2012 (12) TMI 444 - AT - Income Tax

Whether TDS is deductible on purchase of trading goods both local and import Held that - AO get confused on purchase and job work contract, and held tax was deductible u/s 194C. Since the transaction is purely of purchases, no surcharge and education cess is leviable on such TDS and further no interest can be levied u/s 201(1)(1A). The AO is directed accordingly. Issue decides in favour of assessee Addition on account of TDS not deducted u/s 194J AO s view that TDS should be deducted for payments made outside India for services rendered outside India Held that - As the provisions of Sec. 194J does not apply on payments made to a non-resident. It s also hold that even the provisions u/s 195(1) shall not be applicable in the impugned circumstances as the amount paid was not taxable in India. The said amount paid is in the exclusion part, of section 9(1)(vii)(b). Issue decided in favour of assessee Addition on account of u/s 40(a)(i) non-deduction of tax at source Assessee had made payment of freight to transporter without deducting TDS AO disallow the freight expense for non-deduction of TDS Held that - As concluded from the facts there was no contract as such, with the transporter and the assessee. In absence of any contract, TDS provisions u/s 194C cannot be attracted, hence, the disallowance is deleted. Issue decides in favour of assessee

Summary

Issues Involved:
1. Whether the domestic purchase of traded goods and purchases through import are liable for tax deduction under section 194C.
2. Whether the CIT(A) violated Rule 46A of the I.T. Rules by admitting additional evidence.
3. Whether TDS is deductible under section 194J for payments made outside India for services rendered outside India.
4. Whether the disallowance under section 40(a)(i) for non-deduction of tax at source is justified.

Issue-wise Detailed Analysis:

1. Domestic Purchase and Import Purchases under Section 194C:
The primary issue in ITA No. 2824/M/2010 was whether the domestic purchase of traded goods amounting to Rs. 27.39 crores and import purchases amounting to Rs. 23.03 crores are liable for tax deduction under section 194C. The CIT(A) reversed the ITO's order, stating that the purchases were not in the nature of job work but were pure trading transactions. The CIT(A) relied on the Bombay High Court decision in BDA Ltd. vs. ITO (TDS), which clarified that TDS is not deductible on trading purchases. Additionally, the CIT(A) noted that section 194C applies only to payments to residents, not to non-resident foreign suppliers. The Tribunal endorsed the CIT(A)'s decision, finding that the assessee had complied with the provisions of Chapter XVII wherever applicable and that the ITO had confused job work payments with trading purchases.

2. Violation of Rule 46A:
The department argued that the CIT(A) admitted additional evidence in violation of Rule 46A of the I.T. Rules. However, the Tribunal found no merit in this argument, noting that the details provided before the CIT(A) were already submitted to the ITO during the assessment proceedings. The Tribunal rejected the grounds related to Rule 46A, as the department could not show any new material that was admitted by the CIT(A) without the ITO's knowledge.

3. TDS under Section 194J for Payments Outside India:
The department contended that TDS should have been deducted under section 194J for payments made outside India for services rendered outside India. The Tribunal, however, found that section 194J applies only to payments to residents, as explicitly stated in the Act. Furthermore, the Tribunal held that section 195(1) also does not apply, as the payments were not chargeable under the provisions of the Act. The Tribunal referenced the Supreme Court decision in G.E. India Technology Centre (P) Ltd. vs. CIT, which clarified that payments not resulting in taxable income in India do not attract TDS. Consequently, the Tribunal rejected the department's grounds on this issue.

4. Disallowance under Section 40(a)(i):
In ITA No. 5869/M/2010, the department challenged the CIT(A)'s deletion of disallowance under section 40(a)(i) for non-deduction of tax at source. The Tribunal upheld the CIT(A)'s decision, noting that the provisions for TDS were not applicable to the payments in question, including trading purchases, professional fees, and freight, as there were no contracts with transporters. The Tribunal also supported the CIT(A)'s finding that TDS was deducted wherever applicable for sales promotion expenses, and no disallowance was warranted under section 40(a)(i).

Conclusion:
Both appeals by the department, ITA No. 2824/Mum/2010 and ITA No. 5869/Mum/2010, were dismissed. The Tribunal found that the CIT(A) had correctly interpreted the provisions of the Income Tax Act and had not violated any rules or regulations in admitting evidence or making decisions on TDS applicability. The Tribunal's decision reinforced the distinction between trading transactions and job work, and clarified the non-applicability of TDS provisions to payments made to non-residents for services rendered outside India.