Income Tax Appellate Tribunal - Hyderabad
Ras Polybuild Products P. Ltd., Hyd, ... vs Dcit, Circle-3(1), Hyderabad, ... on 8 December, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A" : HYDERABAD
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT
AND
SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA.No.221/Hyd/2016
Assessment Year 2007-2008
M/s. Ras Polybuild Products The DCIT, Circle-3(1),
P. Ltd., Hyderabad. vs. Hyderabad.
(Appellant) (Respondent)
For Assessee : Shri A.V. Raghuram
For Revenue : Shri A. Sitarama Rao
Date of Hearing : 08.12.2016
Date of Pronouncement : 08.12.2016
ORDER
PER D. MANMOHAN, V.P. This appeal by the assessee-company is directed against the order passed by the Ld. CIT(A)-10, Hyderabad and it pertains to the A.Y. 2007-2008. The following grounds were urged before us :
1. "The order of the Ld. CIT(A) confirming the order of the A.O. is erroneous both on law and in facts to the extent it is prejudicial to the assessee.
2. The Ld. CIT(A) erred in holding that provisions of section 194C is attracted even to the payments that are made to Railways through its agent and thereby erred in confirming the disallowance of Rs.24,39,086 made u/s.40(a)(ia).
3. The Ld. CIT(A) failed to appreciate the fact that what is paid as railway freight to the agent is only reimbursement of actual amount payable to railways and only service charges that are paid to the agent attracts the provisions of section 194C and such amounts being less than the limit prescribed no TDS was made and therefore ought to have allowed the appeal.2
ITA.No.221/Hyd/2016 M/s. Ras Polybuild Products P. Ltd., Hyderabad.
4. The Ld. CIT(A) failed to appreciate the fact that similar payments that are made to clearing and forwarding agents are held not allowable u/s.40(a)(ia) as no TDS need be made on actual reimbursement and therefore erred in confirming the disallowance.
5. Without prejudice to the above, the Ld. CIT(A) ought to have appreciated the fact that the amounts were already paid and were not payable and further the A.O. cannot hold the assessee as assessee in default u/s.201 and hence the provisions of section 40(a)(ia) are not attracted and thereby ought to have allowed the appeal on that count.
6. Any other ground that may be urged at the time of hearing."
2. Before going into the issue on hand it is necessary to refer to the brief facts of the case. The assessee-company is engaged in the business of manufacture of PUF based building components. During the previous year relevant to the assessment year under consideration it made certain payments to M/s. Exim Services towards freight charges without deducting tax. According to the assessee these payments are made in respect of supply of goods from Hyderabad to Mumbai by rail and therefore, the provisions of Section 194C do not come into play; any payment made to a contractor for carriage of goods by rail is excluded from the provisions of Section 194C of the Act.
3. The A.O. as well as the CIT(A) rejected the contention of the assessee on the ground that the assessee engaged an Agent for transport of the material and thus the payment has to be treated as payment to the Agent and not to the railway authorities. Accordingly, the A.O. invoked the provisions of Section 194C of the Act and treated the assessee as in default. Consequently, disallowance was made under section 40(a)(ia) of the Act.
4. Before us, Learned Counsel appearing on behalf of the assessee, raised two pronged arguments.
3ITA.No.221/Hyd/2016 M/s. Ras Polybuild Products P. Ltd., Hyderabad.
(a) That the provisions of Section 194C has no application when the payment is made to a contractor for transport of goods by rail.
He adverted our attention to Section 194C(3) and Explanation (iv) thereof wherein it is stated that "work" includes carriage of goods or passengers by any mode of transport other than rail. No doubt Section 194C is applicable to the payment made to the contractors but when it is for transport of goods by rail it carves out an exception and thereby, there is no need for the assessee to deduct tax at source on payments made to the contractors.
(b) In the alternative, it was submitted that the payment having already been made by the assessee Section 40(a)(ia) do not come into play since it applies only when an amount is "payable". On this aspect the Learned Counsel appearing on behalf of the assessee, relied upon the decision of the ITAT, Special Bench in the case of M/s. Merilyn Shipping & Transport, Visakhapatnam 136 ITD 23 as well as the decision of the jurisdictional High Court in the case of CIT-II, Hyderabad vs., M/s. Janapriya Engineers Syndicate 371 ITR 439] which was, inturn, referred to by the ITAT 'B' Bench, Hyderabad in the case of ACIT, vs., M/s. Janapriya Properties Pvt. Ltd., in ITA.Nos.1614, 1622, 1623 & 1624/Hyd/2012 dated 19.01.2015 wherein the Bench [one of us is a party] observed as under :
"5. Having regard to the direction given by the Hon'ble High Court, the matter was posted for hearing. The learned counsel appearing on behalf of the assessee placed before us the following orders of the ITAT to submit that the Hon'ble Allahabad High Court in its decision in the case of CIT V/s. Vector Shipping Services Pvt. Ltd. (357 ITR 647) has taken a view on the issue in favour of the assessee in consonance with the view taken by the ITAT Visakhapatnam Special Bench in the case of Merylin Shipping and Transport (supra), and the view taken by the Hon'ble Allahabad High Court was impliedly affirmed by the 4 ITA.No.221/Hyd/2016 M/s. Ras Polybuild Products P. Ltd., Hyderabad.
