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2016 (2) TMI 337 - ITAT AHMEDABAD

2016 (2) TMI 337 - ITAT AHMEDABAD - TMI - TDS u/s 194C(2) - disallowance of expenses under section 40(a)(ia) - payments to various truck owners on account of freight was made without TDS - Held that:- All the responsibility for the transportation of goods was on the assessee and assessee did not enter into any subcontract with the transport agencies and used to take on the trucks as and when required for the destination as and where required. The separate lorry receipt/challan and separate payme .....

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re, in our opinion it cannot be said that the payments made for hiring vehicles would 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 - Decided in favour of assessee - ITA No. 3357/Ahd/2009 - Dated:- 11-9-2015 - SHRI RAJPAL YADAV, JM, MANISH BORAD, AM. For the Petitioner : Ms. Urvashi Shodhan, AR For the Re .....

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allowance of expenses under section 40(a)(ia) of the Act read with section 194C(2) of the Act, on the ground that payments to various truck owners on account of freight was made without TDS. It is also pertinent to take note of specific grounds raised by the assessee. They read as under:- 1. The ld. CIT(A) erred in law and on facts in confirming addition made by AO of ₹ 1,38,30,000/- on account of disallowance of expenses u/s 40(a)(ia) of the Act. Ld. CIT(A) failed to appreciate provisions .....

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ding 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-dr .....

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1,06,61,104 from Hindustan Coca Cola Beverage Pvt. Ltd. (HCCL) and ₹ 42,90,619 from Bharat Petroleum Corporation Ltd. (BPCL) on account of contractual receipt. In aggregate the receipt as per the TDS certificate was amounting to ₹ 1,49,51,723/- as against ₹ 14,43,070 shown in the profit and loss account by the assessee. During the assessment proceedings the assessee stated that he was having business of transport operation, carrying LPG cylinders, Soft-drink bottles on contrac .....

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e total sub-contract payment payable of ₹ 1,38,30,000/- the assessee had made payment of ₹ 1,24,47,000/- to the transporters through whom goods were transported. As the assessee has not deducted TDS under section 194C(2) of the Act, the AO disallowed the claim of expenses of ₹ 1,38,30,000/-. In view of the provisions of section 40(a)(ia) read with section 194C(2) of the Act. Aggrieved, assessee went in appeal before the CIT(A). 3. During the appellate proceedings before the CIT .....

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challan was received for hiring 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 ₹ 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 contra .....

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ntract 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 diligent manner. He could not agree to be liable for any loss or shortage of any goods or materials transported under this contract and recovered from the charges payable to the second party without passing on the same condition to the vehicle owner. In the case of an accident o .....

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eceived from the HCCL/BPCL. Therefore, the appellant has claimed 10% commission income on the amounts received from the contracting company. It would be appreciated that the amount received from the contracting company would be the net amount after considering all the deductions as brought out in the contract, if applicable. Therefore, the appellant as well as the truck driver would be equally liable for any loss incurred. Hence it is obvious that the truck drivers have also been fastened with t .....

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He does not own any transport vehicle c) He procures vehicles for the purpose of executing the contract d) The work of carrying out the transportation of goods is done by the transporters e) The appellant has an oral agreement with the truck owners f) The appellant receives transportation charges from the contracting companies after the companies have deducted any loss due to damages g) From this amount the appellant claims 10% as commission thereby establishing that the liability is both his a .....

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actor 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 fr .....

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cision of the Pune ITAT is not applicable, since the tuck owners and the appellant have not formed a society and are not covered by the concept of mutuality. The appellant s case differs from the case in the Vishakhapatnam ITAT. Since the appellant has also fastened his contractual liabilities to the truck owners. In view of the above, the Assessing Officer was justified in holding that the appellant had a relationship of a sub-contractor with lorry owners and was therefore required to deduct ta .....

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d HCCL, does not arise and submitted as under :- Assessee firm is doing business of arrangement of transportation on commission basis. - Assessee firm does not have any transport vehicle of its own. - The person with whom transport vehicles are available and who are desirous of giving it to the organization on continuous basis approaches the intermediary like assessee firm. - Assessee firm has contacts with various organizations that need transport vehicle on continuous basis. - In this type of .....

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hat to each transport vehicle account it will noticed that expense like remuneration to driver, trip expenses and routine repairing expenses are paid from the accounts 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 v .....

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e 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, assessee firm does not have any contractual relationship and hence, there is no existence of contractor-contractee relationship. Under the circumstance .....

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rrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and …. (i) Any firm; or Thus, on plain reading of the bold portion of the proviso, it will be appreciated that there has to be a contract between contractor and a firm for applicability of charging section 194C(1) of the Income-tax Act, 1961]. In view of the same, it is humbly requested that the addition be not made by invoking the provisions of section 40(a)(ia) of .....

