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The Commissioner of Income Tax, Belgaum, The ACIT Versus M/s Maruti Subray Patil

2015 (10) TMI 825 - KARNATAKA HIGH COURT

TDS u/s 194C - Disallowance under Section 40(a)(ia) - payment of transportation of goods - sub-contracting - scope of the term 'Work' - payments made to each lorry owner exceeded ₹ 50,000 - whether the provisions of Section 194C of the Act can be invoked only if any single payment exceeds ₹ 50,000/- or can be invoked if the aggregate of payment in an assessment year exceeds ₹ 50,000/-? - ITAT deleted the addition - Held that:- The Tribunal gravely erred in holding that the asse .....

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ry belatedly. This being the factual issue, the Tribunal did not deem it necessary to call upon the assessee to demonstrate the said fact, but proceeded to accept the statement as a proven fact. It appears that the Tribunal has diverted itself from addressing the core issue, that is whether the assessee has paid any sums, the aggregate of which exceeds ₹ 50,000/- in the assessment year to any single entity. The Tribunal has not addressed itself to any of the findings of fact rendered by th .....

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goods was from its premises to the port and in the course of its export. In the present case, the facts and details are not only hazy but are obfuscated due to lack of clarity. Apart from stating that the ore was required to be transported from point (a) to point (b), no details are provided as to whether the point (b) was a licenced or registered place, where minerals could be stored there, etc., It is seen that a huge sum amounting to ₹ 5=00 crorers is spent merely for transportation of .....

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red with - Decided in favour of the revenue. - I.T.A. No. 5027/2010 - Dated:- 29-7-2015 - Ravi Malimath And G. Narendar, JJ. For the Petitioner : Sri Y V Raviraj, Adv For the Respondent : Sri V Chandrashekar, Sri S Annamali and Sri Shashank Hegde, Advs. for Sri A Shankar, Adv JUDGMENT This appeal is preferred under the provisions of Section 260A of ITA Act, 1961, arising out of the order dated 25.11.2009 passed by the Income Tax Appellate Tribunal, Panaji Bench, Panaji in ITA No.86/PNJ/2009, pra .....

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enue impugning the order passed by the Tribunal. 3. The substantial questions of law that arise for consideration in the above appeal are as follows: 1. Whether in the facts and circumstances of the case, the ITAT is right in law in deleting the addition made under Section 40(a)(ia) ignoring the facts that there was oral contract with transporters which was evident from the fact that, payments made to each lorry owner exceeded ₹ 50,000? 2. Whether the ITAT is right in deleting the addition .....

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ns of Section 194C(2) which clearly provides that, even sub-contracting part of work by contractor also attracts T.D.S.? 4. The brief facts of the case are as follows: The assessee, who is the respondent herein claims to be in the business of transportation. It is the further claim by the assessee that he had entered into a contract with one M/s.Infrastructures Logistics Pvt. Ltd., Goa for transportation of iron ore from Sandur Mines to a place called Redi. It is further asserted that under the .....

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rs, without deducting tax at source, on such payments, as mandated under the provisions of Section 194C of the IT Act. Upon noticing the discrepancy, the assessee was called upon to explain. Whereupon it was claimed by the assessee that there is no sub-contract and that he has loaded the vehicle whichever had come to the site and that the heading "freight paid" is a misnomer and a factual error and that the amount paid in fact represent the hire charges and not freight charges. Rejecti .....

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ners and it was contended that the amounts paid represent the hire charges and are not freight charges. It was also contended that in the absence of the subcontract the amount though described as freight charges ought to be read as "hire charges only". The Commissioner (Appeals) is said to have thoroughly scrutinized the records and is said to have found that the payments made to the various vehicle owners depended on the quantity transported and in this regard, he has relied upon cert .....

