if assessee complies with section 194C(6), no disallowance U/s. 40(a)(ia)

DCIT Vs Murugarajendra Oil Industry (P) Ltd. (ITAT Bangalore)

Assessee claimed 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). So if assessee complies with the provisions of section 194C(6), disallowance under section 40(a)(ia) does not arise just because there is violation of provisions of section 194C(7) of the Act

Two reasons assigned by the AO for not accepting the plea of the Assessee to invoke the provisions of Sec. 40(a)(ia) of the Act in this case was held to be unsustainable. The first reason given by the AO was that the provisions of Sec.194C(6) are applicable only to transport contractors and not to any other payee and that reason has been held to be not correct in the aforesaid decision in which it was held 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 and that immunity from TDS u/s. 194C(1) in relation to payments to transporters, applies transporter and non-transporter contractees alike. The second reason given by the AO was that the Assessee failed to comply with the provisions of Sec.194C(7) of the Act and that reason has also been held to be not correct in the aforesaid decision and the view taken is that if the assessee complies with the provisions of section 194C(6), disallowance under section 40(a)(ia) does not arise just because there is violation of provisions of section 194C(7) of the Act. 

FULL TEXT OF THE ITAT JUDGEMENT

This is an appeal by the Revenue against the order dated 20-04-2017 of the Commissioner of Income Tax (Appeals)-Davangere, relating to Assessment Year 2012-13.

2. The only issue that arises for consideration in this appeal by the revenue is as to whether the CIT(A) was justified in partly deleting the addition made by the AO u/s. 40(a)(ia) of the Income Tax Act, 1961 (Act). The grievance of the Revenue in this regard is projected in the following grounds raised by the Revenue in its appeal:

“i. The order of the Commissioner of Income-tax(Appeals), Davangere is opposed to the law and not on the facts and circumstances of the case.

ii. The Ld.CIT(A) erred in allowing the claim of freight charges payable without examining whether the details of payees are furnished before the prescribed Income-tax authority in the prescribed form and within the prescribed time as per section 194(7).

iii. The Ld.CIT(A) erred in taking into account additional evidence relating to ‘Freight charges details uploaded’ in contravention of Rule 46A of the Income Tax Rules.

iv. For these and other grounds that may be urged upon, the order of the CIT(A) may be reversed and that assessment order be restored.

v. The appellant craves leave to add, alter, amend or delete any other grounds on or before hearing of the appeal”.

3. The Assessee is a company engaged in the business of manufacture and dealer in edible and non-edible oils and its by products. In the course of assessment proceedings the AO noticed that the Assessee had made payment of a sum of Rs.6,62,65,573/- to various transporters and the expenditure incurred in this regard was claimed as deduction in computing income from business of the Assessee. The details of which are as follows:

Details of Freight:

4. Admittedly, the assessee did not deduct tax at source on the payments made to the transporters. The AO was of the view that under the provisions of section 194C of the Act, payment in question was a payment for carrying out of works for which assessee ought to have deducted tax at source on such payment. Since the assessee failed to deduct tax at source, the AO was of the view that the amount claimed as deduction while computing income on account of transport charges should be disallowed and added to total income of assessee u/s. 40(a)(ia) of the Act.

5. The assessee submitted that it had obtained declaration from all the transporters who were engaged for the purpose of transportation to the effect that the sum in question was paid to them in the course of their business of plying goods carriages along with their PAN. According to the provisions of section 194C(6) of the Act, if such a declaration is obtained, a person making payment need not deduct tax at source. After the amendment by Finance Act, 2015 w.e.f. 1.6.2015, the declaration to be given by the contractor should be that he owns 10 or less goods carriages during the relevant previous year. Such declaration is not required for the AY 2012-13 which is the assessment year in this appeal. In this appeal, a mere declaration by the transporter that he is in the business of plying goods carriages is enough. It is undisputed that that such declaration was obtained by the assessee. U/s. 194C(7) of the Act, the assessee who is a person making payment has to furnish to the prescribed income tax authority, a declaration giving particulars of certificate obtained from the contractor u/s.194C(6). It is also admitted that the assessee did not furnish to the prescribed authority the declaration obtained from the contractor. The assessee, nevertheless, pleaded before the AO that no disallowance u/s. 40(a)(ia) can be made because of the provisions of section 194C(6) of the Act.

6. The AO did not agree with the claim of assessee for the reason that Sec.194(6) of the Act was applicable only to contractors engaged in transportation and not to Assessee. He held that the Assessee did not comply with provisions of section 194C(7) of the Act and therefore the provisions of Sec.40(a)(ia) of the Act are applicable in the case of the Assessee. Hence the AO disallowed the sum of Rs.6,62,26,410 and added the said sum to the income returned by the assessee.

7. On appeal by the assessee, the CIT(Appeals) deleted the addition made by the AO except in respect of a sum of Rs.99,04,607, for the following reasons.

“6b. I have carefully perused the submissions and Board’s Circular No. 19/2015. During the appeal proceedings before me, the AR stresses on the statement of facts and relied on CBDT Circular No. 19/2015 dated 27/11/2015. The details submitted are perused and considered. Details of lorry freight uploaded/not uploaded is tabulated as under:

6c. In the instant case, the appellant is not carrying on transportation business, further CBDT vide Circular No. 19/2015 dated 27/11/2015 has clarified that, deductor doing any business can make payment towards plying/hiring/leasing of transport vehicle without deducting tax by obtaining PAN.

Following Board’s Circular, it is held that TDS should have been made on transportation charges of Rs.99,04,607/- whose details have not been uploaded in the e-TDS statement. Therefore, disallowance u/s. 40(a)(ia) to the extent of Rs.99,04,607/- out of Rs.6,62,65,573/- is sustained. Thus, the ground is partly allowed”.

