TMI Blog2005 (8) TMI 578X X X X Extracts X X X X X X X X Extracts X X X X ..... union free captive transport companies in coal subsidiaries of Coal India Limited and to provide resettlement opportunity to ex-servicemen. This scheme laid down the eligibility criteria for the companies to be sponsored to the coal subsidiaries for undertaking coal transportation work. The companies were to be formed in accordance with the instructions and procedures laid down in the scheme. The scheme also formulated draft clauses, which were to be incorporated in Articles of Association by an ex-serviceman company. 3.2 The assessee-company, namely, Akal Purkh Ex-Servicemen Transport Company Pvt. Ltd. was formed and certificate of incorporation was issued to it on 23-9-1993. As per its Memorandum of Association, this company had 56 objects, which covered a very wide range of activities. The Articles of Association contained procedure, rules and regulations for carrying out the activities of the company. 3.3 The company executed a transport agreement with South Eastern Coalfields Limited (SECL), a subsidiary of Coal (India) Limited having its registered office at Bilaspur, Madhya Pradesh. This agreement was executed on 10-4-1997. The agreement was valid for a period comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such payment shall not be made more than twice in a month ( b ) Bill for the work done will be prepared by the Chief General Manager/General Manager/Colliery Manager concerned on fortnightly basis. Payment of all such bills will be made to the Ex-Servicemen Transport Company within two weeks of the relevant bills. 35. The Ex-Servicemen Transport Company shall not sublet the work to any other person/agency/transporter. 41. Non-compliance/disobedience/non-fulfilment of the provisions of the orders/guidelines of the Director General, Resettlement and the company will disqualify the Ex-Servicemen Transport to work as Ex-Servicemen Transport Company and invite cancellation of sponsorship by the DGR and render the contract null and void ." 3.4 As per its Memorandum of Articles and Association, the company entered into hire agreements with various ex-servicemen for carrying out the transportation work and paid them transportation charges. Although written agreements between the company and the persons giving vehicles on hire have not been filed, however, one such agreement is available at page 76 of the paper book, which has been executed between S. Tara Singh, son of S. Man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent follow up proceedings, it was found that during the financial years 1994-95 to 1999-2000, the assessee had paid following transport charges to various persons under the expenditure head Tipper expenses . The details as given in the order of the ITO dated 31-3-2003 for financial years 1994-95 to 1997-98 are as under : Financial Year Tipper Expenses (Rs.) 1994-95 44,62,543 1995-96 1,18,41,726 1996-97 1,33,85,082 1997-98 63,84,006 The Department further found that the assessee had not deducted any TDS on above payments made during the financial years 1994-95, 1995-96 and 1996-97 and deducted tax under section 194C only on the payment of Rs. 6,48,300. The assessee had also filed return on Form No. 26C for financial year 1997-98. 3.7 In order to find out the details of payment on which the assessee had not deducted tax during the financial years 1994-95 to 1997-98, vide letter dated 17-3-2003, the assessee was required to explain as under : "It has been found from the explanation filed by you in connection with above mentioned proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into by it with the SECL the following points emerge : 1.That it is the assessee which is the Formal Entity. 2. That it is the assessee which has entered into an agreement with SECL. 3.That it is the assessee which alone performs or carries out the operations at the mines of SECL. 4.That it is the assessee that alone lodge claims and against which claims can be lodged. 5.That the tipper deployed can either be owned by the assessee or by the individual Ex-servicemen or their direct dependents. 6.That the contract may be terminated and due of the company may be forfeited if assessee fails to comply with terms and conditions. 7.That in case of sub-letting of the work, all the dues of the assessee shall be forfeited and the assessee was forbidden to sublet the work to any other person, agency or transporter. 8.The assessee will retain up to 15% of the income carried on tipper trucks owned by the Ex-servicemen including directors and pass on the balance to them after deducting expenses incurred on each tipper towards expenses." 3.9 On the basis of above submissions, it was pleaded on behalf of the assessee that it is only the Ex-Servicemen Transport Company which ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owner @ of 1% plus surcharge during the financial years 1994-95 to 1999-2000. He further observed as under: "So far as the contractual relationship between the assessee and SECL is concerned, it has no effect on the contractual relationship of the company with tipper owners. Both the relationship operates in their own spheres and are neither coextensive or overlapping. Deduction of tax by SECL on payments made to the assessee does not absolve the assessee from deducting the tax on payments by it under its own contractual obligations. In other words, assessee was obliged to deduct tax on tipper payments irrespective of the fact whether any tax was deducted on the payments received by it from SECL." 3.12 In order to determine the exact liability of the assessee in respect of tipper expenses, the assessee was asked by the Assessing Officer vide office letter dated 17-3-2003 to furnish party-wise details of payments made or credited during the financial years 1994-95 to 1999-2000. But the assessee did not file such details. The Assessing