Bombay HC: Storage Tanks Can’t Be Consider Either Land & Building, TDS Will Deduct U/S 194I

The respondent (assessee) is required to have deducted tax under Section 194I of the Income Tax Act, 1961, from the storage charges paid by the taxpayer, The Bombay High Court ruled. 

The bench of Justice K. R. Shriram and Justice Sharmila U. Deshmukh noted that the storage tanks in question are not eligible either as land or as buildings within the meaning of Section 194I. In terms of Section 194I, there has to be a lease, sub-lease, tenancy, or any other agreement involving land or any building, excluding factory buildings.

The taxpayer/respondent had joint ventured with different parties for facilities and services to manage the import of RBD palm olein oil or vegetable oils of edible grade. The taxpayer used to pay storage expenses. The taxpayer hired tanks from different parties and paid them storage costs. 

The Assessing Officer, at the time of the course of the survey action, sees that the taxpayer had created some payments under various expenses to which provisions of TDS apply, and the taxpayer had not deducted TDS from such payments, like storage charges, which were like rent paid by the taxpayer for storage of imported goods.

The assessing officer discovered that the provisions of Section 194I were attractive, and the taxpayer was in default towards unfollowing them. Under Section 201(1) the Assessing Officer ruled that the taxpayer was considered to be an assessee in default, and the short deduction of tax was quantified at Rs. 1,05,99,465 on which interest under Section 201(1A) worked out to Rs. 51,76,587 that was recoverable from the taxpayer.

Before the CIT(A) the taxpayer filed a petition. The CIT(A) permits the petition of the taxpayer partly carrying that the taxpayer was to deduct TDS for distinct payments incurred through it, with additional directions to the Assessing Officer(AO) to confirm the attributes that the payee or the deductees have reported in their respective income returns of the payments inured via the taxpayer. The taxpayer was also asked to provide the information or else it will be presumed that the payee has not reported this income in their hands.

Before the Income Tax Appellate Tribunal (ITAT) the taxpayer filed an appeal. The taxpayer contended that CIT(A) had made a mistake in assuring the applicability of section 194I for the deductions of tax at source upon the storage charges and therefore can not confirm the demand. ITAT permitted the taxpayers to petition and set aside the assessment order. 

The issue is whether the respondent (taxpayer) needed to have deducted tax under Section 194I or Section 194C of the Income Tax Act, 1961 (the Act) from the storage charges filed via the taxpayer.

The ITAT and the storage tanks in question are not entitled either as land or as buildings within the norms of Section 194I.

ITAT’s order is carried by the court and ruled that the payments are obligated for deduction of tax at source under the provisions of Section 194I.