ITO, Alappuzha V. M/s.Southern Mineral Industries, Alappuzha

ITA 370/COCH/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5519 (ITAT-COCHIN)
• Duration Of Justice: 4 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 07-09-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 04-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R KRISHNAN
• Section: 194C

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI P. K. BANSAL, VICE PRESIDENT AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA NO S.370 TO 372/COCH/2013 ASSESSMENT YEARS:2006-07 TO 08-09 M/S SOUTHERN MINERAL INDUSTRIES THYCATTUSSERY P.O., CHERTHALA, ALAPPUZHA. PAN:ABAFS2196L VS INCOME TAX OFFICER (TDS), ALAPPUZHA, (RESPONDENT) (APPELLANT) ITA NO .471/COCH/2013 ASSESSMENT YEARS:2006-07 M/S SOUTHERN MINERAL INDUSTRIES THYCATTUSSERY P.O., CHERTHALA, ALAPPUZHA. PAN:ABAFS2196L VS INCOME TAX OFFICER, WARD-4, ALAPPUZHA, (RESPONDENT) (APPELLANT) SHRI A.DHANRAJ, SR. D.R. APPELLANT BY SHRI R. KRISHNAN, C.A. RESPONDENT BY 03/10/2017 DATE OF HEARING 04 /10 /2017 DATE OF PRONOUNCEMENT ORDER PER P. K. BANSAL, V.P. ALL THESE APPEALS HAVE BEEN FILED BY THE REVENUE A GAINST THE CONSOLIDATED ORDER OF CIT(A) DATED 28 TH MARCH, 2013 AND 25 TH APRIL, 2013. 2. IN I.T.A.NOS. 370 TO 372 ALTHOUGH THE REVENUE HA S TAKEN SIX GROUNDS IN EACH OF THE ASSESSMENT YEARS BUT THE ONL Y ISSUE INVOLVED IN ALL THESE APPEALS RELATES TO THE ISSUE WHETHER THE ASSE SSEE IS LIABLE TO DEDUCT 2 THE TDS AT SOURCE UNDER SECTION 194I OF THE ACT. B OTH THE PARTIES AGREED THAT ALL THESE APPEALS BE DECIDED ON THE BASIS OF T HE FACTS INVOLVED IN ASSESSMENT YEAR 2006-07 AND WHATEVER VIEW THIS TRIB UNAL MAY TAKE IN ASSESSMENT YEAR 2006-07, THE SAME VIEW MAY BE TAKEN IN ALL THE OTHER ASSESSMENT YEARS. 3. THE FACTS OF THE CASE FOR THE ASSESSMENT YEAR 20 06-07, IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF SILICA SAND MINING. DURING THE COURSE OF INSPECTION, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAS COMMITTED THE DEFAUL T BY NOT DEDUCTING THE TDS AND PAYING IT TO THE CENTRAL GOVERNMENT. ACCOR DING TO THE ASSESSING OFFICER THE ASSESSEE MADE THE FOLLOWING PAYMENTS WI THOUT PAYING THE TDS: SL.NO. NATURE OF PAYMENTS SECTION APPLICABLE AMOUNT PAID WITHOUT TDS. FINANCIAL YEAR 05-06 (RS.) 1. SIEVING CHARGES 194C 14,99,377 2. DRYING CHARGES 194C 14,97,696 3. LOADING CHARGES 914C 10,13,896 4. TRANSPORTATION CHARGES 194C 1,21,000 5. FREIGHT CHARGES 194C 78,800 6. COMMISSION OF SALE 194H 1,26,900 7. BROKERAGE 194H 1,02,425 8. LEASE HIRE 194I 67,90,900 3.1 THE ASSESSING OFFICER THEREFORE, ISSUED THE NOT ICE TO THE ASSESSEE REQUIRING HIM TO FURNISH THE DETAILS OF THE TAX DED UCTED AT SOURCE AND DEPOSITED TO THE GOVERNMENT, DETAILS OF FILING OF Q UARTERLY STATEMENTS AND TO CLARIFY/EXPLAIN THE POSITION IN THIS REGARD. TH E ASSESSEE IN REPLY THERETO DENIED THE DEFAULT BEING MADE. THE ASSESSING OFFIC ER THEREFORE, TREATED THE ASSESSEE TO BE IN DEFAULT IN RESPECT OF NOT DED UCTING THE TDS UNDER SECTION 194C, 194H AND 194I OF THE ACT AND ALSO CRE ATED THE DEMAND AND LEVIED INTEREST UNDER SECTION 201(1A) VIDE ORDER DA TED 25/03/2011. