Tax deduct at source under section 194C--Lorry charges paid to different truck owners for transportation of goods

Tax deduct at source under section 194C--Lorry charges paid to different truck owners for transportation of goods--Applicability

Conclusion: Where assessee had merely facilitated transportation of goods by hiring lorries, the assessee was not liable to deduct tax at source under section 194C on lorry charges paid to truck owners because there was no direct

contract of any kind between the truck owners and the assessee for successful transportation.

Assessee-firm was engaged in the business of transportation of goods. It entered into contract with its client for transportation of goods and hired lorries for this purpose. AO made disallowance under section 40(a)(ia) in relation to freight payment to lorry drivers for transportation of goods alleging that TDS under section 194C was not deducted by the assessee on such payments. Held: Assessee had merely hired the lorries and there was no contract between assessee and the concerned payees, i.e., truck owners. Since the assessee did not delegate its liability of transportation of goods to the truck owners by way of any contract or sub-contract, therefore, the payments made by the assessee to the truck owners for carriage of goods did not fulfill the condition of "carrying out any work in pursuance of a contract" in terms of section 194C. Thus, the assessee was not liable to deduct tax at source in respect of the lorry charges and accordingly the rigours of section 40(a)(ia) were not applicable.

Decision: In assessee’s favour.

Followed: Golden Stables Lifestyle Center (P) Ltd. v. CIT-8 (1), Mumbai in (ITA No. 5145/Mum/2009) and Sedco Forex International Drill Inc & Ors. v. CIT & Anr. (2005) 279 ITR 310 (SC).

Distinguished: Bhail Bulk Carriers v. ITO, 22 (2) (1), Vashi (2012) 50 SOT 622 (Mum-ITAT).

Relied: CIT v. Bhagwati Steels (2011) 326 ITR 108 (P&H), Chandrakant Thackar v. Asstt. CIT in (ITA No. 247 (CTK.) of 2009), City Transport Corpn. v. ITO (TDS) -2(5), Mumbai (2007) 13 SOT 479 (Mum.) and Kalin Dutta, v. ITO, Ward-1 (2), Hooghly in (1732/Kol../2010).

IN THE ITAT, KOLKATA BENCH

S.S.Godara, J.M. & M. Balaganesh, A.M.

ITO v. Bajaj Roadways

ITA No. 2023/Kol/2016

4 July, 2018

Appellant by: S. Dasgupta, Addl. Commissioner (Departmental Representative)

Respondent by: None

ORDER

S.S. Godara, J.M.

This Revenue's appeal for assessment year 2005-06 calls into question the Commissioner (Appeals)-12, Kolkata's order dated 19-7-2016 passed in Appeal No. 90/Commissioner (Appeals)-12/Kol/Ward- 40(3)/2015-16 reversing the assessing officer's action invoking section 40(a)(ia) disallowance in case of lorry payments and adding unexplained cash credits under section 68 in assessee's partners' capital account involving sums of Rs. 1,43,01,395 and Rs. 64,10,000; respectively involving proceedings under section 147 read with section 144 of the Income Tax Act, 1961 (Act).

2. The Revenue invites our attention towards assessment Order dated 22-3-2013 indicating the tax payer not to have deducted any TDS on the impugned lorry payments totalling to Rs. 1,43,01,395. He states that there is no dispute that the said payments had been made without deducting any TDS thereupon attracting section 194C read with section 40(a)(ia) of the Act for the purpose of making disallowance in question.

3. Mr. S. Dasgupta, Addl. Commissioner (Departmental Representative) thereafter takes us to the Commissioner (Appeals)'s findings on the instant issue reading as under :--

"I have carefully considered the submissions of the appellant and the assessment order. I find force in the submissions of the appellant. The details submitted clearly show that payments were made to different owners of the trucks that the appellant had hired and very clearly does not amount to any sort of contract or sub contract as envisaged in "Section 40. Which reads.......Amounts not deductible.

Notwithstanding anything to the contrary in sections 30 to 38, the following amount shall not be deducted in computing the "income chargeable under the head "Profits and gains business or profession",--

i)...

(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or a 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, often deduction, has not been paid on or before the due date specified in subsection (1) of section 139."

