ITAT: Possession of Transport Vehicles Sufficient for Section 194C TDS Exemption, Legal Ownership Not Mandatory

ITAT: Possession of Transport Vehicles Sufficient for Section 194C TDS Exemption, Legal Ownership Not Mandatory

The Jodhpur Bench of the Income Tax Appellate Tribunal (ITAT) has ruled that the assessee, acting as the legal owner, is exempt from Tax Deducted at Source (TDS) obligations under Section 194C. This exemption is applicable when the payees, despite not being registered owners, provide a declaration under Section 194C(6) along with a Permanent Account Number (PAN).

The bench, comprising S. Seethalakshmi (Judicial Member) and Rathod Kamlesh Jayantbhai (Accountant Member), noted that, as per Section 44AE of the Income Tax Act (IT Act), the term "owner" pertains to anyone possessing the goods carriage, not necessarily the registered owner. This interpretation gains significance in elucidating the term "owns" as mentioned in Section 194C(6), especially given that the taxation of the transporter assessee falls directly under the purview of Section 44AE. Relying on various judicial precedents and the directives of the apex court, the bench arrived at a determination of ownership guided by the legislative intent, which aims either to provide benefits or to impose taxation on the assessee.

The appellant/assessee deductor operates in the transportation and logistics services sector. A survey was conducted at the business premises of the assessee deductor to verify compliance with the provisions of Chapter XVII-B of the Income-tax Act, 1961. During the survey, it was discovered that the deductor had made transportation payments to various individuals without deducting TDS. These payments were made based on declarations obtained from the owners of the vehicles.

However, it was noted that in certain instances, transportation charges paid to individuals other than the actual owners of the vehicles, based on power of attorney, consent letters, and TDS, have not had TDS deducted from the payments.

The Assessing Officer (AO) determined that the declaration acquired by the assessee deductor could not be deemed a valid document in accordance with the provisions outlined in Section 194C(6) of the IT Act. Consequently, the assessee failed to meet the fundamental requirement prescribed under Section 194C(6). Hence, the assessee deductor is considered to be in default and is also liable to pay interest. This decision was upheld by the Commissioner of Income Tax (Appeals) (CIT (A)).

The department argued that the owners of the vehicles lack a PAN, and the individual who submitted the declaration is not the actual owner of the vehicle. Consequently, the assessee is responsible for making TDS, and due to this failure to comply, the demand was appropriately upheld in the case of the assessee.

The ITAT observed that transporters typically furnish a declaration along with their PAN to the payer in order to avoid TDS deduction. The Finance Act 2015 introduced an amendment to Section 194C(6), stipulating that tax should be deducted at source unless the transporter, engaged in the business of paying, hiring, or leasing goods carriages, owns not more than goods carriages and provides a declaration to this effect along with a PAN to the payer. This amendment came into effect on June 1, 2015.

The crucial question arises regarding the interpretation of the term "owner" as mentioned in Section 194C(6) concerning the deduction of tax at source. Should the term "owns" be construed strictly to denote the registered owner under the Motor Vehicles (MV) Act, or should it be interpreted more broadly to encompass the beneficial owner? The term "owner" appears in several sections of the IT Act, with each instance potentially imposing a charge on income or providing a benefit to the assessee.

The court held that for the purpose of Section 194C(6), the term "who owns" essentially refers to the individual "who possesses" the vehicle. Since the assessee had already obtained the declaration and made payments to the person who submitted the declaration, the court concluded that the assessee complied with the provisions of Section 194C(6).

Therefore, the appeal of the assessee was allowed.