2012 (3) TMI 491 - AT - Income Tax

TDS u/s 194C - Addition u/s 40(a)(ia) - Held that - The owners of the trucks had only hired their vehicles to the assessee by receiving hire charges while as the work of transportation has been carried on by the assessee. The risk and reward for the performance of the job lies with the assessee and not with the owners of the trucks. In such circumstances, provisions of Section 194C of the IT Act will not be attracted and consequently provisions of Section 40(a)(ia) of the IT Act also not applicable. Section 194C requires TDS on payments to contractor for work. Where an assessee utilizes the trucks taken on hire for its own use, there is no agreement for carrying out any work by the owner to the hirer. There is no scope in such case for application of Sec.194C which is applicable to payments to transporter for carrying of goods. - Appeal of the assessee is allowed.

Summary

Issues:
1. Addition of &8377; 7,57,740/- under section 40(1)(ia) of the IT Act.
2. Applicability of TDS provisions on lorry hire charges.

Analysis:

Issue 1: Addition of &8377; 7,57,740/- under section 40(1)(ia) of the IT Act:
The case involved the assessee, engaged in goods transportation services, appealing against an order confirming the addition of &8377; 7,57,740/- as freight expenses under section 40(1)(ia) of the IT Act. The Assessing Officer (AO) found that TDS was not paid on certain lorry charges exceeding &8377; 50,000/-, leading to the addition. The assessee argued that no TDS was required as payments were made to truck drivers for individual trips, not exceeding &8377; 20,000/- per payment. The AO, however, made the addition based on aggregate payments exceeding &8377; 50,000/- in some cases. The CIT(A) upheld the addition, but the ITAT ruled in favor of the assessee, stating that the provisions of TDS were not applicable as the assessee had hired vehicles for transportation without any work agreement, hence deleting the addition.

Issue 2: Applicability of TDS provisions on lorry hire charges:
The key contention revolved around whether TDS provisions applied to lorry hire charges. The ITAT held that as the assessee hired vehicles for transporting goods without a work agreement, the provisions of Section 194C of the IT Act, requiring TDS on payments to contractors for work, were not applicable. The ITAT emphasized that the assessee carried out the transportation work using hired vehicles, with the risk and reward lying with the assessee, not the vehicle owners. Citing relevant case law, the ITAT concluded that since the assessee only hired vehicles for transportation services, the addition made by the AO under section 40(1)(ia) of the IT Act was unwarranted and ordered its deletion.

In conclusion, the ITAT allowed the appeal of the assessee, emphasizing that the nature of the arrangement for hiring vehicles for transportation services did not attract TDS provisions, leading to the deletion of the addition under section 40(1)(ia) of the IT Act.