2013 (7) TMI 538 - HC - Income Tax

Payment to contractors and sub-contractors - Whether the provisions of section 194C were made applicable for the assessment year 2005-2006 - Held that - the case of the assessee was not covered under section 194C(1) of the Act since in the present case the payment was made by the assessee to individuals - Till clause (k) was introduced in sub-section (1), the category of individual, HUF or AOP was not included. Such amendment was made with effect from 1st June, 2007 therefore would not apply to the case on hand this was not a case of relationship between the assessee contractor and the transporters in the capacity of sub-contractors - the nature of relationship between the assessee and the transporter is not a case of sub-contract - none of the responsibilities of the contractor vis-a-vis the execution of the work were fastened on the transporters. Assessee had indemnified ANS Construction against any legal or financial liability if such liability arises in future out of such contract - assessee was solely responsible for execution of the work - No part of such liability was fastened on the transporters - assessee had only availed of the services of such transporters for carrying out the material to the site - to reiterate, for application of section 194C(2) of the Act what was necessary was a relationship between the contractor and sub-contractor and not merely be hiring of an agency by the contractor during the course of execution of the work. In the present case, such vital requirement of relationship of a contractor and sub-contractor between the assessee and the transporters was missing - The Tribunal was perfectly justified in holding that liability to deduct tax at source in this case do not arise appeal decided against the revenue.

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was justified in deleting an addition of Rs. 2,34,70,294/- made on account of disallowance of expenditure under section 40(a)(ia) of the Income-tax Act for non-deduction of tax at source?
2. Whether section 40(a)(ia) of the Income-tax Act can be invoked for expenditure shown as 'payable' on the date of the balance sheet or for expenditure becoming payable at any time during the relevant previous year and actually paid within the previous year?

Analysis:

Issue 1:
The Tribunal relied on the case of Prashant H. Shah to conclude that provisions of section 194C of the Income-tax Act, 1961 were applicable to individuals from 1.6.2007 onwards, not for the assessment year 2005-2006 in question. The Tribunal held that the appellant was not covered under section 194C(1) since the payment was made to individuals, and the amendment introducing individuals, HUF, or AOP was effective from 1st June, 2007. The Court dismissed the Tax Appeal, upholding the Tribunal's decision.

Issue 2:
The Court examined the relationship between the assessee and the transporters to determine if it constituted a sub-contract under section 194C(2) of the Act. It was found that the transporters were not sub-contractors as the assessee was solely responsible for execution of the work, and the transporters were only hired to carry out material to the site. The Court agreed with the Tribunal's conclusion that there was no relationship of a contractor and sub-contractor between the assessee and the transporters. The Court affirmed that liability to deduct tax at source did not arise in this case. The Explanation-III of section 194C, which includes carriage of goods by any mode of transport, was also discussed, emphasizing that it cannot be used to bring an assessee within the scope of sub-section (2) of section 194C if the requirements of the sub-section are not met.

In conclusion, the Court upheld the Tribunal's decision, dismissing the Tax Appeal as the issues had already been considered in a previous case.