ARYA ROADWAYS CO.PVT. LTD.,,KOLKATA vs. ITO, WARD - 3(3), KOLKATA [NEW ITO, WARD - 12(1), KOLKATA], KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “B” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “B” KOLKATA Before Shri S.S.Godara, Judicial Member and Shri, M. Balaganesh, Accountant Member ITA No.1454/Kol/2017 Assessment Year :2010-11 Arya Roadways Co Pvt V/s. ITO Ward-3(3), [New Ltd., Tivoli Court, Block-B, ITO Ward-12(1)] Aayakar Bhavana, 7th Flat-93, 1C, Ballygunge Circular Road, Floor, P-7, Chowringhee Kolkata-700 019 Square, Kolkata-69 [PAN No.AAECA 9139 M] .. अपीलाथ� /Appellant ��यथ�/Respondent Shri Brijesh Kr. Singh, Advocate अपीलाथ� क� ओर से/By Appellant Shri A.K. Singh, CIT-DR ��यथ� क� ओर से/By Respondent 06-12-2018 सुनवाई क� तार�ख/Date of Hearing 26-12-2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- This assessee’s appeal for assessment year 2010-11 arises against the Commissioner of Income Tax (Appeals)-15, Kolkata’s order dated 21.02.2017 passed in case No.385/CIT(A)-15/15-16/3(3)/R&T/Kol involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the sides. 2. The assessee has raised two substantive grounds in the instant appeal. It firstly seeks to reverse both the lower authorities’ action disallowing / adding its freight charges of ₹11,68,46,218/- as well as loading / unloading charges of ₹10,87,385/- paid to various parties on

ITA No.1454/Kol/2017 Assessment Year 2010-11 Arya Roadways Co Pvt Ltd Vs. ITO Wd-12(1) Kol. Page 2 account of non-deduction of TDS. The CIT(A)’s detailed discussion qua both these two issues read as under:- “3.1 Grounds of appeal No.1: Assessee is into transport and handling services. It has paid lorry hire charges to several parties but tax was not deducted at sources. Finance Act, 2009, w.e.f. 01.10.2009, clarified that assessee need not deduct tax at source on payments to transporters, if payees had furnished PAN.As assessee had collected PAN of the payees, AO held that it was not liable to deduct TDS on payment made after 01.10.2009. However, on payments made during 01.04.2009 and 30.09.2009, assessee was required to deduct tax at source. As assessee has failed to deduct TDS on payments to four transporters, AO has invoked the provision of section 40(a)(ia). These four transporters are: Sl.No. Name Quantum of freight charges paid without TDS (in Rs) 1 Jai Gopal 5,16,67,761.00 Pariwaahan 2 Cargo Liners Pvt Ltd 2,99,34,500.00 3 Jagannath 2,30,45,272.00 Enterprise 4 R.M. logistics 1,21,98,685.00 Invoking the provision of section 40(a)(ia) AO has disallowed Rs.11,68,46,218/-. In appeal proceedings, AR has submitted Form 26A (under rule 31ACB) from Chartered Accountant and has claimed that all the four payees have included the receipt from assessee in their return of income and paid taxes. Although AR has not specifically mentioned anything, but it intended to file certificate of the Chartered Accountant in compliance of conditions laid down in second proviso to section 40(a)(ia). Further it has been held by several Courts/Tribunals that if payees comply with conditions laid down in first proviso to section 201(1), then assessee would not be held to be in default for section 40(a)(ia). Now let us take a look at these provisions: Section 201(1) along with first proviso reads as under:- Where any person, including the principal officer of a company,- (a) Who is required to deduct any sum in accordance with the provision of this Act; or (b) Referred to in sub-section (1A) of section 192, being an employer. does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: [Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provision of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- (i) Has furnished his return of income under section139;

