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TMI Blog2022 (11) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is A.Y. 2011-12, therefore we note that there is no infirmity in the order passed by Ld. CIT(A). That being so, we decline to interfere in the order passed by Ld. CIT(A) and Revenue's appeal is hereby dismissed. - ITA No. 121/SRT/2020 , Cross Objection No. 4/SRT/2022 - - - Dated:- 17-10-2022 - SHRI PAWAN SINGH , JM And DR. A. L. SAINI , AM Assessee by : Shri Kamlesh Pandya , CA Respondent by : Shri Vinod Kumar , Sr. DR ORDER Per Dr. A. L. Saini , AM Captioned appeal and Cross Objection (CO) filed by the Revenue and Assessee, pertaining to Assessment Year (AY) 2011-12, are directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-4, Surat [in short Ld. CIT(A) ] in Appeal No. ITBA Appeal No. CIT(A)-4/10124/2018-19 dated 29.01.2020 which in turn arise out of an assessment order passed by the Assessing Officer under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) dated 21.11.2017. 2. The grounds of appeal filed by the Revenue are as follows: 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the addition of Rs. 12, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of TDS return, it was found that the name of the two parties were not mentioned. Hence, it is clear that either at the time of original assessment or on payment date, the assessee-company had no PAN details and that is why, the TDS has not been made. Therefore, Assessing Officer made addition of Rs. 12,42,498/-. 4. Aggrieved by the order of the Assessing Officer, the assessee, carried the matter in appeal before the Ld. CIT(A), who has deleted the addition made by the Assessing Officer, observing as follows: DISCUSSION AND DECISION OF THE APPELLATE AUTHORITY Ongoing through the assessment order and the submission of the appellant with ref. to provision of the Act. It is found that the AO made additions for non-deduction of TDS on carting expenses paid. The appellant contended that TDS on carting expenses is not required to be deducted as per Section 194C(6) of the Act. As the appellant submitted PAN of all payers, as required by the section, the appellant complied the provisions of the Act. Hence, addition made by the AO, are not legally sustainable, hence these are deleted. This ground of appeal is allowed. 5. Aggrieved by the order of Ld. CIT(A), the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f co-ordinate Bench of ITAT Kolkata Benches in the case of Soma Rani Ghosh vs. Deputy Commissioner of Income-tax (2016) 48 CCH 59 (ITAT-Kolkata). The findings of the co-ordinate Benches of ITAT Kolkata is reproduced below: 6. Basing on the above rival contentions, the issue that arises for our consideration is whether the authorities below are justified in disallowing u/s. 40(a)(ia) of the Act an amount of Rs. 1,63,78,648/- claimed as expense toward Carriage Inward and Rs. 1,30,00,980/- claimed as expense towards Carriage Outward? 7. Facts are simple and mostly admitted. Assessee carrying on proprietary export business in export of Chemical, Surgical and Clinical Goods had to incur Transport Charges by way of Lorry Hire Charges, both in relation to Purchases, referred to as Carriage Inward, and Exports to Bangladesh referred Purchase, referred to as Carriage Inward, and Exports to Bangladesh referred to as Carriage Outward. On the premise that the assessee was required to deduct tax at source on the expenses incurred under the head Transport Charges under the provisions of section 194C of the Act and since the assessee failed to deduct the same, learned AO disallowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum. It thus, means that if a transporter is making any further payment for hiring/leasing of vehicles during the course of his business then it would not deduct TDS if the sub-contractors have supplied their PAN to it. Thus 194C(6) is applicable to a transporter who during the course of his business of plying, hiring or leasing goods carriages, makes payment to another contractor for hiring of vehicles, then he is not supposed to deduct the TDS. This sub-section will not apply to payments made by a person who himself is not a transport, to another sub-contractor for plying, hiring or leasing goods carriages. Any other interpretation given to the wordings of Section 194C(6) will become contradictory to the wordings and spirit of the wordings of Section 194C(1). The intent of legislature cannot be contradictory. It cannot say in Section 194C(1) that if the person is making payment for transportation charges, then it should deduct TDS and in Section 194C(6), it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on 15.10.2010, which was made effective for the forthcoming second quarter statement due on 15th October, 2010. Since CBDT itself has issued notification in a later year, assessee's contention that in the impugned assessment year, no such prescribed authority was stated has to be accepted. The second judgment relied upon by the assessee in the case of Vijay Siddharaj Bashte (49 taxmann.com 334, Pune), is not applicable in this case. There has been no finding pertaining to the applicability of Section 194C(7). In view of the above discussion, it is held that the assessee has not fulfilled the conditions laid down in Section 194C(7) and thus committed the default of non-deduction of TDS in the case of the transporters for both carriage inward and carriage outward. Hence, the AO had rightly disallowed the sums u/s. 40(a)(ia). The action of the AO is confirmed . 