Income-tax : Payments made by assessee-transporter to other vehicle owners in consideration of their providing vehicles with drivers to assessee for carrying passengers of its hirer from one place to another is deemed as `work' within meaning of section 194C and therefore, assessee was liable to deduct TDS therefrom under the provisions of section 194C [Section 194C of the Income-tax Act, 1961 - Deduction of tax at source - Contractors/sub-contracts, payments to] - [2011] 10 taxmann.com 143 (Ahd. - ITAT)
Tuesday, October 4, 2011
TDS u/s 194C is deductible on payment of hire charges by a transporter to a
Income-tax : Payments made by assessee-transporter to other vehicle owners in consideration of their providing vehicles with drivers to assessee for carrying passengers of its hirer from one place to another is deemed as `work' within meaning of section 194C and therefore, assessee was liable to deduct TDS therefrom under the provisions of section 194C [Section 194C of the Income-tax Act, 1961 - Deduction of tax at source - Contractors/sub-contracts, payments to] - [2011] 10 taxmann.com 143 (Ahd. - ITAT)
Wednesday, September 21, 2011
Whether when someone else deducts tax at source from payments made on beha
I-T - Whether when someone else deducts tax at source from payments made on behalf of assessee, it can be said that assessee has discharged its liability u/s 194C - NO, rules ITAT
THE issues before the Tribunal are - Whether, for attracting the provisions of Sec 194C, the presence of an express agreement vis-à-vis transportation charges, is a condition precedent; Whether liability of section 194C can be said to have been discharged if someone else deducts tax at source from payments made on behalf of the assessee and whether when assessee has diverted interest bearing funds to its sister concerns without charging any interest, disallowance of interest after allocation of interest bearing funds to tax free unit and non tax free unit is tenable, particularly for the period when the commercial production has not commenced. And the verdict goes against the assessee.
Facts of the case
Assessee company is engaged in the business of manufacturing pharmaceuticals products - filed its ROI, claiming deduction of certain expenses - it also paid interest on interest bearing funds and at the same time advanced interest free funds to its sister concerns – A.O. disallowed both these expenses on the grounds that expenses were incurred without deducting TDS and the interest bearing funds were diverted to sister concern without charging any interest. In respect of second issue it was observed by the AO that the assessee was having two units one was tax free and other was not - accordingly, the AO allocated the interest bearing funds among the units and disallowed the interest pertaining to that period during which commercial production was not commenced – CIT (A) affirmed the order of the A.O. – Before the ITAT, the AR of the assessee pleaded that the payments to the transporters were made on behalf of distributor and there was no written agreement between those transporters and the assessee.
After hearing the parties ITAT held that,
++ the distributors were acting merely as agents of the assessee and making the payment of freight charges on behalf of the assessee. Besides, the very fact that the assessee had claimed the impugned expenses as deduction shows that the assessee-company was not only liable to meet the same but had also actually met the same. It cannot therefore be accepted that the assessee was not required to pay freight charges or that it had not paid them. The mere fact that the payment was made by the distributors on behalf of the assessee will not alter the true nature, character and substance of the transaction. All the requirements of section 194C are fulfilled. Therefore it was the statutory responsibility of the assessee to deduct tax at source out of such payments and pay the same to the Government. In this view of the matter, the submission made on behalf of the assessee that the distributors were required to deduct tax at source out of impugned payments is rejected;
++ the submission made on behalf of the assessee that the distributors had deducted tax at source out of such payments and therefore the AO was not justified in making the impugned disallowance does not carry any force for several reasons. One, section 40(a)((ia) fixes the responsibility on the assessee (and none else) claiming deduction of expenses to deduct tax at source and deposit the same with the Government. The aforesaid statutory condition is not satisfied in the present case and therefore the assessee is not entitled to claim deduction of the impugned expenses. Two, as held by the CIT(A), distributors have not deducted tax at source. Three, the judgment in Transmission Corporation of AP Ltd. v. CIT (2002-TII-01-SC-INTL) referred to by the ld. authorized representative is inapplicable to the facts of the case and also for the reason that it has not been rendered in the context of section 40(a)(ia);
++ in CIT v. Abhishek Industries (2006-TIOL-314-HC-P&H-IT), the jurisdictional High Court has held that entire money in a business entity comes in a common kitty. The monies received as share capital, as term loan, as working capital loan, as sale proceeds, etc. do not have any different colour. Whatever are the receipts in the business; they have the colour of business receipts and have no separate identification. Sources have no concern whatsoever. Though the aforesaid judgment has been rendered in the context of section 36(1)(iii), the observations of the Hon'ble High Court as referred to above are quite apposite on the facts and in the circumstances of the case before us. Baddi unit and Dera Bassi unit are sister units of the same assessee. Dera Bassi unit has diverted part of its funds including interest-bearing funds to Baddi unit. The funds so transferred have cost. If the funds diverted are borrowed funds, then the cost is interest paid by the unit diverting its funds. If it is its own money (e.g., internal accruals, etc.), the cost is the amount of interest foregone by the unit diverting its funds. Quite obviously, not only the funds so transferred by Dera Bassi unit to Baddi unit but also interest thereon would need to be allocated to Baddi unit otherwise the profits of Baddi unit, which are exempt from tax, would stand inflated while the profits of taxable unit being Dera Bassi unit would stand artificially suppressed. In this view of the matter, the action of the AO/CIT(A) in allocating the impugned funds and interest thereon to Baddi unit and thereby capitalizing the same in terms of the proviso to u/s 36(1)(iii) is held to be in order. Ground No. 4 taken by the assessee is dismissed.
