Tax Appeal Dismissed: Assessee Not Liable for TDS on Transporter Payments

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Case Name:

Principal Commissioner of Income Tax Vs Dilip Kumar Bapusaheeb Patole (High Court of Gujarat)

R/Tax Appeal No.49 of 2020

Date: 3rd February 2020

Key Takeaways:

1. An assessee acting as a commission agent is not liable to deduct TDS on payments made to truck owners.

2. Collecting Form 15-I from transporters absolves the assessee from TDS obligations under Section 194C (of Income Tax Act, 1961).

3. The court emphasized the importance of proper verification by the Assessing Officer when challenging the assessee's submissions.

Issue: 

Was the assessee, acting as a commission agent, required to deduct TDS under Section 194C (of Income Tax Act, 1961) on payments made to transporters?

Facts:

1. The Assessing Officer passed an assessment order on December 24, 2009, adding Rs.3,49,02,235/- to the assessee's income under Section 40(a)(ia) (of Income Tax Act, 1961). 

2. The addition was made because the assessee allegedly failed to deduct TDS on payments exceeding Rs.20,000/- made to transporters.

3. The assessee appealed to the CIT(A), who initially dismissed the appeal but later deleted the addition after a fresh adjudication ordered by the ITAT.

4. The Revenue appealed to the ITAT, which dismissed their appeal, leading to this High Court appeal.

Arguments:

Revenue's Arguments:

1. The assessee was required to deduct TDS under Section 194C (of Income Tax Act, 1961) read with Section 40(a)(ia) (of Income Tax Act, 1961).

2. The assessee was in a quasi-contract with truck owners and used their services on a hire basis.

Assessee's Arguments:

1. The assessee was merely acting as a commission agent.

2. Form 15-I was collected from the truck owners, absolving the assessee from TDS obligations.

Key Legal Precedents:

1. ITO Vs. Gopal S. Rajput, (2015) 156 ITD 827 (Mum tribunal) 

2. ITO Vs. Rajesh Boricha [2013] 38 taxmann.com 435 (Rajkot-Trib.) 

3. ITO Vs. Andhra Roadways reported in 61 taxmann.com 203 

The court noted that the ITAT took support from the Andhra Roadways case in reaching its conclusion.

Judgement:

1. The High Court dismissed the Revenue's appeal, agreeing with the ITAT's reasoning.

2. The court found that the assessee was acting merely as an agent and had complied with Section 194C (of Income Tax Act, 1961) by collecting Form 15-I from the transporters.

3. The court emphasized that the Assessing Officer did not properly verify the details submitted by the assessee during the remand proceedings.

4. The proposed questions by the Revenue were not considered substantial questions of law.

FAQs:

Q1: What is Form 15-I?

A1: Form 15-I is a declaration form submitted by transport operators to their clients, stating that they own less than 10 goods carriages and don't want TDS to be deducted on payments made to them.

Q2: Why was the assessee not liable to deduct TDS?

A2: The assessee was found to be acting merely as a commission agent and had collected Form 15-I from the transporters, which absolves them from TDS obligations under Section 194C (of Income Tax Act, 1961).

Q3: What is the significance of Section 40(a)(ia) (of Income Tax Act, 1961)?

A3: This section disallows certain expenses in computing business income if TDS was not deducted as required by law.

Q4: How did the court view the Assessing Officer's role in this case?

A4: The court noted that the Assessing Officer should have properly verified the details submitted by the assessee and issued notices under Section 133(6) (of Income Tax Act, 1961)/131 of the Act if not satisfied with the submissions.

Q5: What impact does this judgment have on similar cases?

A5: This judgment reinforces the principle that commission agents who collect Form 15-I from transporters are not liable for TDS deduction, provided they comply with the procedural requirements of the Income Tax Act.

1. This Tax Appeal under Section 260A (of Income Tax Act, 1961) (for short ‘the Act, 1961’) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench “B”, Ahmedabad in ITA No.1398/Ahd/2016 A.Y.2007-08.