9. A reading of the appellate order shows that the learned CIT dismissed the appeal of the assessee on the premise, firstly, that u/s. 194C(1) r/w clause (c) to Explanation given below Sec. 194C(7) the assessee is a contractor making payments to the transporter for carrying of goods and was thus liable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paying any sum and to any resident (hereafter in this section referred to as the contractor) , used in this section plainly makes it clear that the receiver of the payment is the contractor, and the person making such payment is the contractee. It goes without saying that the person who in pursuance of a contract, is responsible for payment is the contractee and the person carrying out any work (including supply of labour for carrying out any work) is a contractor. As a matter of fact, these expressions in the context of section do not admit of any other interpretation. 12. Our understanding of the terms Contractee and Contractor is fortified by the judgment of Allahabad High Court in Moradbad Chartered Accountants vs. Central Board of Direct Taxes And Anr. - 264 ITR 374 (All), wherein it is clearly held that a bare perusal of s. 194C shows that the said provision really deals with contractors who are businessmen, e.g., building contractor, or contractor who does work of transportation or loading of goods, or for supply of materials. Further it was held in Kirloskar Brothers Limited vs. DCIT (IT AT Pune)- 167 TTJ 102, that in common parlance, a contractor is understood ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent of such sum as income-tax on income comprised therein After Amendment by Finance Act (No. 2), 2009 it is reading like, (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- ... ... ... (7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be prescribed. Explanation: For the purposes of this section,-- (i) specified person shall mean,- ... ... ... ... ... ... (ii) ... ... ... (iii) contract shall include sub-contract; (iv) ... .... 16. Though the entire Section 194C is Subs, by Finance (No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w not made any distinction between a payment to a contractor or sub-contractor and all payments for carrying out any work in pursuance of contract are covered within the fold of section 194C(1) of the Act. Further Explanation (iii) also provides that a contract include subcontract. Thus on and from 1/10/2009 payments made by sub-contractor to a sub sub-contractor would also be covered under section 194C of the Act . 19. Further, CBDT Circular No. 05/2010 F. No. 142/13/2010 - SO (TPL) , dated 3rd June, 2010, in the context of the Explanatory Notes on Finance Act (No. 2) 2009, clearly delineates reason for removal of dividing line between a Contractor and a Sub-Contractor by the Finance Act, (No. 2), 2009 in the following terms: Under the existing provisions of section 194C of the Income-tax Act, TDS at the rate of 2% is deducted on payment for a contract. However, in the case of a sub-contract, TDS is deducted at the rate of 1%. Further, in the case of payment for an advertising contract, TDS is required to be deducted at the rate of 1%. In order to reduce the scope for disputes regarding classification of contract as sub-contract. The Act has been amended to specify the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009), where under the PAN based immunity and exemption from making TDS to Transporters was extended in all Transport contracts. 49.3 Provisions for payments and tax deducted at source to transporters A) Under Section 194C, tax is required to be deducted on payments to transport contractors engaged in the business of plying, hiring or leasing goods carriages. However if they furnish a statement that they do not own more than two goods carriages, tax is not 63 to be deducted at source. Transport operators are reporting, problem in obtaining TDS certificates as these are not issued immediately by clients and they are not able to approach the client again as they may have to move across the country for their business. B) It is, therefore, the Act has been amended to exempt payments to transport operators (as defined in section 44AE) from the purview of IDS. However, this would only apply in cases where the operator furnishes his Permanent Account Number (PAN) to the deductor. Deductors who make payments to transporters without deducting TDS (as they have quoted PAN) will be required to intimate these PAN details to the Income Tax Department in the prescribed format. C) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Finance Act, (No. 2) 2009 introduced, inter alia, Sec. 194C(6) and 194C(7), similar and analogous provision had been very much in existence under proviso 2 and 3 to Section 194C(3) of the Act. Placing such provisions in juxtaposition in the following chart makes it clear that they are very much analogous and the difference is that only in respect of requirement of a declaration and furnishing the particulars to the prescribed income-tax authorities under the proviso 2 and 3 of pre-amended section 194C(3) is being replaced by the Permanent Account Number under present Sections 194C(6) and (7) respectively. 