Whether immunity from TDS u/s 194C against PAN & ownership declaration in Form No. 15J is applicable on payment by transport contractors only or applicable even on payment by other persons?

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Whether immunity from TDS u/s 194C against PAN & ownership declaration in Form No. 15J is applicable on payment by transport contractors only or applicable even on payment by other persons?

Short Overview : Section 194C(6) makes it plainly clear that from assessment year 2010-11 onwards, by virtue thereof when Transport Operators furnish their PAN to person responsible for making payments to them, transport Operators would be outside the purview of TDS under section 194C and that immunity from TDS under section 194C(1) in relation to payments to transporters, applies to transporter and non-transporter contract alike. As assessee had complied with section 194C(6), disallowance under section 40(a)(ia) could not be made just because there was violation of section 194C(7).

Assessee company engaged in manufacture and sale of edible and non-edible oils and its by- products claimed deduction of charges paid to transporters. AO disallowed deduction for want of TDS under section 194C. Assessee submitted that it had obtained declaration from all the transporters. In terms of section 194C(6) and therefore, no disallowance could be made. AO held that section 194(6) was applicable only to contractors engaged in transportation and not to assessee. Further, assessee did not comply with section 194C(7) and, therefore, section 40(a)(ia) was applicable.

It is held that Section 194C(6) makes it plainly clear that from assessment year 2010-11 onwards, by virtue thereof when Transport Operators furnish their PAN to person responsible for making payments to them, transport Operators would be outside the purview of TDS under section 194C and that immunity from TDS under section 194C(1) in relation to payments to transporters, applies to transporter and non-transporter contract alike. As assessee had complied with section 194C(6), disallowance under section 40(a)(ia) could not be made just because there was violation of section 194C(7).

Decision: In assessee’s favour.

Relied: Soma Rani Ghosh v. Dy. CIT 74 Taxmann.com 90 (Kol- Trib.) and CIT v. Valibhai Khambhai Mankad (2013) 216 Taxman 18 : (2012) 28 taxmann.com 119 (Guj.) : 2013 TaxPub(DT) 1467 (Guj-HC), CIT v. Marikamba Transport Co. (2015) 379 ITR 129 (Karn) : 2015 TaxPub(DT) 2445 (Karn-HC) : 57 Taxmann.com 273 (Karn).

IN THE ITAT, BANGALORE BENCH

N.V. VASUDEVAN, V.P. & JASON P. BOAZ, A.M.

Dy.CIT v. Murugarajendra Oil Industry (P) Ltd.

ITA No. 2094/Bang/2017

26 April, 2019

Appellant by: Pradeep Kumar, Commissioner

Respondent by: V. Srinivasan, Advocate

ORDER

N.V. Vasudevan, V.P.

This is an appeal by the Revenue against the Order, dt. 20-04-2017 of the Commissioner (Appeals)- Davangere, relating to assessment year 2012-13.

  1. The only issue that arises for consideration in this appeal by the revenue is as to whether the Commissioner (Appeals) was justified in partly deleting the addition made by the assessing officer under section 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 (Appeals), Davangere is opposed to the law and not on the facts and circumstances of the case.

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

  1. For these and other grounds that may be urged upon, the order of the Commissioner (Appeals) may be reversed and that assessment order be restored.
  2. 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 assessing officer 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:

Carriage inward 2,29,93,188.00
Carriage outward 1,73,65,367.00
Consignment freight 2,58,67,855.00
6,62,26,410.00
  1. Admittedly, the assessee did not deduct tax at source on the payments made to the transporters. The assessing officer 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 assessing officer 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 under section 40(a)(ia) of the Act.
  2. 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 with effect from 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 assessment year 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. under section 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 under section 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 assessing officer that no disallowance under section 40(a)(ia) can be made because of the provisions of section 194C(6) of the Act.
  3. The assessing officer did not agree with the claim of assessee for the reason that section 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 section 40(a)(ia) of the Act are applicable in the case of the Assessee. Hence the assessing officer disallowed the sum of Rs. 6,62,26,410 and added the said sum to the income returned by the assessee.
  4. On appeal by the assessee, the Commissioner (Appeals) deleted the addition made by the assessing officer 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 Authorised Representative stresses on the statement of facts and relied on CBDT Circular No. 19/2015, dt. 27-11-2015. The details submitted are perused and considered. Details of lorry freight uploaded/not uploaded is tabulated as under:–

