Query No. 1 (Contractor – U/s. 194C)
Mr.X pays freight charges of ` 3,00,000 in a year to ABC Pvt. Ltd, whose business is only to arrange truck owned by different persons. The said companies does not own any truck but acts only as a commission agent. The buyer of goods pays freight charges to the said company and obtain its PAN.
Now, whether payer is liable to deduct tax u/s. 194C of the Act while making payment to the said company, not knowing who is the owner of the truck and whether such person owns more than 10 trucks? If not whether any declaration from the Transport Agent needs to be obtained in terms of amended Sec. 194C w.e.f. June 1, 2015.
From the query, it is clear that a payer, is seeking help from the company, for arrangement of trucks from others. The company does not own any truck therefore it is only entitled for commission. Hence, the payer is paying to the company not for carrying out any work.
Explanation to section 194C(iv) clarifies that “work” would include
“(c ) carriage of goods or passengers by any mode of transport other than railways”
Thus, from the query, it is manifest that the company does not carry any goods or passengers, it only arranges trucks for carriage of goods. So, no tax is required to be deducted by the payer.
A similar question arose in the case of payee before the Delhi High Court in CIT v. Hardarshan Singh [350 ITR 427]. In that case, the facts were, the assessee had lorry booking business. In that business there was no privity of contract for carriage of goods. On these facts, the Court held that the assessee had collected the freight charges from the clients who intended to transport their goods through separate transporters The entire amount collected from the clients was paid to transporters after deducting commission from the amount. Thus the Tribunal was justified in holding that the contract was between the assessee’s clients and the transporters and that the assessee had mainly acted as a facilitator as an intermediary. Therefore, no tax is required to be deducted while making payments to the assessee, on the basis of CIT v. Cargo Linkers [179 Taxman 151 (Del)].
Similarly, in the present query, Mr. X is not liable to deduct the tax while making payments to ABC Pvt. Ltd.. Accordingly, it is not necessary that facilitator should obtain any declaration from transporter.
Similarly, Mr. X is not liable to deduct the tax while making payments to ABC Pvt. Ltd.
Query No. 2: (TDS u/s. 194A – Payment by Co-op. Bank to other Co-op. Society)
The Finance Act, 2015 has amended clause (v) of sub- section (3) of Sec. 194A w.e.f. June 1, 2015. Accordingly TDS is now required to be deduction by a Co-op. Bank from interest payment to its members subject to other provisions.
Now, can payment be made by other Co-operative Bank to other Co-operative Society without TDS ?
Section 194A(1) of the Income-tax Act, 1961 provides
“Any person, not being an Individual or a Hindu Undivided Family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities shall at any time of credit of such income to the account of payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rate in force —————-“
Sub-section 3 of section 194A states that “the provisions of sub-section (1) shall not apply –
(v) To such income credited or paid by a co-operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society to any other co-operative society———————“
(viia) To such income credited or paid in respect of –
- Deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank
- Deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co-operative society or bank referred to in sub-section (a), engaged in carrying on the business of banking:
Thus, sub-section (3) of section 194A is an exception to sub-section (1) of the section. But it does not override sub-section (1). No TDS is required to be deducted in clauses mentioned under sub-section (3), subject to sub-section (1).
So, when interest is paid by a co-operative bank to other co-operative society it would fall under sub- section (1) of section 194A of the Act and therefore when a co-operative bank makes a payment to another co-operative society it would fall under sub- section (1) and hence TDS is required to be made. Further, this also gets support from by sub-clause (b) of clause (viia) of sub-section (3) of section 194A of the Act. Which provides that any deposit with co-operative bank by a co-operative society (other than engaged in carrying on banking business) is liable to TDS. Therefore, the Co-op. Bank should make TDS, while paying to other co-operative society.
Query No. 3 (Merilyn Shipping is still valid law)
Does the judicial precedent in case of Special Bench Merilyn Shipping & Transport [136 ITD 23 (JB)] still hold good on the issue of paid or payable?
