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2016 (4) TMI 1007 - ITAT VISAKHAPATNAM

2016 (4) TMI 1007 - ITAT VISAKHAPATNAM - TMI - TDS u/s 194C - non deduction of TDS on hire charges paid - disallowance u/s 40(a)(ia) - Held that:- Mere hiring of vehicle without any risk associated with the carriage of goods does not amount to carrying out any work or sub contract as defined u/s 194C(2) of the Act. Consequently, hire charges paid for hiring the vehicles are not liable for TDS u/s 194C(2) of the Act. - Decided in favour of assessee - I.T.A.No.483/Vizag/2012, C.O. No.31/Vizag/2013 .....

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eard together and disposed of by way of this common order for the sake of convenience. 2. The brief facts of the case are that the assessee is an individual engaged in the business of transport contract of Bitumen and petroleum products, filed his return of income for the assessment year 2005-06 on 30.10.2005 declaring total income of ₹ 2,92,938/-. The case was selected for scrutiny and accordingly, notice u/s 142(1) of the Income Tax Act, 1961 (hereinafter called as 'the Act') was .....

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ssee preferred an appeal before the CIT(A). The CIT(A) has confirmed the additions made by the Assessing Officer. On further appeal before the ITAT, Visakhapatnam bench vide ITA No.364/Vizag/2008 dated 12.6.2009, the ITAT, set aside the assessment order to the file of the Assessing Officer with a direction to verify the nature of transactions between the assessee and the owners of the hired vehicles and decide the issue afresh, in accordance with principles laid down by the bench in the case of .....

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he question of deduction of TDS does not arise on payment of hire charges. The assessee further submitted that he is a transport contractor involved in the business of carriage of goods for customers. In the process, he has hired the vehicle from the market from vehicle owners to be used in his business for carriage of goods. The contract for execution of work is between himself and his customers. The vehicle owners merely supplied the vehicles on fixed hire charges and the risk involved in carr .....

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their vehicles to be used by the assessee for transportation of goods to the respective places of destinations as per the contract entered into by the assessee with the respective customers. The vehicle owners have incurred the expenditure towards maintenance of vehicle such as salaries, diesel and other maintenance expenses on their own. Therefore, there was a clear contractual relationship exist between the assessee and the vehicle owners, hence, it is a contract as defined u/s 194C(2) of the .....

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ncipals for carriage of goods. The vehicle owners have provided the vehicles on fixed rental basis and the risk associated with the transport of goods is vested with the contractor. Therefore, the Assessing Officer was not correct in coming to the conclusion that there exist a contract between the vehicle owners and the assessee and consequential payment attracts TDS u/s 194C(2) of the Act. The assessee further submitted that in this case, he had entered into agreement with his clients for carri .....

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ished the contract between me and my customers and not with vehicle owners. The assessee further submitted that his case is squarely covered by the decision of Hon ble ITAT, Visakhapatnam bench in the case of M/s. Mythri Transport Corporation Vs. ACIT (supra) and also in the case of M. Seetaramaiah Vs. ACIT (supra). Alternatively, the assessee submitted that disallowance u/s 40(a)(ia) of the Act is applicable only to the amount remains payable at the end of the financial year. He further submitt .....

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e deleted the additions made by the Assessing Officer. The CIT(A) further held that the issue of payment of hire charges for hiring the vehicles is covered by the decision of ITAT, Visakhapatnam bench, in the case of M/s. Mythri Transport Corporation Vs. ACIT (supra). The ITAT, in the above case held that mere hiring of vehicles does not tantamount to execution of any work as defined u/s 194C(2) of the Act. Therefore, hire charges paid for hiring the vehicles cannot be disallowed u/s 40(a)(ia) o .....

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94C of the Act is not applicable for mere hiring of vehicles, no action is called for on paid and payable. Aggrieved by the CIT(A) order, the revenue as well as assessee are in appeal before us. 7. The Ld. D.R. submitted that the CIT(A) ought to have considered that the lorry owners have to involve in making the lorries ready to transport the assessee s goods for which purpose, he has to deploy necessary capital, necessary man power, necessary time and be ready to solve all the problems that ari .....

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set of facts. In the present case on hand, the assessee has sub contracted the transport work to two different transport operators and the transport operators have undertaken the work with positive involvement in the work by spending their money, energy and resources. The vehicle owners have paid the salary of the drivers on their own and incurred necessary expenditure towards diesel and maintenance of the vehicles. Therefore, the arrangement between the assessee and the transport operators is n .....

