Anil Transport Co., Siliguri vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH "B", KOLKATA

[Before Hon'ble Sri P.K.Bansal, AM & Hon'ble Sri Mahavir Singh, JM] ITA No.889/Kol/2010 Assessment Year : 2007-08 (APPELLANT ) - (RESPONDENT) M/s. Anil Transport Co. I.T.O., Ward-1(1), Siliguri -versus- Siliguri (PAN:AAEFA 4835 D)

For the Appellant : Shri S.M.Surana, Advocate For the Respondent : Shri Kalyan Nath, JCIT, Sr.DR

Date of Hearing : 18.05.2015 Date of Pronouncement : 20.05.2015.

ORDER

Per Shri P.K.Bansal, AM

This appeal has been filed by the assessee against the order of ld. CIT(A)- Siliguri dated 30.03.2010 for A.Yr. 2007-08.

2. The only issue involved in this appeal relates to the disallowance of Rs.1,19,73,166/- disallowed by applying the provision of section 40(a)(ia) of the Act.

3. The brief facts of the case are that the assessee firm earned income from supplying of oil tankers to M/s. BPCL and other Oil Companies. AO noted that the assessee has shown the cost of transport expenses at Rs.1,26,77,566/- to the following parties which included the payment made to the partners and also to the husband of one partner who has provided oil tankers to the firm.

1. B.Nandy (WB-19A-0641) : 3,54,218.00

2. Manan Roy (WB-69-0736) : 2,76,915.00

3. Tapan & Apuba Saha (NL-01-2066) 3,59,121.00

4. Tapan Saha (WB-73-2135) : 3,55,832.00

5. Subhas Kundu (WB-71-2363) : 1,01,751.00

6. Paritosh Ghosh (WB-73-3289) : 3,74,904.00

7. Upendra Sah (WB-73-5330) : 3,52,765.00

8. Gita Gupta (WB-73A-5776) : 3,57,324.02

9. WB 59-7179 : 8,90,162.73

10.D.Toy (WB-73A-7181) : 6,07,140.09

11. Rajesh Gupta(WB-73/7724) : 3,47,076.63 ITA No.889/Kol/2010 2 M/s. Anil Transport Co.

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12. O.P.Agarwal(WB-65-8006) : 5,87,681.02

13. O.P.Agarwal (WB-65/8008) : 4,39,146.04

14. S.Saha (WB-59-7175) : 14,70,089.12 B. N.C.Ghosh 13,94,895.00 C. Kanan Ghosh : 15,45,324.00 D.Sikha Sen : 19,26,125.00 E. Other Tankers : 9,37,091.12 Total : 1,26,77,566.10

3.1. The assessee did not deduct TDS except the payment of Rs.3,57,324/- and Rs.3,47,076/- made to Smt. Gita Sharma and Shri Rajesh Gupta respectively. The assessee went in appeal before ld. CIT(A). CIT(A) rejected the plea of the assessee that the assessee was an agent of the tanker owners and held "that the assessee engaged those tanker owners including the tankers of the partners and their family members for carrying the oil of M/s. BPCL and the same were contractual payments because of the following reasons.

Firstly it is found from the proforma agreement that the assessee had to furnish list of the oil tankers to the transport company. The tanker owners were not entitled to work under any agreement with any other party. The tankers shall remain under exclusive use with the BPCL throughout the contract period. Each of the tanker would be attached to a particular storage point of the oil company. The tankers mentioned in the agreement would be made available to the oil company at all times during the agreement period. The tankers covered by this Agreement shall operate at the sole risk of the Carrier. In no case, Oil company would be held responsible for any loss or damage done to the tank lorry while on the Company's work or parked in their premises. These terms and conditions made it clear that once a tanker is enrolled, it works under the control of the assesse vis-à-vis, the oil company.

