2015 (10) TMI 802 - AT - Income Tax

Non deduction of TDS on transportation expenses - disallowance u/s 40(1)(ia) - Held that - The payment was made by the assessee to Mr. Suresh on various occasions and in turn he has made payment to the truck owners/drivers and the assessee has not furnished any details of the truck owners/drivers to the lower authorities. Moreover, it has always taken a plea that the payment has been made to the employees of the assessee who have undertaken the responsibility of transporting cylinders and the truck owners gave the bills to Mr. Suresh and in turn he paid to the truck owners. It means that Mr. Suresh acted as a sub-contractor to the assessee and as soon as Mr. Suresh enters into sub-contract with the assessee, the assessee s case comes under the purview of sec. 194C(1) of the Act. Thereafter, it is not required to see whether the assessee paid charges to the transporter or not. The activity carried on by Mr. Suresh on behalf of the assessee will be simply an activity of transportation of cylinders by truck and the assessee is liable to deduct TDS. With regard to payment made to Mr. Suresh, the Ld. AR tried to impress the Bench by stating that the payment has been made to various truck owners which less than ₹ 1,20,000/- to each transporters. The material brought on record suggest that the assessee made payment of ₹ 1,29,84,892/- to Mr. Suresh on 23 occasions. Being so, as per record, the argument of the assessee s counsel is devoid of merits and contrary to the facts - Decided against assessee.

Summary

Issues:
- Whether the assessee is liable to deduct tax at source for transportation expenses paid to an employee?
- Applicability of section 194C of the Income Tax Act, 1961 in the case.

Issue 1: Liability to Deduct Tax at Source
The appellant, a privileged dealer and LPG cylinder transport contractor of HPCL, e-filed income tax return for AY 2009-10. The AO disallowed transportation expenses of &8377; 1,29,84,892/- for failure to deduct tax at source under section 40(1)(ia) of the Act. The CIT(A) allowed the appeal based on a Tribunal decision, which was subsequently overruled by the ITAT. The appellant argued that no subletting occurred as per the agreement with HPCL, and the payments were below &8377; 20,000 to individual lorries. The appellant contended that since HPCL deducted tax at source, no further deduction was required. However, the Revenue argued that payments to an employee, Mr. Suresh, were for transportation work, making the appellant liable to deduct TDS. The ITAT held that the appellant's case fell under section 194C(1) as Mr. Suresh acted as a sub-contractor, requiring TDS deduction. The ITAT dismissed the appeal, emphasizing the appellant's failure to provide details of truck owners/drivers and the suspended status of a relied-upon judgment.

Issue 2: Applicability of Section 194C
The appellant contended that section 194C did not apply as payments were made to employees for onward payment to truck owners/drivers, not involving a contract for carrying out work. The ITAT rejected this argument, stating that payments made to Mr. Suresh, who further paid truck owners/drivers, constituted a sub-contracting arrangement. The ITAT found the appellant's argument devoid of merit, emphasizing the substantial payments made to Mr. Suresh on multiple occasions. Additionally, the ITAT noted the suspension of a judgment cited by the appellant's counsel. Consequently, the ITAT upheld the applicability of section 194C and dismissed the appeal filed by the assessee.

In conclusion, the ITAT held that the appellant was liable to deduct tax at source for transportation expenses paid to an employee, as the arrangement with Mr. Suresh amounted to sub-contracting falling under section 194C. The ITAT dismissed the appeal, emphasizing the lack of truck owner/driver details and the suspension of the relied-upon judgment.