Yes, recently the Mumbai Tribunal in Jitendra Mansukhlal Shah v. DCIT [ITA Nos. 2293 & 2294/Mum/2013 dated March 4, 2015] has held that, the assessee having made the payment, section 40a(ia) cannot be attracted because it speaks of the amount “payable” and it does not cover the amount already paid. The ITAT Chennai Benches have taken into consideration the decision of the ITAT Special Bench in Merilyn Shipping & Transport (supra), the order of which was suspended by the High Court but at the same time there was a subsequent judgment of the Hon’ble Allahabad High Court in the case of M/s. Vector Shipping Services (P) Ltd., wherein it was held that section 40(a)(ia) applies only to those amount which remains payable by the end of previous year. In other words, in respect of payments already made section 40(a)(ia) is not attracted (i) ACIT v. Eskay Designs (ITA No. 1951(Mad) 2012 dated 9-12-2013) (ii) ITO v. Theekathir Press (ITA No. 2076/Mad/2012 & Co. No. 155/Mad/2013 dated 18-9-2013). Though there are contrary decisions of the other Hon’ble High Courts i.e. Hon’ble Calcutta High Court and Hon’ble Gujarat High Court. In the light of the decision of the Hon’ble Allahabad High Court it can be said that there can be two views possible in this matter in which event the one which is in favour of the assessee has to be followed in the light of the decision of the Hon’ble Supreme Court in the case of Vegetable Products Ltd. [88 ITR 192]. Hon’ble Allahabad High Court in the case of CIT v. Vector Shipping Services (P) Ltd. (supra) has held that for disallowing expenses from business and profession on the ground that TDS has not been deducted, amount should be payable and not which has been paid by the end of the year. The said decision of Allahabad High Court was made subject to special leave petition filed before the Supreme Court and their Lordships vide their order dated 2-7-2014 in CC No. 8068/2014 have dismissed the SLP. In view of the above discussion the decision relied upon by the Learned D.R. would have no application and we have accepted the claim of the assessee to the extent of labour payments are made during the year under consideration and to that extent no disallowance should be made.
Query No. 4 (Charitable Purpose)
The Finance Act, 2015 has inserted one proviso to section 2(15) of the Act, instead of the provisos, what was need to change the provisos?
Section 2(15) of the Act, defines a “charitable purpose”. The primary condition for grant of exemption to a trust or institution under section 11 of the Act is that the income derived from the property held under trust should be applied for charitable purpose in India. Section 2(15) inter alia provides that advancement of any other object of general public utility shall not be charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering services in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application or retention of the income from such activity. However, at present, this restriction shall not apply if the aggregate value of the receipts from the activities referred to above is twenty five lakh rupees or less in the previous year.
The institutions which as part of genuine charitable activities, undertake incidental activities like publishing books or other programmes as part of actual carrying out of the objects which are of charitable nature are put to hardship due to present proviso to section 2(15). Therefore, now the advancement of any other object of general public utility is concerned, there is a need is to ensure appropriate balance being drawn between the object of the preventing business activity in the garb of charity, and at the same time protecting the activities undertaken by the genuine organisation as part of actual carrying out of the primary purpose of the trust or institution.
Hence, the definition of charitable purpose has been amended by inserting new proviso from the assessment year 2016/17 instead of existing two provisos to mitigate the hardship caused to genuine charitable trust or institution.
So, now, the advancement of any other object of general public utility shall not be a charitable purpose; if it involves the carrying on the activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless
- Such activity is undertaken the course of actual carrying out of such advancement of any other object of general public utility, and
- The aggregate receipts from such activity or activities during the previous year, do not excess twenty per cent (20%) (instead of fixed amount of rupees twenty five lakh or more) of the total receipts of the trust or institution undertaking such activity or activities for the previous year.
Query No. 5 (Late filing fee u/s. 234E)
Can late filing fees u/s. 234E be levied for the period prior to June, 2015 by way intimation u/s. 200A?
Yes, Chapter XVII deals with relating to collection and recovery of tax., Section 234E in respect of fees for default in furnishing statement was introduce by the Finance Act, 2012 with effect from July 1, 2012. Thus the liability to pay fees for late furnishing or not furnishing a statement under section 200(3) or proviso to 206C(3) arose from the said date, if the statement was processed under section 200A of the Act. Only from June 1, 2015 the processing of the statement through intimation was provided. Hence, late filing fee under section 234E can be levied, while processing the statements through intimation.
Note: Please send your queries relating to Direct, Indirect & International taxation, Accounting & Auditing Standards and Company Law, FEMA etc. to AIFTP, having interest to the Members.