Secondly, the particulars of the tankers, as given the assessment order, clearly indicates that only those tankers were used frequently by the assessee. They lost their right to work with any other company once their names are enrolled with the BPCL. In view of the above fact, it is held that the assesse, as a Carrier, used those tankers for transportation of oil and payments made to the tanker owners were on contractual basis. There may not be any written contract but no doubt, it is an implied contract and the assessee was liable to deduct tax on the payments made to them. But without ITA No.889/Kol/2010 3 M/s. Anil Transport Co.

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doing so, assessee made the payments. Therefore, the assessee has vio0lated the provisions of Sec.40(a)(ia) of the Act. Therefore, the expenses incurred by the assessee are not allowable." Accordingly ld. CIT(A) sustained the order of AO.

4. We have heard the rival submissions and carefully considered the same along with the order of the tax authorities below. Before us the ld. AR relied upon the decisions of Mumbai Bench in the case of M/s. Bhail Bulk Carriers vs ITO in ITA No.3536/Mum/2011 and that of Agra Benches, Agra in the case of Vipin Arora, Gwalior vs DIT for the proposition of law that there must be contract between the parties and since in the case of the assessee there was no written contract. Therefore the assessee was not liable to deduct TDS. The other plea taken by the ld. AR that the assessee was simply receiving commission and as per the agreement with M/s.BPCL the asseesee cannot hire trucks of the other parties. The trucks were in absolute possession and they were not being used by those parties except being used as per the transport contract awarded by M/s. BPCL in favour of M/s. Anil Transport Company. In this regard our attention was also drawn towards the affidavit filed by the oil tankers. The details of the payments to the tank owners and the bill raised by the assessee which are available at pages 92 to 95 of the paper book. We do not agree with the plea of the ld. AR. As in our opinion the issue involved is squarely covered by the decision of this Bench in ITA NO.296/Kol/2012 in the case of DCIT vs M/s.Five Star Shipping Agency Pvt. Ltd. of even date the Tribunal has taken a view that there need not be written contract and the contract can be derived from the conduct of the parties. The relevant portion are reproduced herein below :-

"6. We ha ve heard the rival submissions and carefully consid ered the same a long with th e ord er o f the tax authorities b elow. The provisions of section 40(a)(ia) are ver y clear if th e assessee fa ils to deduct the tax at source or after deduction has no t paid before the due date specified in sub-section (1) of section 139, the sa me will not be allowed in computing the income under th e h ead "profit and gains of business or profession". The con tention of th e assess ee, howev er, is that the p rovisions of section 194C a re not app licable on the fa cts as there is no agreement or contra ct b etween the assessee and the persons from whom the trucks have been hired. The provision of section 194C lays down a s un der:-

"194C - Payments to contractors.

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(1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to--

(i)one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family;

(ii)two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein.

(2) Where any sum referred to in sub-section (1) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

(3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source--

(i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or

(ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice. (4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.

(5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed 17[thirty] 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 18[seventy-five] thousand rupees, the person responsible for paying such

sums referred to in sub-section (1) shall be liable to deduct income-tax under this section.

(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.

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(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 authorised by it, such particulars, in such form and within such time as may be prescribed.

Explanation.--For the purposes of this section,--

(i)"specified person" shall mean,--

(a) the Central Government or any State Government; or

(b) any local authority; or

(c) any corporation established by or under a Central, State or Provincial Act; or

(d) any company; or

(e) any co-operative society; or

(f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or

(g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or

(h) any trust; or

(i) any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or

(j) any Government of a foreign State or a foreign enterprise or any association or body established outside India; or

(k) any firm; or

(l) any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person,--

(A) does not fall under any of the preceding sub- clauses; and (B) is liable to audit of accounts under clause (a)

or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor;

(ii)"goods carriage" shall have the meaning assigned to it in the Explanation to sub-section (7) of section 44AE;

(iii)"contract" shall include sub-contract;

(iv)"work" shall include--

(a) advertising;

(b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting;

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(c) carriage of goods or passengers by any mode of transport other than by railways;

(d) catering;

(e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer."]