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er or before the Commissioner (Appeals). Hence, the Commissioner (Appeals) by a detailed and reasoned order was pleased to conclude that the amounts allegedly paid are indeed freight charges and not hire charges and rejected the contention of the assessee that the entry "freight paid" is on account of the mistake committed by the accountant and in fact such amount represent the hire charges only. It is the admitted case of the assessee that there are no written contract nor bills issue .....

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come Tax Appellate Tribunal impugning the conclusion of the assessing officer and its confirmation by the Commissioner (Appeals) concluding that the provisions of Section 194C(2) of the Act was attracted and the assessing authority invoked consequential provisions of Section 40(a)(ia) of the Act. 8. The learned counsel for the appellant would take the Court through the order rendered by the appellate Tribunal. He would state that the Tribunal after merely recanting the respective submissions of .....

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ould submit that the Tribunal erred in observing the fact that the decisions of the Visakahpattanam Bench involved almost similar facts. He would further submit that the Tribunal erred in accepting the contention of the assessee at the face value. The contention is that there are no written sub-contract and hence, in the absence of written sub-contracts the payments have to be construed as hire charges is not only materially irregular, but contrary to the law resulting in travesty of justice and .....

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r submit that the Tribunal erred in holding that the element of risk remained with the assessee only and was not transferred to the truck owners. He would submit that it is not the case of the assessee nor the assesseee placed any material to demonstrate or buttress the case made out by the Tribunal. 12. The appellant counsel would submit that the reasoning of the Tribunal that the Revenue failed to place any material to controvert "oral statement" of the assessee is not only perverse .....

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contract entered into and executed on behalf of the assessee. He would submit that it is the case of the assessee that he owned only five trucks and that the trucks of third party has been used to transport the materials, that is to execute the contract entered into between the assessee and his principal. He would submit that the same are evidence of an implied agreement and agreements include oral agreement also. He would state that it is an undisputed fact that no material has been placed by t .....

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uthorities to corroborate and demonstrate the statement / alibi of the assessee that the entry in the books of accounts described as "freight charges" is as a result of factual mistake. He would submit that in the light of the above, the question of disproving a unsubstantiated or non existing facts does not arise. He would state that shifting of the burden of proof on the revenue to disprove the nonexisting fact is contrary to law under the Indian Evidence Act and on the above content .....

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e written sub-contract, it is erroneous on the part of the revenue to presume or assume the violation of the mandate of Section 194C(2). He would also strongly condemn consequential invocation of the provisions of Section 40(a)(ia) of the Act. He would submit that the invocation is bad in respect of the payments that have already been made and that the provision could be invoked and would be applicable only in respect of pending payments that are yet to be made. He would submit that if the inter .....

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this Court would also deem it necessary to frame an additional issue, which has arisen incidentally as a result of the approach adopted by the Tribunal, the same is as follows: Whether in the facts and circumstances of the case, the income tax appellate Tribunal was right in allowing the appeal by merely relying on broad principles without reference to the critical facts of the case? 17. For the sake of brevity and convenience the provisions of Section 194C of IT Act, are culled out for referen .....

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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- (i) one per cent in case of advertising, (ii) in any other case two per cent, of such sum as income-tax on income comprised therein: Provided that no individual or a Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individu .....

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s 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 XXXXX Explanation I. - XXXXX Explanation II. - XXXXX Explanation III. -For the purposes of this section, the expression "work" shall also include- (a) XXXXX (b) XXXXX .....

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ifty thousand rupees, the person responsible for paying such sums referred to in sub-section (1) or, as the case may be, sub-section (2) shall be liable to deduct income-tax [under this section:]" 18. The provisions of Section 40(a)(ia) are culled out for the sake of convenience: 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&q .....

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resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour 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 the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200:" 19. A perfunctory reading of the provisions of Section 194C of the A .....

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the time of making payments to the person, who carries out the work or such portion of the work under the Contract. Thus in a sense, the provisions of Section 194C enjoins a positive duty on the persons making the payment to deduct a sum at the specified rate and as mandated under the Act and that too at the time of making of payments and the deducted amounts are to be deposited with the authorities. One such activity which has been brought within the sweep of the above section is transportatio .....

