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TMI Blog2016 (2) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/- on account of disallowance of expenses u/s 40(a)(ia) of the Act. Ld. CIT(A) failed to appreciate provisions of newly introduced section in its proper perspective and further not taking into consideration submissions, arguments and judgments relied upon by the appellant. Ld. CIT(A) ought to have deleted disallowance. It be so held now. 2. Ld. CIT(A) ought to have appreciated that the appellant did not own any trucks of its own and hence to fulfill contract of transportation of goods with BPCL and Hindustan Coca Cola hired trucks from other owners earning commission income only. Ld. CIT(A) erred in holding them to be sub-contractors of the appellant in absence of any oral or written contract with truck owner. Ld. CIT(A) ought to have held that the appellant was not liable to deduct tax u/s 194C of the Act. It be so held now. 3. Initiation of penalty u/s 271(1)(c) of the Act is not justified. 4. Levy of interest u/s 234B, 234C & 234D of the Act is not justified. 2. Brief facts of the case are that the assessee is deriving income from transport operations, carrying LPG cylinders and Soft-drink bottles. It had filed return of income on 31/10/2005 declaring total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iring each truck and separate payment on successful delivery of the goods was made. However, the ld. CIT(A) was not convinced with the submissions of ld. AR of the assessee and he confirmed the action of AO for disallowing the payment of Rs. 1,38,30,000/- and gave following findings:- "2.3 I have considered the submissions of the Authorised Representative and the order of the Assessing Officer. The appellant had entered into contracts which is evidenced by the contract agreement with HCCL filed and also the TDS certificates wherein the payment received by the appellant is in accordance with the contract with HCCL and BPCL. Hence its stands established that the assessee was a contractor as far as HCCL and BPCL are concerned. When entering into the contract with both these companies, the assessee was well aware of the fact that he did not own any transport vehicles. Hence at the time of the agreement itself the appellant was clear that he would have to sub-contract the agreement for its successful execution. Without sub-contracting the agreement the appellant was not in a position to carry the goods and materials of the first party to various destinations in an efficient and dilige ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any part of the work. "(2) Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has 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, which is earlier, deduct an amount equal to one percent of such sum as income-tax on income comprised therein. Provided that an individual or a or a Hindu undivided family whose total sales, gross receipts or turnover 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 sub-contractor, shall be liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the books of assessee firm. - For rendering this service, assessee firm gets a flat commission of 10% of transport charges receivable by the transport vehicle owner. - The assessee firm is neither responsible for cost of operation nor any damages to be paid to the organization who requires transport vehicles on account of any violation of condition of supply of vehicles or shortages in delivery. - It is not the case, where assessee firm takes transport vehicle of its own from the open market and then supplies to the organization with whom the arrangement is made. - The payment will be given to the transport vehicle owner only after receiving it from the organization which has entered into an arrangement with the assessee firm. - Had it been the case of contract being entered into for transport vehicle on its own by the assessee firm then the vehicle owner would have demanded the cost of transport charges as agreed with assessee firm irrespective of payment received from the organization who has entered into an arrangement. In view of the above, there is no contractual relationship between vehicle owner and assessee firm for providing transport vehicles. Thus, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tractee, (b) the assessee in his capacity as a contractor, should enter into a contract with a sub-contractor for carrying out the whole or any part of the work undertaken by the contractor, (c) the sub-contractor should carry out the whole or any part of the work undertaken by the contractor, (d) payment should be made for carrying out the whole or any part of the work. The stringent clauses in the work order suggest that the assessee is solely responsible for all the acts and defaults committed by the assessee and/or its employees. It is not established by the Revenue that other lorry owners, from whom the vehicles were hired have also been fastened with any of the above said liabilities. In a sub-contract, a prudent contractee would include all the liability clauses in the agreement entered into by him with the sub-contractor. The assessee has also claimed before the tax authorities that the responsibility in the whole process lies with it only. Though