2. The Revenue has proposed the following questions of law, for consideration of this Court:

“a) Whether Appellate Tribunal has erred in law and on facts in deleting the addition of Rs.3,49,02,235/- made under Section 40(a)(ia) (of Income Tax Act, 1961) on account of non-deduction of tax under Section 194C (of Income Tax Act, 1961) by holding the assessee as a mere commission agent?

b) Whether on the facts and in the circumstances of the case and in law, the Hon’ble Tribunal is correct in holding that assessee was a mere commission agent ignoring the ratio laid down in ITO Vs. Gopal S. Rajput, (2015) 156 ITD 827 (Mum tribunal) and ITO Vs. Rajesh Boricha [2013] 38 taxmann.com 435 (Rajkot-Trib.) wherein it is clearly laid out that assessee was required to deduct TDS u/s.194C (of Income Tax Act, 1961) read with section 40(a)(ia) (of Income Tax Act, 1961) as he was using the services of various truck owners on hire basis and thus was in quasi contract with truck owners.”

3. It appears from the materials on record that the assessment order, under Section 143(3) (of Income Tax Act, 1961), was passed on 24th December, 2009 determining the total income at Rs.3,58,86,350/- against the returned income of Rs.9,84,110/-, after making addition of Rs.3,49,02,235/-, under Section 40(a)(ia) (of Income Tax Act, 1961) as the assessee had failed to deduct TDS under Section 194C (of Income Tax Act, 1961), on payment made to transporters, though the payment made exceeded Rs.20,000/-

4. The assessee, being dis-satisfied with the assessment order, preferred an appeal before the CIT (A). The CIT (A) dismissed the appeal vide order dated 28.10.2010, thereby, confirming the addition made by Assessing Officer of Rs.3.49 Crore.

5. Being dis-satisfied with the order passed by the CIT(A), the assessee went in appeal, before the Tribunal. The Tribunal vide order dated 05.07.2013 set aside the issue to CIT(A) for fresh adjudication.

The CIT (A) vide order dated 21.03.2016 deleted addition of Rs.3.49 Crore. Being aggrieved, the Revenue filed appeal before the Tribunal. The Tribunal dismissed appeal of the Revenue.

6. Being dis-satisfied with the order passed by the Tribunal, the Revenue is here before this Court with the present Appeal.

7. The Tribunal addressed itself on the question that whether the assessee had made payment of the freight charges to the truck owners as against the provisions of Section 194C (of Income Tax Act, 1961) without deducting the TDS?

8. We take notice of the following finding of the fact, recorded by the Tribunal:

“6.4. The learned AR for the assessee has also submitted the details of the commission income earned by him on sample basis which is placed on pages 8 to 9 of the paper book which was also not controverted by the AO during the remand proceedings. Indeed, the assessee has not furnished the details of the commission income for the entire year. But to our mind if the AO was not satisfied with the details furnished by the assessee then he should have required the assessee to furnish the details for the entire year. Moreover, we note that the AO in the remand proceeding has not pointed out any defect in the submission filed by the assessee. Accordingly, we note that the assessee was merely acting as an agent. Accordingly, the assessee is not liable to deduct the TDS on the payment made to the truck owners.

6.5. Regarding the 2nd controversy whether the assessee has received form 15 I duly filled from the truck owners, we note that the assessee has furnished a list of 340 parties along with their addresses, truck numbers with the date of registration and the date form 15 I which is placed on pages 83 to 90 of the paper book. On perusal of the same, we note that all the details of the truck owners were furnished before the AO. However, the AO has not carried out any verification of such details to prove them erroneous by issuing notice to any of the party under section 133(6) (of Income Tax Act, 1961)/131 of the Act.

6.6. We, further note that the assessee is absolved the form the provisions of the TDS once he has collected from 15 I before making the payment to them or crediting their account. There is no ambiguity to the fact that the necessary froms 15 I were collected by the assessee within time. This fact has not been controverted by the learned DR for the Revenue. Indeed, the assessee is under the obligation to file a report to the commission of income tax in form 15 J after compiling all the details collected in the form 15I but this requirement is procedural.”

9. It appears that the Tribunal also took support of one of its judgment in the case of ITO Vs. Andhra Roadways reported in 61 taxmann.com 203. Ultimately, the Tribunal reached to the conclusion that the assessee has duly complied with the provisions of Section 194C (of Income Tax Act, 1961) by collecting the requisite 15-I Form and therefore, the assessee was not liable to deduct the TDS, on payment made to the transporters.

10. In over all view of the matter, we are convinced to the line of reasoning, assigned by the Tribunal. None of the two questions, as proposed by the Revenue, could be termed as the substantial questions of law.

11. In the result, this appeal fails and is hereby, dismissed.

(J. B. PARDIWALA, J)

(BHARGAV D. KARIA, J)