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 ITO vs. Vikram A. Pradhan (ITAT Mumbai)

The Regional Manager, UPSRTC (Ghaziabad Depot), 26, Navyug Market, Ghaziabad. Vs Dy.Commissioner of Income Tax (TDS), Ghaziabad.
December, 24th 2014
ITA No. 1910, 1912/D/2010
ITA 51 & 52/D/2012
AYs 2008-09, 2009-10

              IN THE INCOME TAX APPELLATE TRIBUNAL
                   DELHI BENCHES `H' NEW DELHI

       BEFORE SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
                        AND
       SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER

                      ITA NO.1910/DEL/2010 & ITA NO.1912/DEL/2010
                      ASSTT.YEAR: 2008-09 & 2009-10

The Regional Manager,                   vs Dy.Commissioner of Income Tax
UPSRTC (Ghaziabad Depot),                  (TDS), Ghaziabad.
26, Navyug Market,
Ghaziabad.
(PAN: AAATU3009M)

              ITA NO.51/DEL/2012 & ITA NO. 52/DEL/2012
                   ASSTT.YEAR: 2008-09 & 2009-10

Addl.CIT(TDS),                  vs   The Regional Manager,
Ghaziabad.                           UPSRTC, Ghaziabad.
(Appellant)                                 (Respondent)
                     Appellant by: Shri J.P. Chandrakar, Sr. DR
               Respondent by:S/Shri Rakesh Garg Adv., Mridul ,Aggrawal, CA


                            O R D E R

PER BENCH

       These appeals have been filed by the revenue against the order of the

CIT(A)-Ghaziabad, in Appeal No. 168 & 169/2008-09/GZB for AY 2008-09

and 2009-10 respectively, both dated 18.01.2010.



                                                                             1
ITA No. 1910, 1912/D/2010
ITA 51 & 52/D/2012
AYs 2008-09, 2009-10

2.     The assessee has raised similar grounds in both the appeals which read as

under:-


                 "1. Under the facts and circumstances of the case the
          Ld Assessing Officer erred in treating the hiring of buses as
          hiring of machinery U/S 194 I of the I. T. Act 1961 by
          completely ignoring the fact that all the hired buses were
          governed under the contracts and "carrying out a work" as
          explained in section 194 C of the I T Act 1961. In fact no fix
          rental was paid but the payment made to the contractors was
          on the mileage basis.
          2. The order of Ld Assessing Officer is against the
          Principles of Natural Justice as before declaring the appellant
          as "assessee in default" u/s 201 of the IT Act 1961, Ld
          Assessing Officer did not tried to verified whether the
          contractors/deductees have duly paid the taxes on their
          income. In fact the Ld Assessing Order did not pass any order
          U/S 201 of the I T Act 1961.
          3. That it seems while passing an order the Ld Assessing
          Officer, ignored a fact that appellant is a state owned
          corporation and its main motive is not profit but a public
          utility and therefore it has no malafide intention in deducting
          the tax at source on lower rates."
3.     Apropos these grounds, we have heard arguments of both the sides and

carefully perused the relevant material placed on record. Ld. Counsel of the

assessee submitted that the AO erred in treating the hiring of buses as hiring of

machinery u/s 194 I of the I. T. Act 1961 by completely ignoring the fact that all

the hired buses were governed under the contracts and "carrying out a work" as

explained in section 194C of the I T Act 1961. Ld. Counsel further explained

that in fact no fixed rental was paid but the payment made to the contractors was

on the mileage basis. Ld. counsel further pointed out that the AO passed an

                                                                                2
ITA No. 1910, 1912/D/2010
ITA 51 & 52/D/2012
AYs 2008-09, 2009-10

order against the principles of natural justice as before declaring the

assessee/appellant as "assessee in default" u/s 201 of the Act, the AO did not

even try to verify the fact that whether the contractors/deductees have duly paid

the taxes on their respective income. Ld. Counsel also contended that in fact the

AO did not pass any order u/s 201 of the Act as per statutory provisions of the

Act. Ld. Counsel finally contended that the AO ignored a very important fact

that the assessee is a state owned corporation and its main motive to not to earn

profit but to facilitate public at large for transportation and, therefore, it cannot

be even presumed that the assessee had any malafide intention deducting the tax

at source on lower rates u/s 194C of the Act.





4.     Ld. Counsel has drawn our attention towards page no. 163 to 165 of the

Paper Book and submitted that on similar issue, ITAT Delhi Bench `F' in ITA

No. 5235 and 5236/Del/2010 for similar assessment years i.e. 2008-09 and

2009-10 in the case of ITO vs Regional Manager, UPSRTC, Saharanpur, has

held that the payments made by the assessee would fall under the category of

carriage of goods and passengers by any mode of transport other than railways

and not under rent. Therefore, provisions of section 194C of the Act will be

applicable. Ld. Counsel parted his arguments with a final submission that the

main issue in both the appeals is squarely covered in favour of the assessee by

the decision of ITAT `F' Bench Delhi in favour of the assessee.



