Storage Tanks Does Not Qualify Either As Land Or As Building, TDS Deductible On Storage Charges: Bombay High Court

The Bombay High Court has held that the respondent (assessee) ought to have deducted tax under Section 194I of the Income Tax Act, 1961, from the storage charges paid by the assessee.

The bench of Justice K. R. Shriram and Justice Sharmila U. Deshmukh has observed that the storage tanks in question do not qualify 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 assessee/respondent had entered into an agreement with various parties for facilities and services for handling the import of RBD palmolein oil or vegetable oils of edible grade. The assessee used to pay storage charges. Therefore, the assessee hired tanks from various parties and paid them storage charges. The Assessing Officer, during the course of the survey action, noted that the assessee had made certain payments under different heads of expenses to which provisions of TDS apply, and the assessee had not deducted TDS from such payments, such as storage charges, which were in the nature of rent paid by the assessee for storage of imported goods.

The assessing officer found that the provisions of Section 194I were attracted, and the assessee was in default for not complying with them. The Assessing Officer held that the assessee was deemed to be an assessee in default under Section 201(1), 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 assessee.

The assessee preferred an appeal before the CIT (A). The CIT(A) partly allowed the appeal of the assessee by holding that the assessee was to deduct TDS for various payments made by it, with further directions to the Assessing Officer to verify the facts that the payee or the deductees have declared in their respective returns of income the payments made by the assessee. The assessee was also directed to furnish the details, or else it will be presumed that the payee has not declared this income in their hands.

The assessee preferred an appeal before the Income Tax Appellate Tribunal (ITAT). It was contended by the assessee that CIT (A) had erred in confirming the applicability of Section 194I for deductions of tax at source on storage charges and hence could not have confirmed the demand. The ITAT allowed the appeal of the assessee and set aside the assessment order.

The issue raised was whether the respondent (assessee) ought to have deducted tax under Section 194I or Section 194C of the Income Tax Act, 1961 (the Act) from the storage charges paid by the assessee.

The ITAT held that the storage tanks in question did not qualify either as land or as buildings within the meaning of Section 194I.

The court upheld the ITAT's order and held that the payments are liable for deduction of tax at source under the provisions of Section 194I.

Counsel For Appellant: P.C. Chhotaray

Counsel For Respondent: Ashok J. Patil

Case Title: The Commissioner of Income Tax (TDS) Versus M/s. B. Arunkumar Trading Ltd.

Case No.: Income Tax Appeal No.307 Of 2003

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