2015 (6) TMI 170 - AT - Income Tax

Non deduction of TDS on account of transportation hire charges made under section 40(a)(ia) - no oral contract existed between the assessee and the transporters - whether there is contractual relationship between the assessee and the persons to whom the assessee had made the payment s in the nature of hiring charges for goods carried vehicles? - Held that - In our opinion, a contract need not be in writing; even an oral contract is good enough to invoke the provisions of Section 194 C. As Hon ble Karnataka High Court has observed in the case of Smt J Rama Vs CIT (2012 (6) TMI 645 - Karnataka High Court), Law does not stipulate the existence of a written contract as a condition precedent for ( invoking the provisions of Section 194 C with respect to payment of TDS . The transporters have received the payments from the assessee towards the transportation charges, therefore, the presumption normally be that one would proceed on the basis that there was a contract for hiring of goods carried vehicles. Therefore, if the assessee has made the payment for hiring the goods carried vehicles, the provisions of section 194C are clearly applicable. In our opinion, the ld. CIT(Appeals) was not correct in law that the assessee will be liable to deduct the TDS if the amount of a single contract exceeds ₹ 20,000/-. The contract has to be looked into party-wise not on the basis of the individual GR. In our opinion, all the payment s made to a t ruck owner throughout the year are to be aggregated to ascertain the applicability of the TDS provision as all the payments pertain to a contract. Thus the order of the ld. CIT(Appeals) has to be reversed. Also find force in submission of the ld. A.R.that the 2nd proviso to section 40(a)(ia) as inserted by Finance Act, 2012 would apply in the case of the assesse. As relying on Santosh Kumar Kedia Versus Income-tax Officer, Wd-56 (1) , Kolkata 2015 (6) TMI 123 - ITAT KOLKATA we restore this issue to the file of the Assessing officer with the direction that the assessee shall provide all the details to the Assessing Officer with regard to the recipients of the income and taxes paid by them. The Assessing Officer shall carry out necessary verification in respect of the payment s and taxes of such income and al so filing the return by the recipient. In case, the Assessing Officer finds that the recipient has duly paid the taxes on the income, the addition made by the Assessing Officer shall stand deleted.

Summary

Issues Involved:
1. Deletion of addition on account of transportation hire charges under Section 40(a)(ia) for non-deduction of TDS.
2. Existence of a contract (oral or written) between the assessee and the transporters.
3. Applicability of Section 194C regarding TDS on transportation charges.
4. Consideration of the second proviso to Section 40(a)(ia) inserted by Finance Act, 2012.

Detailed Analysis:

1. Deletion of Addition on Account of Transportation Hire Charges under Section 40(a)(ia) for Non-deduction of TDS:
The Revenue appealed against the deletion of additions amounting to Rs. 1,07,21,525/- for A.Y. 2006-07 and Rs. 14,17,925/- for A.Y. 2007-08 by the CIT(A). The Assessing Officer (AO) had disallowed these amounts under Section 40(a)(ia) due to the assessee's failure to deduct TDS on transportation hire charges.

2. Existence of a Contract (Oral or Written) Between the Assessee and the Transporters:
The CIT(A) held that the AO must provide material evidence of a written or oral agreement between the assessee and the transporters. Since there was no specific finding on the existence of such a contract, the CIT(A) deleted the disallowance. The Tribunal noted that a contract need not be in writing; even an oral contract suffices to invoke the provisions of Section 194C. The Tribunal cited the Karnataka High Court's observation in Smt J Rama Vs CIT, which stated that the law does not require a written contract for TDS provisions to apply.

3. Applicability of Section 194C Regarding TDS on Transportation Charges:
Section 194C mandates TDS on payments made to contractors for carrying out any work in pursuance of a contract. The Tribunal emphasized that the payments made by the assessee for hiring goods carriage vehicles were indeed subject to TDS under Section 194C. It concluded that the CIT(A) erred in holding that TDS provisions apply only if the amount of a single contract exceeds Rs. 20,000/-. The Tribunal clarified that all payments made to a truck owner throughout the year should be aggregated to determine TDS applicability, as all payments pertain to a contract.

4. Consideration of the Second Proviso to Section 40(a)(ia) Inserted by Finance Act, 2012:
The assessee argued that the second proviso to Section 40(a)(ia), which is curative in nature and has retrospective effect, should apply. This proviso states that if the payee has paid the tax on the income, the payer should not be disallowed the expenditure. The Tribunal agreed with this argument, referencing its previous decision in ITA No. 1905/Kol/2014. It concluded that the issue should be remanded to the AO to verify if the recipients of the income had paid the taxes. If verified, the disallowance should be deleted.

Conclusion:
The Tribunal reversed the CIT(A)'s order but remanded the case to the AO for verification under the second proviso to Section 40(a)(ia). The AO must verify if the recipients paid taxes on the income, and if so, the disallowance should be deleted. The appeals filed by the Revenue were allowed for statistical purposes.