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se as well as various case laws and documents referred to in all the Paper Books filed by the assessee. The main point of examination in this appeal is, whether there is an existence of contractual relationship for arrangement of transportation between the assessee and the truck owners which can be covered within the definition of work as referred in section 194C of the Act. In the case of Mythri Transport Corporation vs. ACIT, ITAT Visakhapatnam Bench in ITA No.183/Vizag/2008 AY 2005-06 has dea .....

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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 clau .....

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C(2), the subcontractor should carry out the whole or any part of the work undertaken by the assessee. The dictionary meaning of the words carry out is to carry into practice ; to execute ; to accomplish. It signifies a positive involvement in the execution of the whole or any part of the main work by spending his time, money, energy, etc. and further taking the risks in carrying on the said activity. In the instant case, there is no material to suggest that the other lorry owners involved thems .....

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not based on relevant considerations. Hence it cannot be said that the payments made for hired vehicles would fall in the category of payment towards a sub-contract with the lorry owners. In that case the assessee is not liable to deduct tax at source, as per the provisions of s.194C(2) on the payments made to the lorry owners for lorry hire. Consequently the provisions of s.40(a)(ia) shall not apply to such payments. Conclusion: Assessee is a transport contractee, having itself executed the wh .....

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owners and consequently provisions of s.40(a)(ia) were not applicable to such payments. 7. Further in ITA No.351/Ahd/2009 & 255/Ahd/2010 for AY 2008- 09 in the case of Parishram Transport vs. ITO, identical issues have been dealt. In this case also there was an agreement between M/s Hindustan Petroleum Corporation 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 favo .....

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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 194 .....

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to return the property after the expiry of the agreed period. The Explanation to section 194C was introduced with effect from July 1, 1995. There is no principle of interpretation which would justify reading the Explanation as operating retrospectively, when the Explanation comes into force with effect from a future date. The assessee, a Tamil Nadu Government Undertaking, was engaged in the business of transportation of coal from the sports of Haldia, Visakhapatnam and Paradeep to Chennai and T .....

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e shipping companies. The Assessing Officer treated the assessee as in default and directed the assessee to pay the tax under section 201(1) of the Income-tax Act and also levied interest under section 201(1A). The Commissioner (Appeals) and the Tribunal held that section 194C was not applicable. On appeal to the High Court: Held, dismissing the appeal, that the payment of hire charges for taking temporary possession of the ships by the assessee-company would not fall within the provision of sec .....

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wner 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 p .....

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e vehicles pressed for the operation. The appellant has to transport the cylinders according to the schedule and route stipulated by M/s. HPCL. The appellant has to ensure that the trucks provided for transportation of LPG cylinders shall comply with all legal formalities. The appellant shall also arrange for the applicable insurance policies. The applicant shall also ensure the drivers of the vehicles have proper authorization to drive the trucks with such hazardous products as per the Motor Ve .....

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t shall obtain the requisite road permits and other permits applicable for transportation of goods. The appellant shall bear the entire operational cost of the trucks etc. Item No. 4 Loss/damages of cylinders The appellant shall be solely responsible for the safe custody of the cylinders. Item No.5: Utilization of trucks The appellant shall operate all the trucks for all the stations awarded to it and it shall inform M/s. HPCL if any truck is withdrawn. Item No.6: Loading/unloading/handling of c .....

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deposit/bank guarantee The appellant is to provide to M/s. HPCL bank guarantee for a specific amount for a specific period in order to cover losses, damages, expenses etc. arising out of the appellant s negligence to observe any terms and conditions in the contract. Item No.9: Subletting The appellant shall not sublet any work entrusted to him except with the written consent of M/s. HPCL. 8. Thus, following the decision of the Hon ble Madras High Court referred supra and based on our above disc .....

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an 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 ₹ 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. Applicatio .....

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O u/s 40 (a) (ia) of the Act. 11. At the time of hearing before us, both the parties submitted that the issue involved in both the appeals of the assessee for AY 2005- 06 and AY 2006- 07 are identical and similar and therefore it was prayed that the decision of the Tribunal taken in the case of the assessee for AY 2005-06 may be following while deciding the appeal of the assessee for AY 2006-07. 12. On perusal of the orders of the revenue and the materials produced before us, it is apparent that .....

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t will reveal that there is no disparity on facts also. It is quite clear that HCCL and BPCL entered into contract solely with the assessee. All the responsibility for the transportation of goods was on the assessee and assessee did not enter into any subcontract with the transport agencies and used to take on the trucks as and when required for the destination as and where required. The separate lorry receipt/challan and separate payments were made on successful delivery of the goods. There is .....

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