I.T.O.(T.D.S.) WARD 2(3), CHANDRAPUR vs. ULTRATECH CEMENT LTD UNIT AWARPUR CEMENT WORKS,

I have considered the facts of the case ad submissions of the appellant: There Is substantial force in the submissions made. The legislative history of Section 194C of the Income Tax Act; 1961 makes it very clear that the action of the Id. AO is based On a erroneous interpretation of the said section. In this regard; it is vital to go through the legislative history 0f the said section 194C. Considerlng the hardships faced by small truck owners in getting credit 0f TDS deducted in view of the amendments introduced in Section 194C(3) of the Income Tax Act, 1961 vide Finance (No 2) Act; 2004, a proviso was Inserted in section 1940(3} by Finance Act; 2005 to the effect that no deduction of TDS shall be made from any payment to 0 sub-contractor during the course of business of plying, hiring ad leasing of goods carrlage, if such sub-contractor is an individual who has not owned more than two goods carriage at any time during the previous year; The proviso reads aS follows: APpRL "Provided further that no deduction shali be made under sub-section (2), from the amount Of any sum credited or paid Or likely to be credited Or paid durlng the previous Year to the account Of the sub-contractor during the course of business Of plying, hiring Or leasing goods carriages; n productlon of 3 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" 6,1 Thus the explanatory memorandum to Finance Bill; 2005 clearly explained that the provision has been introduced ta give relief to small Individual sub-contractor transporters who do not own more than two trucks; Subsequently the existing section 194C of the Act was completely replaced with a new section 194C by Finance (No, 2) Act; 2009 and a specific subsection (6) contained therein provided in respect 0f payments to transparters 25 follpws: "(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: 6.2 It Is abundantly clear from the aforesaid amended section Ultratech Cement Lto: 194C(6) substituted by the Flnance (No. 2) Act, 2009 w.e.f Of- 10-2009 that no deduction Of tax Is required to be made from any sum Credited or paid to & transport operator; If the said contractor furnishes his PAN. The explanatory memorandum of Finance (No 2) Bill, 2009 explains the legislative intent behind the provisions as follows: b Provisions for payments and tax deducted at source to transporters: Under Section 194C, tax is required to be deducted on payment 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 report problem in obtainlng TDS certificates 35 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, It is, therefore, proposed to exempt payments to transport operators (as defined in section 44AE) fram the purview of TDS, However; thls 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 TD.S (as they have quoted PAN) will be required to intimate these PAN detalls to the Income Tax Department in the prescribed format These amendments will take effect from the Ist day of October , 2009 and will accordingly apply to transaction on Or after such date; 6.3 It is pertinent to note that the amended provisions of Act in this regard have been explained by CBDT vide circular No 05 Of 2010 dated 03-06-2010 being explanatory notes to the provisions af the Finance (No. 2} Act; 200g, The relevant clauses of circular are reproduced below: "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 pf plving, hiring Or leasing goods carriages. However if they furnish & statement that they do not Own more than two goods carriages; tax i5 not to be deducted at source: Transport operators are reporting problem in obtaining TDS certificates a5 these are npt issued immediately by clients ad they are not able to approach the client again as they may have to move across the country for their business; 83 24 9 Ultratech Cement Ltd. a It is, therefore, the Act has been amended to exempt payments to transport operators (as defined in section 44AE) from the purview af 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) wil} be required to Intimate these PAN details to the Income Tax Department in the prescribed format 6.4 Thus it Is evident that vide Clause 49.2 (B) of the circular, the Board has prescribed that new rate of TS w.e.f; 1-10-2009 in respect af payment to subcontractor ad contractor in transport business a5 NIl if the transporter quctes his PAN, It ha5 also been prescribed that if PAN is not quoted, the rate will be 1% for an individualt KUF transporter and 29 for other transporters up to 31-3-2010.The plain reading of the section 194C(6) we.f. 1-10- 2009 along with the above explanatory notes do not leave any confusion in this regard and it is clear that any payment made to a transporter (contractor} is exempt from TDS if such transporter (contractor) provides his PAN to the deductor and the deductor furnishes details of such payment and PAN to Income Tax Department in prescribed format In the Case of the appellant it is not disputed that the method @f reporting &5 has been prescribed in Rule 