2016 (2) TMI 79 - AT - Income Tax

Non deduction of tds - disallowance of lorry hire charges under section 40(a)(ia) - TDS u/s 194I or u/s 194C - Held that - The vehicle owner/driver had to carry out the transportation of goods and the same was not done by the assessee. In view thereof we have no hesitation to hold that the provisions of section 194C of the Act are correctly applied by the Revenue - Decided against revenue It is pertinent to mention that the ITAT Cochin Bench in the case of Siraj V E vs. ITO 2016 (1) TMI 929 - ITAT COCHIN by following the decision of the Hon ble Kerala High Court in the case of Thomas George Muthoot (2015 (7) TMI 810 - KERALA HIGH COURT ) wherein held Section 40(a)(ia) makes it clear that the consequence of disallowance is attracted when an individual who is liable to deduct tax on any interest payable to a resident on which tax is deductible at source commits default. The language of the Section does not warrant an interpretation that it is attracted only if the interest remains payable on the last day of the financial year. If this contention is to be accepted this Court will have to alter the language of Section 40(a) (ia) and such an interpretation is not permissible. - Decided against assessee Disallowance made under section 14A read with Rule 8D - Held that - The disallowance under section 14A cannot be invoked as the assessee has not earned any exempt income during the relevant assessment year. The Assessing Officer is directed to delete the disallowance made under section 14A of the Act.- Decided against revenue

Summary

Issues Involved:
1. Disallowance of lorry hire charges under section 40(a)(ia) of the Income Tax Act.
2. Applicability of section 40(a)(ia) to amounts actually paid versus amounts payable.
3. Disallowance of interest under section 14A in relation to investments in shares.

Detailed Analysis:

1. Disallowance of Lorry Hire Charges under Section 40(a)(ia):
The assessee argued that lorry hire charges paid to drivers should not attract TDS under section 194C but rather under section 194I, which pertains to rent. The CIT(A) and the Tribunal held that the payments were for the carriage of goods, thus falling under section 194C. The Tribunal noted that the assessee did not hire vehicles on rent but paid for the transportation of goods, making section 194C applicable. The Tribunal dismissed the assessee's reliance on other cases, distinguishing them based on the facts that in those cases, vehicles were hired without the owners performing any work. Consequently, the disallowance of Rs. 58,36,881/- under section 40(a)(ia) was upheld.

2. Applicability of Section 40(a)(ia) to Amounts Actually Paid Versus Amounts Payable:
The assessee contended that section 40(a)(ia) applies only to amounts payable, not to amounts actually paid. The Tribunal examined various judicial interpretations, including the Special Bench decision in M/s. Merilyn Shipping & Transports vs. ACIT and the Allahabad High Court's ruling in CIT vs. Vector Shipping Services, which supported the assessee's view. However, the Tribunal followed the Kerala High Court's contrary decision in Thomas George Muthoot, which held that section 40(a)(ia) applies to both payable and paid amounts. Thus, the Tribunal confirmed the disallowance of Rs. 58,36,881/-.

3. Disallowance of Interest under Section 14A:
The assessee argued that no exempt income was earned during the year, and thus, section 14A should not apply. The Tribunal noted that the CIT(A) had limited the disallowance to the extent of investment in shares of Rs. 2,70,00,000/-, instead of Rs. 5,10,50,000/-. The Tribunal referred to the Delhi High Court's decision in Cheminvest Ltd. vs. CIT, which held that section 14A does not apply if no exempt income is earned. The Tribunal also cited similar rulings from the Allahabad High Court and the Gujarat High Court. Consequently, the Tribunal directed the Assessing Officer to delete the disallowance under section 14A, as the assessee had not earned any exempt income during the relevant assessment year.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the disallowance of lorry hire charges under section 40(a)(ia) and confirmed its applicability to both payable and paid amounts. However, the Tribunal directed the deletion of the disallowance under section 14A due to the absence of exempt income earned by the assessee during the relevant assessment year.