TMI Blog2013 (1) TMI 592X X X X Extracts X X X X X X X X Extracts X X X X ..... came to the conclusion that the case of the assessee was not covered u/s 194C(1) In favour of assessee - Tax Appeal No. 1591 of 2011 - - - Dated:- 9-10-2012 - Akil Kureshi and Ms. Harsha Devani, JJ. Manav A. Mehta for the Appellant. ORDER Akil Kureshi, J. - Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal (hereinafter to be referred to as "the Tribunal") dated 8th July 2011 raising following question for our consideration:- "Whether the Appellate Tribunal is right in law and on facts in deleting the addition on account of disallowance of payments u/s.40(a)(ia) of the Act?" 2. We are concerned with Assessment Year 2007-08. Issue arises in the following factual background:- 2.1 Respondent-assessee is an individual and is engaged in the business of construction in the name of M/s. Sakhi Construction. During the previous year relevant to the assessment year 2007-08, the assessee had made payments to several contractors totaling to Rs. 71,00,339/-. The Assessing Officer believing that in terms of section 194C of the Income Tax Act, 1961 (hereinafter to be referred to as "the Act"), the assessee was required to deduct tax at so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act would not apply to the payments made by the assessee to the transporters. He submitted that the assessee had entered into a sub-contract with the transporters. The fact whether such contract was a written or oral would make no difference. Drawing our attention to explanation-3 to section 194C and the decision of Madras High Court in the case of Central Board of Direct Taxes v. Sri Saradha Transport [2003] 260 ITR 297, the counsel contended that the carriage of goods would also be included within the expression "work" as used in section 194C of the Act. 4. Having thus heard the learned counsel for the Revenue and having perused the orders on record, we may first notice the statutory provisions obtaining at the relevant time. Section 194C, as it stood at the relevant time, reads as under:- Section 194C. Payments to Contractors and Sub-Contractors . (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and - (a) the Central Government or any State Government; or (b) any loca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax under this sub-section. Explanation I :- For the purposes of sub-section (2), the expression "contractor" shall also include a contractor who is carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government of a foreign State or a foreign enterprise or any association or body established outside India. Explanation II : For the purposes of this section, where any sum referred to in sub-section (1) or sub-section (2) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. Explanation III : For the purposes of this section, the expression "work" shall also include - (a) Advertising; (b) Broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) Carriage of goods and passengers by any mode of transport other than by railways; (d) Catering. (3) No deduction shall be made under sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nover 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 financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor." 6. Section 40(a)(ia), as is well known, pertains to non-availability of deduction when TDS, though required, has not been deducted or if so deducted, has not been paid. Relevant portion of such provision reads as under:- "Section 40:- Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession" (a) :- In the case of any assessee: (ia) :- Any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labor for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this is not a case of sub-contract. The Tribunal noted that none of the responsibilities of the contractor vis-a-vis the execution of the work were fastened on the transporters. The Tribunal noted that the assessee had indemnified ANS Construction against any legal or financial liability if such liability arises in future out of such contract. The assessee was solely responsible for execution of the work. No part of such liability was fastened on the transporters. The assessee had only availed of the services of such transporters for carrying out the material to the site. The Tribunal, therefore, concluded and rightly so in our opinion that this was not a case of relationship between the assessee contractor and the transporters in the capacity of sub-contractors. 11. To reiterate, for application of section 194C(2) of the Act what was necessary was a relationship between the contractor and sub-contractor and not merely be hiring of an agency by the contractor during the course of execution of the work. In the present case, such vital requirement of relationship of a contractor and sub-contractor between the assessee and the transporters was missing. The Tribunal, in our view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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