TMI Blog2012 (6) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... t source as prescribed u/s. 194C(2) of the IT Act. Consequence thereupon the provisions of section 40(a)(ia) of the Act were incorrectly invoked, hence the view taken by the authorities below are hereby reversed. Ground is allowed Whether Commissioner of Income-tax (Appeals) has erred in confirming the action of Assessing Officer in making disallowance of Rs. 45,275/- being 20% of telephone expenses and 10% of other expenses - under the head "miscellaneous expenses", staff welfare expenses, telephone expenses, travelling expenses, etc. a total sum of Rs. 3,87,801/- was debited out of which the AO has made disallowance at 20% amounting to Rs. 77,560 - Held that:- When it was contested before the ld. CIT(A), the disallowance in respect of telephone expenses @ 20% was upheld. However, the disallowance in respect of other heads it was restricted to 10%. On hearing the submissions of both the sides and considering the nature of business as also the size of the business, we hereby hold that only 5% disallowance should suffice to cover up the expenditure alleged to be made towards personal use by the assessee. appeal of the assessee is partly allowed - IT APPEAL NO. 17 (AHD.) OF 2011 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work of peripheral and approach roads at LNG terminal, Dahej. The assessee has carried on above work pursuant to contract with M/s. ANS Construction Ltd. It is also relevant to mention here that M/s. ANS Construction Ltd. has entered into a contract with M/s. Petronet LNG Ltd., New Delhi for carrying on the above work. It may therefore kindly be appreciated that the work to be carried out by the assessee pertains to construction of peripherals and approach roads. For carrying out the above work the assessee has to make purchases of various construction materials viz. sand, gravels etc. and all these items are required to be brought to the construction site at Dahej. In order to bring the above construction materials to the construction site, the assessee has availed services of various transporters and in respect of such services provided by the transporters the assessee has made payment of transport charges. In respect of the above payment made by the assessee, the provisions of sub-section (2) of section 194C cannot be applied because the payments made by the assessee to various transporters are in the nature of contract work and not in the nature of sub-contract. This is so be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words, the sub-contractors are not liable to make TDS under section 194C(2) from the payments made by them to the other parties. The word 'contractor' is specifically used in sub-section (2) and as such there is no scope of making any other interpretation. Now in the instant case, it is very much clear that assessee is acting as a sub-contractor for carrying out his subject work as the main contractor is M/s. ANS Construction Ltd. who has entered into direct contract with M/s. Petronet LNG Ltd. The assessing officer has also not disputed assessee's contention that he is acting as a sub-contractor only. Hence, even otherwise also the liability for making TDS under section 194C(2) in case of assessee does not arise. TDS is required to be made only under the authority given by the statute when no such authority is given by statute to sub-contractors, assessee cannot be held liable to make TDS u/s. 194C(2) of the Act. If the above argument of assessee is not accepted on the ground that assessee becomes the principal by availing services of transporters and payment made to transporters are in the nature of contract, in that case provisions of section 194C(1) are applicable as per t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racted exceeds monetary limit prescribed u/s. 44AB of the Act. The Proviso to the above sub-section also makes it clear that where the amount has been credited or paid to the account of sub-contractor then also, the contractor shall be liable to deduct income-tax. Explanation (1) to the above sub-section also defines the word 'contractor'. The appellant's submission is that sub-section (2) of section 194C is not applicable to him as only contractors are required to make TDS from payments made to sub-contractors and the sub-contractors are not liable to make TDS u/s. 194C(2) from the payments made by them to the other parties and he is only sub-contractor for carrying out the work of the main contractor, i.e. M/s. ANS Construction Ltd. As seen above, the appellant has entered into contract with M/s. ANS Construction Ltd. Therefore, as far as the appellant is concerned, M/s. ANS Construction Ltd. is the contractee and he is the contractor for M/s. ANS Construction Ltd. and a sub-contractor for M/s. Petronet LNG Ltd., and following the same chain when the appellant has contracted out work he has to execute for M/s. ANS Construction Ltd., he becomes the contractee for the persons t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b work by deploying his own resources in terms of manpower and machinery. On the basis of above agreement, he has argued that the assessee had not entered into a 'transportation contract' with M/s. A.N.S. Construction Ltd. The payment of transport charges to various parties did not fall under the head of "sub-contract expenses". He has argued that section 194C(2) of the Act are therefore not applicable. In support, he has cited Mythri Transport Corporation v. Asstt. CIT [2009] 124 ITD 40 (Visakha), Kavita Chug v. ITO [2011] 44 SOT 95 (Kol.) (URO), Chandrakant Thackar v. Asstt. CIT [2010] 129 TTJ 1 (Ctk)(URO), CIT v. United Rice Land Ltd . [2010] 322 ITR 594/[2008] 174 Taxman 286 (Punj. Har.) and of R.R. Carrying Corporation v. Asstt. CIT [2009] 126 TTJ 240 (Ctk). 6. From the side of the Revenue, Mr. G.S. Souryavanshi appeared and placed reliance on the orders of the authorities below. He has argued that as per the provisions of section 194C(2) any person being a contractor responsible for paying any sum to a sub-contractor in pursuance of a contract with the sub-contractor for carrying out any part of the work undertaking by the contractor is required to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g an individual got covered by sub-section (1), then according to us, it was an incorrect application of law. We therefore hold that for the Asstt. Year under consideration 2007-08 the provisions of sub-clause ( k ) of 194C (1) are not applicable being introduced w.e.f. 1-6-2007 and the assessee being an individual is consequently out of the clutches of this clause. 7.1. On account of the above discussion, the issue confines to the residual sub-section i.e. the applicability of provisions of sub-section (2) of section 194C of the Act. The peculiarity of this case is that a contract was awarded to M/s. Petronet LNG Ltd. New Delhi for construction work of peripheral and approach roads at LNG terminal Dahej. Thereafter, the said contractor had entered into a sub-contract with M/s. A.N.S. Construction Ltd., who in turn, had entered into an another sub-contract with the assessee. The work to be carried out by the assessee, therefore pertained to construction of peripheral approach roads. To carry out the above work, the assessee had to purchase construction material, viz . Sand, gravels, etc. In order to bring the construction material at the construction site at Dahej, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s own resources in terms of manpower machinery. Further vide clause (2) assessee had undertaken the responsibility of any legal or financial liability. The assessee has indemnified the first party, i.e . M/s. A.N.S. Construction Ltd. against any legal or financial liability if arise in future pertaining to the said contract. Assessee was made solely responsible for the execution of the job. These clauses, therefore, suggested that the assessee was wholly and exclusively responsible for the acts as also for the defaults, if committed. On the other hand, the lorry owners or the transporters who had been given "transportation charges" have not been fastened with any of the above liabilities, meaning thereby the transporters were not the part of the said agreement and the assessee had an independent arrangement with them. In other words, peculiarity of this case is that the sub-contract which was assigned to this assessee was not further sub-contracted to the lorry owners. In a sub-contract, a prudent contractor generally include the clauses of liability which were undertaken by him while accepting the execution of the work from the main contractor. We may like to clarify that a c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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