ITAT: Deduct TDS on Payment from Wharfage & Bus Hire Charges U/S 194C

The Income Tax Appellate Tribunal (ITAT) in Delhi has ruled that payments for bus hiring and wharfage costs are liable to Tax Deduction at Source under section 194C of the Income Tax Act of 1961.

Section 194C of the Income Tax Act of 1961 concerns payments to contractors and subcontractors. Any individual who is liable for paying any money to resident people who carry out any contract work between the person and the contractor must deduct TDS.

Revenue and Assessee Jindal Saw Ltd. submitted a number of appeals to the ITAT. Deletion of the disallowance issued under section 40(a)(ia) of the Income Tax Act of 1961 was one of the issues raised in the appeal by revenue.

In the course of the assessment process, the Assessing Officer discovered that the assessee had deducted tax under section 194C of the Act rather than section 194I of the Act when paying for bus hiring fees and wharfage.

Referring to the order made under Sections 201(1) and 201(1A) of the Act, which held that the assessee was required to deduct tax on these payments under Section 194-I of the Income Tax Act of 1961, the Assessing Officer made a proportionate disallowance under Section 40(a)(ia) of the Income Tax Act of 1961. In response to this order, the assessee filed an appeal with the Commissioner of Income Tax Appeal (CIT) (A).

After hearing the assessee’s and revenue’s representations, the CIT(A) removed the Assessing Officer’s disallowance and remarked that section 40(a) (ia) can be used where there is no deduction of tax but not when there is a short deduction of tax. Furthermore, revenue filed an appeal with ITAT against the CIT(A) ruling.

Section 40(a)(ia) of the Income Tax Act of 1961 states that any expense stated in the TDS that may be paid to a resident and debited profit and loss account will not be permitted as a deduction for computing income under the headings of Profit and Gains of Business or Profession.

According to Rohit Jain, attorney for the assessee, the proper provision under which tax must be deducted is section 194C.

On the behalf of the revenue, Sanjay Kumar appeared.

Post acknowledging the contents of both sides, the petition has been dismissed by the division bench of G.S. Pannu (President) and Saktijit Dey, (Judicial Member) which was filed through the revenue and confirmed the decision of CIT(A).

Bench sees that “payments made towards bus hire charges and wharfage required deduction of tax at source under section 194C of the Act and accordingly, deleted the demand raised under sections 201(1) and 201(1A) of the Act. Admittedly, the assessee has deducted tax on both the payments applying the provisions of Section 194C of the Act”