2009 (11) TMI 13 - HC - Income Tax

TDS Section 194C(a) person liable to deduct TDS Registered Society / Association held that - Admittedly, the society does not retain any profits. It only retain as nominal amount which is used for meeting the administrative expenses of the society. There is no dispute with the submission that the Society has an independent legal status and is also contractor within the meaning of Section 194C. It is also not disputed that the members have a separate status but there is no sub-contract between the society and the members. In fact if the entire working of the society is seen it is apparent that the society has entered into a contract on behalf of the members. The society is nothing but a collective name for all the members and the contract entered by the society is for the benefit of the constituent members and there is no contract between the society and the members. - Section 194C(2) of the Act is not attracted and the assessee Society is not liable to deduct tax at source on account of payments made to the truck owners who are also members of the society

Summary

Issues:
Interpretation of Section 194C(2) of the Income Tax Act regarding TDS liability for a registered Society/Association of persons constituted by Truck Operators.

Analysis:
The judgment delves into the question of whether the assessee Society is liable to deduct TDS under Section 194C(2) of the Income Tax Act. The Society, formed by truck operators, enters into contracts with Companies for transporting goods. The Revenue argues that the Society should deduct TDS from payments to members, citing Section 194C(2). However, both the Commissioner and the Tribunal rule in favor of the assessee, stating that as there is no sub-contract between the Society and its members, Section 194C(2) does not apply.

The Revenue contends that the assessee is liable to deduct tax as it falls under the definition of a person under the Income Tax Act, and the truck operators are residents of India. They rely on certain case laws, but the court finds these cases irrelevant as they dealt with different issues. The court emphasizes that the key question is whether the truck owners/members qualify as sub-contractors under Section 194C(2).

The respondent invokes the principle of mutuality, citing a previous case, but the court clarifies that this principle does not apply in the present scenario. The court examines the nature of the contract, highlighting that the Society was formed by the truck operators to facilitate contracts with Companies. The Society acts as a collective entity for the members, ensuring equitable distribution of work. It is noted that the Society does not retain profits and exists primarily to secure work for its members.

The court concludes that Section 194C(2) is not applicable to the assessee Society, as there is no sub-contract between the Society and its members. The Society acts on behalf of its members, and the contract is for the members' benefit, not between the Society and the members. Therefore, the court rules in favor of the assessee, stating that they are not liable to deduct TDS on payments made to truck owners who are also members of the Society. The appeal is dismissed with no costs awarded.