IMPORTANT POINT
The main legal point established in the judgment is that the storage tanks in question did not qualify as land or building within the meaning of Section 194I of the Income Tax Act, and therefore, the payments were not subject to tax deduction under that section.

JUDGMENT :

K.R. SHRIRAM, J.

INCOME TAX APPEAL NO.307 OF 2003 WITH INCOME TAX APPEAL NO.302 OF 2003

1. Since the impugned order in both the appeals is common, we decided to hear both the appeals together.

2. The only issue that arises in these appeals is whether 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 assessee. According to the Assessing Officer the payment of storage charges is covered under Section 194I of the Act and hence, tax had to be deducted at source at the rate of 20%, whereas assessee says it would be under Section 194C of the Act and hence, deducted tax at source only at 2%.

3. Assessee had entered into an agreement with various parties for facilities and services for handling import of RBD palmolein oil or vegetable oils edible grade. Assessee used to pay storage charges. Therefore, assessee had hired tanks of various parties and paid them storage charges. The Assessing Officer, during the course of survey action, noted that assessee had made certain payments under different heads of expenses to which provisions of TDS applies and assessee had not deducted TDS from such payments such as storage charges which were in the nature of rent paid by assessee for storage of imported goods. The Assessing Officer found that the provisions of Section 194I of the Act were attracted and assessee was in default for not complying with the same. The Assessing Officer held that assessee was deemed to be an assessee in default under Section 201(1) of the Act and the short deduction of tax quantified at Rs.1,05,99,465/- on which interest under Section 201(1A) of the Act worked out to Rs.51,76,587/- was recoverable from assessee.

4. Against this order of Assessing Officer, assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) vide an order dated 24th October 2000 partly allowed the appeal of assessee by holding that 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 assessee. Assessee was also directed to furnish the said details or else it will be presumed that the payee has not declared this income at their hand.

5. Aggrieved by the said order, assessee preferred an appeal before the Income Tax Appellate Tribunal (ITAT). It was contended by assessee that CIT(A) had erred in confirming the applicability of Section 194I of the Act for deductions of tax at source on storage charges and hence, could not have confirmed the demand of Rs.1,05,04,786/-. The ITAT, by the impugned order dated 28th November 2002, allowed the appeal of assessee and set aside the assessment order. It is this order that is impugned in these appeals. The appeals were admitted on 14th October 2004 and the following substantial questions of law were framed :

INCOME TAX APPEAL NO.307 OF 2003

(a). Whether on the facts and in the circumstances of the case and in law, the Tribunal erred in allowing the appeal of the assessee and holding that the storage charges paid by the assessee does not amount of rent paid and therefore the provisions of section 194 I were not applicable?

(b). Whether on the facts and in the circumstances of the case and in law, the Tribunal erred in holding that the payments of storage charges are not liable for deduction of tax at source under section 194I of the Act (rent paid) but instead section 194C is applicable?

INCOME TAX APPEAL NO.302 OF 2003

Whether on the facts and in the circumstances of the case and in law, the Tribunal erred in allowing the appeal of the assessee and holding that the storage charges paid by the assessee does not amount of rent paid and therefore the provisions of section 194I were not applicable?

6. Section 194I of the Act, as then in force, reads as under :

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194-I. Any person, n