Hence the provisions of section 19,1C art not applicable.. The appellant has relied upon the judgments in Chandrakant Thakur v. ACIT (2010) 129 TTJ I (Ctk) and CIT v. Bhagwati Steels (2011) 326 ITR 108 (P&H) wherein it was held that "that no disallowance under section 40(a)(ia) is called for when there was no material to show that the payments of freight had been made in pursuance to a contract of transportation of goods for a specific period, quantity or price, and none of the individual payment exceeded Rs. 20,000 and the payments were made on the basis of individual goods receipts issued by the truck owners for each trip separately ". The appellant also relied upon the judgment in the case of City Transport Corporation v. ITA (2007) 13 SOT 479 (Mum.). The Hon'ble Tribunal held that there was no material to show that all trips for transporting goods were under a single contract and payment for each trip being less than Rs. 20,000 each time, provisions of sec, 194C were not attracted, Apart from this the appellant has also taken the plea that" Provisions of section 40(a)(ia) are not applicable to amounts paid on or before 1-10-2004 as held by Jurisdictional Kolkata Tribunal

3.1 It is humbly submitted that no disallowance under section 40(a)(ia) is to be applied to payments made before 1-10-2004. Reliance in this regard can be placed on the decision of Jurisdictional Kolkata Tribunal in the case of Kahn Dutta Hooghly v. ITO (ITA No. 1732/2010), dt. 12-8-20111 wherein it has been held that no disallowance can be made U/S 40(a)(ia) of the Act on payments made before 10-9-2004, the date when the assent of Hon'ble President of India was given on Finance (No. 2) Act, 2004 inserting section 40(a)(ia) of the Act. Similar view has been held by Mumbai Tribunal in the case of Golden Stables Lifestyle Center (P) Ltd. v. CIT (ITA No. 5145/2009 dated 3009,2010), wherein it has been held that any expenditure which accrued prior to J 0-9-2004 could not be disallowed on the ground that no TDS was deducted.

3.2 Further, Hon'ble jurisdictional Kolkata Tribunal in the case CIT v. M/s. Royal Touch Fablon (P) Ltd. (ITA No. 949/2009 dated 12-2-20107 has also held that the provision of section 40(a)(ia), which came although came into force with effect from 1-4-2005 by the Taxation Laws (Amendment) Act, 2004 with effect from 1-10-2004, could not be applied for the credits in the accounts made before 1-10-2004. Hence for reasons discussed above,.the disallowance by the assessing officer is deleted and the appellant gets a relief of Rs. 1,43,01,395."

4. The Revenue's case therefore is that the impugned disallowance deserves to be restored as it has been wrongly deleted during the course of lower appellate proceedings. We find no merit in the instant former substantive ground. We notice first of all that the assessee had merely hired the corresponding 429 lorries whose details have already been given in assessment order. There is no iota of evidence in the case file indicating the assessee firm to have delegated its liability of transportation of goods by way of any contract or sub-contract or that the payees concerned had undertaken such a liability while transporting the relevant goods. This tribunal's co-ordinate bench's decision in Bhail Bulk Carriers v. ITO in 3536/Mum/2011 decided on 7-3-2012 declines Revenue's similar arguments as follows :--

"8. We have heard the parties at length and also gone through the findings of the authorities below and the case laws as have been referred in the appellate order as well as relied upon by the learned counsel. The relevant facts for adjudication of the issue are that the appellant is carrying out the business of transportation of oil through tankers. It entered into a contract with various companies (here mainly BPCL) for transporting the oils to various destinations as per the agreement entered into by the said company. The appellant was solely responsible for executing the contract on behalf of its principal. For fulfilling its transportation commitment, the appellant besides using its own tankers was also hiring the tankers from outside parties as and when required. In such a case of hiring from outside, the responsibility of successful completion of transportation work rested upon the appellant. From the record or the findings of the authorities below no where it is borne out that there was any kind of written or oral contract with the principals by such outside tank owners that they will share the risk and responsibility with the appellant.

8.1 At this stage, it is not in dispute that the department's case is that in the present case provisions of section 194C(1) are applicable and not section 194C(2). Once it is held that it is a case of 194C(1) then it would be sent that this section applies to any payment made to a person for carrying out any work in pursuance of a contract between the contractor and the person making the payment. If the condition of "carrying out any work in pursuance of a contract" is not fulfilled then the provisions of this section will not be applicable at all. Here in this case, the contract for carrying out the work was between the BPCL and the appellant. The appellant alone had risk and responsibility for carrying out the contract work as per the agreement entered into by it with its principal i.e. BPCL. There is no material on record to suggest that there was any contract or ITA No. 3536/Mum/2011 M/s. Bhail Bulk Carriers sub-contract whether written or oral with the outside tank owners and the appellant, whereby the risk and responsibility which is associated with a contract has also been passed on to these outside parties. Once the Commissioner (Appeals) has accepted the fact that the outside tank owners do not had any responsibility or liability towards the principal, then it cannot be held that these outside parties were privity to the contract between the appellant and its principal. Thus the payment made to the outside parties do not come or fall within the purview of section 194C, as the "carrying out any work" indicates doing something to conduct the work in pursuance of contract and here in this case, it was solely between appellant and its principal.

