2015 (6) TMI 106 - HC - Income Tax

TDS u/s 194C - Disallowance of Vehicle Hire Charges and Loading and Unloading Charges - there was no contract - Tribunal deleted the entire addition - Held that - The respondent-assessee is a transporter and engaged in transporting of goods mainly through hired vehicles. Heavy vehicles have been hired by the respondent. It further appears that the respondent-assessee is not only paying vehicles hire charges, but, he is paying entire vehicles running expenses such as cost of diesel and lubricants, labour charges, repair and maintenance charges which mainly comprising replacement of spare parts, tyres and tubes, batteries, engines, motors auto body, leaf spring and other general repairs and maintenance and also towards loading and unloading charges. These are the payments made under the different major heads by the respondents during the financial year 2008-2009. Thus, it appears that he is not a broker at all who is earning ₹ 150-200 per truck as argued out by the respondent-assessee. Huge amount has been paid in cash for vehicle hire charges.All the aforesaid payments are exceeding the limits of ₹ 20,000/- per day and ₹ 50,000/- during the financial year 2008-2009. This payment is also in breach of section 40(A)(3) of the Income Tax Act, 1961. The assessee is seeking deduction of this amount from taxable Income u/s 37 of the Income Tax Act, which is not permissible, looking to Section 194C of the Act, 1961 to be read with Section 40(a)(ia) of the Act , 1961. The respondent-assessee looking to the books of accounts have made the payment towards labour charges, repair and maintenance as well as towards the loading and unloading. Thus, the assessee is not a broker at all, but, is more than a broker. Broker will never pay the repair and maintenance as happened in this case. Payments have been made for spare parts, tyres and tubes, batteries, for engine, for motors auto body, for leaf spring etc. during the financial year 2008-09. Looking to this aspect of the matter, no error was committed by the Income Tax Commissioner, while dismissing the appeal preferred by the respondent-assessee. Income Tax Appellate Tribunal, Ranchi Circuit Bench, Ranchi has failed to appreciate the cumulative effect of the evidences on record. The respondent-assessee has paid loading and unloading charges of ₹ 17,60,600/- to various parties on different dates. The aforesaid amount of ₹ 12,76,700/- out of ₹ 17,60,600/- cannot be allowed to be deducted from the income of the respondent-assessee as TDS has not been deducted under Section 194C to be read with Section 40(a) (ia). Looking to the provisions of Section 194C of the Income Tax Act, 1961 if the amount is paid in pursuance of the contract which may be oral also, Section 194C is applicable. In the facts of the present case when aforesaid huge amount is paid towards vehicle hire charges in one year and also towards loading and unloading charges huge amounts is paid in cash. TDS ought to have been deducted before making such payments by the respondent to his sub contractors and as this TDS has not been deducted, the amount paid towards vehicle hire charges and amount paid towards loading and unloading charges which are at ₹ 98,76,419/- and at ₹ 12, 76,700/- is not deductable from the taxable amount u/s 40(a)(ia) of the Income Tax Act. Tribunal was not justified in deleting the entire addition made on account of Vehicle Hire Charges & Loading and Unloading Charges ignoring the categorical finding of the CIT(A) that there was a contract between the parties and Assessee was liable to deduct TDS - Decided in favour of revenue.

Summary

Issues Involved:
1. Deletion of addition on account of 'Vehicle Hire Charges.'
2. Deletion of addition on account of 'Loading and Unloading Charges.'
3. Ignoring the finding of the CIT(A) regarding the existence of a contract and TDS liability.
4. Applicability of the Bhagwati Steel case decision.
5. Whether the impugned order is perverse.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of 'Vehicle Hire Charges':
The High Court examined whether the Income Tax Appellate Tribunal (ITAT) was justified in deleting the addition of Rs. 96,78,419/- on account of 'Vehicle Hire Charges.' The appellant argued that the respondent-assessee paid this amount to sub-contractors for transportation without deducting TDS as required under Section 194C of the Income Tax Act, 1961. The ITAT had concluded that there was no written or oral contract, thus Section 194C was not applicable, and disallowance under Section 40(a)(ia) could not be made. The High Court disagreed, stating that Section 194C also applies to oral contracts, and the repeated cash payments exceeding Rs. 20,000/- indicated an oral contract. Therefore, the addition should not have been deleted.

2. Deletion of Addition on Account of 'Loading and Unloading Charges':
Similarly, the ITAT deleted the addition of Rs. 12,76,000/- for 'Loading and Unloading Charges.' The appellant contended that these payments were also made without deducting TDS. The High Court noted that substantial cash payments were made repeatedly, indicating an oral contract. Thus, the ITAT erred in deleting the addition, as Section 194C was applicable, and the payments should have been disallowed under Section 40(a)(ia).

3. Ignoring the Finding of the CIT(A) Regarding the Existence of a Contract and TDS Liability:
The CIT(A) had found that there was a contract between the parties, and the assessee was liable to deduct TDS. The High Court upheld this finding, emphasizing that the nature and frequency of payments indicated an oral contract. The ITAT's decision to ignore this finding was incorrect.

4. Applicability of the Bhagwati Steel Case Decision:
The ITAT relied on the Bhagwati Steel case, which the appellant argued was not applicable. The High Court agreed, noting that the facts of the present case were different. In Bhagwati Steel, there was no evidence of repeated payments or an oral contract, whereas, in this case, substantial and repeated cash payments indicated an oral contract.

5. Whether the Impugned Order is Perverse:
The High Court found that the ITAT's order was perverse as it failed to appreciate the cumulative evidence indicating the existence of an oral contract. The ITAT erroneously allowed deductions without considering the requirements of Section 194C and the implications of Section 40(a)(ia).

Conclusion:
The High Court allowed the tax appeal, quashing the ITAT's order and upholding the CIT(A)'s decision. The deductions claimed by the respondent-assessee for 'Vehicle Hire Charges' and 'Loading and Unloading Charges' were disallowed due to the failure to deduct TDS under Section 194C. The appeal was disposed of accordingly.