TMI Blog2015 (2) TMI 321X X X X Extracts X X X X X X X X Extracts X X X X ..... 22-10-2010. The main grounds contested before us are reproduced below:- 1)a). That the Hon ble CIT(A) has erred in holding the view that payment made to Partner for use of his trucks was covered by section 194C(2) of the Act and that provisions of TDS was applicable on the same. b) That the Hon ble CIT(A) has erred in sustaining the disallowance made in respect of payment made to Partner of ₹ 11,07,400/- u/s. 40(a)(ia) of the Act on ground that TDS was not deducted on it. 2. Facts in brief as emerged from the corresponding assessment order passed u/s. 143(3) dated 17-12-2008 were that the assessee-firm has filed the return declaring an income at ₹ 2,334/- The firm is engaged in the business of transportation. It was informed that the assessee was not owning trucks. The trucks are hired from the open market. On verification of the balance sheet, it was found by the AO that no trucks were reflected in the balance sheet. It was confirmed that the assessee-firm was hiring the trucks and paying the freight charges to the truck owners. Towards freight expenses, an expenditure of ₹ 16,6800/- was debited. On verification of the details of fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, it is established that non deduction of tax by firm from the payment to partner has not made any loss to revenue. 2.1 The said reply was not acceptable to AO. According to him, the freight expenses were paid to a sub-contractor hence in view of the provisions of section 40(a)(ia) r.w.s. 194C it was disallowed by the AO. 3. When the matter was carried before the first appellate authority, it was reiterated that Shri Maheshchandra Agrawal was not a sub-contractor but provided his assets to the firm to be used for the purpose of the business on which rent was received by him on a fixed per trip basis. It was also argued that there was not a relationship of sub-contractor and contractor, but it was a relationship of a partner with the firm. The firm had incurred all the expenses of running of the truck and a fixed rent on the basis of each trip was paid hence it was pleaded that the provisions of section 194I would have been attracted if at all that too from A.Y. 2007-08. An another argument has also been raised that the payee, Mr. Agrawal, had already paid the tax, therefore, there was no obligation on the assessee-firm to again deduct the tax. For this legal prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entities, as transaction has been entered with the firm by the partner in his individual capacity. There has been violation of Section 194C(2) of the Act and this fact has been accepted in the assessment proceedings also. Since provisions of Section 194C has been violated, the expenditure has been rightly held as inadmissible, u/s. 40(a)(ia) of the I.T. Act by the A.O. The addition is upheld. This ground No. 1(a) of appellant fails. 3.2 Ld. CIT(A) has also mentioned that the Hon ble Madras High Court in the case of Tube Investments of India Ltd 185 taxman 438 (Mad.) and further Punjab and Haryana High Court in the case of Rakesh Kumar Co. 178 taxman 481 (P H) has upheld the validity of section 40(a)(ia) of the Act. At this juncture it is worth to mention that we have perused these two precedents and noted that only the constitutional validity was challenged; but in the present appeal the question is about the applicability of the provisions of sec. 40(a)(ia) to be decided in the light of few latest decisions. 4. From the side of the appellant Ld. AR, Shri Manish Kr. Malpani, appeared and pleaded that Mr. Agrawal was not a sub-contractor but he has provided his assets to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such sum to the account of contractor or at the time of payment deduct an amount of tax, in case of individual or HUF it is 1% required to be deducted. As per explanation annexed to section 194C the definition of work includes carriage of goods . However assessee s main contention is that there was no relationship of contractor and sub-contractor because one of the partner has provided his trucks for the business of the assessee-firm. Due to this reason, the assessee-firm has incurred the running expenditure of the truck such fuel expenses, salary expenses etc. There was one more vehement argument is that Mr. Agrawal has paid the tax on trucks given on hire to the assessee-firm. Since the payee had already deposited the tax by filing his return, therefore, there was no responsibility of the assessee to again deduct the tax as held in the case by Hindustan Coco Cola Beverages 293 ITR 226 (SC). In support of this argument, our attention has been drawn on an order of ITAT Ahmedabad Bench C pronounced in the case of Prashant H. Shah vs. ACIT 21 taxmann.com 263/52 SOT 69, Ahmedabad wherein it was held as under:- 7.1 On account of the above discussion, the issue co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued by the CBDT, if we examine the issue in hand, then in terms of provisions of section 194C(2) of the Act conditions to be satisfied are (i) that the assessee should be a contractor, (ii) that the assessee 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 awn resources in terms 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty and the assessee society had undertaken all work relating to the execution of transport contract. There was no sub-contract between assessee society and the tanker owners (members). On those facts, it was held that in the absence of any element of sub-contract, the assessee-society was not required to deduct tax at source u/s. 194C(2) of IT Act. 6.2 One more order of ITAT Mumbai is placed before us viz. Bhail Bulk Carriers Vs ITO Bulk Careers 20 taxmann.com 87/50 SOT 622 (Mumbai) wherein it was found that for fulfilling its transportation commitment the assessee besides using its own tankers has also hired tankers from outside parties as and when required but no TDS was deducted on payment of freight charges. It was found that the assessee alone was at risk and responsibility for carrying out contract work was as per agreement entered by the assessee with the member i.e. BPCL. It was also found that there was no material on record to suggest that there was any contract or sub-contract, written or oral with those tank owners. The risk and responsibility was associated with the assessee as per the contract and no responsibility had passed on to those outside tank owners. On fac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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