                                                                                   3
ITA No. 1910, 1912/D/2010
ITA 51 & 52/D/2012
AYs 2008-09, 2009-10

5.     Ld. Counsel also placed reliance on various decisions including decision

of Hon'ble Jurisdictional High Court of Delhi in the case of ACIT vs Lotus

Valley Education Society dated 17.5.2014 and submitted that TDS u/s 194C of

the Act applies on bus rent paid by the assessee school to the transporter for

carrying students. On the same issue, ld. Counsel has also placed reliance on the

decision of ITAT Delhi in the case of ACIT(TDS) vs M/s Idea Cellular Ltd. in

ITA No. 4913/Del/11 for AY 2008-09 and submitted that TDS on transportation

charges is deductible u/s 194C of the Act and not u/s 194I of the Act.

6.     Replying to the above, ld. DR supporting the orders of the authorities

below submitted that the assessee had hired buses for commercial purpose and,

therefore, the AO rightly observed that the same were covered under the term of

commercial vehicles. Ld. DR further contended that the assessee made payment

on account of use of machinery/equipment/plant which is covered u/s 194I of

the Act and included in the rent, hence, TDS on such payment was required to

be deducted @10% and, therefore, the assessee wrongly took shelter of section

194C of the Act for making TDS at the lower rate and, thus, the AO was very

well within his jurisdiction in passing order u/s 201(1A) of the Act.


7.     On careful consideration of above rival submissions and contentions and

careful perusal of the orders/decisions as relied by the ld. Counsel of the

assessee, at the outset, we observe that ITAT `F' Bench Delhi in the case of ITO



                                                                               4
ITA No. 1910, 1912/D/2010
ITA 51 & 52/D/2012
AYs 2008-09, 2009-10

vs Regional Manager, UPSRTC, Saharanpur (supra) dealing with the same issue

has held as under:-


               "5.1 We have heard both the parties and gone through
        the material available on record. In the case before us the
        assessee had taken the buses on hire on payment made on
        kilometer running basis. The owner was responsible for
        running cost, maintenance, driver cost and other incidental
        charges like accident etc. Therefore, the assessee has not taken
        the plant or machinery on rent. Under section 194-C of the Act
        any person responsible for paying any sum to any resident for
        carrying out any work in pursuance of a contract between the
        contractor and a specified person shall at the time of credit of
        such sum with the account of the contractor or at the time of
        payment thereof in cash or by issue of cheque or draft or by
        any mode, whichever is earlier, deduct an amount equal to 2
        per cent where such payment is being made or credit is given
        to a person other than individual or a HUF of such sum as
        Income-tax on income comprised therein. Explanation III
        defines the word "work" reads as under:
              "Explanation III.--For the purposes of this section, the
        expression "work" shall also include--
                (a) advertising;
               (b) broadcasting and telecasting including production
        of programmes for such broadcasting or telecasting;
               (c) carriage of goods and passengers by any mode of
        transport other than by railways;
                (d) catering."
              5.2 From plain reading of definition of word "work" it
        is clear that it inter alia includes carriage of goods or
        passengers by any mode of transport other than by railways.
        On the other hand, section 194I is applicable to sums paid by
        way of rent. Explanation (i) of section 194I defines the term
        `rent' and inter-alia includes for payment in respect of
        machinery or plant or equipment. In the instant case, the
        assessee has entered into an agreement for hiring of buses on

                                                                           5
ITA No. 1910, 1912/D/2010
ITA 51 & 52/D/2012
AYs 2008-09, 2009-10

        kilometer scheme basis. The payment thus made would fall
        under the category of carriage of goods and passengers by any
        mode of transport other than railways and not under rent.
        Therefore, provisions of section 194-C of the Act will be
        applicable."
8.     We further note that the Hon'ble Jurisdictional High Court of Allahabad

