2008 (8) TMI 526 - HC - Income Tax

Deduction of tax at source- allegation in the SCN is that the assessee had failed to deduct tax at source on the interest, rent and transportation charges paid by it to various agencies and an order was passed by Income Tax Officer raising a demand. The order upheld by Commissioner (Appeals). Tribunal found that as the assessee had not paid any amount to the procurement agencies on account of transportation, interest or storage charges as such, there was no liability for deduction of tax. Held that- if expenses incurred by a person on account of transportation, interest, storage etc. were added to the cost of the goods, it could not be inferred that the person who was billed and paid a certain amount on account of those services separately as it becomes part of the commodity so sold.

Summary

Issues:
Interpretation of sections 194A, 194-I, and 194C of the Income-tax Act, 1961 regarding the applicability of tax deduction at source on interest, rent, and transportation charges paid by Food Corporation of India to various agencies.

Analysis:
The High Court was presented with an appeal by the Revenue against the order of the Income-tax Appellate Tribunal, Chandigarh Bench "A", Chandigarh. The substantial question of law raised was whether the provisions of sections 194A, 194-I, and 194C were applicable to the case. The dispute arose from the failure of the Food Corporation of India to deduct tax at source on interest, rent, and transportation charges paid to various agencies. The Income-tax Officer (TDS) had raised a demand of Rs. 12,34,814, which was upheld by the Commissioner of Income-tax (Appeals). However, the Tribunal accepted the plea of the assessee, noting that the expenses incurred by the procurement agencies were part of the cost at which food grains were to be transferred to the assessee, and no separate payments were made for transportation, interest, or storage charges.

The High Court examined the argument put forth by the Revenue that the expenses were already considered while fixing the price of the food grains. The court rejected this contention, emphasizing that adding expenses to the cost of goods does not imply that the billed party made separate payments for those services. The court highlighted that such expenses become part of the commodity sold and do not necessitate tax deduction at source unless there are distinct payments made for them.

In conclusion, the High Court found no substantial question of law in the appeal. The court dismissed the appeal, affirming the decision of the Tribunal that the provisions of sections 194A, 194-I, and 194C were not applicable in this case as no separate payments were made for interest, rent, or transportation charges.