Friday, July 5, 2013

CIT v. Bhagwati Steels {PLIniaIJ & Haryana HC)

TDS not deductible on freight Chargers Shown
separately in Goods Purchase Bill

CIT v. Bhagwati Steels {PLIniaIJ & Haryana HC) In the instant case. it was helcl that

the payment ef freight charges hy the assessee to the truck drivers was based en

incliviclual GRs 1which represented incliviclual ancl separate contracts and there was no

single eentraet fer carriage er transportation ef geecle referred to between assessee

and the impugnecl parties `which would make the assessee liable for deduction of tax

at source under section 194C of the Act.

It is evident that the expenses cffreight incurred by Mis Tata Steel, which have been shcwn

separatelyr in the invoices raised cn the assessee, cannct be construed tc infer that the

assesses has paid any amcunt for transportation cf gccds separately than the ccst cf the

gcccls purchased by it. Ostensibly, in such circumstances, there would nct arise any

necessity of deduction of tax at source on the freight amount separately shown in the

Invoices, in terms of section 194C ofthe Act. Therefore, following the parityr of reasoning laid

down by the Hon’ble Jurisdictional in the case of Food Corporation of India (supra) the

amount raised by lvlfs Tata Steel in the invoices shown as freight did not create an obligation

on the assessee to deduct tax on such amounts as per section 194C ofthe Act. In our view.

if the freight expenses incurred by Mis Tata Steel are added to the cost of goods in the

invoice raised, it cannot be inferred that the assessee has paid any amount

offreight separately because the same is part of the cost of product purchased. The

assessee cou|d not be said to be an assessee in default for non deduction oftax at source in

terms of section 194C ofthe Act on the amount of freight billed separatelyr by IWs Tata Steel.

As a consequence, it follows that the provisions of section (ia) ofthe Act cannot be

applied to disallow the amount of such freight amounting to Rs. 2,01.81.428l-. Following the

aforesaid discussion, We set-aside the order of the Commissioner of Income-tax (A) and

direct the Assessing Officer to delete the impugned addition. The assesses accordingly.

succeeds on this Ground.

HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

Income Tax Appeal No.693 of 2009

Date of decision: 21-01-2010

The C ommissioner of Income tax-I Chandigarh

VERSUS

MIS Bhagwati Steels

ORDER

MM. KUMAR, J.

The Revenue has approached this ccurt under Section 260 (A) cf the lnccrne Tax Act, ‘|961

(for brevity “the Act”) challenging crder dated 30.04.2009 passed by the Income Tax

Appellate Tribunal, Chandigarh (for brevity “the Tribunal”) in respect of assessment year

2006-07 while deciding ITA No.6310handir'2009. The Revenue has claimed that from the

order ofthe Tribunal two substantive questions of law would emerge and are required to be

adjudicated by this court which are as under:-

i) “Whether on facts and in the circumstances or' the case, the Hon’bfe »'TAT was right in few

in defetr'ng the dfsaffowance made u/s 40(a) (fa) of the Income Tax Act in View of the

amended provisions ofSec. 194C(3)(1) of the Income Tax Act.”

ii) “Whether on the facts and circumstances of the case the goods suppiied by M/s. TA TA

STEEL not being inciusive of freight and therefore the freight charges charged separateiy by

M/s. TA TA STEEL faiis under the provisions of Section 194C of the income Tax Act, 1961.”

Facts of the case in brief are that the assessee -respondent t'lled its return of income for the

assessment year 2006- 07 declaring its income of Thereafter

assessment was completed under Section 143(3) ofthe Act on 27.11.2008 assessing the

incorne at Rs. 247.41068# as various additions were made by the Assessing Officer (Pi-1).

The assessee - respondent filed an appeal before the CIT (A) who partlyI allowed the appeal

vide its order dated 12.01.2009 (Pi-2). The assessee - respondent then filed another appeal

before the Tribunal by pleading the following four grounds:-

i) “that the Learned CiT(A) Wrongiy confirmed addition of freight paid to truck

drivers amounŕing ro H5172, 723/- u/s 4009) (income Tax Act) of the income Tax Act, 1961.

n) Tnet the Learned CINA) wrongfy confirmed dtsettowenoe of interest expenses amounting

to Rs.4,

That the Learned CtT(A) wrongty oonń'rmed dtsattowanoe of Rs.2,01.3î.428/­ u/s 40(a) of

the income Tax Act out of purchase of raw materia»Í for freight paid by the supplier of raw

materia!r

iv) That the Learned Ci'iYA) wrongiy confirmed disaiiowanoe of iabour and freight charges

amounting to on estimate basis.”