314 (4)vi) of Income Tax Rules has been duly complied by the appellant In face of such clear provisions of section 194C(6) as explained by circular Issued by CBDT as above; the Ld. ITO had no reason to hold that the payment made by transport operators to other contractors are exempt from TDS and not the payment made to transport operators: 6.5 Further clarity on this issue has been made available as it has been further reiterated by Government while placing Finance bill 2015 in the Lok Sabha vide explanatary memorandum for Provisions relating to direct taxes, It has been clarified in Clause 43 that though the intention was to reduce the compliance burden On the small transporters while making amendment in 2009 , however, the existing language of Sub Section (6) &f section 194C Of the Act does not canvey the desired intention and as a result all the transporters, irrespective of their size, are claiming exemption from TDS under the existing provislons of sub section (6) of section 194C of the Act on furnishing of PAN. 6.6 Therefore_the section has been proposed to be amended W.e;f Ist June 2O15 to expressly provide that the relaxation under sub section (6) of section 194C Of the Act from non-deduction of tax shall only be applicable to the payment in the nature of transpart charges (whether paid by a person engaged in the business of transport Or otherwise) made to a contractor who is engaged In the business Of transport ad who is eligible to compute income a5 Gpur Ultratech Cement Ltd, per the provisions of section 44AE of the Act &nd who shali also furnlsh & declaration to this effect along with his PAN, 6.7 It may be noted that only amendment proposed in section 194C(6) i5 substitution of existing words 'on furnishing Of" by "where such contractor owns ten or less goods carriage at any time during the previous year and furnishes 9 declaration to that effect alng with The amendment does not alter any position with regards to status of transport operator 35 a recipient Qf transport charges for exemption from TDS if they furnish PAN to the deductor: 6.8 With this amendment and clarification it is abundantly clear that non- deductian pf tax while making payment to transport operators for transport charges w.e.f 1-10-2009 is absalutely as per the provisions of section 194C(6) and there cannot be any default in this regard if the PAN 0f transporter has been collected and reported by the deductor. 6.9 Therefore; the interpretation Of Ld: ITO while treating the appellant as assessee in default" for non deduction of tax while making freight payment to transport operators is not aS per Iaw to JL the extent it not only interprets the provision an erroneous ATF manner but also contrary to iegislative intent and binding CBDT ecirculars. In vlew of the above, the rder passed by Id. AQ uls ; 201() and ZO1(1A) of the Act; holding the appellant a5 "assessee Xn default" in respect of transport charges paid to transport operators without deduction of TDS in compliance with pravisions of section 194C(6) is reguired to be cancelled. In Such facts, tne action Or the Id; Ao of raising the demand for tax of Rs: 61,78,095/-, Rs.57,84,468/-, Rs. 69,27,997/-, Rs: 2,43,03,965/- & Rs: 34,30,645/- Uls 2OL(1) Of the Act for AY 201112, 2012-131 AY 2013-14, AY 2014-15 & AY 2015-16 respectively Is held to be erronenus ad is therefore directed to be deleted: 7, Further, it has to be npted that the appellant had provided complete details in respect 0f each of the transport operators including their invoices, PAN etc and hence It had duly discharged the onus cast upon it and that It cannot be treated a8 an assessee in default till it is found that deductees had also failed to pay such tax directly. It i5 evident that the details Of all the persons from whom tax was required to be deducted was available on record before the Ld, A.O. &d the onus was on the AO: tp ascertain the facts related to payment of tax on income Of the transport contractors directly from the recipient of such income: Reliance in this regard is placed on Hindustan Coca Cola Beverages Pvt: Ltd Vs CIT 293 ITR 226, Jagran Prakashan Ltd Vs; DCIT ZI taxmanncom 489 and Agra ITAT judgment in the case of Allahabad Bank Vs. ITO bearing ITA N0s.448 to 454/ Agra /2011. R5 11 Ultratech Cement Ltd, 7.1 The Hon'ble ITAT Agra Bench, Agra in ITA Nos. 448 to 454/Agra/2011 vide recent order dated 20/06/2014 in the case of Allahabad Bank has held as under: In our considered view, it i5 important to bear in mind the settled legal position that & short deduction 0f tax at source; by itself does not result in a legally sustainable demand us 201(1) and u/s 201(1A} As held by Hon'ble Supreme Court in the case of Hindustan Coco Cola Beverage Pvt; Ltd. Vs. CIT (293 ITR 226), the taxes cannot be recovered once agaln from the assessee in 3 situation in which the recipient of income has paid due taxes on income embedded in the payments from which tax withholding requirements were not fully Or partly, complied with: Hon'ble jurisdictional High Court; in the case of Jagran Prakashan