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT (A) TREATED THE 3 ASSESSEE IN DEFAULT UNDER SECTION 194C AND 194H IN RESPECT OF TRANSPORT CHARGES, FREIGHT CHARGES, COMMISSION AND BROKERAGE BUT IN RESPECT OF LEASE HIRE CHARGES, THE CIT(A) TOOK THE VIEW THAT T HE LEASE HIRE CHARGES, AS MENTIONED BY THE ASSESSEE IN THE PROFIT & LOSS ACCO UNT, IN SUBSTANCE DOES NOT REPRESENT THE LEASE RENT OF THE LAND BUT IT REP RESENTS CONSIDERATION PAID FOR EXTRACTION OF THE SAND I.E. FOR THE PURCHA SE OF THE SAND BUT ALLOWED THE ASSESSEE CONSEQUENTIAL RELIEF IN RESPEC T OF INTEREST UNDER SECTION 201(1A) OF THE ACT. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, CAREFULLY C ONSIDERED THE SAME ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW. THE MOOT QUESTION BEFORE US IS WHETHER THE PAYMENT MADE BY THE ASSESS EE REPRESENTS THE RENT OF THE LAND OR REPRESENTS THE COST OF THE SAND . IF IT IS A PAYMENT TOWARDS THE LEASE OF THE LAND, THE PROVISION OF SEC TION 194I WILL APPLY AND THE ASSESSEE WILL BE LIABLE TO DEDUCT THE TAX AT SO URCE. IN THIS REGARD LEARNED A.R. DRAWN OUR ATTENTION TOWARDS THE COPY O F THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AS WELL AS THE LA ND OWNER FROM WHOM THE ASSESSEE HAS TAKEN THE LAND FOR EXTRACTION OF T HE SAND. WE NOTED THAT THE COPY OF ONE OF THE SAID AGREEMENTS IS AVAILABLE AT PAGE 33 AND 34 OF THE PAPER BOOK. THE TERMS AND CONDITIONS ENTERED I NTO BETWEEN THE ASSESSEE AND THE OWNER OF THE LAND ARE STIPULATED A S UNDER: 1. THAT THE PARTY NO. II CAN MINE MAXIMUM SAND FRO M THE ABOVE SAID PROPERTY. 2. THE PARTY NO. II SHALL PAY RS.140/- (ONE HUNDRED AND FORTY ONLY) PER TON TO THE PARTY NO. I FOR THE SAND IS TO BE TAKEN FROM THE PROPERTY BELONGS TO PARTY NO. I. 3. THAT THE PARTY NO. II SHALL BE RESPONSIBLE FOR A RRANGING NECESSARY LICENCE FROM THE MINING DEPARTMENT AND TH E PARTY NO. II SHALL MINE THE SILICA SAND FROM THE ABOVESAID LANDED PROPERTY WITHIN TWO YEARS FROM THE DATE OF LICENCE. 4 4. THAT PARTY NO.II SHALL SETTLE WITH THE PARTY NO. I EVERY WEEK THE AMOUNT OF THE SAND TAKEN FROM THE SAID PROPERTY. 5. IF NECESSARY, THE PARTY NO. I SHALL BE RESPONSIB LE FOR SHIFTING THE TREES FROM THE SAID PROPERTY. 6. THE PARTY NO.II TODAY PAID RS.50,000/- (RUPEES F IFTY THOUSAND ONLY) TO THE PARTY NO.1 AS ADVANCE VIDE CHEQUE NO.393131 DRAWN ON STATE BANK OF TRAVANCORE CHERTHALA. 