2012 (6) TMI 577 - AT - Income Tax

Dis-allowance u/s 40(a)(ia) - TDS u/s 194C - assessee engaged in business of forklift hiring, gives on hire forklift vehicles either owned by him or taken on hire from outside parties - dis-allowance made of hire charges paid to outside parties on hire of forklift vehicles on account of non-deduction of taxes - Held that - For application of provisions of Section 194C in this case it has to been seen, whether the assessee has entered into any kind of sub-contract with the outside parties from whom he has hired the forklift vehicles on random basis to fulfil his own commitment towards his principals. There is no material on record to remotely suggest that there was any kind of oral or a written contract or sub-contract with the outside parties from whom he has taken the forklift vehicles. Until and unless risk and responsibility of the contract undertaken by the assessee is shifted to the sub-contractors, it cannot be held that these persons are the sub-contractors of the assessee. Hence, assessee was not liable to deduct TDS u/s 194C(2) in relation to payment made to the outside parties and accordingly there is no violation of Section 40(a)(ia) - Decided in favor of assessee.

Summary

Issues:
Addition of payment made for hiring of vehicles in violation of Section 40(a)(ia).

Analysis:
The appeal was filed against the order passed by CIT(A)-24, Mumbai for the assessment year 2006-2007 concerning the addition of payment made for hiring vehicles in violation of Section 40(a)(ia). The Assessing Officer noted that the assessee declared a turnover from hiring business and claimed hire charges paid in excess of &8377; 50,000 to various parties, amounting to &8377; 18,70,375, without deducting TDS as per the provision of 194C(2). The Assessing Officer held that the non-deduction of TDS violated Section 40(a)(ia) and added the amount to the assessee's income. The first appeal was dismissed by the CIT(A) affirming the Assessing Officer's finding.

The assessee contended that there was no contract with parties from whom forklift vehicles were hired, and individuals are not liable to deduct TDS under Section 194C(2) for payments to sub-contractors. The AR argued that hiring forklift vehicles falls under Section 194(1) and not 194C, citing relevant judgments and decisions. The AR also presented a decision of ITAT Mumbai Bench in a similar case where the Tribunal dismissed the department's case.

The Tribunal analyzed the case and found that the assessee, as an individual, was responsible for executing contracts with parties to whom forklift vehicles were provided on hire. It was observed that there was no evidence of any oral or written contract or sub-contract with the outside parties from whom forklift vehicles were hired. The Tribunal referred to judgments that supported the assessee's argument, emphasizing that without the transfer of risk and responsibility to the outside parties, they could not be considered sub-contractors. The Tribunal also mentioned a similar case where the department's appeal was dismissed.

The Tribunal ruled in favor of the assessee, stating that there was no violation of Section 40(a)(ia) as the assessee was not liable to deduct TDS under Section 194C(2) for payments made to outside parties. The addition of &8377; 18,70,375 was deleted, and the appeal filed by the assessee was allowed. The issue regarding the hiring of forklift vehicles falling under Section 194(1) was left to be decided in another matter, and other contentions were not adjudicated upon as the Tribunal had already decided the issue on merits.