2013 (11) TMI 926 - AT - Income Tax

Assessee in default u/s 201 - TDS u/s 194C or 194J - Assessee deducted Tax u/s 194C - Technical service - Default u/s 201(1) - Onus to prove - Held that - The assessee company needs gas as feed-stock i.e. the raw material for manufacturing the chemical fertilizers urea and for purchasing gas it has entered into a gas-sales-and-transmission-contract dated 23.6.2008 with GAIL as seller and Chambal Fertilizers and Chemicals Ltd as buyer for sale and purchase/transmission of natural gas. Thus the assessee company is a buyer of natural gas and GAIL is a seller . It is found that the GAIL is not at all a contractor for execution of any works-contract but it is a seller of gas simpliciter. The assessee has produced necessary proof of filing the return and payment of Tax and filing of return and payment of tax by GAIL - A principal officer of a company can be deemed to be an assessee in default u/s 201(1) of the Act only when he does not deduct whole or any part of the tax and such tax has not been paid. The GAIL and IOCL have already deposited tax due on their total income as is evidenced from the copies of its acknowledgment of return available on record - Tax deduction at source is transitory tax and it is a mode of collection and recovery of tax under Chapter XVII. Tax deducted at source by buyer is to be allowed credit in the hands of the payee. Explanation to clarify the doubts so raised has been inserted by the Finance Act, 2008 w.r.e.f 1.6.2003 in section 191 of the Act and its plain reading makes it abundantly clear that the deductee can be treated as an assessee deemed to be an assessee in default u/s 201(1) of the Act if the recipient fails to pay such tax directly. A contract, which is intended to be a contract for sale of goods for delivery , cannot be construed as anything else but a contract of sale. Accordingly, no duty is cast, in the facts and circumstances of the case, on the assessee company to deduct any TDS either u/s 194C or 194J of the Act. Therefore, interest charged u/s 201(1A) of the Act for alleged short deduction of tax has been correctly set aside by the ld. CIT(A). The fact that the assessee was deducing TDS u/s 194C was stated to be on account of abundant caution taken by the assessee. This conduct of the assessee, being taken to be on the safer side, cannot be treated adversary to its interest as has been canvassed by the department - Following decision of Hindustan Sugar Mills Ltd. v. State of Rajasthan 1979 (8) TMI 186 - SUPREME COURT OF INDIA , Skycell Communications v. DCIT 2001 (2) TMI 57 - MADRAS High Court and Hindustan Coco Cola v. CIT 2007 (8) TMI 12 - SUPREME COURT OF INDIA - Decided against Revenue.

Summary

Issues Involved:
1. Applicability of Section 194J versus Section 194C for TDS on transmission charges paid by the assessee.
2. Determination of whether the agreement between the assessee and GAIL constitutes a contract for sale or a contract for technical services.
3. Liability of the assessee to pay interest under Section 201(1A) for short deduction of tax.

Detailed Analysis:

1. Applicability of Section 194J versus Section 194C for TDS on Transmission Charges:
The primary issue in the appeals was whether the assessee should have deducted tax at source under Section 194J, which pertains to fees for technical services, or under Section 194C, which pertains to payments to contractors. The assessee had deducted TDS under Section 194C for payments made to GAIL and IOCL for transmission charges related to the supply of gas. The Assessing Officer (A.O.) contended that these payments should have been subjected to TDS under Section 194J, as the services provided were technical in nature. However, the assessee argued that the payments were part of a contract for the sale of gas and not for technical services.

2. Determination of the Nature of the Agreement:
The Tribunal examined the nature of the agreement between the assessee and GAIL. It was found that the agreement was for the sale and purchase of natural gas, with GAIL acting as the seller and the assessee as the buyer. The Tribunal noted that GAIL was responsible for the installation, maintenance, and management of the pipelines and other equipment necessary for the delivery of gas. The delivery point was at the buyer's premises, and the title and risk of the gas passed to the buyer at this point. The Tribunal concluded that the agreement was a contract for the sale of goods and not for the provision of technical services. This conclusion was supported by the Central Board of Direct Taxes (CBDT) Circular No. 86 dated May 29, 1972, which clarified that contracts for the sale of goods are not covered under Section 194C or Section 194J.

3. Liability to Pay Interest under Section 201(1A):
The A.O. had raised a demand for interest under Section 201(1A) on the grounds of short deduction of tax. However, the Tribunal found that GAIL and IOCL had already paid the taxes due on their total income, as evidenced by their tax returns. The Tribunal referred to the Supreme Court's decisions in the cases of Hindustan Coca Cola Beverages (P) Ltd. v. CIT and Eli Lilly & Co. v. CIT, which established that when the primary liability of the recipient to pay tax is discharged, the payer cannot be treated as an assessee in default. Consequently, the Tribunal held that the assessee was not liable to pay interest under Section 201(1A) as the recipients had already paid the due taxes.

Conclusion:
The Tribunal upheld the findings of the CIT(A), concluding that the agreement between the assessee and GAIL was a contract for the sale of gas and not for technical services. Therefore, the assessee was not required to deduct TDS under Section 194J. Consequently, the assessee could not be treated as an assessee in default under Section 201(1), and the interest charged under Section 201(1A) was correctly deleted by the CIT(A). The appeals filed by the revenue were dismissed.