TMI Blog2014 (2) TMI 738X X X X Extracts X X X X X X X X Extracts X X X X ..... specifically enumerated - The expenses claimed by the assessee as deduction are specified in section 40(a)(ia) and therefore they are well within the scope of disallowance contemplated by section 40(a)(ia) irrespective of their eligibility for deduction under sections 30 to 38. The case of the assessee is fully covered by the provisions of section 194C(2) - The goods received by the assessee from consignors for their carriage were sent through truck owners hired by the assessee - There was no privity of direct contract between the truck owners hired by the assessee and the consignors - It was the assessee's responsibility to transport the goods received from them for which purpose the assessee hired the services of the truck owners, obviously as sub-contractors - The assessee was required to deduct tax at source out of payments made by him to such truck owners/drivers in terms of section 194C(2) but he did not do so and hence the provisions of section 40(a)(ia) were rightly invoked by the AO for making the impugned disallowance – relying upon Shree Choudhary Transport Co. v. ITO [2009 (5) TMI 865 - RAJASTHAN HIGH COURT] – thus, the order passed by the CIT(A) is not sustainable i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of carrying out transport contracts under the name of style of Shri Krishna Krupa Roadways at Rajkot. He filed his return of income on 31.10.2007 returning total income at Rs.1,73,540/-. The return was accompanied by Tax Audit Report in which the nature of business of the assessee has been described as "Transport Contractors". The audited Trading and Profit Loss account for the year under appeal was filed along with the return of income in which "Truck Rent Income" amounting to Rs.84,13,537/- and "Truck Rent Exp." amounting to Rs.80,41,529/-have been shown. It is evident from the audited Trading and Profit Loss Account that the assessee has claimed deduction for a sum of Rs.80,41,529/- being "Truck Rent Exp." The Assessing Officer noticed that tax was not deducted at source out of the aforesaid payments as required by section 194C. He therefore called upon the assessee to explain as to why the payment of Rs.80,41,529/- made to truck owners/drivers/lorry owners for carriage of goods without deducting at source as required by section 194C should not be disallowed in view of the provisions of section 40(a)(ia). It is stated in paragraph 4.1 of the assessment order that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5) Khedut Solvex Pvt Ltd for Rs.23,933/-, (6) J. N. Enterprise for Rs.1,14,450/-, (7) Jaypee Trading Co. for Rs.64,823/- and (8) V. Trans (India) Ltd. for Rs.8,57,480/-. These seven payee have deducted TDS of Rs.95,813/- on total payment of Rs.84,13,357/-. In turn they have issued form No.16A which have been filed by the assessee with the return of income and the assessee has claimed refund on the same. 5.4 Now, the following column in form No.16A shall be very pertinent and crucial in issue under review: Name address of the person to: Shri Krishna Krupa Roadways whom payment made or in: Rajkot whose account its credited: 5.5 Thus, the above column of form No.16A clearly proves that the payment has been received by the assessee, which clearly establishes that the assessee is not a mere commission agent but transport contractor. Had he been commission agent, the payee party would have paid by amount to the transport contractor and as a commission agent, the assessee would has just received the commission amount of, say Rs.300/- or Rs.500/- per deal. But, the scenario is very clear in this case. The assessee is a transpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(3) of the I.T. Act, 1961. For further clarification of the submissions made by the assessee before Your Honour, which was forwarded by your esteemed office vide letter dated 18/08/2010, the assessee was requested to attend proceedings. The AR of the assessee attended proceedings on 05/10/2010. (c) AR of the assessee submitted his point of view. He pressed on the issue that the assessee was not a transport contractor but he was a commission agent. (d) The above points pressed by the AR of the assessee are not acceptable. First of all, the case was selected for scrutiny after due permission granted by Hon'ble Chief C.I.T., Rajkot. The main issue for seeking permission was non deduction of TDS on truck rent expenses claimed by the assessee. Further, the assessee has directly received payment from 7 parties. The said parties had deducted TDS u/s 194C(1). But, while incurring expenditure, the assessee, he being the sub-contractor, has not deducted TDS u/ 194C(2). The claim of the assessee that he was merely a commission agent and not a transport sub-contractor cannot be accepted as the income shown by him was not due to commission income but were due to contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly following the decision of the Hon'ble ITAT, Rajkot Bench, as discussed above, the assessee was not liable to deduct any tax, as he was merely a commission agent for arranging transport. In such a situation, when there was no liability to deduct tax, the provisions of Section 40(a)(ia) would not be applicable. Accordingly, the disallowance of Rs.80,41,529/- is deleted." 