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2016 (10) TMI 55

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..... wance u/s 40(a)(ia) read with Section 194C of the Act. 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. 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 ₹ 1,63,78,648/- claimed as expense towards Carriage Inward and ₹ 1,13,00,980/- claimed as expense towards Carriage Outward, and such additions shall stand deleted. - Decided in favour of assessee. - I.T.A. No. 1420 /KOL/ 2015 - - - Dated:- 9-9-2016 - Shri Waseem Ahmed, Accountant Member And Shri K. Narasimha Chary, Judicial Member Shri I. Banerjee, FCA, for the assessee Shri Aloke Nag, Additional CIT, D.R., for the Department ORDER Per Shri K. Narasimha Chary, J.M.: This is an appeal by the Assessee challenging the order dated 15.10.2015 passed by the learned Commissioner of Income Tax (Appeals)-15, Kolkata (hereinaft .....

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..... 2. For that the Ld. Appellate Authority failed to appreciate the details and documents as were field during the course of appeal hearing in support of Carriage Outward for an amount of ₹ 65,17,325/- which were paid to different Goods Transport Agencies and the said transport agencies since had furnished their PAN and issued a declaration confirming their PAN and your petitioner has not deducted any TDS in terms of provision of section 194C( 6) of the Act and the entire disallowance and addition is uncalled for and liable to be deleted. 3. For that the Ld. Appellate Authority was absolutely wrong in his observation that the individual declaration so issued by the transporters confirming their PAN do not prove about non applicability of section 40(a)(i)(a) in the instant case. 4. For that the Ld. Appellate Authority failed to consider the observation of the Hon'ble ITAT in the case of ACIT, Circle-I vs Mr. Mohammed Suhail in ITA no: 1536/Hyd/2014, wherein it has been categorically observed by the Hon'ble ITAT that the liability to deduct tax ceases the moment the appellants obtains PAN of the contractors. That liability cannot be considered to be reinstate .....

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..... as expense towards Carriage Outward, treating such expense disallowable under section 40(a)(ia) of the Act. 8. Assessee contended before the learned CIT that because of the provision of Section 194C(6), she was not liable to deduct TDS on payments to transporters who had submitted their PAN, and those details of PAN and addressees of the transporters were filed during the course of scrutiny assessment before the AO. Relevant portion of the appellate order is as follows: To decide the issue, we need to read the entire section 194C together to understand its true interpretation. 194C( 1) reads as under: (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 contractor 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 - (i) one per cent where the payment is being made or credit is being .....

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..... given to a contractor in the business of transportation on furnishing of his PAN. Further, the provisions of Section 194C( 6) and 194C(7) have to be read together. Sub-section 194C(7) read as under: (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 from and within such time as may be prescribed. . Thus, the benefits of sub-section 194C( 6) can be availed only then the assessee fulfils the conditions laid down in sub-section 194C(7). However, in this case, the assessee has not fulfilled the conditions as she has not furnished the requisite particulars in such form to the prescribed income-tax authority within the stipulated time period. This logic is also indirectly confirmed by the order of ITAT Hyderabad In ITA No.1536/Hyd/2014 in the case of Mr. Muhammad Suhail, on which the assessee had relied during the appellate proceedings. In this case, the relevant A.Y. is 2010-11 the Hon'ble ITAT have held that provisions of Section 194C(7) are not applicable in this A.Y. but they are certainly ap .....

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..... cording to him, according to Section 194C(6), if a transporter is making any further payment for hiring/leasing of vehicles during the course of his business then he would not deduct TDS if the sub-contractors have supplied their PAN details to the principal transporter. He further observed that Section 194C(6) will not apply to payments made by a person who himself is not a transporter, to another sub-contractor for plying, hiring or leasing goods carriage. Secondly, he stated that provisions of section 194C(6) and 194C(7) have to be read together and the benefit under section 194C (6) is available only when the assessee fulfils the conditions laid down in sub-section 194C(7) of the Act. On this aspect, he derives strength from the decision in the case of Muhammad Suhail. Now, we shall proceed to appreciate the rival contentions in the light of the provisions of the Act and the decisions rendered by different High Courts and Tribunal. 10. For proper appreciation of the finding of the learned CIT that the assessee is a contractor making payments to the transporter for carrying of goods and was thus liable to deduct TDS on such payment, it is necessary to look at the provisions o .....

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..... es out the assigned work as per the directions given by the contractee. 13. Ld. CIT(A) mistook the expressions Any person responsible for paying any sum and any resident (hereafter in this section referred to as the contractor) , appearing in Sec. 194C(1) and categorized the assessee as the Contractor. Having categorized the assessee as a contractor, the Ld. CIT(A) observed that the immunity from making TDS from the payment under section 194C(6) is available only to a transporter that procured the PAN of the SubContract Transporters. 14. The next question, therefore, that arises is whether the difference between Contractor and Sub Contractor has any impact on the liability to make TDS under Section 194C(1) of the Act. To understand this, it is necessary to refer to the position of law prior to and after amendment to Section 194C of the Act. 15. It is worth noticing that by means of Finance Act (No.2), 2009, rather than introducing a few changes, the entire section of 194C had been substituted. Before Amendment it was reading like (1) Any person responsible for paying any sum to any resident (hereinafter in this section referred to as the contractor) for carrying .....

