NHAI isn't liable to collect TCS on toll charges retained by developers of national highways

Facts

a)    The National Highway Authority of India (NHAI) granted a project to Oriental Pathways Pvt. Ltd. (OPPL) to develop a National Highway on BOT (Build, Operate and Transfer) basis. As per the agreement, OPPL was required to pay Rs. 1 per year to NHAI during the term of the agreement.

b)    The development cost of highway was to be recovered by OPPL through collection of toll. However, the toll collection was required to be deposited in an escrow account jointly held by both the parties. The purpose of depositing the amount in escrow account was to make a provision, in case NHAI had to recover any amount from OPPL.

c)    Assessing Officer (AO) contended that NHAI was liable to collect TCS from OPPL on toll fee collected by it as per section206C(1C).

d)    The CIT(A) set aside the order of the AO by holding that the OPPL was required to pay only Re. 1 per year to NHAI and not the toll fee. Therefore, provisions of section 206C(IC) could not be applied on this very nominal and insignificant amount.

e)    Aggrieved by the order of CIT(A), revenue filed the instant appeal before the tribunal.

The tribunal held in favour of assessee as under-

1)    As per sub-section (1C) of Section 206C, every person, who grants lease or license for toll plaza to another person, shall at the time of debiting the amount payable by the said licensee or at the time of receipt of such amount from the said licensee, collect tax at specified percentage.

2)    On plain reading of Section 206C(IC), it left no room for doubt that the amount on which the tax was to be collected at source, had to be only that amount which was to be paid to the licenser and couldn’t by any stretch of reasoning be held to include that amount which had not been paid directly to the licenser.

3)    In the instant case, the amount collected as a toll fees was deposited in the escrow account just to safeguard certain liabilities, otherwise the surplus remained in the escrow account belonging to the OPPL which was retained by it to recover the cost of the project.

4)  Hence, when the concessionaire had retained the toll fees collected and it was under obligation to make payment of Re. 1 annually to NHAI, then on this very minimal amount, the provisions of section 206C(1C) couldn’t be applied because it was not practicable- [2016] 69 taxmann.com 121 (Nagpur - Trib.)