Particulars Amount (Rs) Amount (Rs)
Freight paid as per order 6,62,65,573
Less: Below Rs. 75,000
H S Road Lines, Mumbai 72,695
Lakshmi Transports, Mng 63,729
Latha Narayana Transports 69,552
Neha Roadlines 55,720
Sree Guru Transports 47,195
Univercel Logistics 64,860 3,73,751
Lorry Freight details to be uploaded 6,58,91,822
Less: Lorry freight details uploaded 5,59,87,215
Balance details not uploaded 99,04,607

6c. In the instant case, the appellant is not carrying on transportation business, further CBDT vide Circular No. 19/2015, dt. 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 under section 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”.

  1. Aggrieved by the order of Commissioner (Appeals), the Revenue has preferred the present appeal before the Tribunal.
  2. We have heard the rival submissions. The learned Departmental Representative relied on the order of the assessing officer. The learned counsel for the Assessee relied on the order of the Commissioner (Appeals) and decision of ITAT Bangalore in the case of M/s. Fine Blanking (P) Ltd. (Infra).
  3. 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 (P) Ltd., v. The Joint Commissioner, inITA No. 393/Bang/2016 assessment year 2012-13 Order, dt. 15-2-2019, 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. Dy. CIT, 74 taxmann.com 90 (Kolkata Trib.) deleted the addition made under section 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 section 194C(6) as it stands now, providing for immunity from TDS under section 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.”

  1. Prior to the amendment by Finance Act, 2015 (with effect from 1-6-2015, 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.”

  1. 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 section 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.
  2. We wish to refer profitably to Para No. 49.3 ofCBDT Circular No. 05/2010 F.No. 142/13/2010-S0 (TPL), dt. 3-6-2010(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 1-10-2009 and will accordingly apply in relation to the assessment year 2010- 2011 and subsequent assessment years.”

The Circular, while referring to the amendment in section 194C(6) made it plainly clear that from the assessment year 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 under section 194C. Needless to say that subject to compliance with the provisions of section 194C(6), immunity from TDS under section 194C(1) in relation to payments to transporters, applies transporter and non-transporter contractees alike.

  1. Next ground of disallowance stated by the learned Commissioner is that section 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 under section 194C(7), deduction and for that matter disallowance, under section 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 (with effect from 1-6-2015), 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 (with effect from 1-6-2015), 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 section 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 Commissioner is required.
  2. On the aspect of observation of the learned Commissioner 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, section 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.
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 goods carriages, on production of a declaration to the person concerned paying or crediting 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 sub- contractor 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 subsection (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.

  1. 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.

  1. 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 Authorised Representative submitted that even on earlier occasions when the declaration obtained in Form 15J (requirement similar to the PAN particulars under section 194C(6)) obtained from the Transporter under Second Proviso is not submitted in Form 15J to the Commissioner in Form 15J (requirement similar as is provided under the third proviso and equivalent to the requirement section 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 preamended 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.) : 2013 TaxPub(DT) 1467 (Guj-HC), CIT v. Marikamba Transport Co. (2015) 379 ITR 129 (Kar) : 2015 TaxPub(DT) 2445 (Karn-HC) : 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”.

  1. It is thus clear from the aforesaid decision of the Tribunal that the two reasons assigned by the assessing officer for not accepting the plea of the Assessee to invoke the provisions of section 40(a)(ia) of the Act in this case was held to be unsustainable. The first reason given by the assessing officer was that the provisions of section 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 section 194C(6) made it plainly clear that from the assessment year 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 under section 194C and that immunity from TDS under section 194C(1) in relation to payments to transporters, applies transporter and non-transporter contractees alike.

The second reason given by the assessing officer was that the Assessee failed to comply with the provisions of section 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.

  1. In the light of the aforesaid decision of the Tribunal, We are of the view that the Commissioner (Appeals) was justified in deleting the addition made by the assessing officer. We find no grounds to interfere with the order of Commissioner (Appeals) and consequently dismiss this appeal by the Revenue.
  2. In the result, appeal filed by the Revenue is dismissed.

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