Ltd, VS. DCIT (2012} 21 taxmann com 489 All also has, inter alia, observed a5 follows: It is clear that deductor cannot be treated an assessee in default till It Is found that assessee has also failed to pay such tax directly: In the present case; the Income tax authorities had not adverted to the Explanation to Section 191 nor had applied their mind 35 to whether the assessee has also failed to pay such tax directly. Thus, to declare 7 deductor; who failed to deduct the tax: at source 85 an assessee in derault; condition precedent is that assessee has also failed to pay tax directly. The fact that assessee has failed to pay tax directly is thus, foundational and jurisdictional fact &d only after finding that assessee has failed to pay tax direct; deductor can be deemed to be 3n as5essee in default in respect to such tax It is thus clear that the onus is on the revenue to demonstrate that the taxes have nat been recovered from the person who had the primarily Iiability to pay tax, and it Is only When the primary liability is not discharged that vlcarious recovery liability can be invoked. Once all the detalls of the persons to whom payments have been made are on record, it is for the Assessing Officer; who has all the powers to requisition the information from such payers and from the income tax authorities, to ascertain whether or not taxes have been paid by the persons in receipt of the amounts from which taxes have not been withheld: As a result of the judgment of Hon'ble Allahabad High Court in Jagran Prakashan'5 case (supra), there is 0 paradigm shift in the manner in which recovery provisions under section 201(1) can be Invoked. As observed by Their Lordshlps, the provislons of section 201(1} cannot be invoked and the 'tax deductor cannot be treated an assessee in default till it Is found that assessee has also failed to pay such tax directty Once this finding about the non-payment of taxes by the recipient Is held to a condition precedent to invoking Section 201(1), the onus i5 0n the Assessing Officer to Ultratech Cement Ltd, demonstrate that the condition is satisfied. It going without saying that the assessee Is duty bound to submit all such information about the recipients a5 he is obliged to maintain under the law_ But once this information is submitted, it is for the Assessing Officer to ascertain whether Or not the taxes have been paid by the recipient of income: This approach; in our humble understanding, is in consonance with the Iaw Iaid down by Hon'ble Allahabad Kigh Court: It is als0 Important to bear in mind that the lapse on account of non- deduction of tax at source is to be visited with three different consequences penal provisions, interest provisions and recovery provisions The penal provlsions in respect of such a lapse are set out in Section 27IC So far a5 penal provisions are concerned, the penalty is for lapse on the part of the assessee and it has nothing tq do with whether Or not the taxes were ultimately recovered through other means, The provisions regarding interest in delay in depositing the taxes are set out in Section 201(1A). These provisions provide that for ay delay In recovery of such taxes Is to be compensated by the levy of interest: As far a5 recovery provisians are concerned, these provlsions are set out in Section 201(1) which seeks to make good any loss to revenue On account of lapse by the assessee tax deductor. However; the question of making good the loss of revenue arises only when there is indeed loss of revenue ad the loss of revenue can be there only when recipient had & liability to pay the tax and he has not paid the tax Therefore, recovery provisians under section 201(1) can be invoked only when loss to revenve is established, and that Can only be established when it is demonstrated that the recipient of income has not paid due taxes thereof and the recipient of the amounts had the liability to tax In the absence of the statutory powers to requisition any information from the recipient of income, the assessee i5 indeed not always able to obtain the same. The provisions to make good the short fall in collection of taxes may thus end Up belng invoked even when there is no shortfall in fact, On the other hand, once assessee furnishes the requisite basic information, the Assessing Officer can very weli ascertain the related facts about payment of taxes on income of the recipient directly From the recipients of income: It is not the revenue'5 Case before us that; on the facts of this case, such an exercise by the Assessing Officer is not possible. It does put an additional burden on the Assessing Officer before he can invoke Section 201(1) but thats how Hon'ble High Court has visualized the scheme of Act and that's how, therefore; it meets the ends of justice. #a As far as levy of interest under section 2O1(1A) is concerned, this interest is admittedly a compensatory interest in nature and it seeks to compensate the revenue for delay in realization of taxes Hon'ble Bombay High Court; in the case of Bennett Coleman & Co; 2 13 Ultratech