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TMI Blog2012 (4) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of trucks on hire as a separate business. The assessee submitted that the assessee is mainly using its trucks for the purpose of hiring out which income has been rendered insofar as it has also incurred transport charges by utilising the trucks of other owners. During the reassessment proceedings, the Assessing Officer required the assessee to explain why the provisions of Section 40(a)(ia) is not applied on the part payments made to the contractors subject to deduction of tax at source when a sum of Rs. 65,24,800 was paid without such deduction. He disallowed the sum of Rs. 65,24,800 from the returned income and on the issue of invoking the provisions of Section 147/148 held that the assessee had not shown any income from trucks and excavators to claim deprecation @ 30%. The excess depreciation was disallowed amounting to Rs. 9,41,615. Aggrieved the assessee appealed before the first appellate authority. 3. Before the learned CIT(A), it was submitted by the assessee that he was not required to deduct tax at source from the payments identified by the Assessing Officer as not complying to the provisions of Section 194C. The assessee himself being a transport contractor had utili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be considered as the charges paid for the transportation who were transporting the goods of the assessee. The learned CIT(A) distinguished the cited case laws and no the basis of the remand report concluded that the assessee has shifted its stand from one position to the other during the appeal proceedings. Having agreed to the proposition that he is using the trucks and other vehicles for hiring out in agreement with Shri Sarat Chandra Nayak when Sarat Chandra Nayak had deducted tax @ 1.12% on the payments indicating that the assessee is a sub-contractor, the assessee having paid to the truck owners, having credited a sum of Rs. 1,06,41,000 had deducted tax on the remaining amounts but not Rs. 65,24,800 therefore was considered for disallowance u/s. 40(a)(ia) by the Assessing Officer was upheld. However, he did give a finding that the assessee could not be said to have engaged its tippers and excavators in the business of running them on hire which the learned Counsel for the assessee hereinafter will demonstrate as a contradiction in the mind of the learned CIT(A) as well. 4. The learned Counsel for the assessee initiating his arguments submitted that the submissions were p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for each truck without any agreement with the agents/suppliers, provisions of Section 194C is not attracted. In the case of CIT v. Ess Kay Construction Co. [2004] 267 ITR 618/140 Taxman 442 (Punj. & Har.), Hon'ble Punjab & Haryana High Court has held that the Tribunal had found that there was no direct contract between original contractor and the ultimate payees, therefore would not result the contract being executed for the application of Section 194C(2). In another decision of Hon'ble Madras High Court in the case of CIT v. D. Rathinam [2011] 197 Taxman 486/9 taxmann.com 239 (Mad.), which is directly applicable to the facts and circumstances of the case, the learned Counsel submitted that neither the Assessing Officer nor the learned CIT(A) has ascertained that there is any material to suggest that there was any contract between the assessee and those individuals by way of composite contract of hiring of the vehicles, equipments etc., by itself therefore cannot be a ground to hold that there was a composite contract between the assessee as a sub-contractor for plying of trucks for the said Shri Sarat Chandra Nayak. However, in view of the applicability of Sectin194-I and not 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-contract' would require stepping in the shoes of the main contractor and involving himself in execution of the main contract work by even undertaking the risk involved in the main contract work. So far as the present case is concerned, the other truck owners, whose trucks the appellant took on hire from time to time, only hired out their trucks and even if there might have been some contracts between them and the appellant, they could, by no means, be considered as subcontractors in respect of the contract works undertaken by the appellant. They did not have to face the main contractees nor did they undertake any part of the risks involved in the main contract works. Hence, if at all the provisions of section 194 of the Act would apply to the present case, it will be only sub- section 194C(1) relating to the liability of deducting tax at source from 'payments made to contractors' and not sub-section 194C(2) relating to 'payments made to sub-contractors'. Prior to the amendment of sub-section 194C(1) by the Finance Act, 2007 with effect from 01-06-2007, an 'Individual' was not required under that sub-section to deduct any tax at source from payments made to a 'contractor'. The lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowing depreciation at a higher rate the assessee should be in the business of hiring out the vehicles. He prayed that the assessee's claim of higher depreciation may be allowed. 5.1 The learned DR supported the orders of the authorities below. She submitted that the assessee having deducted tax at source on the part amount therefore was noted by the learned CIT(A) as a change of stand which the assessee is not able to substantiate as of now. It is an afterthought when the amounts have been disallowed u/s. 40(a)(ia) that the amount already deducted at source as claimed by the assessee as expenditure on the payments made to the respective parties. The learned CIT(A) after obtaining the remand report verified that the assessee had failed to deduct tax at source in accordance with the provisions of Income-tax Act, 1961 was subjected to disallowance insofar as the assessee being a sub-contractor of Sri Sarat Candra Nayak could not establish that the hiring charges paid to the tipper owners whose tippers and excavators were engaged in the assessee's work were not part of any oral or written contract. The facts clearly indicate that the assessee was hiring out its vehicles from which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice tax clinches the issue that the main contractor deducting tax at source on payments to the assessee by way of sub-contract @ 1.12%. Therefore, we find no infirmity in the submission of the assessee that there could have been oral or written contract between the assessee and the payees or for that matter between Shri Sarat Chandra Nayak and the payees. The authorities below therefore, did not suggest that there ought to have been a contract either implied or otherwise to hold that the assessee was deducting tax at source u/s. 194C. As has been pointed out by the learned Counsel the case laws directly involve the assessee's claiming of expenditure purely on the basis of executing the contract when he himself is a contractor leasing out its trucks for the purpose of its business by hiring it out. There was no requirement for the assessee to obtain the details of the payees to be subjected to deduction of tax at source as they were not sub-sub-contractors. The said parties did not get substituted in the place of the assessee before the main contractor whose goods the assessee was carrying. These parties did not get burdened with any liability which the assessee had vis-à- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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