2013 (4) TMI 533 - AT - Income Tax

Liability to deduct TDS u/s 194C - addition u/s 40(a)(ia) - CIT(A) deleted the addition - Held that - Circular No.715 dt 8-8-1995 issued by the CBDT states that the at source has to be deducted from the payments made to clearing and forwarding agents for carriage of goods if the payments are made under contract. The said circular also clarifies that each GR can be said to be a separate contract, if the goods are transported at one time. If the goods are transported continuously pursuance of a contract for a specific period or quantity, each GR will not be a separate contract and all GRs relating to that period or quantity will be aggregated for the purposes of TDS. In the instant case, there is no continuous contract, oral or written between the Appellant and Rupal Roadways as regards quantity period and rate. Hence each GR is a separate contract. As per assessee the payment for each trip is less than Rs.20,000/- and the aggregate payment in a year to a single truck owner/driver is less than Rs.50,000/-. Hence the provisions of section 194C(3) are not applicable in this case & consequently section 40(a)(ia) will also not come into play. The presumption of the AO that there is an open and continuous contract between he Appellant and Rupal Roadways is contrary to the facts. No infirmity in the order passed by CIT(A) holding that provision of Section 194C(3) are not applicable in this case and consequently no addition u/s 40(a)(ia) can be made. In favour of assessee.

Issues Involved:
1. Deletion of addition made under Section 40(a)(ia) of the Income Tax Act.
2. Applicability of Section 194C(3) of the Income Tax Act.
3. Nature of the contract between the assessee and M/s. Rupal Roadways.
4. Compliance with TDS provisions.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made Under Section 40(a)(ia) of the Income Tax Act:
The Revenue challenged the deletion of an addition of Rs. 89,68,871/- made by the Assessing Officer (AO) under Section 40(a)(ia) of the Income Tax Act. The AO had disallowed this amount on the grounds that the assessee failed to deduct tax at source as required under Section 194C(3). The AO's position was that the payments made to M/s. Rupal Roadways for transportation services exceeded the threshold limits prescribed under Section 194C(3), thereby necessitating TDS deduction.

2. Applicability of Section 194C(3) of the Income Tax Act:
The AO argued that the payments made to M/s. Rupal Roadways were part of a continuous contract for transportation services, thus falling under the purview of Section 194C(3). The AO contended that the payments were structured to appear below the threshold limits, but in aggregate, they exceeded Rs. 50,000/- per annum. The AO maintained that the assessee should have deducted TDS on these payments as per the provisions of Section 194C(3).

3. Nature of the Contract Between the Assessee and M/s. Rupal Roadways:
The AO asserted that there was an implicit continuous contract between the assessee and M/s. Rupal Roadways for the entire financial year. This was inferred from the fact that the payments were consistently supported by LRs (Lorry Receipts) issued by M/s. Rupal Roadways. The AO held that the absence of a written contract did not negate the existence of an oral or implied contract, thereby attracting the provisions of Section 194C.

4. Compliance with TDS Provisions:
The assessee argued that no single payment exceeded Rs. 20,000/- and no aggregate payment to a single truck owner/driver exceeded Rs. 50,000/-, thus not attracting TDS provisions under Section 194C(3). The assessee also provided a certificate from M/s. Rupal Roadways confirming that no payments were received directly from the assessee for freight. The assessee's position was supported by Circular No. 715 issued by the CBDT, which clarified that each GR (Goods Receipt) could be considered a separate contract in the absence of a continuous contract.

Judgment Analysis:
The Commissioner of Income Tax (Appeals) [CIT(A)] accepted the assessee's arguments, noting that there was no continuous contract between the assessee and M/s. Rupal Roadways. The CIT(A) observed that each GR was a separate contract, and the payments did not exceed the threshold limits prescribed under Section 194C(3). Consequently, the CIT(A) held that the provisions of Section 40(a)(ia) were not applicable, and the disallowance made by the AO was unjustified.

The Tribunal upheld the CIT(A)'s findings, emphasizing that the Revenue did not dispute the absence of an oral or written contract between the assessee and M/s. Rupal Roadways. The Tribunal concurred with the CIT(A) that the provisions of Section 194C(3) were not applicable, and therefore, no addition under Section 40(a)(ia) could be made. The Tribunal dismissed the Revenue's appeal, affirming the deletion of the addition of Rs. 89,68,871/-.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 89,68,871/- made under Section 40(a)(ia) of the Income Tax Act. The Tribunal agreed that there was no continuous contract between the assessee and M/s. Rupal Roadways, and the payments did not exceed the threshold limits prescribed under Section 194C(3). Consequently, the provisions of Section 40(a)(ia) were not applicable, and the Revenue's appeal was dismissed.

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