Bombay High Court
Gulf Oil India Ltd. vs Income Tax Officer on 21 December, 1999
Equivalent citations: (2000)67TTJ(MUMBAI)182
ORDER
M.V.R. Prasad, A.M These four appeals were heard together and are disposed of by this common order.
2. These appeals are directed against the consolidated order of the Commissioner (Appeals), dated 9th July, 1999, for the assessment years 1995-96 to 1998-99 upholding the orders under sections 201(1) and 201(1A) of the Income Tax Act holding that the assessee should have, deducted tax at source from the payments made to the following eight parties at 20`% under the provisions of section 194-1 in each of the concerned years:
(1) Acme Industrial Corporation.
(2) The Jai Hind Oil Mills.
(3) Jayant Oil Mills (4) Shah Kanji Narshi (5) Petrochem Services (6) Aegis Chemicals Inds. Ltd.
(7) Tirupati Inds. Ltd.
(8) V.V.F. Ltd.
3. The assessee manufactures and trades in lubricant oils. For this purpose it. imports base oil. It is required to store lubricant and base oil during the course of its business. For storing this oil, the assessee has hired certain tanks under contracts with the above-mentioned eight parties and paid them hire charges. The question raised in these appeals is whether tax is to be deducted at source at 20% on the said hire charges under the provisions of section 194-1 of the Income Tax Act. For the sake of convenience, we reproduce below this section, to the extent relevant for our purposes :
"194-1 Any person, not being an individual or an HUF, who is responsible for paying to any person any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in short by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of
(a) fifteen per cent if the payee is an individual or an HUF; and
(b) twenty per cent in other cases Provided ExplanationFor the purposes of this section,
(i) "rent" means any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee;
(ii) where any income 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.
The assessee was of the view that the hire or storage charges paid by it to the abovementioned eight parties are subject to deduction of tax at source under the provisions of section 194C of the Income Tax Act and so tax was to be deducted only at 2%, which it did. The contention of the assessing officer is that the said charges are covered by the abovesaid provisions of section 194-1 and so tax should have been deducted at source at 20% and as this was not done, she levied interest under the provisions of section 201(1A) and also held the assessee as an assessee in default under the provisions of section 201(1) of the Income Tax Act. The orders of the assessing officer have been upheld by the Commissioner (Appeals). The Commissioner (Appeals) observed at p. 12 of his order that the raised in this appeal is rather razor thin and it poses a question as subtle as whether tomato is a fruit or a vegetable and, further, he relied upon the decision of the apex court in the case of Municipal Corporation of Bombay & Ors. v. Indian Oil Corporation Ltd. (1991) 91 CTR (SC) 135 and decided the issue as follows:
"Almost an identical issue has come up for the kind consideration of the in the case of Municipal Corporation of Greater Bombay & Ors v. Indian Oil Corporation Ltd. (1991) 91 CTR (SC) 135. The issue to be decided was whether petroleum storage tanks (same as that of appellant) are 'structures of 'things attached to land', within the inclusive definition under section 3(s) and 3(r) respectively of the Bombay Municipal Corporation Act and consequently exigible to property tax. Their Lordships, after in-depth analysis of various issues, held that the property tax was exigible as petroleum storage tanks am, "structures" or 'things attached to the land."
Sec. 3(r) of Bombay Municipal Corporation Act, 1988 defines 'land' as under
"land' includes, land which is being built upon or is built upon or covered with water, benefits to arise out of land, things attached to the earth or permanently fastened to anything attached to the earth and rights created by legislative enactment over any street."
Sec. 3(s) defines 'building' as " Building' is defined to include 'a house, stable, shed, hut and every other such structure whether of masonry bricks, wood, mud, metal or any other material whatever."
The Hon'ble court has analysed the meanings of the words "land", "building" and "structures", on the basis of the dictionary meanings and the various judgments of court on the impugned subject. It has also analysed the mechanical and engineering aspects of the tank construction and ultimately it had no hesitation to hold that the petroleum storage tanks are structures or things attached to the land within the definition of ss. 3r & 3s of the Act referred to above and consequently they are exigible to property tax.
The ExpIn. to the section 194-1 goes one step further and states that if any payment is made for not only land but also use, it will amount to "rent". Therefore, the ratio of the above judgment applies in all fours to the facts of the present case. Respectfully following the same and also the other reasons mentioned by the assessing officer, 1 hold that the provisions of section 194-1 are applicable to the payment under consideration and not section 194C.
In the result, the appeals are dismissed."