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High Court and the Hon ble A.P. High Court has suspended the operation of special bench decision relied upon by the assessee, therefore, the CIT(A) ought not to have taken the ratio laid down by the special bench and deleted the additions made by the A.O. The D.R. further argued that the CIT(A) ought to have considered the notes on clause 11 of the finance bill, as per which the amount payable, credited or paid attracts the provisions of section 40(a)(ia) of the Act. In support of his arguments, .....

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open market to be used in the business of carriage of goods, therefore, mere hiring of vehicles does not amount to any work as defined u/s 194C(2) of the Act. The A.R. further submitted that the risk associated with the goods is vested with the assessee and the vehicle owners simply provided the vehicles on fixed hire. The assessee has to pay the amount, whether vehicles are used or not, this impliedly shows that this is a mere hiring of vehicles not a contract for carriage of goods as defined u .....

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perused the materials available on record and gone through the orders of the authorities below. The A.O. invoked the provisions of section 40(a)(ia) of the Act and disallowed hire charges paid for hiring vehicles to be used in the transport contract. The A.O. was of the opinion that the contract between assessee and vehicle owners is in the nature of sub contract as defined u/s 194C(2) of the Act. The assessee hired the vehicles along with drivers and other maintenance expenses to be borne by th .....

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hire charges and the vehicle owners has provided vehicles without any risk associated with carriage of goods. The assessee further submitted that the entire risk associated with the carriage of goods vest with him, whether vehicles are used or not, the agreed fixed amount has to be paid to the vehicle owners. 11. The assessee contention is that it is mere hiring of vehicles not a contract. To invoke the provisions of section 194C(2), there should be a contract for carrying out any work. On peru .....

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for carriage of goods. The vehicle owners have provided the vehicles on fixed rental basis and the risk associated with the transport of goods is vested with the assessee. On perusal of document filed by the assessee, we find that the vehicle owners have filed affidavit, wherein they have clearly stated that they have provided vehicle and not involved in the carriage of goods. Therefore, we are of the opinion that the Assessing Officer was not correct in coming to the conclusion that there exis .....

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of the present case. The coordinate bench of this Tribunal in the case of M/s. Mythri Transport Corporation Vs. ACIT (supra), categorically held that mere hiring of vehicles does not amount to carrying out any work as defined u/s 194C(2) of the Act. The relevant portion of the order is reproduced hereunder: Sec. 194C(2) is attracted if all the following conditions are satisfied: (a) the assessee should be a contractor; (b) the assessee, in his capacity as a contractor, should enter into a contr .....

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r lorry owners, from whom the vehicles were hired, have also been fastened with any of the above said liabilities. In a sub-contract, s prudent contractor 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 contentio .....

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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 themselves in carrying out any part of the work undertaken by the assessee by spending their time, energy and by taking the risks associated with the main contract work. In the absence of the above said characteristics attached to a subcontract in the instant cas .....

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per the provisions of s. 194C(2), on the payments made to the lorry owners for lorry hire. Consequently, the provisions of 5. 40(a)(ia) shall not apply to such payments. 13. The assessee relied upon ITAT, Visakhapatnam bench decision, in the case of ACIT Vs. Syed Rasheed Transports, Ongole in ITA No.235/V/2011 dated 26.12.2011. The coordinate bench of this Tribunal, under similar set of facts decided the issue in favour of the assessee. The relevant portion is reproduced hereunder: We have heard .....

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nding their time, energy and also by taking the risks associated with the main contract. In the instant case also, the contention of the assessee is that it has merely hired the lorries from the open market. It is not shown by the revenue that the lorry owners, from whom the lorries were hired, undertook the risks associated with the main contract. In that case, mere hiring of lorries would not come under the category of Sub-Contract as held in the case of Mythri Transport Corporation (supra). A .....

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f the Act. The CIT(A) rightly deleted the additions made by the A.O., by following coordinate bench decision of this Tribunal, in the cases mentioned (supra). We do not find any error or infirmity in the order passed by the CIT(A). Therefore, we are inclined to uphold the order of the CIT(A) and dismiss the appeal filed by the assessee. 15. The cross objection filed by the assessee is supporting the order of the CIT(A). However, the assessee has challenged the action of the A.O., in passing cons .....

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