Re: Question No.1. On the first question, the Tribunal recorded a categorical finding of faot

that there was no material on record to prove any Written or oral agreement between the

assessee and the recipients of goods for transportation or carriage thereof. The Tribunal had

further observed that there was no material to show that the payments of freight had been

made in pursuance to a contract of transportation of goods for a specific period, quantity or

price. The aforesaid fact being an essential feature to test the applicability of Section

194(C) ofthe Act as considered by Division Bench of this court in the case of CIT versus

United Rice Land Ltd. (2008) 217 CTR (P&H) 332. A further finding of fact is that

the freightpayment is Rs.1,72,723f­ and none of the individual payment exceeded

Rs.20,000}­. lt was also not disputed that the payments were made on the basis of individual

G.Rs. issued bythe truck owners for each trip separately. Although aggregate of payments

of two truck owners during the assessment year exceeded Rs.20,000f­ which would still not

lead to deduction of tax at source because there was no contract for a specitic period. price

or quantity for carriage ofgoods. The finding ofthe Tribunal in Para 11 reads thus:-

“1 1. In the instant oase. ew'dentty. thefe ts neither any maten'a»r to suggest that there is any

written or orat agreement between the assessee and the tmpugned parties for carnage or

transportation of goeds and nor t't te proved that the ímpugned sum has been paid to the

parties in pursuance to a contract for specific period, quantity or price, therefore, foiiowing

the parity of reasoning iaid down by the Honübie Jurisdictionai High Count in the case of

United Rice Land i_td. (supra), in the instant case, it has to be heid that the assessee 1nas

not iiabie to deduct tax at source under section 194C ofthe Acton the payment

offreignt charges of Rs. 1, 72,7231-, es detaiied by the Assessing Officer. Though the two

parties in question have transported the goods for the assessee on more than one occasion

during the financiai year, yet it was based on individuai G.Rs. which represent individuai and

separate contracts. There is no singie contract for carriage or transportation or' goods

referred to beŕween the assessee and the ŕmpugned parties which Woufd make the assessee

liable for deduction or' tax at source u/s 194C ofthe Act. Reliance placed by the Revenue on

the proviso to section 194C (3) (i) also does not help since in this case. lne assessee does not

fail Within the scope of sub-section (1) of section 194C following the reasoning laid down by

the Hon`ble High Court in the case of United Rice Land Ltd. (supra). Consequently, the

disaiiowance of such amount cannot be justified by invoking the provisions of section

40(a)(ia) of the Acr. The order of the Commissioner of incomerax (A) is ser aside and the

Assessing Officer is direcfed fo deieŕe the impugned addition. The assessee succeeds on

ŕhis Ground.”

ln view of the above, question no.1 would not arise for determination as the factual

foundation needed for answering the question is entirely against the Revenue. The finding of

facts recorded by the Tribunal, being the last court of fact, cannot be gone into by this court

merely because after re-appreoiation of evidence and other view would be possible.

Therefore, we find that there is no substance in the first question of lavv claimed by the

Revenue.

Re: Question No.2. The other question claimed by the Revenue is that the Assessing

Officer has rightly disallowed Rs.2,01 ,81,428f- by invoking the Section 40(a) (ia) ofthe Act.

The Assessing Officer had found that the assessee was making purchases from ivi/s Tata

Iron &Stee| Company Ltd. (for brevity “Tata Steel"). The purchase invoice raised by Mis

Tata Steel included freight charges and the assessee did not deduct any tax at source under

Section 194(C) ofthe Acton those freight charges. The non-deduction of tax at source

under Section 194(C) on such freight charges were disallowed by the Assessing Oflicer

under Section 40(3) (ia) ofthe Act. The amount was computed to be Rs. The

CIT (A) affirmed the order passed by the Assessing Officer. On further appeal, the

Tribunal referred to the provisions of Section 40(a) (ia) which disallowed the expenditure if

such expenditure attracts deduction of tax at source. Such tax is either not deducted or if

deducted it has not been remitted to the State Exchequer within the time allowed. The

amount of stood paid by the assessee f“ respondent to [vifs Tata Steel

as freight charges for carriage of its goods on which tax Was not deducted in terms of