ITA No.1454/Kol/2017 Assessment Year 2010-11 Arya Roadways Co Pvt Ltd Vs. ITO Wd-12(1) Kol. Page 3 (ii) Has taken into account such sum for computing income in such return of income; and (iii) Has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed:] Provided [further] … … … Thus perusal of section 201(1), alongwith first proviso, makes it clear that assessee would be deemed to have deducted and paid the tax on sums paid, on the date of furnishing of return of income by the resident payee. Perusal of the certificates of Chartered Accountant inform 26A shows that Jai Gopal pariwahan Pvt. Ltd., Cargo Liners Pvt Ltd and Jagannath Enterprise (Prop: Anirudha Mondal) have not filed any return of income. Hence, conditions laid down in first proviso to section 201(1) are not fully satisfied. Hence, disallowance made u/s.40(a)(ia) by AO ae justified in respect of payments made to these 3 parties. Now coming to the 4th party, it was noticed that R.M. Logistics is a proprietory concern of Saswata Nayak. In Form 26A, it was mentioned that this party had filed return of income on 31.03.2011. Appellant had also submitted a copy of the acknowledgement of the return filed. However, on verification, AO informed that no return was filed. Assessing Officer's report was forwarded to assessee. In response AR appeared on 20.02.2017 and explained that return was filed online but verification (ITRV) was not forwarded. Now this party has forwarded the ITRV with a request to condone the delay in sending ITRV. In my opinion, online return filing is complete only when verification regarding filing of online return is sent to CPC, in the Form of ITRV. Non-receipt of ITRV makes the online return non-est. Thus R.M. Logistics (Prop: Saswata Nayak), in effect, has not filed any return and situation in his case is also like the other 3 payees. Hence, payments made to this party are also rightly disallowed u/s.40(a)(a) and the same is upheld. Without prejudice to the above, even if it is presumed that return filed on 31.033.2011 is valid, then also assessee would not be entitled for relief as this return is filed beyond the due date mentioned in section 139(1). Further second proviso to section 40(a)(ia)reads as under:- 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 XVII-Band such tax has not been deducted or, after deduction, [has not been paid on or before the due date specified in sub-section(1) of section 139;] [Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139 such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid:]

ITA No.1454/Kol/2017 Assessment Year 2010-11 Arya Roadways Co Pvt Ltd Vs. ITO Wd-12(1) Kol. Page 4 [Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provision of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.] Second proviso to section 40(a)(ia) mentions that it shall be deemed that the assessee has deducted and paid tax on the date of furnishing of return by the resident payee. This 4th payee has filed his return beyond the due date. Hence, assessee would be deemed to have deducted and paid tax at source beyond the due date of filing the return. In such a situation first proviso to section 40(a)(ia) mentions that deduction would be allowed to the assessee in computing the income of the previous year in which tax has been paid. As is apparent from the above, assessee would not be allowed deduction in the current year. In view of the above, disallowance of Rs.211,68,46,218/- is confirmed. 3.2 Grounds of appeal No.2: Assessee had paid Rs.11,06,113/- as ‘carriage, loading & unloading’ charges. However, on payments made to following 4 parties (same as those mentioned in para 3.1), tax was not deducted at source, as per the provision of section 194C: Sl.No. Name Quantum of freight charges paid without TDS (in Rs) 1 Jai Gopal 3,30,387.00 Pariwaahan 2 Cargo Liners Pvt Ltd 5,16,102.00 3 Jagannath 1,28,287.00 Enterprise 4 R.M. logistics 1,12,609.00 Total 10,87,385.00 Hence, invoking the provisions of section 40(a)(ia), AO has disallowed Rs.10,87,385/-. Issue involved here is same as in para 3.1. Hence, for reasons mentioned therein, disallowance of Rs.10,87,385/- are confirmed.”