194C prior to Amendment by Finance Act, (No. 2) 2009) 194C as Amended by Finance Act, (No. 2) 2009 194C(3) No deduction shall be made under sub-section (1) or sub-section (2) from- ... ... ... ... ... ... provided that ... ... Provided further that no deduction shall be made under sub-section (2), from the amount of any sum credited or paid or likely to be credited or paid during the previous year to the account of the sub-contractor during the course of business of plying, hiring or leasing go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax in Form 15J (requirement similar as is provided under the third proviso and equivalent to the requirement Sec. 194C(7), the Department made attempts to make additions, but such additions have been deleted and rendered invalid. He submitted that the Courts and Tribunals consistently held that on obtaining of either the declaration contemplated under second proviso to the pre-amended section 194C(3) or the PAN details under the present section 194C(6), the assessee was not required to make any deduction at source on the payments made to the contractor or sub-contractor, irrespective of the fact whether or not such information was furnished to the authorities as prescribed under third proviso to the amended section 194C(3) or the present section 194C(7). 29. In CIT vs. Valibhai Khanbhai Mankad (Tax Appeal No. 1182 of 2011, order dated 01.10.2012), it is held by the Hon'ble Gujarat High Court at Ahmedabad that:- (6) Section 194C, as already noticed, makes provision where for certain payments, liability-of the payee to deduct tax at source arises. Therefore, if there is any breach of such requirement, question of applicability of section 40(a)(ia) would ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew in the impugned judgment. It may be that failure to comply such requirement by the payee may result into some other adverse consequences if so provided under the Act. However, fulfillment of such requirement cannot be linked to the declaration of tax at source. Any such failure therefore cannot be visualized by adverse consequences provided under section 40(a)(ia) of the Act. (10) When on the basis of the record it is not disputed that the requirements of further proviso were fulfilled, the assessee was not required to make any deduction at source on the payments made to the sub-contractors. If that be our conclusion, application of section 40(a)(ia) would not arise since, as already noticed, section 4C(a)(ia) would apply when there is a requirement of deduction of tax at source and such requirement is either not fulfilled or having deducted tax at source is not deposited within prescribed time . 30. In CIT vs. Sri Marikamba Transport Co. in ITA No. 553 of 2013 reported in 379 ITR 129 (Karn.), Hon'ble Karnataka High Court has formulated a question as to whether non-filing of Form No. 15I/J within the prescribed time is only a technical default or the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative society or in pursuance of a contract between such contractor and the sub-contractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the cooperative society. 4. The combined reading of these two provisions make it clear that if there is any breach of requirements of Section 194C(3), the question of applicability of Section 40(a)(ia) arises. The exclusion provided in Sub-Section(3) of Section 194C from the liability to deduct tax at source under sub-section(2) would be complete, the moment the requirements contained therein are satisfied. Once, the declaration forms are filed by the subcontractor, the liability of the assessee to deduct tax on the payments made to the sub-contractor would not arise. As we have examined, the sub-contractors have filed Form No. 15I before the assessee. Such being the case, the assessee is not required to deduct tax under Section 194C(3) of the Act and to file Form No. 15I. It is only a technical defect as pointed out by the Tribunal in not filing Form No. 15I by the assessee. This matter was extensively considered by the ITAT, Ahmedabad Bench in Valibhai Khanbhai Mankad's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall include sub-contract; iii) subject to compliance with the provisions of Section 194C(6), immunity from TDS under sec. 194C(1) in relation to payments to transporters, applies transporter and non-transporter contractees alike; iv) under Sec. 194C(6), as it stood prior to the amendment in 2015, in order to get immunity from the obligation of IDS, filing of PAN of the Payee-Transporter alone is sufficient and no confirmation letter as required by the learned CIT is required; v) Sections 194C(6) and Section 194C(7) are independent of each other, and cannot be read together to attract disallowance u/s. 40(a)(ia) read with Section 194C of the Act; and vi) If the assessee complies with the provisions of Section 194C(6), no disallowance u/s. 40(a)(ia) of the Act is permissible, even there is violation of the provisions of Section 194C(7) of the Act. 35. Consequent to our findings in the preceding paragraphs, we reach a conclusion that the authorities below are not justified in treating the expense incurred by the assessee for Carriage inward and carriage outward as disallowable under section 40(a)(ia) of the Act, and adding back Rs. 1,63,78,648/- claimed as ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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