2007 (8) TMI 12 - SC - Income Tax

Warehousing charges whether warehousing charges are in the nature of renting and TDS is deductible u/s 194- instead of u/s 194-C. Once tax is paid by the deductee assessee no demand is sustainable. However, interest liability still required to be discharged by the deductor.

Summary

Issues:
1. Whether the appellant-assessee was rightly held to be an 'assessee in default' for failure to deduct tax at source on warehousing charges?
2. Whether the levy of interest under Section 201(1A) of the Income Tax Act was justified?
3. Whether the Tribunal had the authority to reopen the appeal for further hearing based on the appellant's alternative contention?
4. Whether the High Court's interference with the Tribunal's order was valid?
5. Whether Circular No. 275/201/95-IT(B) issued by the Central Board of Direct Taxes applies to the case and settles the controversy?

Analysis:

1. The appellant-assessee, engaged in manufacturing and selling soft drinks, entered into an agreement with M/s. Pradeep Oil Corporation for warehousing services. The Assessing Officer held the appellant as an 'assessee in default' for not deducting tax on warehousing charges under Section 194C of the Income Tax Act. The Assessing Officer considered the charges as rent, requiring tax deduction at 20% under Section 194-I. The Tribunal and High Court upheld this decision, but later, the Tribunal reopened the matter to consider the appellant's contention that Pradeep Oil Corporation had already paid taxes on the income.

2. The Assessing Officer levied interest under Section 201(1A) on the alleged short deduction of tax. The Tribunal initially upheld this, but upon rehearing, it concluded that tax could not be recovered again from the appellant since Pradeep Oil Corporation had already paid taxes on the income. The High Court, however, interfered with the Tribunal's decision, leading to the appeal before the Supreme Court.

3. The Tribunal's decision to reopen the appeal for further hearing, based on the appellant's alternative contention, was challenged. The Supreme Court noted that the order to reopen had attained finality, and the High Court had no authority to interfere with it.

4. The High Court's interference with the Tribunal's order was deemed invalid by the Supreme Court, as the Tribunal's decision to reopen the matter had already been finalized.

5. The Supreme Court referred to Circular No. 275/201/95-IT(B), stating that no demand under Section 201(1) should be enforced once the tax deductor proves that taxes have been paid by the deductee. In this case, the appellant had paid interest under Section 201(1A), and it was acknowledged that the tax due had been paid by Pradeep Oil Corporation. The Court found the circular applicable and settled the controversy, setting aside the High Court's judgment and allowing the appeal.