2007 (7) TMI 643 - AT - Income Tax

Non deduction of TDS u/s 194C - hiring charges - Demand raised u/s 201(1) and 201(1A) - HELD THAT - We find no infirmity in the findings of the ld. CIT(A). The main reason for holding that the assessee is in default for non-deduction of taxes in view of the provisions of section 194C was that the assessee hired trucks through suppliers and the Assessing Officer was of the view that the assessee had made payments to suppliers and not directly to the truck owners. The Assessing Officer was also of the view that if the cumulative figures of payment are taken into consideration then the payments exceed ₹ 20,000. Since no details in regard to suppliers/agents were filed, therefore, the Assessing Officer estimated 90 per cent of the total payment and held that they are in violation of the provisions of section 194C. From this clarification by CDBT Circular, it became clear that if the contracts are between the truck owner/driver and GR is separate then the payment made for that truck has to be treated as separate payment. In the present case, it is seen that the assessee engaged trucks through agents and suppliers and for each truck they have made separate payment because each truck was for separate destination. Therefore, in our considered view it cannot be said that there was contract between the suppliers and not with truck owners/drivers. Thus, it clearly seen that the contract was with the truck owners/drivers and not with the agents or suppliers. Therefore, in our considered view, the CIT(A) was justified in holding that the provisions of section 194C are not applicable on the facts of the present case. We have seen the detailed submissions filed on behalf of the assessee before the ld. CIT(A) as the same has been reproduced by the ld. CIT(A) in his order and found that the assessee has clarified each and every point and have met with the objections raised by the Assessing Officer successfully. Therefore, we confirm the findings of the ld. CIT(A). In the result, the appeal filed by the department is dismissed.

Summary

Issues Involved:
1. Deletion of demand raised under section 201(1) and 201(1A) of the Income Tax Act.
2. Applicability of section 194C regarding deduction of tax at source on payments made to truck owners or agents.

Detailed Analysis:

1. Deletion of Demand Raised Under Section 201(1) and 201(1A)
The department appealed against the CIT(A)'s order which deleted the demand raised under section 201(1) and 201(1A) of the Income Tax Act for the assessment year 2002-03. The Assessing Officer (AO) had concluded that the assessee-company did not deduct taxes properly on payments made to truck owners or agents, treating the assessee as a defaulter for non-deduction/short deduction of taxes. The AO estimated 90% of the total payment to truck owners or agents as exceeding Rs. 20,000 each, computing a tax liability of Rs. 15,68,303 and levying interest under section 201(1A) amounting to Rs. 1,07,820.

Upon appeal, the CIT(A) found that the provisions of section 194C were not applicable to the facts of the case and deleted the demand raised by the AO. The CIT(A) held that the AO's estimation was not permitted under section 194C and that each Goods Receipt (GR) should be treated as a separate contract as per CBDT Circular No. 715. The CIT(A) noted that the payments were made directly to truck drivers/owners and not to suppliers, and each trip was treated as a separate contract with transportation charges less than Rs. 20,000, exempting them from tax deduction as per section 194C(3).

2. Applicability of Section 194C
The department contended that the suppliers/brokers of the trucks were sub-contractors within the meaning of section 194C, as the assessee negotiated rates with them and made payments to them. The AO argued that the assessee hired trucks through suppliers and estimated 90% of the payments as exceeding Rs. 20,000, thus requiring tax deduction at source under section 194C.

However, the Tribunal found no infirmity in the CIT(A)'s findings. It was established that the payments were made directly to truck drivers/owners and not to suppliers. The confirmations from various suppliers indicated that they only facilitated in hiring trucks and did not have any contractual agreement with the assessee. The Tribunal also noted that no payment exceeding Rs. 20,000 was made to truck owners or drivers, and where payments exceeded Rs. 20,000, the assessee had deducted and deposited the tax as per rules.

The Tribunal referred to CBDT Circular No. 715, which clarified that each GR could be treated as a separate contract if the goods were transported at one time. Since the assessee engaged trucks for separate destinations and made separate payments for each truck, the Tribunal concluded that the contracts were with the truck owners/drivers and not with the agents or suppliers. Thus, the provisions of section 194C were not applicable.

Conclusion
The Tribunal upheld the CIT(A)'s decision, confirming that the assessee was not in default for non-deduction of taxes under section 194C and dismissing the department's appeal. The Tribunal emphasized that the contracts were with the truck owners/drivers, and the payments were made directly to them, thus not attracting the provisions of section 194C. The appeal filed by the department was dismissed, and the order was pronounced in the open court on the date of hearing, 27.6.07.