ITA No.1454/Kol/2017 Assessment Year 2010-11 Arya Roadways Co Pvt Ltd Vs. ITO Wd-12(1) Kol. Page 5 deduction of TDS. Learned CIT-DR vehemently contends during the course of hearing that the assessee has made the impugned payments u/s 194C of the Act as contractual expenses & therefore, it ought to have deducted mandatory TDS thereupon. He strongly supports both the lower authorities’ action invoking the impugned disallowance. We find no reason to concur with Revenue’s above vehement contentions. The CIT(A)’s above extracted detailed reasoning makes it clear that he has nowhere concluded that the assessee’s payees had ever made themselves liable for its freight or loading / unloading responsibilites nor there is any material on record indicating the assessee to have passed on any of its contractual liability to the four payees thereby treating them as sub-contractors inviting sec. 194C TDS deduction. This tribunal’s co- ordinate bench’s decision in Bhail Bulk Carriers vs ITO in ITA No. 3536/Mum/2011 decided on 07.03.2012 has declined Revenue’s similar arguments in case of freight payments as follows:- "8. We have heard the parties at length and also gone through the findings of the authorities below and the case laws as have been referred in the appellate order as well as relied upon by the learned counsel. The relevant facts for adjudication of the issue are that the appellant is carrying out the business of transportation of oil through tankers. It entered into a contract with various companies (here mainly BPCL) for transporting the oils to various destinations as per the agreement entered into by the said company. The appellant was solely responsible for executing the contract on behalf of its principal. For fulfilling its transportation commitment, the appellant besides using its own tankers was also hiring the tankers from outside parties as and when required. In such a case of hiring from outside, the responsibility of successful completion of transportation work rested upon the appellant. From the record or the findings of the authorities below no where it is borne out that there was any kind of written or oral contract with the principals by such outside tank owners that they will share the risk and responsibility with the appellant. 8.1 At this stage, it is not in dispute that the department's case is that in the present case provisions of section 194C(1) are applicable and not section 194C(2). Once it is held that it is a case of 194C(1) then it would be sent that this section applies to any payment made to a person for carrying out any work in pursuance of a contract ITA No.2023/Kol/2016 Bajaj Roadways A.Y.2005-06 4 between the contractor and the person making the payment. If the condition of "carrying out any work in pursuance of a contract" is not fulfilled then

ITA No.1454/Kol/2017 Assessment Year 2010-11 Arya Roadways Co Pvt Ltd Vs. ITO Wd-12(1) Kol. Page 6 the provisions of this section will not be applicable at all. Here in this case, the contract for carrying out the work was between the BPCL and the appellant. The appellant alone had risk and responsibility for carrying out the contract work as per the agreement entered into by it with its principal i.e. BPCL. There is no material on record to suggest that there was any contract or ITA No : 3536/Mum/2011 M/s. Bhail Bulk Carriers sub-contract whether written or oral with the outside tank owners and the appellant, whereby the risk and responsibility which is associated with a contract has also been passed on to these outside parties. Once the CIT(Appeals) has accepted the fact that the outside tank owners do not had any responsibility or liability towards the principal, then it cannot be held that these outside parties were privity to the contract between the appellant and its principal. Thus the payment made to the outside parties do not come or fall within the purview of section 194C, as the "carrying out any work" indicates doing something to conduct the work in pursuance of contract and here in this case, it was solely between appellant and its principal. 8.2 The judgment of Hon'ble Madras High Court in the case of CIT vs. Pompuhar Shipping Corporation Ltd. (supra) also fortifies the case of the appellant. In this case the assessee which was a Tamil Nadu Government undertaking was engaged in the business of transportation of coal from the ports of Haldia, Visakhapatnam and Paradeep to Chennai and Tuticorin under contracts executed with the Tamil Nadu Electricity Board. The assessee owned three ships. Since three ships were not sufficient to carry out the contracts entered into with Tamil Nadu, the assessee hired ships belonging to other shipping companies and paid hire shipping charges for using the ships. The assessee, however, did not deducted tax under section 194C before the making payment of hire charges to the shipping companies. The Assessing Officer directed the assessee to pay tax u/s.201(1) and levied interest u/s.201(1A) on the ground that TDS should have been deducted u/s.194C of the Act. On the these facts, the Hon'ble High Court observed and held as under :- "We heard the arguments of learned counsel. Under section 194C, the tax is to be deducted when a contract was entered into for carrying out any work in pursuance of a contract ITA No : 3536/Mum/2011 M/s. Bhail Bulk Carriers between the contractor and the entities mentioned in sub-section (1) of section 194C. In the present case, there was no contract between the assessee and the shipping companies to carry out any work. On the other hand, the assessee-company hired the ships belonging to other shipping companies for a fixed period on payment of hire charges. The hired ships were utilised by the assessee in the business of carrying the goods from one place to another in pursuance of an agreement entered into between the assessee and the Tamil Nadu Electricity Board. There was no agreement for carrying out any work or transport any goods from one place to another between the assessee and the other

