2015 (4) TMI 1075 - AT - Income Tax

TDS u/s 194C - Section 40(a)(ia) disallowance - freight payments due non-deduction of TDS - Held that - It is an undisputed fact that the assessee hires its payee s vehicles on routine basis in case its own fleet is unable to perform the transporting assignments. The authorities below treat such an arrangement as a contract to invoke Section 194(c) of the Act. We do not find any material on record to indicate any risk and responsibility being passed over to the payees. That being the case, we observe that a mere hiring job work without any other evidence does not partakes the colour of risk and responsibility forming essential condition of a contract. The assessee s payees have not been paid in lieu of any risk and responsibility to treat the impugned freight payments as those covered u/s.194C of the Act. The assessee s former plea (supra) succeeds. The latter one has become infructuous. The impugned section 40(a)(ia) disallowance is deleted. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of freight payments under Section 40(a)(ia) due to non-deduction of TDS.
2. Existence of a contract between the payer and payee.
3. Application of Section 194(c)(3)(i) proviso.

Analysis:
Issue 1: The appeal was against the disallowance of freight payments under Section 40(a)(ia) amounting to Rs. 5,44,090 due to non-deduction of TDS. The assessing officer sought to disallow the payments made to 11 vehicles exceeding Rs. 50,000 without TDS deduction. The CIT(A) affirmed the findings but reduced the disallowance to Rs. 5,44,090 based on specific payment thresholds.

Issue 2: The main contention was the existence of a contract between the payer and payee. The assessing officer considered the regular engagement of recipients by the assessee on a hiring basis as indicative of an agreement, leading to the application of Section 194(c) of the Act. However, the Tribunal found no evidence of risk and responsibility being transferred to the payees, ruling that a mere hiring job work without such elements does not constitute a contract. Citing a precedent, the Tribunal held in favor of the assessee, stating that the payments were not covered under Section 194C.

Issue 3: The legal plea regarding the non-application of Section 194(c)(3)(i) proviso was also raised. The Tribunal found this argument to be infructuous as the main issue of contract existence was resolved in favor of the assessee. Consequently, the impugned disallowance under Section 40(a)(ia) was deleted, and the assessee's appeal was allowed.

In conclusion, the Tribunal ruled in favor of the assessee, emphasizing the lack of evidence to establish a contractual relationship between the payer and payee, thereby overturning the disallowance of freight payments under Section 40(a)(ia) due to non-deduction of TDS.