8. Aggrieved by the order of CIT(Appeals), the Revenue has preferred the present appeal before the Tribunal.

9. We have heard the rival submissions. The learned DR relied on the order of the AO. The learned counsel for the Assessee relied on the order of the CIT(A) and decision of ITAT Bangalore in the case of M/S.Fine Blanking Pvt.Ltd. (Infra).

10. We have considered the rival submissions. We find that  identical issue had come up for consideration before ITAT Bangalore Bench in the case of M/s. Fine Blanking Pvt. Ltd., Vs. The Joint Commissioner of Income Tax, in ITA No.393/Bang/2016 Assessment year : 2012-13 order dated 15.02.2019, wherein this Tribunal dealt with identical stand of the revenue on TDS on transportation charges and this tribunal following the decision of the ITAT Calcutta Bench of the Tribunal in the case of Soma Rani Ghosh v. DCIT, 74 taxmann. com 90 (Kolkata Trib.) deleted the addition made u/s.40(a)(ia). The following are the observations of the Kolkata ITAT in the case of Soma Rani Ghosh (supra):

“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 Finance Act, 2015 (w.e.f. 01-06-2015, it was reading 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, on furnishing of his Permanent Account Number, to the person paying or crediting such sum.”

23. A plain reading of the above sub-section makes it amply clear that on the Contractor undertaking Transport of Goods in course of his Transport Business, furnishing PAN to the person making such payment/credit, the payee shall not be required to effect TDS from such payment to the Transporter. On furnishing the PAN No. from the recipient Transporter- Contractor, the immunity from making TDS under sec. 194C(1) shall be available to all payers by virtue of 194C(6), in relation to all Goods Transport Charges irrespective of the fact, whether it was under a Contract or a Sub-contract.

24. We wish to refer profitably to Para No. 49.3 of CBDT Circular No. 05 2010 F.No.142/13/2010-S0 (TPL), dated ^3rd June, 2010 (Explanatory Notes on Finance Act (No.2) 2009), 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

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 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 TDS. 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) Applicability – This amendment has been made applicable with effect 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. 01­06-2015), makes it clear that that during the relevant Assessment year, if the sub-contractors have supplied their PAN to the person making payments in respect of hiring/leasing/of vehicles during the course of his business, then such person making such payment shall not deduct any TDS. It is only by way of subsequent amendment by Finance Act, 2015 (w.e.f. 01-06-2015), the expression “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” was substituted in the place of “on furnishing of” thereby introducing the requirement of the declaration to the effect indicated by the amendment. Therefore, under Sec. 194C(6), as it stood prior to the amendment in 2015 in order to get immunity from the obligation of TDS, filing of PAN of the Payee-Transporter alone is sufficient and no confirmation letter as required by the learned CIT is required.

26. On the aspect of observation of the learned CIT that Sections 194C(6) and Section 194C(7) have to be read together to extend the immunity from TDS, our attention is drawn to the fact that though 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 to the prescribed income-tax authorities under the provisos 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.

27. From the above, it could be observed that only slight modification had been introduced as to the procedure by replacing “declaration” with the words “Permanent Account Number” as the thing to be obtained from the Transporter. We are, therefore, inclined to hold that the provisions of Section 194C(6) and 194C(7) are similar to the Proviso (2) and (3) of the pre-amended Section 194C(3), and on this premise we shall proceed to examine whether Section 194C(6) and 194C(7) are to be read together to invoke provisions under section 40(a)(ia) of the Act.

28. After drawing an analogy between the pre-amended proviso between Clause (2) and Clause (3) of section 194C(3) and the present amended section 194C(6) and 194C(7), Learned AR submitted that even on earlier occasions when the declaration obtained in Form 15 I ( requirement similar to the PAN particulars under Sec.194C(6)) obtained from the Transporter under Second Proviso is not submitted in Form 15J to the Commissioner 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).”

The Tribunal after referring to the following decisions, CIT v. Valibhai Khambhai Mankad [2013] 216 Taxman 18/[2012] 28 taxmann.com 119 (Guj.), CIT v. Marikamba Transport Co. [2015] 379 ITR 129/231 Taxman 84/57 taxmann.com 273 (Karnataka) and ultimately concluded as follows:

“33. In view of the above and respectfully following the judicial reasoning delineated in the above judgments, we find that if the assessee complies with the provisions of section 194C(6), disallowance under section 40(a)(ia) does not arise just because there is violation of provisions of section 194C(7) of the Act”.

11. It is thus clear from the aforesaid decision of the Tribunal that the two reasons assigned by the AO for not accepting the plea of the Assessee to invoke the provisions of Sec.40(a)(ia) of the Act in this case was held to be unsustainable. The first reason given by the AO was that the provisions of Sec.194C(6) are applicable only to transport contractors and not to any other payee and that reason has been held to be not correct in the aforesaid decision in which it was held 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 and that immunity from TDS u/s. 194C(1) in relation to payments to transporters, applies transporter and non-transporter contractees alike. The second reason given by the AO was that the Assessee failed to comply with the provisions of Sec.194C(7) of the Act and that reason has also been held to be not correct in the aforesaid decision and the view taken is that if the assessee complies with the provisions of section 194C(6), disallowance under section 40(a)(ia) does not arise just because there is violation of provisions of section 194C(7) of the Act.

12. In the light of the aforesaid decision of the Tribunal, We are of the view that the CIT(A) was justified in deleting the addition made by the AO. We find no grounds to interfere with the order of CIT(A) and consequently dismiss this appeal by the Revenue.

13. In the result, appeal filed by the Revenue is dismissed.

Pronounced in the open court on this 26t^h day of April, 2019