in the case of ACIT vs Lotus Valley Education Society (supra) has held that the

Tribunal did not commit any error in law in invoking section 194C of the Act

which clearly provides under Explanation III to sub-section (2) of section 194C

of the Act that "work" includes carriage of goods or passengers and by any

mode of transport other than by railways." The relevant operative part of this

order reads thus:-


              "We have examined the reasoning given by AO, CIT
        and the Delhi High Court (Supra), and find that word 'rent' in
        the explanation to 194-1 includes 'plant' but that 'plant' has
        not been defined under definition clause of Section 2 of the
        Act, which is general definition clause under the Income Tax
        Act.
               9. In the present case, the word' rent' has not been
        defined in Section 2 of the Act. The definition of the word'
        plant' under sub section (3) of Section 43, falls in Chapter IV -
        Computation of Total Income, which is neither relatable nor
        applicable to the Chapter XVII, relating to collection and
        recovery of tax. Even otherwise, it is difficult to believe that
        the word' plant' defined in Chapter IV - computation of total
        income, falling under Section 43 of the Act, includes buses
        hired by the educational institutions. The definition of' plant'
        in sub section (3) of Section 43 of the Act clearly states that
        `plant' includes ships, vehicles, books, scientific apparatus and
        surgical equipment used for the purposes of the business or
        profession. A plain and general interpretation of ' plant' in
        Chapter-IV of sub section (3) of Section 43 of the Act would
        show that it has included the use of ships, vehicles, books,

                                                                             6
ITA No. 1910, 1912/D/2010
ITA 51 & 52/D/2012
AYs 2008-09, 2009-10

        scientific apparatus and surgical equipment for the purposes
        of Section 28 to 41. We are not permitted to add or subtract
        anything from it, nor can we read it as an inclusive definition
        to be used for the purpose of sections in Chapter XVII -
        collection & recovery of tax at source.
              10. We further find that Section 194-C of the Act
        provides for collection and deduction of tax at source in
        respect of the payments made to contractors and sub
        contractors.
               11. Any person responsible for paying any sum to any
        resident for carrying out any work is liable to deduct an
        amount equal to one percent where the payment is being made
        or credit is being given to an individual or a Hindu undivided
        family and at two percent, where the payment is be made or
        credit is being given to a person other than an individual or a
        Hindu undivided family. The definition clauses for the purpose
        of Section 194-C provides that the term' work' shall include (a)
        advertising; (b) broadcasting and telecasting including
        production of programmes for such broadcasting or
        telecasting: (c) carriage of goods or passengers by any mode
        of transport other than by railways; (d) catering; (e)
        manufacturing or supplying a product according to the
        requirement or specifications of a customer by using material
        purchased from such customer
              12. The Tribunal did not commit any error of law in
        invoking Section 194-C, which clearly provides under
        explanation-III to sub section (2) of Section 194-C that `work'
        includes carriage of goods and, passengers by any mode of
        transport other than by railways."
9.     On the basis of foregoing discussion and in view of the ratio of the

decisions relied by the ld. Counsel of the assessee, we are inclined to hold that

both the appeals of the assessee are squarely covered by the decision of ITAT

Delhi "F" Bench in the case of ITO vs Regional Manager, UPSRTC, Saharanpur

(supra) and we hold that the definition of word "work" is clear in Explanation ­


                                                                               7
ITA No. 1910, 1912/D/2010
ITA 51 & 52/D/2012
AYs 2008-09, 2009-10

III (c) attached to sub-section (2) of section 194-C of the Act which makes it

clear that it includes carriage of goods or passengers by any mode of transport

other than by railways.     Therefore, payment made by the assessee would

certainly fall under the category of carriage of goods and passengers by any

mode of transport other than railways and the same does not fall under the

definition of rent related to section 194I of the Act. We also note that the

revenue has not disputed this very fact that the assessee is making payment on

kilometre running basis without having any responsibility for running cost,

maintenance cost, driver cost and other identical charges and liabilities,

therefore, it can safely be presumed that assessee has not taken the plant or

machinery on rent but assessee is making payment towards hiring charges paid

to the transporter for carriage of goods and passengers by any mode of road

transport. Accordingly, ground no. 1, 2 and 3 in both the appeals are allowed.


ITA 51 & 52/Del/2012 of the Revenue

10.    These appeals have been filed by the revenue against common orders of

the CIT, Ghaziabad dated 17.10.2011 in Appeal No. 179 and 180/2010-11/GZB

for AY 2008-09 and 2009-10 by which the CIT(A) deleted the penalty imposed

by the AO u/s 271(1)(c) of the Act. The Revenue has raised similar grounds in

both the appeals which read as under:-




                                                                                 8
ITA No. 1910, 1912/D/2010
ITA 51 & 52/D/2012
AYs 2008-09, 2009-10




            "1.      That the Ld. CIT (A) has erred on facts and in law in
      cancelling the penalty order u/s 271C dated 11.08.2010 passed by
      the Addl.CIT(TDS),Ghaziabad and in holding that the defaulting
      the short deduction of tax by The Regional Manager UPSRTC,
      Ghaziabad Depot, 26, Navyug market, Distt. Ghaziabad is
      bonafide one and there is reasonable cause for the same, ignoring
      the facts of the case that the dedicator Corporation is liable to
      deduct the tax u/s 1941 and u/s 194J at the rate of 10% for hiring
      the buses and for making the payment for passengers.
            2.     That the order of the Ld. CIT (A) deserves to be
      cancelled and the order of the AO be restored."
11.    We have heard arguments of both the sides and carefully perused the

material placed on record. At the outset, ld. Counsel of the assessee has drawn

our attention towards various decisions of the Tribunal and Hon'ble

Jurisdictional High Court of Allahabad in the case of ACIT(TDS) vs Lotus

Valley (supra) submitted that when section 194C of the Act is applicable to the

payment made by the assessee and payments are certainly out of the ambit of

section 194I and 194J of the Act, then the penalty imposed u/s 271(1)(c) of the

Act is not sustainable and the same was rightly deleted by the CIT(A) by passing

the impugned orders.