7. THE PARTY NO.II SHALL HAVE THE RIGHT TO DEDUCT T HE AMOUNT PAID BY HIM TO THE PARTY NO.I FROM THE TOTAQ L SAND VALUE MINED BY THE PARTY NO.II. 8. THE PARTY NO.II SHALL NOT CREATE ANY DAMAGES TO THE PARTY NO.I IS CONNECTED TO THE LAW RELATED TO THE S AND BUSINESS, AND ANY PARTY OF THIS AGREEMENT VIOLATES ANY CONDITION STIPULATED IN THIS AGREEMENT, THE PARTY W HO VIOLATES THE CONDITION SHALL BE RESPONSIBLE FOR THE DAMAGES AND LOSS CAUSED TO THE OTHER PARTY. FROM THE SAID AGREEMENT IT IS APPARENT THAT THE ASS ESSEE HAS BEEN COMMITTED TO MINE THE SAND FROM THE SAID LAND AND F OR WHICH THE ASSESSEE IS BOUND TO PAY RS.140/- PER TON TO THE LAND OWNER FOR THE SAND WHICH HE HAS EXTRACTED FROM THE SAID LAND. THE ASSESSEE SHA LL ALSO BE RESPONSIBLE FOR ARRANGING THE NECESSARY LICENCE IN THIS REGARD FROM THE MINING GEOLOGY DEPARTMENT FOR EXTRACTING THE SAND FROM THE SAID LA ND. THE ASSESSEE IS BOUND TO SETTLE EVERY WEEK THE PAYMENT TO BE MADE T O THE LAND OWNER. THE LAND OWNER SHALL BE RESPONSIBLE TO SHIFT THE TR EES FROM THE SAID LAND. THE ASSESSEE HAS ALSO GIVEN ADVANCE OF RS.50,000/- TO THE LAND OWNER FOR WHICH HE HAS RIGHT TO DEDUCT AT SOURCE FROM THE AMO UNT DUE TOWARDS THE LAND OWNER IN RESPECT OF THE SAND VALUE MINED BY TH E ASSESSEE. NOW THE QUESTION ARISES WHETHER THE CONSIDERATION PAID BY T HE ASSESSEE WAS TOWARDS THE PURCHASE OF THE SAND EXTRACTED FROM THE LAND OR WAS IT A RENT FOR THE LAND. IN CASE IT IS A RENT FOR THE LAND, T HE ASSESSEE SHALL BE LIABLE TO DEDUCT TAX AT SOURCE BUT IN CASE IT IS A CONSIDERAT ION TOWARDS EXTRACTION OF SAND I.E. PURCHASES OF THE COMMODITY, WHICH HAS TO BE TAKEN OUT BY THE 5 ASSESSEE HIMSELF, THE ASSESSEE HAS NOT TO DEDUCT T AX. THE RENT FOR THE PURPOSE OF SECTION 194I HAS BEEN DEFINED AS UNDER: (I) RENT MEANS ANY PAYMENT, BY WHATEVER NAME CAL LED, UNDER ANY LEASE, SUB-LEASE, TENANCY OR ANY OTHER AG REEMENT OR ARRANGEMENT FOR THE USE OF (EITHER SEPARATELY OR TOGETHER) ANY, (A)LAND; OR (B)BUILDING (INCLUDING FACTORY BUILDING) ; OR (C)LAND APPURTENANT TO A BUILDING (INCLUDING FACTOR Y BUILDING) (D)MACHINERY ; OR (E)PLANT ; OR (F)EQUIPMENT ; OR (G)FURNITURE ; OR (H)FITTINGS, WHETHER OR NOT ANY OR ALL OF THE ABOVE ARE OWNED BY THE PAYEE. ; ACCORDING TO THIS SECTION, RENT MEANS ANY PAYMENT, WHATEVER MAY BE THE NOMENCLATURE GIVEN BY THE PARTY UNDER ANY LEASE, SU B-LEASE, TENANCY OR ANY OTHER AGREEMENT OR ARRANGEMENT FOR THE USE OF A NY OF THE ASSETS MENTIONED UNDER CLAUSE (A) TO (H). LAND IS ALSO ON E OF THE ASSETS MENTIONED THEREIN. NOW THE QUESTION ARISES IF THE ASSESSEE HAS PAID THE CONSIDERATION FOR THE USE OF THE LAND UNDER THE AGR EEMENT ENTERED INTO BY THE ASSESSEE BY THESE PARTIES, IT WILL