2018 (9) TMI 226 - HC - Income Tax

Penalty u/s 271C - failure to deduct and pay to the Government TDS - Held that - On the question of hire and rental charges the learned Senior Counsel points out that the rent on machinery or plant or equipment was introduced first with the Finance Act 2007 with effect from 1.6.2007. Hence we are of the opinion that between financial years 2003-04 to 2006-07 there can be no allegation raised of failure to deduct tax at source. For the hire charges and the rental charges are concerned the issue assumes relevance only for the financial year 2007-08 which has to be looked at. On the question of TDS the learned Senior Counsel also has a case that even before the present amendment bringing in the proviso to Section 201(1) there was a circular issued by the Central Board of Direct Taxes which was referred in Hindustan Coca Cola Beverage P. Ltd. v. Commissioner of Income Tax 2007 (8) TMI 12 - SUPREME COURT OF INDIA . With respect to the payments of uplink charges and backhaul link usage charges the Tribunal shall examine an expert as produced by the assessee and the Department shall be permitted to cross examine the expert as also produce any further evidence or witnesses on their behalf. The issue shall be decided on the basis of the decision in Bharati Cellular Ltd. 2010 (8) TMI 332 - SUPREME COURT OF INDIA . It is made clear that there can be no liability on hire charges and camera rental payments for the financial years 2003-04 to 2006-07. The order of the AO as confirmed by the appellate authority is deleted for the said years. The Tribunal shall pass appropriate orders as per the directions issued. The Income Tax Appeals are remanded for fresh consideration as per the directions hereinabove. The rental charges and hire or equipment charges shall be sustained only for the financial year 2007-08 the assessment year of which is 2008-09. However the assessee shall be given an opportunity to produce sufficient evidence as per the circular aforementioned on which appropriate orders shall be passed on the liability of the assessee.

Summary

Issues:
1. Interpretation of the directions given by the Supreme Court in a different context.
2. Allegations of failure to deduct tax at source on various transactions.
3. Application of Supreme Court directions in the present case.
4. Requirement of remand to the Assessing Officer.
5. Examination of technical expert for tax deduction under Section 194J.
6. Liability for tax deduction on specific transactions.
7. Application of circulars and judgments related to tax deduction.

Analysis:

1. The High Court of Kerala heard an appeal by the Revenue against the Income Tax Appellate Tribunal's order remanding the issue to the Assessing Officer. The key question was whether the Tribunal could adopt the directions of the Supreme Court from cases not directly applicable to the present matter.

2. The case involved allegations of failure to deduct tax at source on various transactions, including contracts, commission, rent, salary, professional charges, and consultancy fees. The Tribunal followed Supreme Court directions from previous cases to guide the assessment.

3. The Tribunal applied Supreme Court directions from cases like Commissioner of Income Tax v. Eli Lilly And Co. (India) P. Ltd. and Commissioner of Income Tax v. Bharati Cellular Ltd. to address tax deduction issues raised in the present case. The Court examined the relevance and applicability of these directions.

4. The Revenue argued that the Tribunal should have first assessed the facts and law before directing the Assessing Officer to conduct an inquiry. The Court emphasized that the Tribunal, as a fact-finding authority, should have examined the facts without solely relying on Supreme Court directions.

5. Regarding tax deduction under Section 194J, the Tribunal directed the examination of a technical expert to determine if human intervention was necessary for TDS deduction. The Court discussed the necessity of such examination and the Tribunal's authority to make such decisions.

6. Specific transactions like equipment hire charges and camera rental payments were scrutinized for tax deduction liability. The Court analyzed the facts of each transaction and the applicability of tax deduction requirements.

7. The Court referred to circulars and judgments related to tax deduction issues, such as Circular No. 275/201/95-IT (B), to guide the assessment process. The Court provided detailed directions for the Tribunal to follow in assessing the liability of the assessee for various transactions.

In conclusion, the High Court of Kerala partially allowed the Income Tax Appeals and remanded the case for fresh consideration based on the detailed directions provided in the judgment.