4. Before us, the learned counsel for the assessee explained that it is doubtful whether the payments made by the assessee to the said above eight parties are liable for deduction of tax even under the provisions of section 194C but the assessee deducted tax at 2% as required under this section only to be on the safe side. It is pleaded that the tanks taken on hire are metallic cylindrical vertical structures and by no stretch of imagination they can be regarded as building, whether factory or otherwise, within the meaning of section 194C of the Income Tax Act. As they are not buildings within the meaning of this section, it is claimed that there was no requirement of deduction of tax at source under this provision. He has also filed before us at pp. 42 to 47 of the assessee's paper-book (APB), the photographs of the storage tanks in question which are said to be of mild steel construction. The assessee imports base oil and the tankers unload the base on after weighment into the storage tanks- One key of the tanks is with the customs department and another is said to be with the assessee and thereafter as and when required, the oil is pumped out and taken to Sylvasa where the assessee has a processing unit for blending and manufacturing. The main argument of the learned counsel for the assessee is that the provisions of section 194-1 apply only in the case of rent payments for the use of any land or any building (including factory building) and do not cover the rent payments for the use of any other structure which cannot be categorised as a building. In the present case, rent payments or hire charges are incurred in the context of the use of storage tanks which, according to the learned counsel for the assessee, cannot by any stretch of imagination be called as buildings. Relying upon Board's Circular No. 718 dated 22nd Aug., 1995, the assessing officer was of the view that the word "building" used in section 194-1 includes a warehouse and she was of the view that storing oil in tanks is also akin to storing goods in a warehouse and so the word "building" used in this section would include storage tanks of the type involved in the present case. The learned counsel for the assessee mentioned that regarding storage tank as a warehouse is a far fetched analogy. The storage tanks in question are not for human habitation or animal habitation and so it is pleaded that they cannot be regarded as building. It is conceded that the storage tanks may be regarded as "civil construction" in terms of section 44AD but cannot be regarded as "building" within the meaning of section 194-1 It is also mentioned that the brackets enclosing the words "including factory building" restricts the scope of the word "building" and would preclude other structures from being included within the scope of "building" in the section. It is also mentioned that what is erected on land may be a structure and may not always be a building. It is also mentioned that at any rate, the matter is concluded against the department by the decision of the Hon'ble Bombay High Court in the case of Bharat Petroleum Corporation & Anr. v. Municipal Corporation of Greater Bombay & Anr. AIR 1985 Bom 242, wherein the Hon'ble Bombay High Court observed as follows :
"9. What also militates from the fact that the appellants' tanks are not 'building' is that there is in addition internal guidance in the Act itself which discloses in no uncertain terms that the legislature did not and could never have intended that 'tanks' could be equated with 'building', ss. 154(3), 155, 159 and 209 connote that the word 'building' used in the Act indicates a concept of occupancy, be it of an agency, human (a house), animal (a stable), vegetable (hot-house) or inanimate (godown). Surely, no such concept can be attributed to a tank. Petrol does not occupy a tank in the manner occupancy is understood. It merely holds petrol ......"
It is also pleaded that reliance placed by the Commissioner (Appeals) in the case of Municipal Corporation of Greater Bombay v. Indian Oil Corporation Ltd. (supra) is misplaced inasmuch as the provisions of section 194-1 of the Income Tax Act are not pan materia with ss. 3(r) and 3(s) of the Bombay Municipal Corporation Act, 1988 considered by the Hon'ble Supreme court in that case. It is explained that under the definition of 'land' in section 3(r) of the Bombay Municipal Act, land included "things attached to the earth" and so even a structure could be regarded as land, whether it is building or not, under the provisions of section 3(r) of the said Act. It is further explained that in India there is no law which extends the definition of land to include a structure and for this proposition reliance is placed upon the decision of the Hon'ble Calcutta High Court in the case of CIT v. Suinan Tea & Plywood Industries (P) Ltd. (1997) 140 CTR (Cal) 454 : (1997) 226 ITR 34 (Cal). It is further pleaded that storage tank has to be regarded as plant' and not as 'building' in view of the decision of the Hon'ble Madras High Court in the case of CIT v. Salem Textiles Ltd. (1999) 156 CTR (Mad) 374.
5. The learned counsel for the assessee has also made a reference to the decision of the Hon'ble Andhra Pradesh High Court in the case of P V Rajagopal v. Union of India (1999) 151 CTR (AP) 442 : (1998) 233 ITR 678 (AP) wherein it has been observed that the provisions of section 201 or section 201(1A) are not attracted in a case where there is only short deduction of tax at source and not failure to deduct tax at source or to remit the deducted tax to the credit of the Government. In the present case, the assessee has deducted tax at the rate of 2% under the impression that the provisions of section 194C are attracted and as there has been some deduction of tax at source, it is pleaded that in view of the said Hon'ble Andhra Pradesh High Court decision, the assessee cannot be regarded either as an assessee in default or be made liable for interest under section 20(A). It is also pleaded that the assessments have already been made on the eight parties to whom the hire charges in question have been paid and as they have paid their taxes as per the demand raised on them, the action proposed by the assessing officer would only result in a kind of double taxation, because the eight parties would be left with no remedy for getting the refund of the amounts now sought to be collected from the assessee towards deduction of tax at source under section 194-1.