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..... the obligation of the person responsible for making payment/crediting the Account of the Payee to deduct TDS when payment/credit is made pursuant to a contract between is concerned, even after amendment, Sec. 194C(1) had remained substantially the same. However, earlier Contract and Sub-Contract were covered by two different subsections, namely, Sec. 194C(1) and Sec. 194C(2) respectively. But, the Amendment, vide Finance Act, 2009 brought in the most significant change by obliterating the difference between Contract and Sub-Contract, by repealing Sec. 194C(2) which was dealing with subcontractors and simultaneously introducing Sub Section (7) with Explanation, Clause No. (iii) of which clarifies that Contract shall include sub-contract . Now as the things stand, there remains no distinction between a Contract and Sub-Contract. Unlike pre-amendment scenario, the entire provision of Sec. 194C now applies alike to both the situations, namely, in relation to jobs assigned by a person to a Contractor and the jobs assigned by a Contractor to a Sub-Contractors in a similar manner. A plain reading of Sec. 194C(2), as it stands now, clearly states that a Contractor entrusted with any w .....

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..... contractors. 20. It, therefore, flows from our above discussion that by virtue of the Amendment introduced by Finance Act (No.2) 2009, the distinction between a contractor and a subcontractor has been done away with, and Cl. (iii) of Explanation under 194C(7) now clarifies that contract shall include sub-contract. 21. Now coming to the contention that under Sec. 194C(6) as it stands now, providing for immunity from TDS under sec. 194C(1) in relation to payments to transporters, applies only to a transporter making payment to another sub-contractor submitting his PAN to the former, Section 194C(6) does not give any such indication. Section 194C(6) reads as follows: (6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, where such contractor owns ten or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with, his Permanent Account Number, to the person paying or crediting such sum. 22. Prior to the amendment by Finanace Act, 2015 (w.e.f. .....

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..... from 1st October, 2009 and will accordingly apply in relation to the assessment year 2010-2011 and subsequent assessment years. The Circular, while referring to the amendment in Sec. 194C(6) made it plainly clear that from the A.Y. 2010-11 onwards, by virtue thereof when Transport Operators furnish their PAN to the person responsible for making payments to them, the Transport Operators would be outside the purview of TDS u/s 194C. Needless to say that 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. 25. Next ground of disallowance stated by the learned CIT is that Sec. 194C(6) and 194C(7) are to be read together, and if after obtaining PAN from the Transporters, the requisite particulars so obtained from the Transporters are not furnished to the prescribed Authority as provided U/S 194C(7), deduction and for that matter disallowance, U/S 194C and 40(a)(ia) would get attracted. On this aspect, as indicated above a reading of provisions of Section 194C (6), prior to the amendment of by Finance Act, 2015 (w.e.f. 1-06-2015), mak .....

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..... diting such sum, in the prescribed form and verified in the prescribed manner and within such time as may be prescribed, if such sub-contractor is an individual who has not owned more than two goods carriages at any time during the previous year: Provided also that the person responsible for paying any sum as aforesaid to the subcontractor referred to in the second proviso shall furnish to the prescribed income-tax authority or the person authorised by it such particulars as may be prescribed in such form and within such time as may be prescribed; or] (6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, 1[ where such contractor owns ten or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with ], his Permanent Account Number, to the person paying or crediting such sum. (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 authori .....

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..... liability would not arise. We are concerned with the further proviso to subsection (3), which provides that no deduction under sub-section (2) shall be made from the amount of any sum credited or paid or likely to be credited or paid to the sub-contractor during the course of business of plying, hiring or leasing goods carriages, on production of a declaration to the person concerned paying or crediting such sum in the prescribed form and verified it in the prescribed manner within the time as may be prescribed, if such sub-contractor is an individual who has not owned more than two goods carriages at any time during the previous year. 7) The exclusion provided in sub-section (3) of section 194C from the liability to deduct tax at source under sub-section (2) would thus be complete the moment the requirements contained therein are satisfied. Such requirements, principally, are that the sub-contractor, recipient of the payment produces a necessary declaration in the prescribed format and further that such sub-contractor does not own more than two goods carriages during the entire previous year. The moment, such requirements are fulfilled, the liability of the assessee to deduc .....

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..... tion 40 (a)(ia) and Section 194C(3) of the Act reads thus: Section 40(a)(ia) : Any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub- section(i) of Section 139 . Section 194C/3): No deduction shall be made under sub-section (1) or sub- section(2) from - (i) the amount of any sum credited or paid or likely to be credited or paid to the account of or to the contractor or sub-contractor, if such sum does not exceed twenty thousand rupees: Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds fifty thousand rupees, the person responsible for paying such sums referred to in sub-s.(l) or as the case may be sub-s.(2) shall be liable to deduct income-tax under this sectio .....

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..... ported in (2013) 216 Taxman 18 (Guj) wherein it is held that once the conditions of Section 194C(3) were satisfied, the liability of the payee to deduct tax at source would cease and accordingly, application of Section 40(a)(ia) would also not arise. The Tribunal, placing reliance on the judgment of the ITAT, Ahmedabad Bench, has dismissed the appeal filed by the Revenue. We agree with die said propositions and hold that filing of Form No.15I/j is only directory and not mandatory. 31. A Coordinate Bench of this Tribunal in ITA No. 86/VIZ/2013 in the case of ITO vs.- Kolli Brothers, order dated 11.12.2013 followed the decision of the Hon ble High Court of Gujarat in the case of Valibhai Khanbhai Mankad (supra). In the case of M/s. Mahalaxmi Cargo Movers vs.- ITO in ITA No. 6191/MUM/2013, order dated 09.12.2015, another Coordinate Bench of this Tribunal reached the same conclusion while following the decision of the Coordinate Bench in the case of CIT vs.- Valibhai Khanbhai Mankad (supra) and CIT vs.- Sri Marikamba Transport Co. in ITA No. 553 of 2013 reported in 379 ITR 129 (Karn.). 32. It is worth noticing that in ACIT vs.- Mr. Mohammed Suhail, Kurnool in ITA No. 1536 .....

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