Thursday, June 9, 2011
Sale of contract NOT covered u/s 194C
Simply because the assessee monitors the manufacturing process it does not change the character of the transaction.
ITAT, MUMBAI BENCHES `G' MUMBAI
Glenmark Pharmaceuticals Ltd. v. ITO (TDS)
ITA NO. 935/Mum./2007
March 5, 2009
RELEVANT EXTRACTS:
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23. After careful consideration of the above circular it is clear that the contract for the sale of goods will not be covered within the ambit of sec. 194 C. In the present case we find that the assessee placed orders with the manufacturers for manufacturing of the medicines strictly according to its specifications but the property in such goods passed to the assessee only after these were delivered to him. When the manufacturers were purchasing the raw material at their own cost under incurring other expenses subsequently the product is delivered to the assessee. If it is manufactured according lo the specifications made by the assessee and delivered to it that property in goods can be set to have passed to the assessee. In the present case the assessee has simply placed the orders for the manufacture of medicines according to its own specifications and nil other relevant decisions for the manufacturing have been left to the wisdom of the manufacturer. The assessee only interested in the output coming of to its standard. How that output is achieved is the job of the manufacturer. Simply because the assessee monitor the manufacturing process it does not change the character-of the transaction.; When the manufacturers have their own establishment and their labour force, the raw material purchased by themselves, even the excise duty is also paid by them directly. Further when such manufacturers make the sale of such goods to the assessee the sales tax is also paid by them. Ultimately the manufacturers manufacturing the product by their own subjected to assessee's specifications supervision , control and later on sold such goods to the assessee. The property in goods passes over to the assessee only when such goods are manufactured and delivered to it. Hence, these arc only contract for sale of goods and not works contracts.
24. The Hon'ble Bombay court in case of BDA Ltd. Vs ITO [2006 ]281 ITR 99 (BOM). In this case M/s BDA Ltd. had distillary at Aurangabad and it purchased materials required for bottling and marketing the foreign made Indian liquor including the printing and packing material. M/s.Mudranika, another establishment was supplying the printed labels to be rapped on the bottles to the assessee. The ITO has held that the payment made to M/s.Mudranika. the supplier of the printed material from whom the printed labels were purchased, executed the contract liable for of tax at source u/s 194 C of the Act. The Hon'ble High Court observes M/s.Mudranika was an independent establishment in the business of supplying packing material to various establishments and the assessee had issued a order in favour of M/s.Mudranika for supply of printed labels as per the specification; provided by it but the raw material was not supplied by the assessee. It was noted that when the printing work was being carried in the premises of M/s. Mudranika though as per the specifications of the assessee the supply was limited to the quantity specified in the purchase order. There was nothing on record to show that all other ancillary cost were not incurred by M/s. Mudranika. In this background of the facts of the case, the Hon'ble Bombay High Court has held that the supply of printed labels by M/s. Mudranika to the assessee was "contract for sale" it could not be deemed as "works contract". Similar view has been taken by Delhi Bench of the Tribunal in DCIT Vs. Reebok India Company [2006] 100 TTJ 976(Del) which now stands approved by Hon'ble Delhi High Court in CIT Vs. Reebok India Company [2009] 221 CTR 508(Del). In another case Whirl Pool India Ltd Vs JCIT 16 SOT 435 Delhi Tribunal has held that where vendor purchases raw material on his own manufactured goods as per specifications of the assessee and the property in the goods passes to the assessee at the point of time goods are sold, it is a case of sale of goods not a job work.
25. Coining to instant case we find that there is a complete identity of facts with those considered by Hon'ble Jurisdictional High Court in as much as that the goods were manufactured by the manufacturers in their own establishments in accordance with the specifications given by the assessee. The raw material cost and other expenses incurred by their own. Even the excise duty was paid by them when the goods arc sold the sales tax also paid by the manufacturers. When the goods are sold to the assessee the property in them passed over to the assessee. Under these circumstances, we arc of the considered opinion that the agreements of the assessee with the manufacturers can not be termed as 'works contract'. "Die impugned order is therefore set aside and the application of section 194 C is ruled out. That being the position there can not be any question of treating the assessee as in default u/s 201(1) or charging any interest u/s 201(1A).
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Dear Friends : The emails are schedule to be posted in the blog and will sent to the group on carious dates and time fixed. Instead of sending it on one day it is spread on various dates. regards. R R Makwana