6. The learned departmental Representative on the other hand supported the reliance of the assessing officer on Board's Circular No. 718, dated 22nd Aug., 1995, as per which "building" includes a warehouse and it is pleaded that a warehouse can spread horizontally or vertically and a warehouse does not cease to be a warehouse because it is designed to store oil. In other words, his contention is that the storage tanks in question are of the type of warehouses for storing oil and so they are covered within the scope of the word "building" used in section 1941. The learned departmental Representative has also relied upon the decision of the Hon'ble Madras High Court in the case of CIT v. Dowel Erectors (1999) 155 CTR (Mad) 145 and pleaded that the tanks in question are like boilers considered by the Hon'ble Madras High Court in that case and have to be regarded as an immovable property and not a plant. It is claimed that the storage tanks in question are of the nature of immovable property or building. He has also relied on the decision of the Hon'ble Madras High Court in the case of Madras Bar Association & Ors. v. CBDT (1996) 130 CTR (Mad) 360: (1995) 216 ITR 240 (Mad) and argued that the provisions of section 194C are not attracted in the present case as labour expenses must be incurred by the contractor for the contract to qualify as a works contract and for the payment to be subject to deduction of tax at source under section 194C.
7. We are of the view that the assessee deserves to succeed for all the four Two various agreements entered into by the assessee with the eight m question are at pp. 1 to 35 of the APB and to give a flavour of these the portion relating to rental terms and other charges from the dated 1st Aug 1995, entered into by the assessee with Aegis Chemicals Industries Ltd. figuring at at pp. 17 to 23 of the APB, is reproduced below:
"4. Rental terms and other changes Rental terms and other charges payable to us for contract period commencing 1st Aug. 1995 shall be as under:
(a) Rental charges for total storage tank calibrated capacity would be payable irrespective whether the product is stored therein or otherwise and also irrespective whether the product is stored therein or otherwise and also irrespective of quantity stored therein if it is less than the bank capacity.
(b) Our rental terms are per calendar month only.
(c) Our fixed rental shall be as under:
At the rate of Rs. 400 PKL per calendar month for tank Nos. 108, 111 & 117.
You will appreciate tha we have offered you the above concessional rate in view of our long-term association with and in turn you will commit to partonise Aegis terminal facilities for all time to come irrespective of any market situation.
The above rate shall be valid upto 31st Jan. 1996. The rental charges shall be reviews and revised upwards subject to a minimum of ten per cent thereon and shall be effective from 1st Feb. 1996, for the balance period of contract.
(d) Nitrogen/compressed air pigging charges of Rs. 15,000 of Rs. 30,000 for 6" or 12" pipeline respectively depending on the line used to load/unload your luboils.
The notrogen/compressed air pipeline charges shall be payable per parcel. In case your product is unloaded into some other tanks from the same steamer at the same time the charges shall be payable for one pigging operation.
(e) Tank cleaning charges of Rs. 15,000 each in respect of Tank 108,111 & 117 per operation shall be paid to us extra.
(f) Custom bonding charges per tank per month will be charged at Rs. 7,500 for availing of bounding facilities.
(g) Weighment charges @Rs. 30 per tanker will be collected from the tanker personnel at the terminal.
(h) Overtime at specified rates as mentioned in Annexure A forming part of this agreement shall be paid to us in case terminal facilities are requisitioned beyond prescribed terminal hours or on paid holdidays or on paid weekly offs.
Overtime shall be done at the sole discretion of our terminal office.
The above charges are net of all taxes payable to any authorities."
It is evident from the above that the eight parties have not simply stored luboils of the assessee in their tanks but have also rendered other ancillary services. In these appeals we are not called upon to decide the issue whether the payment made by the assessee to the eight parties involved are liable for deduction of tax at source under section 194C or not. We have only to decide whether the payments made by the assessee to the eight parties in question are liable for deduction of tax at source under the provisions of section 194-1. We see merit in the contention of the assessee that the issue is squarely covered in favour of the assessee by the decision of the Hon'ble Bombay High Court in the case of Bharat Petroleum Corporation & Anr. v. Municipal Corporation of Greatel Bombay & Anr. (supra). We have already reproduced the relevant portion of the judgment at para 4 above wherein it was held that petrol does not occupy a tank in the manner occupancy is understood and as a storage tank cannot he equated with building. We also find merit in the contention of the assessee that the reliance placed by the Commissioner (Appeals) on the decision of the apex court in the case of Municipal Corporation of Greater Bombay v. Indian Oil Corpn. (supra) is incorrect as the provisions of ss. 3(r) and 3(s) of the Bombay Municipal Corporation Act, 1988, are not pan materia with the provisions of section 194-1 of the Income Tax Act. The following observations of the Hon'ble Supreme court in the above case, to our mind, are decisive of the matter :
"5. Thus it is clear that a tank to be a building must be a structure designed for either habitation or shelter for human habitation or storage of inanimate objects in store-house or stable for horses, shed or a hut, etc. within the four corners of the walls built with masonary otherwise with ingress or egress. The word 'building' must be given its ordinary natural meaning ascribable to it including the fabric and the ground on which it stands. On a mere look at the tank, by no stretch of imagination, it could be said to be a building."
