TMI Blog2011 (8) TMI 747X X X X Extracts X X X X X X X X Extracts X X X X ..... in any manner under its own control and supervision, the TDS is not required to be deducted on payment made by the contractor to the lorry/truck owners - Decided in favor of the assessee - IT Appeal No. 358 (Vizag.) of 2008 - - - Dated:- 11-8-2011 - SUNIL KUMAR YADAV, B.R. BASKARAN, JJ. Firoze B. Andhyarujina and G.V.V. Satyanarayana for the Appellant. TH.L. Peter for the Respondent. ORDER Sunil Kumar Yadav, Judicial Member This appeal is preferred by the assessee assailing the order of the CIT(A) pertaining to the assessment year 2005-06 mainly on two grounds. First ground relate to the disallowance of expenditure of Rs.80,860/- u/s 37(1) of the Income-tax Act (hereinafter called as an 'Act') and the other ground relate to the disallowance of Rs. 1,16,14,599/- u/s 40a(ia) of the Act on non-deduction of TDS. 2. We have heard the rival submissions and carefully perused the orders of the authorities below and documents placed on record. With regard to the first ground i.e. disallowance of Rs. 80,860/- u/s 37(1) of the Act, the facts borne out from the record are that this expenditure was incurred for violating traffic rules by entering town on no entry t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has claimed during the assessment proceedings that no TDS has been deducted since hire charges are out of ambit of expression "work". The A.O. has not accepted the contention of the assessee and held that the provision of section 194C are very much applicable to the hire charges where the aggregate amount exceeds Rs. 50,000/- and for non-deduction of TDS u/s 194C, he disallowed the payment of Rs. 1,16,14,599/- u/s 40a(ia) of the Act. 7. The assessee preferred an appeal before the CIT(A) with the submission that he has paid truck hire charges to those persons who had given their vehicles on hire to the assessee. Therefore, the provisions of section 194C could not be invoked. The provisions of section 194C are attracted to those contracts which are for carriage of goods and disallowance of payment can be made if TDS was not deducted. In support of his contention, he placed a reliance upon the judgement of the Madras High Court in the case of CIT v. Poompuhar Shipping Corpn. Ltd. [2006] 282 ITR 3/153 Taxman 486. The assessee further argued before the CIT(A) that provisions of section 194C are applicable where a person pays any sum to a contractor for carrying out any work in pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the other hand has submitted that provisions of section 194C are explicitly clear that whenever the contractor is asked to perform a work the TDS is required to be deducted on payment to a contractor subject to other conditions. The lorry and trucks were hired along with the drivers for transportation of the goods and the responsibility of the truck drivers are to transport the goods in safe and sound conditions. The trucks were hired for a particular purpose i.e. transportation of goods and therefore the work executed by the truck drivers falls within the definition of the 'work' defined in explanation 3 of section 194C of the Act. Thus, on non-deduction of TDS, the assessing officer has rightly disallowed the payment u/s 40a(ia) of the Act. 10. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the record, we find that the assessee is a transporter and owned certain lorries and trucks for transporting the consignments. Besides his own trucks and lorries, assessee has also hired the lorries and the trucks from outsiders for which hire charges were paid. Now the question arise, whether payment of hire charges to the truck owners attr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or paid to the account of the contractor where such sum is credited or paid exclusively for personal purpose 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 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 the sub-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 one per cent of such sum as income-tax on income comprised therein; Provided that any individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-contractor is an individual who has not owned more than two goods carriages at any time during the previous year. Provided also that the person responsible for paying any sum as aforesaid to the sub-contractor referred to in the second proviso shall furnish to the prescribed income-tax authority or the person authorized by it such particulars as may be prescribed in such form and within such time as may be prescribed; or (ii) any sum credited or paid before the 1st day of June, 1972; or (iii) any sum credited or paid before the 1st day of June, 1973, in pursuance of a contract between the contractor and a co-operative society or in pursuance of a contract between such contractor and the subcontractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the co-operative society. 11. From plain reading of the provisions of section 194C of the Act, we find that TDS is required to be deducted when any person responsible for paying any sum to a contractor for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the assessee at particular perc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or deduction of tax at source u/s 194C of the Act. The relevant observations of the Tribunal in that case are extracted hereunder: "9. We heard the rival contentions and also perused the record. In the case of M/s Mythri Transport Corporation, supra, relied upon by the assessee, this bench has reframed the question and also analyzed the provisions of section 194C(2) as under:- "8. .The issue before us may be decided if we answer the following question. "Whether the vehicles hired by the assessee in execution of the transport contract and be termed as a "Sub-contract" and consequently the assessee is liable to deduct tax from the payment made for such vehicles u/s 194C(2) of the Act?" In the instant case, the assessing officer has invoked the provisions of sec.40(a)(ia) to disallow the payments made for hired lorries as according to him, such payments represent payment to 'sub-contractors' liable for tax deduction at source u/s 194C(2) of the Act and the assessee has failed to deduct TDS u/s 194C(2). Section 194C)(2) of the Act, which is relevant in this context, reads as under: "Any person (being a contractor and not being an individual or a Hindu Undivided family) resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e whole or any part of the main work by spending his time, money, energy etc. and further taking the risks in carrying on the said activity. In the instant case, there is no material to suggest that the other lorry owners involved themselves in carrying out any part of the work undertaken by the assessee by spending their time, energy and by taking the risks associated with the min contract work. In the absence of the above said characteristics attached to a sub-contract in the instant case, the payment made to the lorry owners stands at par with the payments made towards salaries, rent, etc. Hence the reasoning of the tax authorities, which is stated in para 8.3 supra, to hold that the payment made for hired vehicles is a subcontract payment, in our opinion, is not correct and not based on relevant considerations. Hence, in our considered opinion, it cannot be said that the payments made for hired vehicles would fall in the category of payment towards a sub-contract with the lorry owners. In that case the assessee is not liable to deduct tax at source, as per the provisions of sec.194C (2) on the payments made to the lorry owners for lorry hire. Consequently, the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The tankers were made available to the assessee for using them for the business of the assessee under his control and supervision. More so, as per clause 16 of the Agreement entered with ONGC, the assessee is not entitled to assign or sub-contract any part of the contract to any one without the prior permission of the ONGC and there is no iota of evidence to suggest that the assessee has even sought such permission from ONGC to assign any part of contract. It is also not on record that the goods were lifted, transported and delivered by the tanker owners at their own risks. Hence, in our opinion, the tanker owners cannot be said to have carried out the whole or part of the work. In view of the fore going discussions, we are unable to accept the contention of the Ld DR that the assessee has made the sub-contract even from the stage at which the vehicles were identified for participating in the bidding process. 10.1 Hence, in our considered opinion also, the payments made to tanker owners would not fall in the category of payment made to a sub-contractor for carrying out the whole or part of the contract liable for deduction of tax at source u/s 194C(2) of the Act. In that case, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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