2018 (12) TMI 1581 - AT - Income Tax

TDS u/s 194C - addition u/s 40a(ia) - assessee liable for deduction of tax only on the assumption that assessee was having agreement with the parties through whom trucks were arranged for transportation of goods - Held that - Truck driver had only acted as a temporary custodian of the money paid by the assessee for onward transfer/payment to the ultimate truck owners. Hence effectively payments were made by the assessee only to the truck owners through the truck drivers. We are of the considered opinion that the truck driver cannot decide the entire terms and condition of the transport such as rate of freight, weight to be carried for specific destination and other liabilities attached with the said transportation on his own without consent of the truck owner. Hence it could be safely concluded that there is an oral contract entered into by the assessee with the ultimate truck owner during the medium of the truck drivers for which payments on account of transportation charges were made. Hence, we hold that the provisions of section 194C are applicable in the instant case and disallowance u/s 40a(ia) of the Act have rightly been made by the ld. AO. Accordingly, grounds raised by the revenue are allowed.

Summary

Issues:
1. Disallowance of transportation charges under section 40a(ia) of the Income Tax Act, 1961.

Analysis:
The appeal before the Appellate Tribunal ITAT Kolkata arose from the order of the Commissioner of Income Tax(Appeals) concerning the disallowance of transportation charges under section 40a(ia) of the Income Tax Act for the Assessment Year 2009-10. The primary issue was whether the Commissioner was justified in deleting the disallowance made by the Assessing Officer. The assessee, engaged in transport and steel processing business, filed the return of income declaring total income. The initial assessment was set aside for re-computation by the Administrative Commissioner under section 263. The Assessing Officer observed transportation charges paid without tax deduction at source, leading to the proposed disallowance of a substantial sum under section 40a(ia) for payments made to truck owners. The assessee contended that no formal contract existed with truck owners, as payments were made directly to truck drivers and did not exceed a certain limit per day.

The Assessing Officer found the assessee's explanation unsatisfactory and proceeded with the disallowance under section 40a(ia). However, the Commissioner of Income Tax(Appeals) deleted the disallowance, stating that the Assessing Officer assumed a contractual relationship between the assessee and truck owners without concrete evidence. The Tribunal noted that the payments were made for transporting goods in the same trucks regularly, exceeding the threshold amount over the year. It was observed that payments to truck drivers effectively reached the truck owners, indicating an implicit agreement between the assessee and the ultimate truck owners facilitated by the drivers. The Tribunal concluded that the provisions of section 194C were applicable, and the disallowance under section 40a(ia) was justified. Consequently, the revenue's appeal was allowed, upholding the disallowance of transportation charges.

In conclusion, the Tribunal's decision emphasized the practical implications of the payment structure in the transportation business, highlighting the indirect contractual relationship between the assessee and truck owners through drivers. The judgment underscored the application of tax deduction provisions and upheld the disallowance of transportation charges under section 40a(ia) based on the implicit contractual arrangement in the case.