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TMI Blog2013 (11) TMI 926X X X X Extracts X X X X X X X X Extracts X X X X ..... ome 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee had deducted tax at source u/s 194C of the Act, so the A.O. has treated the assessee company as the assessee in default. Accordingly, a detailed show cause notice dated 13.1.2009, was issued requiring it to explain why the provisions of section 194J are not applicable to its case, especially when the transmission of gas by GAIL and IOCL being a technical service as per the Articles 4 and 8 of the Agreement. It was mentioned that Article 4 deals with delivery of gas and Article 8 deals with measurement and calibration of gas supply. The assessee company was also required to explain as to why interest u/s 201(1A) of the Act should also not be charged. The assessee through its authorized representative Shri M.L. Patodi, the ld. Advocate, also filed a written submission dated 27.1.2009 in reply to the above show-cause notice which is reproduced as under: "6. As discussed earlier, the assessee deductor filed its reply to the show-cause notice dated 13/01/2009 on 27/01/2009. The assessee deductor submitted that- 1. The assessee company is a manufacturer/producer of chemical fertilizers and textiles. The assessee company is also carrying on shipping busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risk and cost. The facilities downstream from the delivery point onwards are maintained/constructed and operated by the assessee company at its own risk and cost. Title, control and risk of the gas passes from the seller to the assessee company at the delivery point and not earlier. The gas so required by the assessee Company is to be delivered by the seller at the delivery point and the ownership in the gas so delivered transfers on supplying at the delivery point and not earlier. We submit "it is a contract for sale" and not "a contract for technical services" to be provided by the seller to the assessee company. No technical services are provided by GAIL. It is a contract of sale/purchase simpliciter and delivery is "FOR destination i.e. at the delivery point" of the assessee company. The Central Board of Direct Taxes as issued a Circular No. 86, dated May 29,1972 (see (1972) 84-ITR-(St.) 99). (F.No. 275/9/1972-ITJ). Sub-clause (ii) of clause (1) of this circular which relates to the present controversy, reads (page 99) : "(ii) The deduction of the income-tax will be made from sums paid for carrying out any work or supplying labour for carrying out any work. In other words, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g parties i.e. the contract is intended to be a contract of sale. Verification, if desired may be made from the seller or the assessee company be allowed one month's time to furnish certificate from the seller. 6.2 That Gail (India) Ltd is a Government of India Undertaking with registered office at 16, Bikaji Kama Place, R.K. Puram, New Delhi-110066 and PANAAACG1209J. The company has registered for sales tax and has been allotted TIN 08302905877 for VAT and C.S.T. . The company regularly files its Sales-tax Return declaring the sale of gas inclusive of transmission charges. They are regularly assessed to income-tax and claiming credit for Tax Deduction at Source by the assessee. They have filed their return of income for the Assessment year 2008-09 and are regularly paying advance-tax or other taxes as required under the Act. No tax on the returned income for the assessment year 2008-09 is outstanding. Verification, if desired, may be made from them or their Assessing Officer. 6.3 That the Hon'ble Supreme Court in Hindustan Sugar Mills Ltd. v. State of Rajasthan (1979) 43-STC-13 held that the sale price meant the amount payable to a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical service means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services(including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient chargeable under the head 'Salaries''. 7.1 The Madras High Court in Skycell Communications Ltd. v. Dy. CIT(2001) 251 ITR 53 at 57 observed: "This definition shows that consideration paid for the rendering of any - managerial, technical or consultancy service, as also the consideration paid for the provision of services of technical or other personnel, would be regarded as fees paid for "technical service". Thus while stating that "technical service" would include managerial and consultancy service, the Legislature has not set out with precision as to what would constitute "technical service to render it "technical service". The meaning of the word "technical" as given in the New Oxford Dictionary is adjective 1. of or relating to a particular subject, art or craft or its techniques: technical terms (especially of a book or article) requiring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsumer having to deduct tax at source on the payment made for the power consumed and remit the same to the Revenue". (Emphasis supplied) It also observed : "Installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment does