Ras Polybuild Products P. Ltd., Hyd, Hyderabad V. DCIT, Circle-3(1), Hyderabad, Hyderabad

ITA 221/HYD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5964 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-11-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 29-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO
• Assessee Lawyers: A V RAGHURAM
• Section: 194C

Judgement Text

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 P. LTD., HYDERABAD. VS. THE DCIT, CIRCLE-3(1), 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 AG AINST THE ORDER PASSED BY THE LD. CIT(A)-10, HYDERABAD AND IT P ERTAINS TO THE A.Y. 2007-2008. THE FOLLOWING GROUNDS WERE URGED BEFORE US : 1. THE ORDER OF THE LD. CIT(A) CONFIRMING THE ORDER O F 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 RAI LWAYS THROUGH ITS AGENT AND THEREBY ERRED IN CONFIRMING T HE DISALLOWANCE OF RS.24,39,086 MADE U/S.40(A)(IA). 3. THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT W HAT 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 SECTIO N 194C AND SUCH AMOUNTS BEING LESS THAN THE LIMIT PRESCRIBED N O 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 S IMILAR 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 A CTUAL REIMBURSEMENT AND THEREFORE ERRED IN CONFIRMING THE DISALLOWANCE. 5. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) OUGH T TO HAVE APPRECIATED THE FACT THAT THE AMOUNTS WERE ALREADY PAID AND WERE NOT PAYABLE AND FURTHER THE A.O. CANNOT HOLD T HE ASSESSEE AS ASSESSEE IN DEFAULT U/S.201 AND HENCE THE PROVIS IONS OF SECTION 40(A)(IA) ARE NOT ATTRACTED AND THEREBY OUG HT TO HAVE ALLOWED THE APPEAL ON THAT COUNT. 6. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF H EARING. 2. BEFORE GOING INTO THE ISSUE ON HAND IT IS NECESS ARY TO REFER TO THE BRIEF FACTS OF THE CASE. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF PUF BASED BUILDING COMPON ENTS. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION IT MADE CERTAIN PAYMENTS TO M/S. EXIM SERVICES TOWARDS F REIGHT CHARGES WITHOUT DEDUCTING TAX. ACCORDING TO THE ASSESSEE THESE PA YMENTS ARE MADE IN RESPECT OF SUPPLY OF GOODS FROM HYDERABAD TO MUMBAI BY RAIL AND THEREFORE, THE PROVISIONS OF SECTION 194C DO NOT CO ME 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 CONTEN TION OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE ENGAGED AN A GENT FOR TRANSPORT OF THE MATERIAL AND THUS THE PAYMENT HAS TO BE TREATED AS PAYMENT TO THE AGENT AND NOT TO THE RAILWAY AUTHORITIES. AC CORDINGLY, 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. 3 ITA.NO.221/HYD/2016 M/S. RAS POLYBUILD PRODUCTS P. LTD., HYDERABAD. (A) THAT THE PROVISIONS OF SECTION 194C HAS NO APPLIC ATION WHEN THE PAYMENT IS MADE TO A CONTRACTOR FOR TRANSPORT OF GOODS BY RAIL. HE ADVERTED OUR ATTENTION TO SECTION 194C(3) AND EXPLA NATION (IV) THEREOF WHEREIN IT IS STATED THAT WORK INCLUDES CARRIA GE OF GOODS OR PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN RAIL. NO DOUBT SECTION 194C IS APPLICABLE TO THE PAYMENT MADE TO THE CON TRACTORS BUT WHEN IT IS FOR TRANSPORT OF GOODS BY RAIL IT CARVES OUT AN EXCEPTION AND THEREBY, THERE IS NO NEED FOR THE ASSESSE E TO DEDUCT TAX AT SOURCE ON PAYMENTS MADE TO THE CONTRACTORS. (B) IN THE ALTERNATIVE, IT WAS SUBMITTED THAT THE PAYMENT HA VING