TANTAMOUNT T O BE A RENT BUT IN CASE THE LAND IS NOT USED BY THE ASSESSEE THEN IT WILL N OT COME WITHIN THE FOUR CORNERS OF THE RENT MAKING THE ASSESSEE LIABLE FOR DEDUCTION OF TAX AT SOURCE. WE NOTED THAT BOMBAY BENCH OF TRIBUNAL IN THE CASE OF CHATTISGARH STATE ELECTRICITY BOARD VS. ITO 2011(11 ) TMI 125 CONSIDERED THE WORD USE FOR THE PURPOSE OF SECTION 194I WHEN IT HAD AN OCCASION TO CONSIDER WHETHER THE TRANSMISSION CHARGES PAID BY T HE ASSESSEE TO POWER GRID WAS RENT FOR USE OF PLANT. THIS TRIBUNAL HE LD AS UNDER: (I) S. 194-1 DEFINES 'RENT' TO INCLUDE ANY PAYMENT, BY WHATEVER NAME CALLED, UNDER ANY LEASE, AGREEMENT OR 6 ARRANGEMENT 'FOR THE USE OF' ANY MACHINERY OR PLANT . FOR A PAYMENT TO BE CONSTRUED AS 'RENT', IT IS A CONDITION PRECEDENT THAT THE PAYER SHOULD HAVE SOME CONTROL OVER THE ASSET. THERE IS A DISTINCTION BETWEEN 'THE USE OF AN ASSET' AND THE 'BENEFIT DERIVED FROM AN ASSET' . . . . IN A TRANSACTION OF HIRE/LEASING, THE POSSESSION OF THE GOODS AND ITS EFFECTIVE CONTROL IS GIVEN TO THE CUSTOMER AND THE CUSTOMER HAS THE FREEDOM AND CHOICE OF HOW TO USE T HE ASSET. ON THE OTHER HAND, IF THE CUSTOMER ENTRUSTS TO THE ASSESSEE THE WORK OF ACHIEVING A CERTAIN DESIRE D RESULT AND THAT INVOLVES THE USE OF GOODS BELONGING TO THE OWNER, THE CONTROL OF THE ASSET REMAINS WITH TH E OWNER AND THERE IS NO 'USE' BY THE CUSTOMER (ASIA SATELLITE 332 ITR 340 (DEL) FOLLOWED. (II) ON FACTS, THE TRANSMISSION LINES WERE UNDER THE POSSESSION & CONTROL OF POWER GRID. THE ASSESSEE WA S MERELY ENABLED TO USE THE SERVICES OF TRANSMISSION OF ELECTRICITY AND NOT THE USE OF TRANSMISSION WIRES P ER SE. THE ASSESSEE WAS NOT INVOLVED IN THE ACTUAL OPERATIONS OF THE TRANSMISSION LINES. THE TRANSMISSION WIRES WERE ALSO USED BY OTHER CUSTOMER S OF POWER GRID. CONSEQUENTLY, THE PAYMENTS WERE NOT 'RENT' U/S 194-I. ON THE BASIS OF THE PROPOSITION OF LAW LAID DOWN IN THAT CASE, IT IS ESSENTIAL FOR CONSTRUING THE CONSIDERATION TO BE RENT THAT TH E PAYER SHOULD HAVE SOME CONTROL OVER THE ASSET. IN A TRANSACTION OF HI RE/LEASING, THE POSSESSION OF THE GOODS AND ITS EFFECTIVE CONTROL I S GIVEN TO THE CUSTOMER AND THE CUSTOMER HAS THE FREEDOM AND CHOICE OF HOW TO USE THE ASSET. BUT IN THE IMPUGNED CASE WE NOTED THAT THE LAND WAS GIV EN BY THE ASSESSEE ONLY FOR EXTRACTING THE SAND THEREIN. THE LAND REM AINS WITH THE OWNER. WHILE EXTRACTING THE SAND, THE ASSESSEE DOES NOT HA VE ANY CONTROL OVER THE LAND. INSTEAD OF SAND BEING EXTRACTED BY THE A SSESSEE, THE LAND OWNER COULD HAVE HIMSELF EXTRACTED THE SAND AND SOLD IT T O THE ASSESSEE IF THEY WOULD HAVE NOT INCLUDED IN THE AGREEMENT. EXTRACTI ON OF THE SAND TO BE CARRIED OUT BY THE ASSESSEE. THUS, IN OUR OPINION, IT IS SIMPLY SELLING OF THE SAND BY