Cement Lta. Ltd, VS ITO (157 ITR 812) has held So. Therefore, levy of interest under section 201(1A) is applicable whether or not the assessee was at fault: However, since it is only compensatory in nature it is applicable for the period of the date on which tax was required to be deducted till the date when tax was eventually paid. However; in a case in which the recipient of Income had no tax liability embedded in such payments; there will obviously he no Question of dela, in realization of taxes and the orovlslons of section 2O1(1A) will not come into play at all The computation of Interest is to be redone In the Iight of this legal position. The matter thus stands restored to the file of the Assessing Officer for fresh adjudication in accordance with the Iaw ad in the_light of our observations above: While doing S0, the Assessing Officer will give a due &d fair opportunity of hearing to the assessee and dispose Of the matter by way of a speaking order: We direct So. As regards ali other issues; on facts and in law, these issues will be required to be dealt with only in the event of there being & tax demand under section 201(1) and 201(1A) after implementing the above directions: These issues are left open for the time being as these issues are in fructuous at this stage,_ 7.2 The Hon'ble High Court of Karnataka in the case of M/s: Shree Manjunath Wines in ITA No.333/07 in judgement dated 13/9/2011 while considering provisions Of section ZOGC of IT, Act 1961 has also held as under; _Section 206C f the Act which specifically deals with only six types of transactions provides that every person, being a seller, shall at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue Of & cheque or draft or any other mode; whichever Is earlier, collect from the buyer of any goods of the nature specified in Column No. (2) of the Table below, a sun equa} to the percentage, specified in the corresponding entry in Column (3) oF the said Table; af Such amount 35 Income Tax ad remit the amounts so collected to the credit f the Central Govemment or a5 the Board direct: From the aforesaid provision, it is clear that though assessee collects the tax and remit the money to the Government; the said amount remitted will be to the account Of the buyer: In other words; the said amount will be given deductions towards the tax payable by the buyer; IF in a given case the assessee has not collected the tax from the buyer a if the buyer has paid tax to the revenue; the revenue is not deprlved 0f the tax which is legitimately due to them, It is in that context; before proceeding "Cpup 34 Ultratech Cement Ltd; against the assessee, it Is necessary to find out whether the buyer has paid tax in accordance with the provisions of the Act ad only in the event the buyer has not paid the tax then the authorities can proceed against the assessee who was under the obligation to collect tax and remit to the Government: 7.3 On careful observation; it is clearly seen that the ratio laid down by the Hon 'ble Iat; Agra Bench; Agra and Hon'ble Karnataka High Court squarely applies to the facts in the case of the appellant: The details of all the persons from whom tax was required to be deducted at source are available &n record and with the Ld.AO, The permanent acount numbers (PANs) of such Parties are also available before the Id. AO. Respectfully following the decision of Hon'ble ITAT, Agra Bench, Agra &s well a5 Hon'ble Karnataka High Court; relief has to be granted to the appellant ad the demands raised u/s.201(1) and u/s.201(14) have to be deleted. 8 However a clear finding has already been given in Para 6,9 an the basis of the substantive provisions of the section 194C itself:. It has already been held that the appellant was never required to deduct any TDS as per 194C of the Act; In such facts; the action of the Id, AQ af raising the demand for tax Of Rs.,l,78,095/- Rs.57,84,468/-, Rs.69,27,997/ Rs.2,43,03,965/- & Rs,34,30,645/- Uls 201(1) of the Act for AY 2011-12, 2012-13, AY 2013-14, AY 2014-15 & A.y: 2015-16 respectively is held to be erroneous and is therefore directed to be deleted. These grounds are therefore allowed: 7 Against the above order,; Revenue is in appeal before US. 8 Upon considering the submissions of both the learned Caunsel and perusing the record, we find that the issue is covered in Favour of the assessee by the orders of the Tribunal as referred to above Further, the learned Commissioner (Appeals) has passed an elaborate order and we do not feel to interfere On our part; In this regard, we may refer to the decision of the Tribunal in Manikgarh Cement (supra), wherein the Tribunal held as under: - 15 Ultratech Cement Ltd, "12, We have carefully considered the submissions and perused the records. We find that Identical issue has been decided in favour Of the assessee by this Tribunal in the case Of M/s Raymond UCO Denim Pvt: Ltd. (supra) ad by Kolkata Tribunal in the case of Soma Rani Ghosh (supra) We may gainfully refer to the Tribunal's decision in these cases a5 under:- "Ms Ravmond_UCQ Qenim Pvt Ltd: