2023 (7) TMI 240 - HC - Income Tax

TDS u/s 194I or 194C - Payment for contract of Charter Hire - assessee is engaged in the business of owning and operating vessels for which they, inter alia, enter into contracts of transport service in the form of charterparties, to wit, contract of carriage of goods - HELD THAT - We are informed Respondents have granted a certificate for lower deduction of tax at source under Section 194-C of the Act to one of the members of Petitioner No.1 in 2016-17. If that is so, it is clearly contrary to the claim of Respondents that charter hire income is in the nature of rent which is covered under Section 194-I of the Act and not under section 194-C of the Act. Period of limitation for proceedings u/s 201(1) - The period of limitation for proceedings under Section 201(1) of the Act is provided under Section 201(3) of the Act wherein a period of seven years has been prescribed. The said time period has expired and no further proceedings should be commenced or lie. Respondents be directed to clarify that in the abovementioned circumstances, no further proceedings shall be taken out by them against Petitioner no. 1 or its members or their charter party clients for any alleged failure in deducting tax at source for the period being Financial Years 2006-07, 2007-08, 2008-09 and 2009-10.

Issues involved:
The issues involved in the judgment are the applicability of Section 194-C and Section 194-I of the Income Tax Act to charter hire payments, the interpretation of the term "work" under Section 194-C, and the implications of tax deduction at source on charter hire income.

Details of the Judgment:

1. Applicability of Section 194-C and Section 194-I:
The petitioners, engaged in owning and operating vessels, contended that charter hire payments should not be subject to tax deduction under Section 194-I but rather under Section 194-C. The court observed that the charter hire payments for the carriage of goods by ships fall under the purview of Section 194-C, not Section 194-I, based on the definition of "work" under the Income Tax Act.

2. Interpretation of "work" under Section 194-C:
The court noted that the amended Section 194-C includes the carriage of goods and passengers by any mode of transport other than railways within the definition of "work." Therefore, the charter hire payments made by the charterers to ship owners qualify as payments for work done and are subject to tax deduction under Section 194-C.

3. Impact of Amendments to Section 194-I:
The court highlighted the amendments to Section 194-I, which reduced the tax deduction rate to 2% for the use of machinery, plant, or equipment. This change aligned the tax deduction rate under Section 194-I with that of Section 194-C, making the petition regarding the applicability of Section 194-I to charter hire income academic from October 2009 onwards.

4. Legal Consequences and Finality of Tax Payments:
The petitioners emphasized that tax assessments for the relevant years had been completed, and no further tax liabilities existed. They cited a Supreme Court decision to support their argument that once tax returns are filed and taxes paid, no additional tax can be recovered. The petitioners sought clarification from the respondents to prevent any further proceedings related to tax deduction at source.

5. Limitation Period and Compliance:
The court acknowledged the limitation period of seven years for proceedings under Section 201(1) of the Income Tax Act and emphasized that no further actions should be initiated beyond the prescribed timeframe. The petitioners sought assurance from the respondents to refrain from pursuing any alleged tax deduction failures for the specified financial years.

6. Exemption Certificate and Further Directions:
The court noted a previous order granting exemption certificates under Section 197 of the Income Tax Act for certain deductions. The respondents were requested to provide clarification to conclude the petition, ensuring no pending actions against the petitioners or their charter party clients.

7. Future Proceedings and Adjournment:
The court granted time to the respondents to consider the suggestions made by the petitioners based on previous observations. The matter was adjourned to a later date for further proceedings.

This comprehensive summary outlines the key aspects of the judgment, including the interpretation of relevant tax provisions, implications for charter hire payments, legal consequences, and the request for clarification to conclude the petition.

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