TDS provisions are not applicable to payment made in respect of Railway Freights through third party: ITAT Kolkata [Read Order]

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The Kolkata bench of the Income Tax Appellate Tribunal, in recent ruling, held that the provisions of section 194C of the Income Tax Act, 1961 is not applicable in case of payments made by the assessee in respect of railway freight through a third party. While quashing the order impugned, the Tribunal accepted the contention raised by the assessee that payment made on account of railway mode of transportation is excluded from the above provision.

Coming to the facts of the case, the assessee transported goods from Orissa to West Bengal through railway rake.Instead of paying the railway freight directly, the assesseemade it through another company, to whom the assesse reimbursed the said amount subsequently. The AO asked explanation from the assessee as to why TDS is not paid in respect of the amount paid to the company. The assessee claimed that the amount paid to the said company is in the nature of reimbursement of freight charges paid on its behalf. Further, the assessee denied the liability to pay TDS on the same as the railways mode of transportation is excluded from the applicability of sec 194C of the Income Tax Act.

By rejecting the submission, the AO passed an order disallowing the amount paid by the assessee on the above transaction by holding that TDS provision is applicable since the middleman was managing the transportation as well as payment activity.

On appeal the Comissioner of Income Tax (appeals) accepted the plea of the assessee and therefore, the Revenue preferred an appeal before the Appellate Tribunal.

“We have heard the rival contentions of both the parties and perused the materials and information before us on record. From the foregoing discussion we find that the assessee in the present case paid the railway freight charges to Railways through M/s S.S. Raiser Pvt. Ltd without deduction of TDS on the presumption that the provisions of section 194C of the Act are not applicable. The AO contention is that railway charges were paid by M/s S.S. Raiser Pvt. Ltd and not by the assessee, therefore TDS Provisions are applicable. Now the question before us arises so as to whether the TDS provisions are applicable in the instant case in the aforesaid facts &circumstances.”

After analysing the provisions of section 194C of the Income Tax Act, the Tribunal observed that “from the above provisions it is clear that the TDS is to be deducted for the execution of the work other than railway freight. In the case on hand we find that the middleman has paid the railway freight on behalf of the assessee which subsequently reimbursed to it. The ld. AR in support of his claim has also submitted the railway receipt where the name of the assessee was appearing. So in our considered view we find that the railway freight was paid by middleman which was subsequently reimbursed. There was no extra charge paid to M/s S.S. Raiser Pvt. Ltd. The ld. DR failed to bring anything on record that any payment was made by the assessee over and above the amount of railway freight. Therefore we find no reason to interfere in the order of ld. CIT(A). Hence this ground of appeal of Revenue is dismissed.”

Read the full text of the order below.