TMI Blog2012 (9) TMI 731X X X X Extracts X X X X X X X X Extracts X X X X ..... disallow the amounts which have already been paid during the previous year, without deducting tax at source.”. Thus,the provisions of section 40(a)(ia) are not applicable under this situation, hence the impugned disallowance is hereby deleted - in favour of assessee. - I.T.A. No.4104/Ahd/2008 - - - Dated:- 31-7-2012 - SHRI MUKUL Kr.SHRAWAT And SHRI ANIL CHATURVEDI, JJ. Appellant by : Shri Rasesh Shah Respondent by : Shri D.P.Gupta, CIT-D.R. ORDER PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER : This is an appeal filed by the Assessee arising from the order of Learned CIT(Appeals)-II, Surat dated 18.09.2008 and the Grounds raised are as follows:- 1. On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of assessing officer in disallowing Rs.2,34,70,294/- u/s.40(a)(ia) of the I.T Act, 1961. 2. On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax(Appeals) has erred in confirming the action of assessing officer in disallowing Rs.5,14,118/- at the rate of 10% of various expenses (v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to several trucks totalling to Rs.3,22,48,905/- was reproduced by the AO. Finally, he has worked out that the assessee had made payment exceeding Rs.50,000/- to 217 trucks totalling to Rs.2,34,70,294/- for which no TDS was deducted. The assessee s reply was as under:- 1. Our modus operandi of the business is that we work as a broker agent for our various principal who has contract for regular supply for specific period and quantity with M/s.Essar Steel, Hazira. As a part of our duty we as soon as we receive a telephonic order by our principal (who has already specific period and quantity order with M/s.Essar Steel, Hazira) for arranging Lorries to different-different destination. We arrange Lorries for the desired destination. At the ONGC Chokdi, Hazira being called meeting centre for various truck drivers and having business relations with various truck owners we contract them for demand of the principal for carry of goods as soon as the drivers agrees to carry the load according to need of principal his freight charges been fixed in the presence of a person of principal for which lorry receipts is prepare by the principal, mentioning consignee and consigner name and dest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of Rs.2,34,70,294/- was made and the matter was carried before the first appellate authority. 4. Ld.CIT(A) has held that as far as the each payment exceeding the prescribed limit is concerned, the aggregate at the end of the year had exceeded Rs.50,000/-. Therefore, the provisions of TDS have attracted. The ld.CIT(A) has also held that the provisions of section 194C(2) of IT Act would also apply on the facts of the case because the assessee is a contractor, hence liable for deduction of tax. He has also rejected an another argument which was in respect of application of doctrine of overriding title. According to him, the funds had come in the hands of the assessee and thereafter those were disbursed. Finally, he has also rejected the argument which pertain to the terminology used in Section 40(a)(ia) as payable instead of paid . In his opinion, under the mercantile system of accounting, an expenditure which is incurred is a sum payable, therefore subject to deduction of tax at source. In the result, ld.CIT(A) has affirmed the action of the AO. Being aggrieved, now the assessee is further in appeal. 5. From the side of the appellant, ld.AR Mr.Rasesh Shah has threefold ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sporters, can each GR be said to be a separate contract, even though payments for several GRs are made under one bill? Answer: Normally, each GR can be said to be a separate contract, if the goods are transported at one time. But if the goods are transported continuously in pursuance of a contract for a specific period or quantity, each GR will not be a separate contract and all GRs relating to that period or quantity will be aggregated for the purpose of the TDS. 4.3. His next plank of argument revolves around the business of hiring of lorries by lorry-owners and for this purpose case law relied upon Mythri Transport Corporation reported at (2010)124 ITD page 40. 5. From the side of the Revenue, ld.CIT-DR Mr.D.P.Gupta appeared and placed reliance on the orders of the AO CIT(A). He has argued that this is a simple case where the assessee has acted as a sub-contractor, therefore the provisions of section 194C(2) was rightly applied for the purpose of invocation of disallowance u/s.40(a)(ia). He was required to deduct the tax at source even when the amount was paid during the year under consideration because the TDS liability arises only at the time when the payment is mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 40(a)(ia) for the infringement of the provisions of section 194C of the Act by holding that the assessee being 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. 6.1. Undisputedly, the year under consideration is A.Y. 2005-06, therefore we hereby hold that for the year under consideration the provisions of section 194C(1)(k) are not applicable. 7. The next plank of argument revolves around the business of transportation and in this regard the CBDT has expressed the opinion in question-answer form as reproduced above and while dealing this issue the Respected Co-ordinate Bench C in the case of Shri Prashant H.Shah(supra) has held as under:- 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 awar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee should enter into a contract with a sub-contractor,(iii) that the sub-contractor should carry out any part of the work undertaken by the contractor and (iv) that the payment should be made for the work done. In a case, when a contract is assigned, generally the clauses are stringent that the contractor is to be responsible for all the acts and defaults committed. In the present case as well, when the M/s.A.N.S. Construction Ltd. had granted sub-contract dated 30/1/2006 to M/s.Sakhi Construction,( prop. Appellant) then vide clause (1) the assessee was to deploy his 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 tran ..... 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