2015 (3) TMI 193 - AT - Income Tax

Non deduction of TDS from transport payments u/s. 194C - CIT(A) deleted disallowances - whether there is a contract for hiring of carriers of goods from the transport company, who are having goods carriage? - Held that - Admittedly, the assessee has debited carriage inward expenses paid to six transport contractors, who are transport companies having in the carriage business for the purpose of hiring towards carriage of goods. Definitely, once the hiring is made, the contract exists, as to whether verbal or written. Once there is a verbal contract the provision of section 194C will apply and once provisions of section 194C apply the provisions of 40(a)(ia) of the Act will apply. See ITO Vs. MGB Transport 2013 (11) TMI 1321 - ITAT KOLKATA - Decided in favour of revenue.

Summary

Issues:
- Disallowance of TDS for transport payments under section 194C of the Income-tax Act, 1961.
- Existence of a contract between the assessee and transporters.
- Applicability of section 40(a)(ia) regarding TDS deduction.

Analysis:

Issue 1: Disallowance of TDS for transport payments under section 194C
The appeal by revenue challenges the deletion of disallowance made by the AO for failure to deduct TDS from transport payments. The CIT(A) ruled that no contract existed between the assessee and transporters. The AO disallowed the entire payment due to non-deduction of TDS. The CIT(A) examined the nature of expenses and concluded that the payments were not covered by section 194C as there was no works contract involved. Citing a relevant case law, the CIT(A) held that hiring lorries and dumpers did not constitute a works contract, thus TDS deduction was not required.

Issue 2: Existence of a contract between the assessee and transporters
The primary contention was whether a contract existed between the assessee and the transport companies. The AO argued that the hiring of carriers constituted a contract, triggering TDS obligations. The CIT(A) disagreed, emphasizing that the hiring was not a works contract and thus not subject to TDS deduction under section 194C. The CIT(A) highlighted that the assessee had hired lorries and dumpers for executing a civil contract, employing its own resources, which did not qualify as a works contract.

Issue 3: Applicability of section 40(a)(ia) regarding TDS deduction
The AO invoked section 40(a)(ia) for non-deduction of TDS on transport payments. However, the CIT(A) found that as there was no works contract between the parties, the provisions of section 194C did not apply. The CIT(A) referenced case laws to support the decision that the payments made were not for works contracts. The Tribunal, relying on precedent, allowed the revenue's appeal, emphasizing the need for TDS deduction even in the absence of a written contract.

In conclusion, the Tribunal allowed the revenue's appeal, stressing the importance of TDS deduction under section 194C, even in cases where a formal contract may not exist. The judgment underscores the significance of complying with TDS obligations and the interpretation of works contracts under the Income-tax Act, 1961.