2018 (10) TMI 859 - AT - Income Tax

TDS u/s 194J - Non-deduction of TDS @ 10% on pollution control expenses payments made in the relevant accounting period - Held that - This tribunal s decision in Hindustan Aeronautics Ltd. vs. ITO 2008 (3) TMI 408 - ITAT BANGALORE-A holds that subject-matter of the contract in these circumstances is of equipment purchase only. We take into account all the above narrated facts in light of foregoing judicial precedent to conclude that assessee had made the impugned payment for purchased of its air pollution control equipments which has been wrongly taken as fee for technical service requiring TDS deduction u/s 194J r.w.s 9(1)(vii) Explanation-2 of the Act. We accordingly direct the Assessing Officer to delete the impugned demand. The assessee succeeds in its former substantive ground. TDS u/s 194C in the nature of contractual payments - Held that - Madhu Mehta vs. DCIT 2016 (4) TMI 524 - ITAT MUMBAI mere reimbursement payments in the absence of any income or profit element embedded therein do not attract TDS liability. It has come on record that the AO had also not followed tribunal s decision applying CBDT s circular No.723 instead of Circular No.715 (supra) in violation of settled judicial discipline of binding precedents in absence of any judicial precedent to the contrary. We take into account all these facts and settled legal position in light of voluminous documentary evidence that the AO has erred in treating the instant taxpayer to be an assessee in default u/s 201(1) of the Act. We accordingly accept assessee s latter substantive ground to reverse the Assessing Officer s action in entirety.

Summary

Issues Involved:
1. Non-deduction of TDS on pollution control expenses.
2. TDS deduction on shipping payments.

Detailed Analysis:

1. Non-deduction of TDS on Pollution Control Expenses:
The assessee challenged the correctness of the lower authorities' action in raising TDS and interest demands under sections 201(1) and 201(1A) of the Income Tax Act, 1961, for non-deduction of TDS on pollution control expenses. The CIT(A) held that the payments for designing, engineering, supply, and installation of the air pollution control system were covered under section 194J, treating them as fees for technical services. The assessee argued that the transaction was an outright sale of customized equipment, not a service contract. The Tribunal found merit in the assessee's argument, citing judicial precedents (CIT vs. Sundwiger & Co., CIT vs. Neyveli Lignite Corporation Ltd., and Hindustan Aeronautics Ltd. vs. ITO) that such transactions do not attract TDS under section 194J. The Tribunal directed the Assessing Officer to delete the impugned demand, allowing the assessee's appeal on this ground.

2. TDS Deduction on Shipping Payments:
The assessee and Revenue cross-appealed regarding the CIT(A)’s partial acceptance of the assessee's arguments on TDS deduction for shipping payments under section 194C. The Assessing Officer had raised demands for non-deduction of TDS on ocean freight payments. The CIT(A) granted partial relief, holding that certain payments were not liable for TDS as per Form No. 26A submissions and CBDT Circular No. 723. The Tribunal accepted additional evidence (Form 26AS) indicating that the payments were mere reimbursements without income or profit elements. Judicial precedents (CIT vs. Opera Global (P) Ltd., ITO vs. Dr. Willmar Schwabe India (P) Ltd., etc.) supported the view that reimbursements do not attract TDS liability. The Tribunal concluded that the Assessing Officer erred in treating the assessee as in default under section 201(1) and reversed the Assessing Officer’s action in its entirety. Consequently, the Revenue's appeal was dismissed.

Conclusion:
The assessee's appeal regarding non-deduction of TDS on pollution control expenses was allowed, and the Revenue's cross-appeal on TDS deduction on shipping payments was dismissed. The Tribunal directed the deletion of the impugned demands, concluding that both issues did not attract TDS liability under the relevant sections of the Income Tax Act.