THE OWNER OF THE LAND WHICH HAS TO BE EXTRA CTED AND CARRIED BY 7 THE ASSESSEE AT OWN COST. LEARNED D. R. EVEN THOUG H MADE THE WRITTEN SUBMISSIONS AND RELIED ON THE PROVISIONS OF SECTION 194I BUT COULD NOT BRING TO OUR KNOWLEDGE ANY DECISION WHICH HAS TAKEN THE VIEW DISTINGUISHING THE WORD USE OF LAND AND BENEFITS D ERIVED FROM THE LAND. IT IS ALSO NOT DENIED THAT THE SAND SO EXTRACTED BY THE ASSESSEE IS TREATED AS COMMODITY AND THE VAT IS BEING LEVIED THEREON BY THE STATE GOVERNMENT ON SUBSEQUENT SALE BY THE ASSESSEE. IN VIEW OF THIS FACT, WE DO NOT FIND ANY ILLEGALITY OR INFIRMITY IN THE ORDE R OF CIT(A) NOT UPHOLDING THE ORDER OF THE ASSESSING OFFICER TREATING THE ASS ESSEE IN DEFAULT IN EACH OF THE ASSESSMENT YEARS UNDER SECTION 194I IN RESPE CT OF CONSIDERATION PAID BY THE ASSESSEE UNDER THE AGREEMENT ENTERED IN TO FOR EXTRACTION OF THE SAND WITH THE LAND OWNERS. WE, THEREFORE, CONF IRM THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL OF THE REVENUE IN EAC H OF THE ASSESSMENT YEARS. 5. NOW COMING TO I.T.A.NO.471/COCH/2013. THIS APPE AL HAS ALSO BEEN FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DA TED 25/04/2013. THE ONLY ISSUE INVOLVED IN THIS APPEAL RELATES TO THE D ELETION OF DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(I A) IN RESPECT OF LEASE HIRE CHARGES PAID BY THE ASSESSEE DURING THE ASSESS MENT YEAR 2006-07 AMOUNTING TO RS.67,90,900/-, WHICH WAS DISALLOWED B Y THE ASSESSING OFFICER BY HOLDING THAT THE ASSESSEE WAS LIABLE TO DEDUCT TDS UNDER SECTION 194I OF THE ACT. WHILE DISPOSING OF I.T.A. NO.370/COCH/2013 FOR THE ASSESSMENT YEAR 20006-07, WE HAVE CONFIRMED THE ORDER OF CIT(A) IN EARLIER PARAGRAPH HOLDING THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT THE TDS UNDER SECTION 194I AND ASSESSEE CANNOT BE TREAT ED TO BE AN ASSESSEE IN DEFAULT IN THIS REGARD. SINCE THE PROVISION OF SECTION 194I, IN OUR OPINION, WERE NOT APPLICABLE IN THE CASE OF THE ASS ESSEE IN RESPECT OF THE SAID PAYMENT THEREFORE, THIS ISSUE IS CONSEQUENTIAL IN NATURE AND THE DISALLOWANCE UNDER SECTION 40(A)(IA) COULD HAVE BEE N UPHELD ONLY IF THE 8 ASSESSEE WOULD HAVE COMMITTED THE DEFAULT UNDER SEC TION 194I. WE HAVE ALSO HELD THAT THE PROVISIONS OF SECTION 194I ARE N OT APPLICABLE IN THE CASE OF THE ASSESSEE THEREFORE, IN OUR VIEW, IT IS NOT A FIT CASE WHICH WARRANTS OUR INTERFERENCE. WE ACCORDINGLY CONFIRM THE ORDER OF CIT(A). 6. IN THE RESULT, ALL THE APPEALS FILED BY THE REVE NUE STAND DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 04/10/2017) SD/. SD/. (GEORGE GEORGE K.) (P. K. BANSAL) JUDICIAL MEMBER VICE PRESIDENT DATED:04/10/2017 *SINGH COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5. D.R., I.T.A.T., COCHIN ASSTT. REGISTRAR