8. In support of appeal, the ld. Departmental Representative relied upon the assessment order and the remand report submitted by the Assessing Officer before the ld. CIT(A). 9. In reply, the ld. Authorized Representative for the assessee supported the order passed by the ld. CIT(A). His submissions, in brief, were three-fold. One, the assessee was not a contractor but a mere transport agent and therefore he was not required to deduct tax at source out of the payments made by him to various truck owners/drivers for transporting the goods of the consignors to the premises of the consignees. Two, the payments made by the assessee to truck owners/drivers were in the nature of direct costs and therefore eligible for deduction u/s 28 of the Income-tax Act and not under sections 30-38 of the Income-tax Act. In this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid observations of the Hon'ble High Court: one, the disallowance under section 40(a)(ia) is attracted in respect of amounts out of which tax is deductible at source and such tax is either not deducted or after deduction is not paid before the specified date; and, two, the disallowance u/s 40(a)(ia) can be made irrespective of the provisions contained in sections 30-38 of the Income-tax Act. 11. It is the case of the assessee that payments made to truck owners/drivers are in the nature of direct costs and therefore they are deductible while computing the profits u/s 28. According to him, payments in respect of such direct costs cannot be construed as expenditure under sections 30-38 of the Income-tax Act. It is contended that disallowance contemplated by section 40 is restricted to those expenses only which fall under sections 30-38 of the Income-tax Act and not to those expenses which fall u/s 28 of the Income-tax Act. In support of his submissions, he has filed extracts from pp. 4520-4526 of Sampath Iyengar's Law of Income Tax - 11th Edition. 12. Section 28 is the charging section in respect of Profits and Gains of Business or Profession. Clause (i) of section 28 provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Dictionary as "One which is directly related to one's business as contrasted with expenses incurred for personal and family reasons." It is thus clear that the term 'any expenditure' used in section 37 is wide enough to include all outlays, charges, costs, prices which are laid out or expended wholly and exclusively for the purposes of business irrespective of whether it is in the nature of direct or indirect expenditure/costs. There are no words in section 37 from which it can be inferred that the provisions of section 37 are intended to cover indirect costs/expenditure alone. The phrase "Any expenditure" in section 37 cannot, by any linguistic tool of interpretation, be interpreted to mean "indirect costs/expenditure" alone. Word "any" has diversity of meaning and is generally employed in legislations to indicate "all" or "every". The use of the word "Any" in the said phrase shows that the term expenditure is intended to be wide and comprehensive enough to cover all forms of expenditure irrespective of whether they are in the nature of direct costs/expenditure or indirect costs/expenditure or in the form of any other outlay. (iii) The aforesaid view is also supported by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent from the opening words of section 40 and also held by the Hon'ble jurisdictional High Court, the provisions of section 40(a)(ia) bar deduction of certain types of expenses in computing the income chargeable under the head Profits and gains of business or profession "irrespective of the provisions contained in sections 30 to 38 of the Act." In our opinion, the legal effect of the opening words of section 40 is that the expenses in respect of which disallowance is contemplated by section 40 would not be eligible for deduction even if they are otherwise eligible for deduction u/s 30 to 38. They cannot therefore be interpreted as suggesting that only those expenses which are admissible for deduction u/s 30 to 38 alone would be considered for disallowance u/s 40. To say that the expenses enumerated in section 40 shall be disallowed u/s 40 if the conditions specified therein are satisfied irrespective of their admissibility for deduction u/s 30 to 38 is one proposition and to say that only those expenses which fall u/s 30 to 38 alone would be considered for disallowance u/s 40 is a quite different proposition. Both of them do not mean one and the same thing. Opening words of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suggest that it is not applicable to an assessee who is a transport agent or commission agent. We shall deal with this aspect a little later. For the present, we shall examine the issue