not result in the provision of technical service to the customer for a fee". (Emphasis supplied). When a person decides to subscribe to a cellular telephone service in order to have the facility of being able to technical service. What he does agree to is to pay for the use telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber, does not on that score, make it provision of a technical service to the subscriber. The subscriber is not concerned with the complexity of the equipment installed in the exchange, or the location of the base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable in fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company has entered into ("Supply Framework Agreement") at Gandhi Nagar with Gujarat State Petroleum Corporation Ltd. (GSPCL), a Government Company with registered office at GSPC Bhawan, Behind Udhyog Bhawan, Sector 11, Gandhi Nagar 382011 (as seller). Price for Gas is as per contract Gas Price (C1.12). Invoices are received. Payment for Gas in made. Such gas is delivered to the assessee company for which Bill is received from GAIL and paid to them for transportation through their pipeline. A sum of Rs. 98,85,747 was paid for the A.Y. 2008-09 (upto November, 2008), on which tax has been deducted u/s 194C of the Act. We submit as above stated section 194J is unattracted. That deduction of tax as above stated is being made for the past several years and the Revenue has accepted such deduction as in accordance with law. The assessee Company was under bonafide belief and has been advised that tax is not deductible u/s 194J of the Act. The burden to prove is on the Revenue. We submit your honour have mis-construed and wrongly interpreted provisions of Section 194J of the Act. That without prejudice to above, we may also submit tax deduction at source is a transit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee is also liable to pay interest u/s 201(1A) of the Act on the short deduction of tax from the date of deposit of tax in the respective months to the date of filing of return by GAIL IACL in the year concerned. Accordingly, the A.O., i.e. Dy. CIT, TDS, Udaipur has raised demand of Rs. 1,39,96,574/- and Rs. 1,35,97,923/- u/s 201(1A) for F.Ys. 2007-08 and 2008-09 [upto Nov. 2008], respectively. Against this finding, the assessee preferred appeals for both the years before the ld. CIT(A) who has deleted the above additions through the impugned common order passed for both the years. The ld. CIT(A), after discussing the relevant agreements and provisions of section 194C and 194J of the Act, has finally concluded that the assessee cannot be treated as assessee in default u/s 201(1) of the Act and therefore, interest u/s 201(1A) of the Act is not chargeable from the assessee. He has, therefore, deleted the entire addition so made in both the years. In coming to this conclusion he has relied on various decisions and has referred to the relevant provisions of the Act. Now the revenue is aggrieved and has filed the above-captioned appeals. 4. We have heard the rival submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said order has to pay transmission charges at a specific rate. This payment is towards supply of gas to the assessee company at the delivery point. GAIL has laid down a pipeline to the factory premises of the 'buyer' in terms of the above agreement. These pipelines have been installed by the seller and are also maintained by the seller and the assessee company is not at all in any way responsible for is installation or maintenance or even its management. The delivery point in the factory of the assessee company is looked after by the employees of the 'seller'-company. As per this agreement equipments so installed by the 'seller' shall remain properties of the seller only and the seller shall have the right to remove such equipment at any time within 12 months after the expiry of the contract. The agreement also states that for the effective deliveries, the seller shall install and maintain at its own risk and cost the piping control regulation and also metering equipment in the gas metering station. All the above fats are found to be correct and have not been contradicted by the revenue. Thus it becomes clear that all the facilities like pipelines, metering equipments and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Hon'ble Supreme Court rendered in the case of Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13 [on which ld. CIT(A) has placed reliance] also comes to the rescue of the assessee. In this case it has been held that the sale price means the amount payable to a dealer on consideration of the sale of any goods and therefore, the concept of real price or actual price retainable by the dealer is irrelevant. The real test is whether the consideration is passing from the purchaser to the dealer for the sale of goods or not. In our considered opinion, 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 194 C 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 tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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