funding) and was outside the purview of Section 194C. The assessee further contended that the toll collection deposited in the escrow account belonged to the concessionaires, and the assessee had no right over this amount.

The Tribunal observed that the AO and CIT(A) did not properly consider the facts and the nature of the agreements. The Tribunal decided to remit the issue back to the AO to examine whether the concessionaire was granted a contract for developing the project highway on a BOT basis and to determine the use of the project asset developed by the concessionaire, including the collection of toll to compensate for project expenditure and profit.

Conclusion:

The Tribunal remitted both issues back to the AO for fresh examination. The AO was directed to examine the agreements, the nature of the escrow account, the right to levy toll, and the nature of payments made to the concessionaires. The Tribunal allowed all the appeals of the assessee for statistical purposes and declared the stay application of the assessee as infructuous.

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