S. 194-I of the Income-tax Act, 1961 (‘Act’) was amended to include rental payments for use of plant and machinery. After the amendment, the Department (TDS) officers were of the view that the transportation services from transport vendors fall under the purview of S. 194-I of the Act and not the S. 194C of the Act.
On this basis, various surveys were undertaken on numerous corporates by the Department and huge amounts of tax were recovered on the ground that TDS should have been deducted at 10% u/s.194-I instead of 2% u/s.194C.
This controversial issue was litigated by corporates in the Tribunal and Court, which ultimately provided relief to the taxpayers.
In order to find out what the Tax Department has done or is doing in a similar transaction, entered with the transport contractors, an application under the Right to Information Act, 2005 (‘RTI’) was made. The following information was asked in the application :
1. Under which Section of the Act, does the Income-tax Department deduct tax while making payment to transport contractors for transportation services? Please provide your answer in respect of services received from transport contractor,
- On or after 13th July 2006 (that is after the amendment to S. 194-I of the Income-tax Act with effect from 13th July 2006).
2. Could you please let me know the reasons in brief for deducting TDS under the relevant Sections of the Act?
In reply to the application, the Department accepted that, tax had been deducted at 2.06% u/s. 194C of the Act even after 13th July 2006 and not u/s.194-I.
This clearly shows even after the amendment, the Department was deducting tax at source at 2.06%, while on the other hand pressuring the corporate to deduct at an higher rate u/s.194-I (on identical type of services and agreements) so as to increase the tax collection.
Is such double standard adopted by the Department acceptable and fair?
Is it fair to the taxpayer, who is providing an honorary service of collecting taxes by deducting tax at source to the Government/tax-office?
The CBDT should issue a circular to stop this unfair practice of harassing taxpayers.
