2006 (9) TMI 354 - AT - Income Tax

Deduction of tax at source u/s 194C - transportation expenses incurred by the assessee - different freight payment in respect of different trips - stand of the assessee that it does not own any truck - hire the lorries - HELD THAT - From the perusal of the details, we find that the frequency seems to be twice a month. It is a ground reality that where the assessee engaged in the transportation business does not own any truck, then it has to hire the truck from the market every time as and when there is a demand for the same. Merely because one particular truck was hired on certain occasions, it does not lead to conclusion that all the trips were made continuously under the specific contract. Admittedly, there is no specific contract brought on record. There is another important aspect which is noted from the details furnished before us that different freight is paid in respect of different trips even though the destination was the same i.e., Bangalore. Had there been a single contract, then assessee would not have paid different amounts in respect of different trips. This circumstance shows that different contract existed on different occasions when the trucks were hired. Therefore, in the absence of any material to prove that all the trips were made under a single contract, we are of the view that provisions of section 194C could not be invoked since payment for each trip was less than Rs. 20,000. In view of the same, the orders of the learned CIT(A) cannot be sustained and consequently the same are set aside. The demand of tax and interest raised against the assessee for all the years are, therefore, cancelled. The assessee shall be entitled to refund if any amount is paid by it to the Department. In the result, assessee s appeals stand allowed.

Summary

Issues:
Tax Deducted at Source (TDS) under section 194C r/w section 201(A) of the Income-tax Act, 1961 and charging of interest under section 201(1A) of the Act.

Analysis:
The judgment dealt with the issue of Tax Deducted at Source (TDS) under section 194C r/w section 201(A) of the Income-tax Act, 1961 and the charging of interest under section 201(1A) of the Act. The case involved an assessee firm engaged in transporting goods for specific parties. The firm did not own trucks but hired them as needed. The Assessing Officer found that TDS had not been deducted on certain payments made to truck owners and imposed a tax liability along with interest. The assessee contended that each trip was a separate contract, and no single trip exceeded Rs. 20,000, thus exempt from TDS under section 194C(3). The Assessing Officer disagreed, stating that continuous transactions with truck owners did not exempt the assessee from TDS obligations.

The Tribunal analyzed the provisions of section 194C and Board Circular No. 715 dated 8-8-1995. It highlighted that if goods are transported continuously under a contract for a specific period or quantity, all transactions under that contract should be aggregated for TDS purposes. However, each Goods Receipt (GR) can be considered a separate contract if goods are transported at one time. The Tribunal noted that the assessee hired trucks on different occasions, with varying payments for different trips to the same destination. It emphasized that without evidence of a continuous contract, TDS provisions could not be applied if each trip's payment was below Rs. 20,000. The Tribunal found no proof of a continuous contract between the assessee and truck owners, leading to the cancellation of tax and interest demands for all years.

In conclusion, the Tribunal allowed the assessee's appeals, setting aside the orders of the CIT(A) and canceling the tax and interest demands. The judgment clarified that without evidence of continuous transactions under a specific contract exceeding Rs. 20,000 per trip, TDS obligations under section 194C could not be enforced.