8.2 The judgment of Hon'ble Madras High Court in the case of CIT v. Pompuhar Shipping Corporation Ltd. (supra) also fortifies the case of the appellant. In this case the assessee which was a Tamil Nadu Government undertaking was engaged in the business of transportation of coal from the ports of Haldia, Visakhapatnam and Paradeep to Chennai and Tuticorin under contracts executed with the Tamil Nadu Electricity Board. The assessee owned three ships. Since three ships were not sufficient to carry out the contracts entered into with Tamil Nadu, the assessee hired ships belonging to other shipping companies and paid hire shipping charges for using the ships. The assessee, however, did not deducted tax under section 194C before the making payment of hire charges to the shipping companies. The assessing officer directed the assessee to pay tax under section 201(1) and levied interest under section 201(1A) on the ground that TDS should have been deducted under section 194C of the Act. On the these facts, the Hon'ble High Court observed and held as under :--

"We heard the arguments of learned counsel. Under section 194C, the tax is to be deducted when a contract was entered into for carrying out any work in pursuance of a contract ITA No. 3536/Mum/2011 M/s. Bhail Bulk Carriers between the contractor and the entities mentioned in sub-section (1) of section 194C. In the present case, there was no contract between the assessee and the shipping companies to carry out any work. On the other hand, the assessee-company hired the ships belonging to other shipping companies for a fixed period on payment of hire charges. The hired ships were utilised by the assessee in the business of carrying the goods from one place to another in pursuance of an agreement entered into between the assessee and the Tamil Nadu Electricity Board. There was no agreement for carrying out any work or transport any goods from one place to another between the assessee and the other shipping companies. The assessee-company simply hired the ships on payment of hire charges and it was utilised in the business of the assessee at their own discretion. It is not the case of the Revenue that the assessee entered into the said contract with the shipping company for transport of coal from one place to another. The hiring of ships for the purpose of using the same in the assessee's business would not amount to a contract for carrying out any work as contemplated in section 194C. The term "hire" is not defined in the Income Tax Act. So, we have to take the normal meaning of the word "hire". Normal hire is a contract by which one gives to another temporary possession and use of the property other than money for payment of compensation and the latter agrees to return the property after the expiry of the agreed period. Therefore, in our view, when the assessee entered into a contract for the purpose of taking temporary possession of ships in the shipping company it could not be construed as if the assessee entered into any contract for carrying out any work, and when the contract is not for carrying out any work, the Revenue cannot insist the assessee ought to have deducted tax at source under section 194C of the Act. Further, the other argument of counsel was, section 194C was amended with effect from July 1, 1995, incorporating the Explanation and the said Explanation clarifies the existing provision of section 194C of the Act. Hence, it would be applicable retrospectively. We are concerned with the assessment year 1994-95. In a recent judgment, the Supreme Court in the case of Sedco Forex International Drill Inc. v. CIT (2005) 279 ITR 310, considering the scope of the Explanation, held that 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. In this case, the Explanation introduced is with effect from 1-7-1995. Hence it will be applicable only for the future assessment orders and it ITA No. 3536/Mum/2011 M/s. Bhail Bulk Carriers will not be applicable to the assessment year in consideration. The Tribunal also considered the fact that the shipping companies which received the hire charges are also income-tax assessees and they had shown the hire charges in their respective income-tax returns and paid the taxes on the same. The said fact was also not disputed by the Revenue. So, we are of the view that the payment of hire charges for taking temporary possession of the ships by the assessee-company would not fall within the provision of section 194C and hence no tax is required to be deducted, and there is no error or infirmity in the order of the lower authorities. Hence, no substantial question of law arises for consideration of this court. Hence, we dismiss the above tax case. No costs. Consequently, the connected TCMP No. 1253 of 2005 is closed.

8.4 Thus in view of the findings given above and the law laid down by the Hon'ble High Court as above, we are of the considered opinion that the appellant was not liable to deduct TDS under section 194C(1) for payments made to the outside parties and consequently the disallowance made under section 40(a)(ia) by the authorities below are deleted. The appellant thus gets relief of Rs. Rs. 56,03,210."

5. Coupled with this, it has further come on record the assessee had made the impugned payment well before 01-10-2004 i.e. the day the statutory disallowance provision itself came in operation. Various Coordinate bench's decisions (supra) have already held that the same does not apply in case of amounts already credited before 01-10-2004. We therefore conclude that the Commissioner (Appeals) has rightly deleted the impugned disallowance. The Revenue fails in its former grievance.

6. This leaves us with Revenue's latter substantive ground seeking to revive unexplained cash credit addition of Rs. 64,10,000 in assessee's partners' capital account. Suffice to say, various judicial precedents have settled the law that such addition has to be made in the concerned partners' hands than in case of a firm assessee. We quote one of them CIT v. Metachem Industries (2000) 245 ITR 160 (MP) (supra) in support. The Commissioner (Appeals) has already granted liberty to the assessing officer to assess the very sum in case of assessee's individual partners' concerned. We make it clear that there is not an argument raised before us doubting assessee explaining all the impugned money coming from its partners' capital account only. We thus find no merit in Revenue's instant latter substantive ground as well.

7. This Revenue's appeal is dismissed.