7. A plain reading of this S ection makes it clear that "any person re sp onsib le for paying any sum to any residen t (he reafter in this se ction refer red to a s th e contractor) for carrying out any work (including su pply of labo ur for carrying out any work ) in pursuance of a contract between the contracto r and a sp ecified person" is required to d educt tax at source und er section from the amoun ts so paid or payab le. Th ere is no doubt tha t th e assessee in this case has made th e payments as tra nsporta tion charg es in th e nature o f h iring charges for good s ca rried vehicles. The ma in con tention of the ass es se e is, however, th at the payments have not b een made in pursu ance of a contract betwe en the assessee a nd the transporter s. Now the question arises before us, whether there i s contractua l relation ship between the assesse e and the persons to whom the a sses se e had made the pa yments in the natu re of hiring charges fo r goods carried vehicles. In ou r opinion, a contract need not be in writing ; even an o ral contract is good enough to invo ke the provisions of Section 194 C. As Hon'b le Ka rnataka High Court has observed in th e case of Smt J Ra ma Vs CIT (23 6 CTR 105), "Law does not stipula te the existence o f a written con tract as a condition precedent for ( invoking the pro visions of Section 194 C wi th respect to ) payment o f TDS".

The transpo rters have received th e payments from the assessee to wa rds the transportation charg es, therefore, the presumption normally be that one would p roceed on th e basis that there wa s a con tract fo r hiring of good s ca rried vehicles. Therefor e, if the assess ee has mad e th e payment fo r hiring th e good s ca rried vehicle s, the provisions of section 194C are clearly app licable. In our opinion, the ld. CIT(App eals) was n ot correct in la w that the assessee will be liable to deduct the TDS if the amount o f a single co ntract exc eeds R s.2 0,000 /-. The co ntra ct h as to b e looked in to pa rty-wis e not on the basis o f the individual GR. In our opinion, all the payments made to a tru ck owner through out the year are to be aggregated to a scertain the app licability of the TDS provision as all the pa yments pertain to a contract. Contract need not be in writing. It may infer fro m the co nduct of the pa rties. It ma y be oral also . Our aforesaid view is duly supported by the decision of ITAT, 'A' Ben ch, Kolkata in the case of DCIT -vs.- Ka mal Kr. Mukh erjee & Co. in ITA No. 199/Kol/2010 .

We also noted that under section 194 C, su b-section (5) proviso th ereto, the agg regate a mount of all the payments or credited should exceed only Rs.50,000 /-, then the asses se e shall be liable to deduct income-tax a t sou rce.

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8. In view of our above discussion, the o rder o f th e ld. CIT(App eals) h as to be reversed. But before us, the ld. A.R. ha s taken a su bmission that the 2 n d proviso to sec tion 40(a)(ia) as in sert ed by Finance Act, 2012 would apply in the case of the a sses see. According to him, 2 n d proviso is cu rative in nature intend ed to supply an obvious omission, take care of an unin tended consequence and make the section workable. Section 40(a)(ia) withou t the second proviso resulted in the unintended consequence of d isallowan ce of legitimate business expen diture even in a case wh ere the pa yee in receipt of th e income had paid ta x, and , th erefore, he took the plea that the second proviso although inserted w.e.f. 1 s t Ap ril, 2013 bu t being curative in nature as ret ro spective effe ct and a cco rdin gly conten ded that the issue be restored to the file of th e Asses sin g Officer so tha t the asses see ca n pro vide a ll the d etails in terms of the second proviso to section 40(a)(ia)."