ITA No.1454/Kol/2017 Assessment Year 2010-11 Arya Roadways Co Pvt Ltd Vs. ITO Wd-12(1) Kol. Page 7 shipping companies. The assessee- company simply hired the ships on payment of hire charges and it was utilised in the business of the assessee at their own discretion. It is not the case of the Revenue that the assessee entered into the said contract with the shipping company for transport ITA No.2023/Kol/2016 Bajaj Roadways A.Y.2005-06 5 of coal from one place to another. The hiring of ships for the purpose of using the same in the assessee's business would not amount to a contract for carrying out any work as contemplated in section 194C. The term "hire" is not defined in the Income- tax Act. So, we have to take the normal meaning of the word "hire". Normal hire is a contract by which one gives to another temporary possession and use of the property other than money for payment of compensation and the latter agrees to return the property after the expiry of the agreed period. Therefore, in our view, when the assessee entered into a contract for the purpose of taking temporary possession of ships in the shipping company it could not be construed as if the assessee entered into any contract for carrying out any work, and when the contract is not for carrying out any work, the Revenue cannot insist the assessee ought to have deducted tax at source under section 194C of the Act. Further, the other argument of counsel was, section 194C was amended with effect from July 1, 1995, incorporating the Explanation and the said Explanation clarifies the existing provision of section 194C of the Act. Hence, it would be applicable retrospectively. We are concerned with the assessment year 1994-95. In a recent judgment, the Supreme Court in the case of Sedco Forex International Drill Inc. v. CIT [2005] 279 ITR 310, considering the scope of the Explanation, held that there is no principle of interpretation which would justify reading the Explanation as operating retrospectively, when the Explanation comes into force with effect from a future date. In this case, the Explanation introduced is with effect from July 1, 1995. Hence it will be applicable only for the future assessment orders and it ITA No : 3536/Mum/2011 M/s. Bhail Bulk Carriers will not be applicable to the assessment year in consideration. The Tribunal also considered the fact that the shipping companies which received the hire charges are also income-tax assessees and they had shown the hire charges in their respective income- tax returns and paid the taxes on the same. The said fact was also not disputed by the Revenue. So, we are of the view that the payment of hire charges for taking temporary possession of the ships by the assessee-company would not fall within the provision of section 194C and hence no tax is required to be deducted, and there is no error or infirmity in the order of the lower authorities. Hence, no substantial question of law arises for consideration of this court. Hence, we dismiss the above tax case. No costs. Consequently, the connected TCMP No. 1253 of 2005 is closed.

ITA No.1454/Kol/2017 Assessment Year 2010-11 Arya Roadways Co Pvt Ltd Vs. ITO Wd-12(1) Kol. Page 8 8.4 Thus in view of the findings given above and the law laid down by the Hon'ble High Court as above, we are of the considered opinion that the appellant was not liable to deduct TDS u/s. 194C(1) for payments made to the outside parties and consequently the disallowance made u/s.40(a)(ia) by the authorities below are deleted. The appellant thus gets relief of Rs.56,03,210/-." 4. We adopt the above detailed reasoning mutatis mutandis to conclude that both the lower authorities have erred in invoking the two disallowance(s) under challenge u/s 40(a)(ia) of the Act. The same are accordingly deleted. The assessee’s two substantive grounds are accepted. 5. This assessee’s appeal is allowed. Order pronounced in the open court 26/12/2018 Sd/- Sd/- (लेखा सद%य) (�या'यक सद%य) (M.Balaganesh) (S.S.Godara) (Accountant Member) (Judicial Member) Kolkata, *Dkp, Sr.P.S (दनांकः- 26/12/2018 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-Arya Roadways Co Pvt Ltd., Tivoli Court, Block-B, Flat-93, 1C, Ballygunge Circular Road, Kolkata-19 2. ��यथ�/Respondent-ITO Ward-12(1), Aayakar Bhavan,7th Fl, P-7, Chowringhee Sq. Kol-69 3. संबं3धत आयकर आयु4त / Concerned CIT Kolkata 4. आयकर आयु4त- अपील / CIT (A) Kolkata 5. 7वभागीय �'त'न3ध, आयकर अपील�य अ3धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड< फाइल / Guard file. By order/आदेश से, /True Copy/ उप/सहायक पंजीकार आयकर अपील�य अ3धकरण, कोलकाता ।