2012 (11) TMI 540 - AT - Income Tax

Tax deducted at source u/s 194C Whether non deduction of tax at source from payments to the agents of the truck-owners resulted in the impugned disallowance under section 40(a)(ia) - Held that - it is not even the case of the Assessing Officer that the assessee was a sub contractor, and rightly so because the assessee required these trucks on hire, from the middlemen or subcontractors, so as to fulfil the obligation of transporting the goods in the course of his business. The payments were not made for transporting the goods but for the hire of the trucks - at the material point of time, this tax withholding requirements did not extend to individuals and that, it was only as a result of the amendment by the virtue of Finance Act 2008 w.e.f 1st June 2008, that individuals were imposed tax deduction obligations under section 194 C(1). so far as pre June 2008 position is concerned, tax withholding obligations under section 194 C in respect of an individual only in cases where the payments were made to a sub contractor for carrying out a part off work, or the work itself, undertaken by the assessee and that too when such individual s turnover from business or profession exceeded threshold specified in section 44AB. When it is not a case of sub contracting, it is wholly immaterial that assessee s turnover exceeded the specified threshold under section 44AB. - the assessee did not have any tax withholding obligation in respect of truck hire payments in the pre-amendment period. - Decided in favor of assessee.

Summary

Issues:
Adjudication of disallowance under section 40(a)(ia) r.w.s. 194 C of the Income Tax Act, 1961.

Analysis:
The judgment revolves around the issue of whether the disallowance of Rs 67,21,665 under section 40(a)(ia) r.w.s. 194 C of the Income Tax Act, 1961, was justified. The assessee, an individual engaged in the transportation business, had hired trucks from middlemen or agents of subcontractors without deducting tax at source under section 194 C. The CIT(A) confirmed the disallowance, leading to the appeal before the tribunal.

The tribunal noted that the payments were for hiring trucks, not for subcontracting work, as the assessee needed trucks to transport goods in the course of business. The tribunal referred to a case where it was established that individuals were not obligated to deduct tax at source under section 194 C before June 2008 unless the turnover exceeded the threshold specified in section 44AB. As the payments were not for subcontracting work and the turnover condition was not met, the tribunal concluded that the assessee had no tax withholding obligation for truck hire payments before the amendment in June 2008.

Therefore, the tribunal held that the basis of the disallowance ceased to be valid in law, and the disallowance was deleted. The judgment emphasized that the assessee did not have any tax withholding obligation under section 194C for truck hire payments before the amendment. Consequently, the tribunal allowed the appeal, and the disallowance was deleted.

In conclusion, the tribunal's decision focused on the interpretation of tax withholding obligations under section 194C for individuals before the relevant amendment in June 2008. By clarifying that the payments were for truck hire, not subcontracting work, and the turnover condition was not met, the tribunal ruled in favor of the assessee, deleting the disallowance under section 40(a)(ia) r.w.s. 194 C of the Income Tax Act, 1961.