4.1. However we find force in the contention of the AR that the matter be send back to the AO as the second proviso to section 40 (a)(ia) of the Act inserted b y the Fin ance Act 2 012 w.e.f. 01 .04.2012 wou ld apply in the case of th e assessee. We note that these submissions of the AR ar e duly covered b y the decision of SMC Bench of this Tr ibunal in ITA No.1905/Kol/2014 for A.Yr.2007-08 in which this Tribunal vide o rder dated 04.03.2015 has h eld as under :-

"5. I have heard rival contentions and gone through the facts and circumstances of the case. I find from first argument made by Ld. counsel for the assessee that the second proviso to section 40(a)(ia) of the Act inserted by the Finance Act, 2012 would apply in the instant case. According to him, the second proviso is curative in nature intended to supply an obvious omission, take care of an unintended consequence and make the section workable. Section 40(a)(ia) without the second proviso resulted in the unintended consequence of disallowance of legitimate business expenditure even in a case where the payee in receipt of the income had paid tax. According to him, it has for long been the legal position that if the payee has paid tax on his income, no recovery of any tax can be made from the person who had failed to deduct the income tax at source from such amount. In Grindlays Bank v CIT, (1992) 193 ITR 457 (Cal) decided on September 5, 1989, it was held by the Hon'ble Calcutta High Court as follows at pages 469-470 of the reports:

"A point has been made by the assessee that as a result of this deduction the department is realizing the tax twice on the same income. It does not appear that this point was agitated before the Tribunal. We, however, make it clear that if the amount of tax has already been realised from the employees concerned directly, there cannot be any question of further realisation of tax as the same income cannot be taxed twice. If the tax has been realised once, it cannot be realised once again, but that does not mean ITA No.889/Kol/2010 8 M/s. Anil Transport Co.

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that the assessee will not be liable for payment of interest or any other legal consequence for their failure to deduct or to pay tax in accordance with law to the revenue." (emphasis supplied)

That such was the legal position was accepted by the Central Board of Direct Taxes in its Circular No.275/201/95-IT(B) dated January 29, 1997. Reference in this behalf may also be made to the judgment of the Hon'ble Supreme Court in Hindustan Coca Cola Beverage P. Ltd. v CIT, (2007) 293 ITR 226 (SC) where the same view was taken. I find that the aforesaid settled position in law has also been legislatively recognized by insertion of a proviso in sub-section (1) of section 201 of the Act by the Finance Act, 2012. Thus, the settled position in law is that if the deductee/payee has paid the tax, no recovery can be made from the person responsible for paying of income from which he failed to deduct tax at source. In a case where the deductee/payee has paid the tax on such income, the person responsible for paying the income is no longer required to deduct or deposit any tax at source. In the similar circumstances, I find that the first proviso to section 40(a)(ia) inserted by the Finance Act, 2010, which has been held to be curative and therefore, retrospective in its operation by the Hon'ble Calcutta High Court in ITAT No. 302 of 2011, GA 3200/2011, CIT v Virgin Creations decided on November 23, 2011 provides for allowance of the expenditure in any subsequent year in which tax has been deducted and deposited. The intention of the legislature clearly is not to disallow legitimate business expenditure. The allowance of such expenditure is sought to be made subject to deduction and payment of tax at source. However, in a case where the deductee/payee has paid tax and as such the person responsible for paying is no longer required to deduct or pay any tax, legitimate business expenditure would stand disallowed since the situation contemplated by the first proviso viz. deduction and payment of tax in a subsequent year would never come about. Such unintended consequence has been sought to be taken care of by the second proviso inserted in section 40(a)(ia) by the Finance Act, 2012. There can be no doubt that the second proviso was inserted to supply an obvious omission and make the section workable. The insertion of second proviso was explained by Memorandum Explaining The provision in Finance Bill, 2012, reported in 342 ITR (Statutes)234 at 260 & 261, which reads as under:-

"E.RATIONALIZATION OF TAX DEDUCTION AT SOURCE (TDS) AND TAX COLLECTION AT SOURCE (TCS) PROVISIONS I. Deemed date of payment of tax by the resident payee. Under the existing provisions of Chapter XVII-B of the Income-tax Act, a person is required to deduct tax on certain specified payments at the specified rates if the payment exceeds specified threshold. In case of non- deduction of tax in accordance with the provisions of this Chapter, he is deemed to be an assessee in default under section 201(1) in respect of the amount of such non-deduction. However, section 191 of the Act provides that a person shall be deemed to be assessee in default in respect of non/short deduction of tax only in cases where the payee has also failed to pay the tax directly. Therefore, the deductor cannot be treated as assessee in ITA No.889/Kol/2010 9 M/s. Anil Transport Co.