Having observed that a storage tank is not a building, the Hon'ble Supreme court went further and considered the issue whether it can be regarded as land within the meaning of section 3(r) of the said Act or as a structure within the meaning of section 3(s). We have already extracted hereinabove the relevant portion of the order of the Commissioner (Appeals) wherein section 3(r) and section 3(s) of the Bombay Municipal Corporation Act, 1988 have been reproduced by him. It is clear that under the definition of "building" in terms of section 3(s) of the said Act, the word includes a structure. The Hon'ble Supreme court noted the distinction made in certain English decisions between a structure and a building to the effect that a structure' must have a wider embrace and that every structure is not a building, though it may well be that every building is a structure. Similarly, so far as the definition of "land" is concerned in Bombay Municipal Corporation Act, it included, inter alia, things attached to the earth. We find that there is no such extended definition of land or of building in section 194-1. Under section 194-1 of the Income Tax Act, rent has to be paid for the use of land or of building (including factory building) and nothing else. If a plant is taken on hire and hire charges are paid, to our mind, the provisions of section 194-1 are not attracted in respect of such payments and that, to us, is the situation in the present case. The storage tanks may have to be regarded as 'plant' or in the alternative, simply as civil construction of the type referred to in section 44AD of the Income Tax Act. However, to our mind, the storage tanks in question do not qualify either as land or as building was in the meaning of section 194-1 of the Income Tax Act. We also take cognizance of the legal position that what is attached to the land belongs to the land is a principle not applicable to India. In this context, reference may be made to the decision of the Hon'ble Kerala High Court in the case of Travancore Tea Estates Co. Ltd. v. CIT (1974) 93 ITR 314 (Ker) and also the decision of the Honble Calcutta High Court in the case of CIT v. Suman Tea Industries (P) Ltd. (supra). In the light of these decisions, structures, though erected on land, cannot be regarded as part of the land.
8. The assessing officer observed that even without assuming that the storage tank is not a building, it involves taking land on lease because the said tanks are erected or) land. This is, to our mind, a hyper-technical view of the matter, because any structure or plant has to stand on land and simply because they stand on the land, it does mean that the land is taken on lease separately from the land or structure involved. In terms of section 194-1, there has to be a lease, sub-lease or tenancy or any other agreement involving land or any building (excluding factory building) and when a storage tank is taken on lease, it does not, to our mind, follow that there is taking on lease of land simpliciter. What is taken on lease is the storage tank and not simply the land, notwithstanding the fact that the storage tank happens to be erected on land. At any rate, the apex court in the case of Municipal Corporation of Greater Bombay v. Indian Oil Co.s (supra) has categorically observed that the storage tank cannot be regarded as building by any stretch of imagination. We have already extracted that portion of the observations of the apex court hereinabove.
9. We also find that the decision of the Hon'ble Madras High Court in the case of CIT v. Dowel Erectors (supra) is an authority only for the proposition that a boiler fixed to the ground is an immovable property but it does not follow that it is also a building. That decision was given in the context of considering the claim of the assessee for investment allowance under section 32A of the Income Tax Act and so the Hon'ble Madras High Court was considering whether the assessee was carrying on the manufacture of an article or thing within the meaning of section 32A and it considered that erection of boilers does not amount to carrying on the manufacture of an article or thing and so the assessee was not eligible for the grant of investment allowance in the light of the decision of the apex court in the case of CIT v. N.C. Budharala & Co. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC). This decision, to our mind, is not helpful to the assessee. As already mentioned, every immovable property cannot be regarded as a building.
10. In the circumstances, we hold that the payments in question are not liable for deduction of tax at source under the provisions of section 194-1 of the Income Tax Act. Accordingly, we set aside the orders of the revenue authorities and delete the interest levied under section 201(1A) and also hold that the assessee cannot be regarded as an assessee in default in terms of section 201 of the Income Tax Act.
11. The assessee has taken various other grounds but no arguments have been advanced before us. We accordingly dismiss those grounds.
12. Neither of the parties could enlighten us as to how the storage tanks in question are treated in the assessments of the said eight parties, i.e., whether they are treated as building or as plant. So we have decided the issue without the benefit of those assessment orders, relying solely on the decision of the jurisdictional High Court and the decision of the apex court, as mentioned hereinabove.
13. The appeals are allowed.