2019 (1) TMI 642 - AT - Income Tax

Liability to collect TCS - Demand raised u/s 206C(6A)/206C(7) - treating the assessee as assessee-in-default for not collecting TCS from the collecting party - case of the assessee is that, the collecting entity is doing job of toll collection from different plazas on behalf of the assessee and the collection amount daily deposited in the designated bank of the assessee-company - Held that - CIT(A) has gone through all the relevant material and analysed the issue in details including the agreement entered into by the assessee-company and the collecting entity, and came to a conclusion that the said collecting entity s role was restricted to collecting the toll amount and deposit the same on daily basis in bank account of the company and it has no right on any part of the toll collection. The ld.AO has construed the collection of toll with right of toll collection being transferred to the entity, which is not correct in the present case. Considering the scope and nature of the work carried out by the collecting entity, it clearly shows that activities of collecting toll fees as entrusted by the assessee was not a contract within the meaning of section 206C and will not attract provisions of section 206C(1C) of the Act, rather it was in the nature of outsourcing of job for collection of user fees. See ACIT, BHUBANESWAR VERSUS PROJECT DIRECTOR, NATIONAL HIGHWAY AUTHORITY OF INDIA, PROJECT DIRECTOR, PARADIP PORT ROAD CO. LTD., BHUBANESWAR 2013 (1) TMI 975 - ITAT CUTTACK - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessee was liable to collect Tax Collected at Source (TCS) under section 206C(1C) of the Income Tax Act, 1961.
2. Whether the assessee transferred the right to collect toll to the collecting agency.
3. Whether the assessee should be treated as an assessee-in-default for not collecting TCS.

Detailed Analysis:

Issue 1: Liability to Collect TCS under Section 206C(1C)
The Revenue's primary grievance was that the CIT(A) erred in deleting the demand raised by the AO under section 206C(6A)/206C(7) of the Income Tax Act, 1961. The AO had issued a show cause notice to the assessee for not collecting TCS on toll collected by A.B. Infrastructure. The assessee contended that it was not liable to collect TCS before 29.12.2010 as the right to collect toll was not transferred to the agency but was collected on behalf of the assessee. The CIT(A) agreed with the assessee, stating that the provisions of section 206C(1C) were not applicable as the right to collect toll was not transferred.

Issue 2: Transfer of Right to Collect Toll
The AO argued that the right to collect toll was granted to A.B. Infrastructure, citing the contract agreement titled "Contract for department collection of fee." The AO referred to specific clauses indicating the transfer of the right to collect toll. However, the assessee maintained that the collecting entity was merely collecting toll on behalf of the assessee and depositing the collected amount into the assessee’s bank account. The CIT(A) found that the role of the collecting entity was restricted to toll collection and depositing the same into the bank, without any transfer of right or interest in the toll collection.

Issue 3: Assessee-in-Default for Not Collecting TCS
The AO treated the assessee as an assessee-in-default for not collecting TCS from the collecting entity. The CIT(A), however, concluded that the activities of the collecting entity did not constitute a contract within the meaning of section 206C and were merely outsourcing of toll collection services. The CIT(A) relied on the ITAT, Cuttack Bench decision in the case of Project Director Vs. Department of Income Tax, which held that similar arrangements did not attract the provisions of section 206C(1C).

Conclusion:
The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee was not liable to collect TCS under section 206C(1C) as there was no transfer of the right to collect toll. The Tribunal noted that the collecting entity’s role was limited to collecting toll on behalf of the assessee and depositing it into the assessee’s bank account. The Tribunal dismissed the Revenue's appeals for all assessment years, confirming that the assessee was not an assessee-in-default for not collecting TCS.

Order:
The appeals of the Revenue for all assessment years were dismissed. The Tribunal confirmed the CIT(A)'s order, stating that the assessee was not liable to collect TCS under section 206C(1C) and should not be treated as an assessee-in-default. The order was pronounced on 9th January 2019 at Ahmedabad.