2018 (10) TMI 1174 - AT - Income Tax

Short deduction of tax u/s 201(1) and Interest u/s 201 (1A) - Penalty u/s 271C - assessee is not required to deduct tax at source of payment made to foreign companies u/s 195 but u/s 194C - short deduction of tax u/s 201(1) and Interest u/s 201 (1A) - Held that - The assessee has received the funds as sponsorship and grants but the responsibility is on the assessee to execute the entire infrastructure for the games. Though the contractor may be identified and engaged by the other organization, however, the implementation and utilization is the sole responsibility of the assessee. Otherwise, there is no other reason for the formation of the above society. The society itself was registered on 06.02.2008. Further, the payments to above companies/ PSu have been made by the assessee. Therefore, it is clear that assessee is the person responsible for payments of sums to those PSUs. In view of this it is apparent that the contract is between the recipient of the income and the assessee. Hence, according to us the assessee is responsible for TDS u/s 194C of the act on payment made to these parties. Merely because the assessee is provided grant for onward distribution to these parties does not exclude the assessee from the liability for deduction of tax at source u/s 194 C of the act, as the assessee is responsible for making payments to these parties and in fact, undeniably assessee has made the payments and obtained utilization certificates. It cannot be a reason for non-deduction of tax at source that recipient of the income have onward distributed the work to the sub contractors and recipient of the income have in turn deducted the tax at source on payment made by them to those sub- contractors. According to the provision of 194C of the Act even, the contractor is also required to deduct tax at source on payment made to their sub contractors. Thus we hold that payment made to the above parties are subject to tax deduction at source u/s 194C of the Act and assessee is liable to deduct tax at source u/s 194C of the Act. Therefore, to this extent we uphold the order of lower authorities. We set aside the order u/s 201 of the Act with a direction that assessee may submit the requisite prescribed detail in specified manner before the ld Assessing Officer and then ld AO may decide the issue and, if found in accordance with the law, shall not treat the assessee in default u/s 201 of the Act. With respect to the interest u/s 201(1A) of the Act similar proviso is also added and AO may work out, based on the details furnished by the assessee, appropriate interest in accordance with law. Payment of the State Trading corporation (STC) - TDS U/S 194C - Held that - On careful consideration of the orders of the lower authorities, the STC had undertaken to import and supply the equipment as per the requirement of the assessee. For the purpose of import of these goods, the STC incurred certain expenditure such as installation commissioning charges, handling charges, insurance, and other payments. In this case, it is not the claim of the assessee that STC has supplied the goods. In fact, STC has arranged for the import of the goods as per requirement of the assessee. In view of this, it is apparent that assessee has given work to the STC for import of the material. Hence, according to us it is apparent that such payment falls under the provisions of section 194C(3) of the Act and tax is required to be deducted on the basis of the invoice value stated therein. The invoices are not place before us. Set aside this matter back to the file of the ld Assessing Officer with a direction to assessee to produce the bills of STC etc before ld AO who will examine them. Penalty u/s 271C - contumacious conduct on the part of the assessee - Held that - We find that the belief of the assessee is bonafide and failure to deduct tax at source u/s 194C of the Act is for a reasonable cause. The ld Assessing Officer could not show any contemptuous conduct on part of the assessee for non-deduction of tax at source. There could also not be any reason for non-deduction as assessee has made most of the payments to the public sector undertaking. The Hon ble Supreme Court in the case of CIT Vs. Bank of Nova Scotia 2016 (1) TMI 583 - SUPREME COURT as held that it is necessary to establish contumacious conduct on the part of the assessee for failure to deduct tax at source for levy of penalty u/s 271C. In the present case, all the recipients have also furnished a certificate that they have received the payment. We reverse the order of the ld CIT (A) confirming the levy of the penalty u/s 271C of the Act in absence of any finding to show contumacious conduct on the part of the assessee - Decided in favour of assessee.

Summary

Issues Involved:
1. Short deduction of tax under Section 201(1) and interest under Section 201(1A) of the Income Tax Act.
2. Requirement to deduct tax at source under Section 194C on payments made to different parties.
3. Requirement to deduct tax at source under Section 195 on payments made to foreign companies.
4. Requirement to deduct tax at source on payments made to the State Trading Corporation of India Ltd.
5. Confirmation of penalty under Section 271C for AY 2010-11.

Detailed Analysis:

1. Short Deduction of Tax under Section 201(1) and Interest under Section 201(1A):
The appeals concern the short deduction of tax and interest under Sections 201(1) and 201(1A) of the Income Tax Act. The assessee argued that the payments made did not require tax deduction at source, while the revenue contended otherwise. The Tribunal analyzed the facts, including the nature of payments and the contracts involved, to determine the applicability of tax deduction at source provisions.

2. Requirement to Deduct Tax at Source under Section 194C:
The Commissioner of Income Tax (Appeals) [CIT(A)] held that the assessee was required to deduct tax at source under Section 194C on payments made to various parties. The assessee argued that these payments were grants to government departments and not contracts for work. The Tribunal upheld the CIT(A)'s decision, stating that the payments were indeed for work done and thus subject to TDS under Section 194C. The Tribunal emphasized that the responsibility of tax deduction lies with the assessee, regardless of whether the recipients further subcontracted the work and deducted tax at source on those payments.

3. Requirement to Deduct Tax at Source under Section 195 on Payments Made to Foreign Companies:
The Assessing Officer (AO) held that payments made to foreign parties were subject to TDS under Section 195, as they were considered fees for technical services under Section 9(1)(vii). The CIT(A) disagreed, stating that the payments were for the sale of goods and thus covered under Section 194C. The Tribunal concluded that the payments were for the supply of equipment and not for technical services, and hence, no tax was required to be deducted under Section 195. The Tribunal referenced the CBDT Circular No. 7/2016 and relevant case law to support this decision.

4. Requirement to Deduct Tax at Source on Payments Made to the State Trading Corporation of India Ltd.:
The AO argued that payments to the State Trading Corporation (STC) included incidental expenses and thus required TDS under Section 194C. The CIT(A) found that the AO had incorrectly applied TDS to the entire payment, including the supply of materials. The Tribunal directed the AO to re-examine the invoices and determine the correct amount subject to TDS, excluding the value of materials.

5. Confirmation of Penalty under Section 271C for AY 2010-11:
The penalty under Section 271C was confirmed by the CIT(A) for the assessee's failure to deduct tax at source. The assessee argued that there was a bona fide belief that no TDS was required. The Tribunal found that the assessee had a reasonable cause for non-deduction and that there was no contumacious conduct. Citing the Supreme Court's decision in CIT vs. Bank of Nova Scotia, the Tribunal held that the penalty under Section 271C was not warranted and directed its deletion.

Conclusion:
The Tribunal provided a detailed analysis of each issue, considering the facts, contracts, and relevant legal provisions. The appeals were partly allowed, with directions for re-examination of certain payments and deletion of the penalty under Section 271C. The Tribunal emphasized the importance of adhering to TDS provisions while also recognizing reasonable causes for non-compliance.