Section 194(C) ofthe Act and therefore such amount is not deductible while computing the

taxable income. When the matter was heard by the Tribunal a copy of the distribution

agreement between the assessee and the Mis Tata Steel was placed on record. According

to the agreement, the assessee respondent had appointed distributor for marketing of

products of MIS Tata Steel which envieagee purchase of production by the aeeeeeee -

respondent and sale thereof. The Tribunal has quoted |Clauses 2.14 ofthe agreement which

showr that Nils Tata Steel was to raise invoice on the assessee as per the list price to be

published by Tata Steel. The Tribunal after reading the agreement reached the conclusion

that the assessee - respondent had a responsibilityr of marketing the goods of Mis Tata Steel

after purchasing the same from them. The sample copy of the price list has been placed on

the paper The amount of freight was found to be shown separately in the invoices but

the Assessing Officer considered for payment by the assessee in respect of which deduction

of tax at source under Section 194(C) ofthe Act was required to be made. However.

the Tribunal after reading the whole contract in its entirety reached the conclusion that the

transaction between the parties was essentially governed by the Distribution Agreement

which was transaction ofgoods per se and cannot be segregated for the purposes of

payment of expenses by Way of freight. ln that regard, the Tribunal has placed reliance on a

Division Bench judgment of this court rendered in the case of CIT (TDS). Chandigarh

versus The Assistant Manager (Accounts). Jagadhri. No.40? of 2003 decided

on 21.08.2003. ln that case also the Food Corporation of India had made payments to State

agencies on the basis of invoices raised in respect ofthe food grain procured by them. The

invoices reflected the cost of Wheat apart from the cost of incidental expenses including VAT.

transportation, interest or storage charges. This court negated the stand ofthe Revenue and

held that if expenses incurred by a person on account of transportation and interest etc. were

aclcled to the cost ofthe goods then it would not lead to an inference that such a person had

paid separately for services of transportation and interest etc. as it becomes part of the cost

of the product purchase. Therefore such amount charge separately cannot be held liable

of deduction of tax at source under Section 194(C) of the Act. The view of the Tribunal is

discernible from Para 25 of the order which reads thus:-

“25. Putting the aforesaid iogic to the instant case, it is evident that the expenses of freight

incurred by M/s Steei. which have been shown separateiy in the invoices raised on the

assessee. cannot be construed to infer that the assessee has paid any amount for

transportation of goods separateiy than the cost of the goods purchased by it. Ostensibiy, in

such circumstances. there Wouid not arise any necessity of deduction of tax at source on the

freight amount separateiy shown in the invoices. in rern'is of section 194C of the Act.

Therefore. foiiowing the parity of reasoning iaid down by the Hon’bie Jurisdictionai in the

case of Food Corporation of india (supra) the amount raised by M/s Steei in the

invoices shown as freight did not create an obligation on the assessee fo deduct tax on such

amounts as per section TQ-iC of the Äct, in our View, if the freight expenses incurred by M/s

Tata Steei are added to the cost of goods in the invoice raised, it cannot be inferred that the

assessee has paid any amount of freight separateiy because the same is part of the cost of

product purchased. assessee couid not be said to be an assessee in defauit for non

deduction of tax at source in terms of section 194C of the Act on the amount of freight biiied

separateiy by M/s Steei. As a consequence, it foiiows that the provisions of section

40(a) (ia) of the Act cannot be appiied to disaiiow the amount of such freight amounting to

Rs. 2,01,81,428/­. Foiiowing the aforesaid discussion. we set-aside the order of the

Commissioner of income-tax (A) and direct the Assessing Officer to deiete the impugned

addition, The assessee accordingiy. succeeds on this Ground.”

We asked learned counsel for the Revenue as to Whether any appeal has been ñled against

the judgment rendered by this court in the case of Food Corporation of India (Supra) no

satisfactory answer has been given by her. Therefore, we feel bound by the aforesaid

judgment and accordingly, the issue is covered against the Revenue and in favour of the

assessee - respondent. Accordingly, no substantive question of law would arise for

determination by this court.

As a sequel to the above dieeueeien. thie appeal fails andthe Same is accordingly

dismissed.