2008 (8) TMI 413 - AT - Income Tax

TDS u/s 194C - non deduction of tds on payment to truck drivers - disallowance u/s sec 40(a)(ia) - clubbing of payments - treating payments exceeding Rs. 20, 000 - Agreement on principal-to-principal basis - HELD THAT - On perusal of agreement on record reveals that the assessee was awarded a works contract by M/s Grasim Industries Ltd. a cement marketing division of M/s Aditya Cement Ltd. This agreement was on principal-to-principal basis whereby the appellant was awarded the cement transportation work and in terms of agreement the scope of work was to include placement of trucks for cement transportation from their plant on regular basis in the State of Rajasthan. In case the assessee failed to provide trucks as per contractual obligation the company was free to hire trucks from market at prevailing prices and the amount of expenses incurred if any was to be debited to the assessee s account terming him to be a transporter. The assessee merely acted as an independent contractor while carrying on the aforesaid works contract awarded to it by M/s Grasim Industries Ltd. Admittedly the appellant did not own trucks of its own for carrying out such transportation contract and has engaged the services of other truck owners/operators for lifting goods from the premises of M/s Grasim Industries Ltd. and transporting the same to various sites in Rajasthan. Goods receipt/bilty were prepared and the same was to be taken as a contract between the appellant and such truck owners/operators. In the light of clear provisions contained in s. 194C of the Act and having regard to the fact that both the amounts actually paid or credited or likely to be paid on account of each contract exceeded Rs. 20, 000 on a single day s. 194C has rightly been found applicable. We therefore do not find any wrong committed by the ld CIT(A) in holding that the assessee has committed default in making deduction with respect to clubbing of payments without deduction of tax at source. Keeping in view the overall conspectus of the case and finding no merit in the grounds raised in the appeal by the assessee the same stand rejected and the appeal stands dismissed. In the result the appeal stands dismissed.

Issues Involved:
1. Disallowance of payments to truck owners/operators.
2. Application of Section 40(a)(ia) of the IT Act.
3. Nature of the relationship between the assessee and truck operators/owners.
4. Requirement to deduct tax at source under Section 194C.
5. Assessment of total income against the principle of natural justice.

Detailed Analysis:

1. Disallowance of Payments to Truck Owners/Operators:
The assessee, a partnership firm engaged in transporting cement, maintained regular books of account and filed a return of income. The AO disallowed payments to truck owners/operators amounting to Rs. 57,11,625, which exceeded Rs. 20,000 without deduction of tax at source. The CIT(A) confirmed this disallowance, finding that the assessee had a contract with truck operators/owners and was required to deduct tax at source under Section 194C.

2. Application of Section 40(a)(ia) of the IT Act:
The AO found that the assessee made payments exceeding Rs. 20,000 without deducting tax at source, invoking Section 40(a)(ia) and disallowing the payments. The CIT(A) upheld this, stating that the provisions of Section 40(a)(ia) are mandatory and must be complied with. The assessee argued that the provisions of Section 40(a)(ia) should not apply as the payments were not debited to the P&L account but were shown as commission income. However, the tribunal rejected this argument, stating that the nature of the transaction does not change based on how it is reflected in the accounts.

3. Nature of the Relationship Between the Assessee and Truck Operators/Owners:
The assessee contended that truck operators/owners were not sub-contractors but different persons, and thus, there was no liability to deduct tax at source. The CIT(A) and the tribunal found that there was a service contract between the assessee and the truck operators/owners, making the provisions of Section 194C applicable. The tribunal noted that the assessee acted as an independent contractor, engaging truck operators/owners for transporting goods, and each bilty/challan was evidence of a contract.

4. Requirement to Deduct Tax at Source Under Section 194C:
The CIT(A) and the tribunal held that Section 194C casts a legal duty on the person responsible for paying any sum to another for carrying out any contract to deduct tax at source. The tribunal found that the assessee was required to deduct tax at source on payments exceeding Rs. 20,000 to truck operators/owners. The tribunal also referenced Board Circular No. 715, which clarified that each goods receipt/bilty is a separate contract, and the assessee's failure to deduct tax at source on these payments justified the disallowance under Section 40(a)(ia).

5. Assessment of Total Income Against the Principle of Natural Justice:
The assessee argued that the assessment of total income at Rs. 60,21,260 against the returned income of Rs. 2,89,633 was against the principle of natural justice. The tribunal, however, upheld the AO's assessment, finding no merit in the assessee's arguments. The tribunal concluded that the assessee's failure to deduct tax at source on payments exceeding Rs. 20,000 justified the disallowance and the resulting assessment of total income.

Conclusion:
The tribunal dismissed the appeal, upholding the disallowance of Rs. 57,11,625 for failure to deduct tax at source under Section 194C and confirming the assessment of total income at Rs. 60,21,260. The tribunal found that the assessee had a contractual obligation to deduct tax at source on payments to truck operators/owners and that the provisions of Section 40(a)(ia) were rightly applied.

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