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justified in invoking the same. 22. The undisputed facts are that the assessee declared a total income of ₹ 25,14,811/- for the assessment year 2005-06. On an inspection of the accounts by the A.O., it was revealed that the assessee had received a sum of ₹ 5,74,48,399/- as freight charges from M/s.Infrastructures Logistics Pvt. Ltd., Goa and out of that he declared that he had paid a sum of ₹ 5,10,16,407/-. The said information was furnished vide questioner dated 06.09.2007, wh .....

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ation of materials under contract with principle. It was also asserted that there are no written contracts with the lorry owners and who ever was available had been employed by them and paid hire charges and that as the lorry owners are not fleet owners and possess one or two trucks, the question of making TDS from hire charges did not arise. With reference to the explanation offered under the letter dated 19.11.2007, a further query was addressed by the Assessing Officer on 12.12.2007. It was p .....

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was in excess of ₹ 50,000/- and as noted supra only those payments of aggregate which do not exceed ₹ 50,000/- are exempted under sub-section 3 of Section 194 of the Act and where no single payment of ₹ 20,000/-, the same are exempted from the purview of sub-section 3 of Section 194C and failure attracts the consequences under Section 40(a)(ia) of the Act. 23. In reply, the assessee has reiterated that the word freight paid has been mistakenly used by his accountant and that th .....

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it is to be noted that it has not been denied by the assessee, that in most of the cases, the aggregate of sums paid in the assessment year is in excess of ₹ 50,000/-. It is seen that the assessee has conversely argued before the assessing authority stating that he has not made any single payment either in excess of ₹ 20,000/- or ₹ 50,000/- and hence, he has sought exemption from the purview of the Act mandating deduction of tax at sources. But yet again it is to be noted that .....

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and the same has also been rejected in view of the fact that the provisions of Section 194C(i) had been amended with effect from 01.10.2004. Thus, in effect all the contentions raised by the assessee were negated and the assessing authority invoking the provisions of section 40(a)(ia) of the Act disallowed a sum of ₹ 4,07,73,435/- out of the declared sum of ₹ 5,10,16,407/- as this represented the total sum of amounts, where the aggregate of payments made to the transporters exceeded .....

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377; 50,000/-. As stated supra there is no controversy regarding the said contention, the provision is clear and unambiguous and the word aggregate has been specifically used. In that view of the matter, the assertion on behalf of the assessee, that only in respect of payment which exceeds ₹ 50,000/- is liable to be deducted at source is liable to be rejected and is accordingly rejected. Accordingly, the substantial questions of law as framed by the appellant/revenue is answered in favour .....

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. The Tribunal gravely erred in inferring that, there ought to be a sub-contract in writing and only in a such an event the provisions of the Act can be invoked. It further seriously erred in holding the factual issue in favour of the assessee, when not even a shred as evidence was placed before it. A pointer in this direction, is the finding that no risk was undertaken by the lorry owners. It was not the case of the assessee before the Assessing Authority or Commissioner (Appeals). The said con .....

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has also gravely erred in holding that the assessee/appellant had made out a case because the revenue failed to place any material before it, contraverting the vague and mere oral assertion of the assessee. The said reasoning is contrary to all known cannons of the law of evidence, logic and law mandates that the burden and onus is on the person, who alleges a fact, to prove the said fact. The assessee has pleaded that the entries "freight paid" is on account of a mistake committed by .....

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essed itself to any of the findings of fact rendered by the Assessing Authority. In particular, several instances of the aggregate of payments have exceeded ₹ 50,000/- in the assessment year have been placed on record. It does not render any reasoning to unsettle the finding of the original authority, that even the agreement can also be an oral and that the transactions with the lorry owners/transporters is within the purview of the provisions of the Act as it amounts to carriage of goods .....

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