12.    Ld. DR fairly accepted that if quantum appeal of the assessee is being

allowed, then penalty on the same issue is not sustainable. However, ld. DR

pressed his arguments by submitting that the assessee deducted TDS on the


                                                                              9
ITA No. 1910, 1912/D/2010
ITA 51 & 52/D/2012
AYs 2008-09, 2009-10

lower rate u/s 194C of the Act instead of section 194I of the Act, therefore,

penalty was levied by the AO on justified ground which was deleted by the

CIT(A) without reasonable and justified basis.


13.    On careful consideration of above, from bare reading of the operative part

of the impugned order, we observe that the CIT(A) granted relief for the

assessee deleting the penalty with following observations and conclusion:-


               "5.1 As can be observed from the factual developments
        in the cases involving dispute as to whether Section 194C or
        194J is applicable on the payments made for hiring of buses; I
        find that almost all cases, the CITs (A) as well as jurisdictional
        IT A T have taken the view that it is Section 194C (and not
        Section 1941) which is applicable on the payments, under
        consideration viz. payment made for hiring of buses/transport
        for carriage of employees. Such favourable case laws are
        listed above in appellant's submission. Following those cases,
        even the undersigned has already taken a similar view in
        umpteen number of cases; for example, in the cases of M/s
        Lotus Valley Educational Society, Kothari International
        School and also in appellant's case for Aligarh Depot wherein
        it has been held that appellant has correctly deducted TDS
        using provisions of Section 194C to such payment.
        5.2 In the wake of such favourable views, penalty u/s 271C
        has also been cancelled in some of these cases; for example, in
        case of M/s Lotus Valley Educational Society for A.Y. 2008-09
        & 2009-10, Appeal No. 299 & 300 of 2010-11.
        5.3 In the present case although my predecessor CIT (A) has
        confirmed the AO's view of applying Section 194J and the
        appellate order of ITAT, Delhi is awaited; I am satisfied that
        this is a case of difference in legal interoperation, tilting heavy
        in favour of appellant. In any case, no angle of concealment or
        concealing any material facts arises.



                                                                              10
ITA No. 1910, 1912/D/2010
ITA 51 & 52/D/2012
AYs 2008-09, 2009-10

        5.4 Thus, following my own decision in the cases mentioned
        above, I hold that this is not a fit case for levy of penalty u/s
        271 C and, hence, the same is cancelled."


14.    In view of above, since by the earlier part of this order, we have allowed

appeal of the assessee for the same assessment years which are under

consideration in these appeals, we have taken a view that the payment made by

the assessee to the transporters for carrying of passengers by road transport falls

within the ambit of section 194C of the Act and the assessee was right in

deducting the TDS u/s 194C of the Act, therefore, the penalty imposed by the

AO on account of lower rate deduction of TDS is certainly not sustainable. We

are in agreement with the conclusion of the CIT(A) that the case is squarely

covered by the decision of Lotus Valley Educational Society in favour of the

assessee, therefore, penalty u/s 271(1)(c) of the Act is not leviable on the

assessee. Thus, we reach to a conclusion that we are unable see any ambiguity ,

perversity or any other valid reason to interfere with the impugned order and we

uphold the same. Accordingly, sole ground in both the appeals of the revenue

being devoid of merits is dismissed.


15.    In the result, the appeals of the assessee are allowed and appeals of the

revenue are dismissed as indicated above.




                                                                                11
ITA No. 1910, 1912/D/2010
ITA 51 & 52/D/2012
AYs 2008-09, 2009-10




        Order pronounced in the open court on 22.12.2014.


       Sd/-                                      Sd/-
   (J.S. REDDY)                             (CHANDRAMOHAN GARG)
ACCOUNTANT MEMBER                              JUDICIAL MEMBER

DT. 22nd DECEMBER, 2014
`GS'


Copy forwarded to:-

   1.   Appellant
   2.   Respondent
   3.   C.I.T.(A)
   4.   C.I.T. 5. DR
                                                  By Order



                                               Asstt. Registrar




                                                                  12

 
 
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