ALREADY BEEN MADE BY THE ASSESSEE SECTION 40(A)(IA) D O NOT COME INTO PLAY SINCE IT APPLIES ONLY WHEN AN AMOUNT IS PA YABLE. ON THIS ASPECT THE LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE, RELIED UPON THE DECISION OF THE ITAT, SPEC IAL BENCH IN THE CASE OF M/S. MERILYN SHIPPING & TRANSPORT, VISAKH APATNAM 136 ITD 23 AS WELL AS THE DECISION OF THE JURISDICTIO NAL 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 [ON E OF US IS A PARTY] OBSERVED AS UNDER : 5. HAVING REGARD TO THE DIRECTION GIVEN BY THE H ON'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 O N THE ISSUE IN FAVOUR OF THE ASSESSEE IN CONSONANCE WITH THE VIEW TAKEN BY THE ITAT VISAKHAPATNAM SPECIAL BENCH IN THE CASE OF MER YLIN SHIPPING AND TRANSPORT (SUPRA), AND THE VIEW TAKEN BY THE HON'BLE ALLAHABAD HIGH COURT WAS IMPLIEDLY AFFIRM ED 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 B Y THE REVENUE, AND THUS THE VIEW TAKEN BY THE ITAT SPECIA L 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 BENC H 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 I N THE INSTANT CASE, AND THUS, WE RESPECTFULLY FOLLOW THE DECISION OF SPECIAL BENCH IN THE CASE OF MERYLIN SHIPPING AND TRANSPORT S (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, APPE ALS OF THE REVENUE INSOFAR AS THE ABOVE ISSUE IS CONCERNED, AR E HEREBY DISMISSED. 5. ON THE OTHER HAND, THE LD. D.R. SUBMITTED THAT SECTION 194C WOULD NOT BE ATTRACTED ONLY WHEN THE PAYMENT IS MAD E 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 C OMES INTO OPERATION AND ALSO SUBMITTED THAT THE HONBLE CALCUTTA HI GH COURT HAD TAKEN A DIFFERENT VIEW ON THIS MATTER BY OBSERVING THAT TH E DECISION OF THE ITAT, SPECIAL BENCH IN THE CASE OF M/S. MERILYN S HIPPING & 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 LOWE R AUTHORITIES. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE RECORD. AS RIGHTLY POINTED OUT BY THE LEAR NED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE, SECTION 194C SPE AKS OF PAYMENT MADE TO CONTRACTORS WITH AN EXCEPTION THAT EVEN PAYMENTS MADE TO CONTRACTORS WOULD STAND OUTSIDE THE PURVIEW OF THAT PROVIS ION IF SUCH PAYMENT IS MADE TOWARDS CARRIAGE CHARGES. IN THE INSTAN T CASE, THE ASSESSEE CATEGORICALLY SUBMITTED THAT THE PAYMENT WAS MAD E TO M/S. EXIM SERVICES TOWARDS FREIGHT CHARGES THAT TOO FOR CARRI AGE 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 RA ILWAYS BUT TO THE AGENT. IN OUR CONSIDERED OPINION THE OPENING PAR T OF SECTION 194C REFERS TO PAYMENTS MADE TO CONTRACTORS BUT AT THE SAME TI ME MAKES AN EXCEPTION TO THE PAYMENTS MADE TO SUCH CONTRACTORS IF THAT AMOUNT HAS TO BE UTILISED FOR PAYMENT OF RAIL FARES. IF THE INTENTIO N OF THE LEGISLATURE WAS TO MAKE THE PAYMENT DIRECTLY TO THE RAILWAY AUTHORITI ES, 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 OT HERWISE, IN THE LIGHT OF DECISION OF THE ITAT, HYDERABAD BENCH IN THE CASE OF ACIT, CENTRAL CIRCLE-2, HYDERABAD VS., M/S. JANAPRIYA PROP ERTIES 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 ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08.12. 2016. SD/- SD/- (S. RIFAUR RAHMAN) (D.MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT HYDERABAD, DATED 08 TH 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, BABUKH AN 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