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default in respect of non/short deduction of tax if the payee has discharged his tax liability.

The payer is liable to pay interest under section 201(1A) on the amount of non/short deduction of tax from the date on which such tax was deductible to the date on which the payee has discharged his tax liability directly.

As there is no one-to-one correlation between the tax to be deducted by the payer and the tax paid by the payee, there is lack of clarity as to when it can be said that payer has paid the taxes directly. Also, there is no clarity on the issue of the cut-off date, i.e., the date on which it can be said that the payee has discharged his tax liability.

In order to provide clarity regarding discharge of tax liability by the resident payee on payment of any sum received by him without deduction of tax, it proposed to amend section 201 to provide that the payer who fails to deduct the whole or any part of the tax on the payment made to a resident payee shall not be deemed to be an assessee in dealt in respect of such tax if such resident payee-

(i) Has furnished his return of income under section 139 ;

(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 payer furnishes a certificate to this effect from an accountant in such form as may e prescribed.

The date of payment of taxes by the resident payee shall be deemed to be the date on which return has been furnished by the payer.

It is also proposed to provide that where the payer fails to deduct the whole or any part of the tax on the payment made to a resident and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the such resident, the interest under section 201(1A)(i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident payee.

Amendments on similar lines are also proposed to be made in the provisions of section 206C relating to TCS for clarifying the deemed date of discharge of tax liability by the buyer or licensee or lessee.

These amendments will take effect from 1st July, 2012. II. Disallowance of business expenditure on account of non-deduction of tax on payment to resident payee.

A related issue to the above is the disallowance under section 40(a)(ia) of certain business expenditure like interest, commission, brokerage, ITA No.889/Kol/2010 10 M/s. Anil Transport Co.

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professional fee, etc. due to non-deduction of tax. It has been provided that in case the tax is deducted in subsequent previous year, the expenditure shall be allowed in that subsequent previous year of deduction

In order to rationalize the provisions of disallowance on account of non- deduction of tax from the payments made to a resident payee, it is proposed to amend section 40(a)(ia) to provide that where an assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, the, for the purpose of allowing deduction of such sum, it shall be deemed that the assessee had deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee.

These beneficial provisions are proposed to be applicable only in the case of resident payee.

These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years."

4.2. No con trary decision wa s bro ught to ou r knowledge b y the ld. D.R. By respe ctfully following the said deci sion, we resto re this i ssu e to the file of the As ses sin g officer with the direction th at the a ss ess ee shall provide all the details to the As ses sin g Office r with regard to the recipients of the inco me and taxes paid by them. The Assessi ng Offic er shall c arry o ut n ece ssary verification in respect of the p aymen ts and tax es of such inco me and al so filin g the retu rn by the recipient. I n case, the A ss essin g Offic er f inds that the recipient h as d uly p aid the tax es on the inco me, the additio n m ade by the Assessin g Office r shall st and deleted.

5. In the result the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the court on 20.05.2015.

Sd/- Sd/- [Mahavir Singh ] [P.K.Bansal] Judicial Member Accountant Member

Date: 20.05.2015. R.G.(.P.S.) ITA No.889/Kol/2010 11 M/s. Anil Transport Co. A.Yr.2007-08

Copy of the order forwarded to:

1. M/s. Anil Transport Co., Allahabad Bank Building, 15, Hil Cart Road, Siliguri-

734001.

2 I.T.O., Ward-1(1), Siliguri.

3. CIT Kolkata 4. CIT(A)-Siliguri.

5. CIT(DR), Kolkata Benches, Kolkata.

True Copy,

By order,

Deputy /Asst. Registrar, ITAT, Kolkata Benches