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Income Tax Appellate Tribunal, “A’’BENCH : BANGALORE
Before: SHRI B.R BASKARAN & SHRI PAVAN KUMAR GADALE
Per B.R. Baskaran,Accountant Member
The appeal filed by the assessee is directed against the order dated 31-07-2018 passed by Ld CIT(A)-3, Bengaluru and it relates to the assessment year 2015-16. The assessee is aggrieved by the decision of Ld CIT(A) in partially confirming the disallowance made by the AO u/s 40(a)(ia) of the Act.
The facts relating to the issue are set out in brief. The assessee has undertaken a transport contract for transportation of two wheelers from M/s Honda Motorcycle and Scooter India P Ltd and received a sum of Rs.15.57 crores during the year under consideration. For carrying out the transportation business, it had hired vehicles from a concern named M/s SFIC Logistics P Ltd and paid a sum of Rs.14.95 crores as transport charges. The assessee obtained Permanent Account Number (PAN) of M/s SFIC Logistics P Ltd and accordingly it did not deduct tax at source from the payments made to the above said company. The case of the assessee was that it is not required to deduct tax at source in terms of sec.194C(6) of the Act, if it obtains PAN of the payee. It is pertinent to note that the provisions of sec.194C(6) has undergone change from time to time. The applicable provision for the year under consideration reads as under:- “194C(6) No deduction shall be made for 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 the sum.”
The AO noticed that the expression “Goods Carriage” used is sec. 194C(6) of the Act, has been defined as under in the Explanation to sec.194C:- “Goods Carriage” shall have the meaning assigned to it in the explanation to sub-section (7) of section 44AE.” The AO noticed that the provisions of sec.44AE is a special provision for computing profits and gains of the persons engaged in the business of plying, hiring or leasing goods carriages, who own not more than ten goods carriage during the relevant previous year. Since section 44AE is referred to in sec.194C of the Act for understanding the meaning of “Goods Carriages”, the AO took the view that the provisions of sec.194C and sec.44AE should be read together and accordingly took the view that the provisions of sec.194C(6) shall apply only to those contractors who own and operate not more than ten goods carriages during the previous year. The AO noticed that M/s SFIC Logistics P Ltd has owned 167 heavy duty goods carriages and accordingly took the view that the assessee cannot take support of sec.194C(6) of the Act. Accordingly he took the view that the assessee should have deducted tax at source from the payments made to M/s SFIC Logistics P Ltd and since the assessee has failed to do so, the AO disallowed the transport charges payment of Rs.14.95 crores by invoking the provisions of sec.40(a)(ia) of the Act.
4. The Ld CIT(A) noticed that the provisions of sec.194C(6) extracted above was amended w.e.f. 01.10.2009 by Finance (No.2) Act 2009. The its scope of amendment was explained by the CBDT in Circular No.5 dated 03-06-2010 as under:- “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 to be required 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.” Based on the above said Circular, Ld CIT(A) also took the view that the provisions of sec.194C(6) shall apply only to those transport operators who are covered by the provisions of sec.44AE of the Act. The Ld CIT(A) also expressed the view that the provisions of sec.194C(6) shall apply only to individual owners of goods carriages, since the expression “his Permanent Account Number” is used in sec.194C(6) of the Act.
The Ld CIT(A) further noticed that the provisions of sec.194C(6) has been amended w.e.f. 1.6.2015 by Finance Act, 2015 restricting the applicability of this provision to those transport contractors who own not more than 10 goods carriages. The purpose of amendment was explained by the CBDT in its Circular No.19/2015 dated 27-11-2015 as under:-
43.2 The Finance (No.2) Act. 2009 substituted e:'!ion 194( of the Income-tax Act with effect from 1.10.2009, which inter alia provided to: non- deduction of tax from payments made to the contractor during the course of plying. hiring and leasing goods carriage if the contractor furnishes his Permanent Account Number (PAN) to the payer. The memorandum explaining the provisions of Finance (No.2) Bill, 2009 indicates that the intention was to exempt only small transport operators (as defined in section 44AE of the Act) from the purview of TDS on furnishing of Permanent Account Number (PAN). Thus. the intention was to reduce the compliance burden on the small transporters. However, the language of sub- section (6) of section 194C of the Income-tax Act did not convey (lie desired intention and as a result all transporters, irrespective of their size, were claiming exemption from TDS under the existing provisions o/sub-section (6) of section 194C of the Income-tax Act did not covey the desired intention and as a result all transporters, irrespective of their size, were claiming exemption from TDS under the existing provisions of sub- section (6) of section 194C of the Income-tax Act by furnishing their PAN.
43.3 As there is no rationale for exempting payment to all transporters, irrespective of their size, from the purview of TDS, the provisions of section ,'94C(6) of the Income-tax Act have been amended so as to expressly provide that the relaxation under sub-section (6) of section 194C of the Income-tax Act for non-deduction of/ax shall only be applicable to the payment in the nature of transport charges
(whether paid by a person engaged in the business of transport or otherwise) made to a contractor who is engaged in the business transport i.e. plying, hiring or leasing goods carriage and who is eligible to compute income as per the pro Visions of section 44.4E of the Income-tax Act (i.e a person who is not owning more that? 10 goods carriages at any time during the previous year) and who has also furnished a declaration to this c/fret along with his PAN. to the person paying such sum.