as to whether the assessee, as contended by him, is a commission agent. The assessee has neither proved that he is an agent of the consignors nor has he shown any income from commission agency business. In this connection, we may fruitfully refer to the observations made by Lord Herschell in Kennedy v. Dc Trafford 1897 A.C. 180 that "No word is more commonly and constantly abused than 'agent' ". The use of the word 'agent' in itself really means very little. Cobbler mending shoes of a man, servant rendering services to his master, a shopkeeper selling the goods manufactured by others to his customers, driver driving the car of his master and contractor executing the job awarded to him by the contractee are not agents. A person who claims to be agent must establish that he is clothed with necessary authority by another (principal) to bind him and make him (principal) answerable to the third persons and thus establishing a privity of contract between that third person and the principal. A commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the face of such materials available on record, we are unable to hold that the assessee was a transport commission agent. In our considered view, he was engaged in the business as transport contractor and not as commission agent as held by the ld. CIT(A). 16. The fact as to whether the assessee is a commission agent or not is completely irrelevant in deciding the issue of disallowance of expenditure u/s 40(a). Applicability of section 40(a)(ia) does not depend upon as to whether the assessee is a transport commission agent or not. It has nothing to do with the nature of business of the assessee. It is the expenditure per se, and not the nature of business in which expenditure is incurred, which is the subject matter of disallowance u/s 40(a)(ia) and therefore its applicability cannot be defeated on the ground that the assessee is a transport commission agent. Even if a transport commission agent claims deduction of expenses enumerated in section 40(a)(ia), their admissibility would need to be examined with reference to the provisions of section 40(a)(ia). It's plain and simple on perusal of audited accounts of the assessee that the assessee has claimed the impugned expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to (i) one per cent, in case of advertising, (ii) in any other case two per cent, of such sum as income-tax on income comprised therein: Provided that no individual or a Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (2) Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e "contract" as defined in the same section means an agreement enforceable by law. Section 9 of the Indian Contract Act provides that contracts can either be express or implied. An express contract is one where the proposal or acceptance of any promise is made in words while implied contract is one where such proposal or acceptance is made otherwise than in words. Even if there is no express contract, a contract may still exist by implication, i.e., a contract consisting of obligations arising from the mutual agreement and intent to promise, which have not been expressed in words. An implied contract envisaged by section 9 of the Indian Contract Act can be inferred from the facts and circumstances that indicate a mutual intention to contract. Circumstances may exist which, according to the ordinary course and common understanding, demonstrate such an intent that is sufficient to support the finding of an implied contract. Chapter V of the Indian Contract Act treats certain relations resembling those created by a contract as contracts enforceable in law. The Indian Contract Act thus envisages four types of contracts, namely, (1) contracts made in writing, (2) contracts made orally, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee from consignors for their carriage were sent through truck owners hired by the assessee. There was no privity of direct contract between the truck owners hired by the assessee and the consignors. It was the assessee's responsibility to transport the goods received from them for which purpose the assessee hired the services of the truck owners, obviously as sub-contractors. The assessee was required to deduct tax at source out of payments made by him to such truck owners/drivers in terms of section 194C(2) but he did not do so and hence the provisions of section 40(a)(ia) were rightly invoked by the AO for making the impugned disallowance. In identical fact situation, the Hon'ble Rajasthan High Court has taken similar view in Shree Choudhary Transport Co. v. ITO [IT Appeal No. 164 of 2008, dated 15-5-2009]. In that case also, the assessee had undertaken to transport the goods of the cement factory and for that purpose had hired the services of truck owners/drivers to whom payments were made without deduction of tax at source in terms of section 194C(2). Confirming the order of this Tribunal in sustaining the disallowance u/s 40(a)(ia) in identical fact-situation, the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