the passing of liability is not the only criteria to decide about the existence of sub-contract yet this contention of the assessee read with the liability clauses of the work order supports its submission that the individual vehi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the appellant for transportation of LPG cylinders and an addition under section 40(a)(ia) was made on the payments made to transports. The Tribunal allowed the appeals in favour of the assessee deleting the additions u/s 40(a)(ia) r.w.s. 194C(2) by observing as under :- "7. We have heard the rival submissions and carefully perused the material on record. From the facts of the case it is apparent that the assessee was hiring trucks for the purpose of his business of providing transportation services to his client M/s. HPCL. Section 194C of the Act makes it clear that TDS is deductible only in the case when the recipient contractors renders the work of carriage of goods or passengers by any mode of transport other than railways. In the case before us, it is evident that the assessee had only hired out the vehicles and rendered the services of transportation of goods i.e. LPG cylinders by itself at its own risk and reward. At this juncture we may peep into the decision of the Hon'ble Madras High Court in the case of CIT Vs Poompuhar Shipping Corporation Ltd. [2006] 282 ITR 3 (Mad). The gist of the aforesaid decision is reproduced herein under: "Under section 194C of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portation by itself and when no work of transportation is assigned to the owners of the vehicles. The owner of the vehicle's role extends only to the limited function of providing the vehicles along with staff to the appellant for hire charges. The movements of the vehicles with the goods are at the command of the appellant. The appellant also undertakes the risk involved in the work of transportation it renders with the help of the hired vehicles. All these facts can be clearly established in the present case before us from the contract executed between the appellant and M/s. HPCL contained in page No.2 to 27 of the paper book. This contract in Para 9 also specifically provides that the appellant shall not sub-let any work entrusted to him. Further, relevant ingredients in the contract to establish that the appellant is assigned the job of transportation and it had performed the job of transportation by itself can be summarized as under:- Item No.1 vehicle for transportation:- The appellant is assigned with the work of transportation by M/s. HPCL and it has to provide the details of the vehicles pressed for the operation. The appellant has to transport the cylinders accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madras High Court referred supra and based on our above discussions, we are of the considered view that in the present case before us, it is clearly established that the appellant had performed the work of transportation by itself by hiring of vehicles and without subletting the work and therefore, the provisions of section 194C of the Act is not applicable and accordingly provisions of section 40(a) (ia) of the Act cannot be invoked. The Revenue has not brought out any material to establish that the owner of the vehicles have performed any work other than hiring their vehicles to the appellant. For the above said reasons we allow the appeal of the assessee in its favour and delete the addition of Rs. 1,05,83,555/- made by the learned AO which was further confirmed by the learned CIT(A). 9. In the result, the appeal of the assessee is allowed. ITA No.255/Ahd/2010 (Assessee's appeal for AY: 2006-07) 9. This appeal has arisen due to recalling of the order of the Tribunal dated 26-12-2011 in ITA No.255/Ahd/2010 by allowing the Misc. Application No.63/Ahd/2012 vide order dated 01-06-2012. On the earlier occasion the Tribunal had dismissed the appeal for want of prosecution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fall in the category of payment towards a sub-contract and as such the assessee is not liable to deduct tax at source as per provisions of section 194C(2) and consequently the provisions of section 40(a)(ia) will not apply on such payments. The finding of CIT(A) is not sustainable, therefore, we set aside the findings of both the authorities on this issue and delete the disallowance. The ground Nos. 1 & 2 raised by the assessee are allowed. 9. In the next ground of appeal assessee challenges initiation of penalty under section 271(1)(c) of the Act. To our mind it is a premature ground of appeal. The assessee will get an opportunity to put its defence when penalty proceedings would be started by issuance of a show cause notice. At this stage it has no grievance. Hence this ground of appeal is rejected being premature. 10. In the next ground of appeal the grievance of the assessee relates to charging of interest under sections 234B, 234C & 234D of the Act. This ground of appeal is consequential and no arguments were addressed at the time of hearing. Hence this ground of appeal is rejected. 11. In the result the appeal filed by the assessee is partly allowed. Order pronounced in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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