Officer, therefore, determine the liability under section 201(1) and 201(1A) in the following manner : Financial Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n charges due to the tipper owners and in fact constitute payment of transportation charges to the tipper owners through discharge of their liability to Tata Finance Limited. The break up of Rs. 2,20,000 also shows that though the quarterly payment of hire charges in cases of Naurang Singh, Harman Singh, Mewa Singh, Mandip Kumar Kang is Rs. 15,000, the aggregate amount paid during the year under consideration in respect of the continuing contract was in excess of Rs. 20,000. In the case of Vijay Pal Singh likewise there are two payments of Rs. 15,000 each on 30-9-1995 and payment of Rs. 30,000 each on 31-12-1995 and 31-3-1996 and the aggregate payments exceed Rs. 20,000 and therefore, get covered under section 194C of the Act." 3.16 So far as the original ground taken in the appeals are concerned, the assessee challenged the applicability of section 194C of the Act and consequent invoking of provisions of section 201 and 201(1A) of the Act. In this regard, following contentions were raised : "Provisions of section 194C are not attracted as it was only the appellant company which had entered into the contract with the coal company for transportation and there was an absolute p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, ld. counsel for the assessee made a reference to the "Guidelines on Formation and Running of Ex-Servicemen Coal Transport Company/Co-operatives" and submitted that the guidelines were made with the noble object of rehabilitation of ex-servicemen who formed company for doing the transportation work of SECL. According to him, as per the guidelines, the ex-servicemen owner-drivers were eligible to procure one tipper truck and attach the same with the company and the company was entitled to charge up to 15% of gross earning of each vehicle for administrative cover provided by them. The balance of the earning was to belong to ex-servicemen owner-drivers. He further pointed out that as per clause ( e ), a detailed monthly account was to be maintained by the company in respect of each vehicle and shown to the concerned drivers. The ld. counsel also pointed out that the SECL was deducting TDS on entire receipts from the assessee-company. The ld. counsel also pointed out that there was absolute prohibition for giving sub-contract or sub-letting as per clause 35 of the terms and conditions. After referring to various clauses of the agreement, the ld. counsel submitted that there was no c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tipper owners nor conducted any enquiry in this regard from them. 7. We have carefully considered the entire material on record and the rival submissions. The main issue to adjudicate is as to whether the payment made by the assessee to the Ex-servicemen drivers for giving their tippers to the assessee on hire amounted to a payment given under the sub-contract to a sub-contractor so as to be covered under section 194C(2). In other words, whether there was any contractual relationship of a contractor and sub-contractor between the assessee and the payees. 7.1 The provisions of section 194C(2) of the Income-tax Act, 1961 are as under : "194C(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 labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derations. Thus, in that case no commission or discount was taken by the assessee from the sister concerns whereas in the present case, as per the agreement itself, the assessee was to deduct or charge a commission at the rate of 15 per cent from the gross payments. Thus, the decisions in these cases are not applicable to the facts of the present case. 7.3 After considering these arguments, we proceed to discuss the other aspects of the matter and find that neither the Assessing Officer nor the learned CIT(A) has properly considered the relevant facts and the relevant material for adjudicating the issue involved in these appeals. These aspects are as under : (1)In view of clause 3( c ) of the guidelines, referred to above, the concerned coal subsidiary company was to sign a contract with the sponsored company to assign the transportation work. The Financial years covered in this cases are 1995-96 to 1999-2000. The only agreement filed on record is dated 10-4-1997. There is no other agreement for the earlier period.The agreement dated 10-4-1997 cannot cover financial years 1995-96 and 1996-97. No inquiry in fact has been made by the Assessing Officer about this aspect of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiry about the payments made by the assessee under different categories. The Assessing Officer has also not made any enquiry from South Eastern Coalfields Ltd. as to whether TDS was deducted from the assessee for payments made by it and if so, at what rate and on what amount. (7)The assessee filed memorandum and Articles of Association of assessee-company before the Tribunal at the time of hearing of the appeal. This document was not filed before the Assessing Officer or before the learned CIT(A). Without examination of this document, various aspects of the matter could not be considered. The document filed before us is in the shape of fresh material. It will not be proper to consider and examine the issue at this stage in the light of this document. (8)The assessee has admitted that TDS was deducted by it on some payments. It has not been clarified as to why TDS was deducted by the assessee on some payments and not on other payments. This required proper enquiry and clarification. (9)As per the terms and conditions, detailed monthly account in respect of each tipper was to be maintained. The Assessing Officer has not collected any such details. (10)Similarly, half yearly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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