43.4 Further, this exemption from TDS is applicable only in respect of transport charges received by plying, hiring or leasing of goods carriages (s) owned by the transporter. There/ore, if a person receives payment in respect of plying, hiring or leasing of goods carriage (s) which are not owned by him, he shall not be entitled to claim exemption from TDS in respect of these payments.
43.5 The condition of not owning more than ten goods' carriages by the transporter is required to be fulfilled on the dale on which the amount is credited or paid whichever is earlier. In case a transporter does not own ten goods carriages on the date on which the amount is credited or paid but becomes owner of ten goods carriages later in the previous year, the payer shall not be required to deduct tax from the payment made to the transporter during the period of the previous year when he was not mining more than ten goods- carriages. However, the tax shall be required to be deducted from the payment made during that part of the previous year during which the transporter owned more thou ten goods carriages.”
Accordingly the Ld CIT(A) took the view that the amendment was made in sec.194C(6) by Finance Act, 2015 in order to remove ambiguity in the provision of sec. 194C(6). The Ld CIT(A) also took support of the decision rendered by Hon'ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai vs. M/s Dililp Kumar and Company & Ors (Civil Appeal No.3327 of 2007 dated July 30, 2018 – (2018-TIOL-302-SC-Cus-CB) to observe as under:- “….while discussion the issue of interpretation of exemption provisions, the Constitution bench of the Hon'ble Supreme Court held that a provision giving benefit to the assessee needs to be interpreted strictly and in case there is an ambiguity in the provision, which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the assessee and it must be interpreted in favour of the revenue.”
Accordingly, the Ld CIT(A) confirmed the disallowance made by the AO in principle. Before him, the assessee pointed out that the AO has made disallowance @ 100% of payments, while disallowance is required to be restricted to 30% of the payments as per sec.40(a)(ia) of the Act. Accordingly the Ld CIT(A) sustained disallowance to the extent of 30% of the payments, i.e., 30% of Rs.14.95 crores amounting to Rs.4.48 crores. Still aggrieved, the assessee has filed this appeal before the Tribunal.
We heard rival contentions and perused the record. We have noticed earlier that the relaxation provided from deduction of tax at source from the payments made to goods transport operators have been amended from time to time. Prior to amendment brought out by Finance Act (No.2) Act 2009, the relaxation was provided by way of proviso to sec. 194C(3), which reads as under:- “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 authorized by it such particulars as may be prescribed in such form and within such time as may be prescribed.”
The legislature brought amendment in sec. 194C of the Act w.e.f. 1.10.2009 through Finance (No.2) Act, 2009 by replacing then existing section with new section. The following sub-sections of new section 194C are relevant here: - “194C(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.
194C(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 authorized by it, such particulars, in such form and within such time as may be prescribed.”
As per Explanation (ii) “goods carriage” shall have the meaning assigned to it in the Explanation to sub-section (7) of section 44AE.”
Thereafter, Finance Act 2015 amended section 194C(6) w.e.f. 1.6.2015, by substituting words “on furnishing of” (highlighted above) with the following words:- “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”.
A careful perusal of the above said provisions as amended from time to time, following position emerges: -
(a) Up to 30.09.2009, tax at source need not be deducted from the payments made to the goods transport sub- contractor, if the payee is an individual who has not owned more than two goods carriages at any time during the previous year.
(b) From 1.10.2009 onwards and up to 31.5.2015, no deduction is required to be made from the payments made to the goods transport contractor, if he furnishes his Permanent Account Number to the person paying or crediting such sum. (It is pertinent to note that the Statute does not provide any restriction on the number of goods carriages to be owned by the “payee” and also there is no condition that the payee should be “individual”.)
(c) With effect from 1.6.2015, the restriction on the number of goods carriages to be owned by the payee has been brought into the Statute, i.e., the payee should own ten or less goods carriages at any time during the previous year and he should furnish his Permanent Account Number.
The year under consideration is assessment year 2015-16 and the corresponding previous year is 1.4.2014 to 31.3.2015. Hence the provision as amended by Finance (No.2) Act, 2009 shall apply. Hence position explained in clause (b) above shall apply. Accordingly, the payer is required to obtain “Permanent Account Number” only from the payee for paying the charges without deduction of TDS.