Hon'ble Supreme Court by dismissing an SLP sought by the Revenue, and thus the view taken by the ITAT Special Bench Visakhapatnam deserves to be followed.
(a) Decision of Hyderabad Bench 'A' of the Tribunal in Ushodaya Enterprises Ltd. Hyderabad V/s. Dy.
Commissioner of Income-tax Circle 16(2), Hyderabad (ITA Nos.676/Hyd/2009 & 411/Hyd/2010 dated 7.1.2015)
(b) Decision of Mumbai Bench 'A' of the Tribunal in M/s.
Arcadia Share & Stock Brokers Pvt. Ltd., Mumbai V/s. Dy. Commissioner of Income-tax, Range 4(1), Mumbai (ITA No.1871/Mum/2013 dated 22.12.2014)
6. The Learned Departmental Representative fairly agreed that the ITAT Hyderabad Bench considered an identical issue and followed the decision of the Special Bench in the case of Merylin Shipping and Transport (supra).
7. Upon hearing the rival submissions, we are of the view that the decision of the ITAT Special Bench is binding on the Tribunal, particularly in view of the clarificatory order passed by the Hon'ble High Court of judicature at Hyderabad in the instant case, and thus, we respectfully follow the decision of Special Bench in the case of Merylin Shipping and Transports (supra), and hold that the provisions of S.40(a)(ia) cannot be invoked where the payments were already made by the assessee. We direct the Assessing Officer accordingly. In the result, appeals of the revenue insofar as the above issue is concerned, are hereby dismissed.
5. On the other hand, the Ld. D.R. submitted that Section 194C would not be attracted only when the payment is made directly to the railways and not to the payment made to a middlemen. He also submitted that if tax has to be deducted at source, in the event of non- payment of such TDS, Section 40(a)(ia) automatically comes into operation and also submitted that the Hon'ble Calcutta High Court had taken a different view on this matter by observing that the decision of the ITAT, Special Bench in the case of M/s. Merilyn Shipping & 5 ITA.No.221/Hyd/2016 M/s. Ras Polybuild Products P. Ltd., Hyderabad.
Transport, Visakhapatnam 136 ITD 23 does not lay down correct law. He thus strongly supported the orders passed by the lower authorities.
6. We have carefully considered the rival contentions and perused the record. As rightly pointed out by the Learned Counsel appearing on behalf of the assessee, Section 194C speaks of payment made to contractors with an exception that even payments made to contractors would stand outside the purview of that provision if such payment is made towards carriage charges. In the instant case, the assessee categorically submitted that the payment was made to M/s. Exim Services towards freight charges that too for carriage of goods by rail. This claim of the assessee is not disputed by the tax authorities except stating that the payment is not made directly to the railways but to the Agent. In our considered opinion the opening part of Section 194C refers to payments made to contractors but at the same time makes an exception to the payments made to such contractors if that amount has to be utilised for payment of rail fares. If the intention of the legislature was to make the payment directly to the railway authorities, then the exception provided in the Explanation should not have been introduced in Section 194C of the Act. Thus, on a conspectus of the matter, we are of the view that even if payment is made to an Agent so long as the payment is meant for meeting the expenditure in the form of payment to the railways, it stands excluded from the provisions of Section 194C of the Act. Under these circumstances, we accept the plea of the assessee by holding that there was no need to deduct tax at source with respect to the impugned payment to the contractor. Even otherwise, in the light of decision of the ITAT, Hyderabad Bench in the case of ACIT, Central Circle-2, Hyderabad vs., M/s. Janapriya Properties Pvt. Ltd., Hyderabad (supra) Section 40(a)(ia) cannot be invoked in respect of 6 ITA.No.221/Hyd/2016 M/s. Ras Polybuild Products P. Ltd., Hyderabad.
payments already made before the end of the accounting year. We direct the A.O. accordingly.
7. In the result, appeal filed by the assessee is allowed.
Order pronounced in the open Court on 08.12.2016.
Sd/- Sd/- (S. RIFAUR RAHMAN) (D.MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT Hyderabad, Dated 08th December, 2016. VBP/- Copy to
1. M/s. Ras Polybuild Products P. Ltd., Hyderabad.
C/o. Shri K. Vasantkumar, Shri A.V. Raghuram, Shri P. Vinod & Shri M. Neelima Devi, Advocates, 610, Babukhan Estate, Basheerbagh, Hyderabad - 500 001.
2. The DCIT, Circle-3(1), I.T. Towers, Hyderabad.
3. CIT(A)-10, Hyderabad.
4. CIT (IT & TP), Hyderabad.
5. D.R. ITAT "A" Bench, Hyderabad.
6. Guard File