We have noticed earlier that the expression “goods carriage” used in sec.194C(6) shall have meaning as defined in sub-section (7) of section 44AE of the Act. The Explanation under sec.44AE(7) reads as under:- “Explanation - For the purposes of this section,-- (a) the expression “goods carriage” shall have the meaning assigned to it in section 2 of Motor Vehicles Act, 1988 (59 of 1988);
(b) an assessee, who is in possession of a goods carriage, whether taken on hire purchase or on instalments and for which the whole or part of the amount payable is still due, shall be deemed to be the owner of such goods carriage.” So far as section 194C is concerned, only the definition of “goods carriage” as given in sec.44AE is required to be considered. Hence the restriction placed under section 44AE of the Act on the number of vehicles, in our view, should not be invoked or applied for the purposes of sec.194C of the Act. The restriction so placed in section is applicable only to transport operators for computing profits and gains of business of plying, hiring or leasing goods carriages.
The Ld A.R placed his reliance on the decision rendered by Kolkatta bench of Tribunal in the case of Soma Rani Ghosh vs. DCIT (2016)(48 CCH 59). We notice that the Kolkatta bench of Tribunal has also considered an identical issue in the above said case and has expressed its view as under:- “24…… The Circular, while referring to the amendment in section 194C(6) made it plaintly clear that from the A.Y. 2010-11 onwards, by virtue thereof when Transport Operator 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 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.
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 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), makes it clear 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. 1-
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.”
In the instant case, there is no dispute with regard to the fact that the assessee herein has obtained PAN number of the payee. In view of the discussions made supra and following the decision rendered by the Kolkatta bench of Tribunal in the case of Soma Rani Ghosh (supra), we hold that the assessee is not required to deduct tax at source from the payments to made and hence the question of invoking the provisions of sec.40(a)(ia) does not arise in the facts and circumstances of the case.
The ld CIT(A) has also referred to sec.194C(7) of the Act, which required filing of a Statement of deduction of tax at source (Form 26Q) as per rule 31A(4)(vi) of Income tax Rules. Though the Ld CIT(A) did not discuss about the requirement of sec.194C(7), as he had rejected the benefit given u/s 194C(6) of the Act.
In the case of Soma Rani Ghosh (supra), the Kolkatta bench of Tribunal has also discussed about the effect of non-compliance of sec.194C(7) vis-à-vis sec.40(a)(ia) of the Act as under:-
“30. In CIT -vs.- Sri Marikamba Transport Co. in of 2013 reported in 39 ITR 129 (Karn.), Hon'ble Karnataka High Court has formulated a question as to whether non-filing of Form No. 151/i within the prescribed time is only a technical default or the provisions of section 40(a)(ia) of the Act are attracted? and proceeded to answer the same as under:-
“Section 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 -ray be sub-s.(2) shall be liable to deduct income-tax under this section:
Provided further that no deduction shall be made under subs. (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 subcontractor referred to in the second proviso shall furnish to the prescribed IT authority or the person authorized by it such particulars as may be prescribed in such form and within such time as may be prescribed: or (ii) any sum credited or paid before the 1st day of June, 1972; or (iii) any sum credited or paid before the 1st day of June, 1973, in pursuance of a contract between the contractor and a co-operative 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 co-operative society.
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. iS! 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.15]. It is only a technical defect as pointed out by the Tribunal in not filing
Form No.15J by the assessee. This matter was extensively considered by the ITAT, Ahmedabad Bench in Valibhai Khanbhai Mankad's case (supra) and the said Judgment has been upheld by the High Court of Gujarat reported 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 t: deduct tax at source would cease and accordingly, application of Section 40(a)(i 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.151/j is only directory and no: mandatory."
A Coordinate Bench of this Tribunal in in the case of ITO - /vs.- Kolli Brothers, order dated 11.12.2013 followed the decision of the Hon'ble Hiç Court of Gujarat in the case of Valibhai Khanbhai Mankad (supra). In the case of M/s Maha!axmi Cargo Movers -vs.- ITO in ITA No. 6191/MUM/2013, order date: 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.- ValibKhanbhai Mankad (supra) and CIT -vs.- Sri Marikamba Transport Co. in ITA No. 553: 2013 reported in 379 ITR 129 (Karn.).
It is worth noticing that in ACIT -vs.- Mr. Mohammed Suhail, Kurnool in ITA No. 1536.Hyd/2014, order dated
13.02.2015, the Coordinate Bench of this Tribunal specifically held that the provisions of section 194C(6) are independent of section 194C(7), and just because there is violation of provisions of section 194C (7), disallowance under section 40(a)(ia) does not arise if the assessee complies with the provisions of section 194C(6).
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.
The Ld CIT(A) has also referred to the decision rendered by Hon'ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai vs. M/s Dilip Kumar and Company & Or (Civil Appeal No.3327 of 2007 dated July 30, 2018)(2018-TIOL-302-SC- Cus-CB). The above said decision was rendered by Hon'ble Supreme Court in the context of Penalty provisions, where as, in the instant case, the issue is about interpretation of provisions of sec.194C of the Act as applicable to the year under consideration. Hence we are of the view that the revenue cannot take support of the decision rendered by Hon'ble Supreme Court, referred above.
In view of the foregoing discussions, we set aside the order passed by Ld CIT(A) and direct the AO to delete the disallowance made u/s 40(a)(ia) of the Act.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 27th November, 2019.