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TMI Blog2016 (2) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... b-contract and as such the assessee is not liable to deduct tax at source as per provisions of section 194C(2) and consequently the provisions of section 40(a)(ia) will not apply on such payments - Decided in favour of assessee - ITA No. 3357/Ahd/2009 - - - Dated:- 11-9-2015 - SHRI RAJPAL YADAV, JM, MANISH BORAD, AM. For the Petitioner : Ms. Urvashi Shodhan, AR For the Respondent : Shri D. C. Mishra, Sr. DR ORDER PER MANISH BORAD, ACCOUNTANT MEMBER. This appeal of the assessee is against the order of CIT(A)-II, Baroda dated 8.10.2009 passed for AY 2005-06. It emerges out from the assessment framed by the AO under section 143(3) of the I.T. Act, 1961 (hereinafter referred to as the Act) vide order dated 28.12.2007. The only issue challenged in this appeal is confirmation of addition of ₹ 1,38,30,000, which was made by the Assessing Officer on account of disallowance of expenses under section 40(a)(ia) of the Act read with section 194C(2) of the Act, on the ground that payments to various truck owners on account of freight was made without TDS. It is also pertinent to take note of specific grounds raised by the assessee. They read as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to pay money to the tanker/truck owners on account of transportation of materials. The assessee has debited alleged subcontractual payment of ₹ 1,38,30,000/- in aggregate to 46 transporters (as per list on page 3 of the assessment order) wherein payments to each transporter was in excess of ₹ 50,000/-. Out of the total sub-contract payment payable of ₹ 1,38,30,000/- the assessee had made payment of ₹ 1,24,47,000/- to the transporters through whom goods were transported. As the assessee has not deducted TDS under section 194C(2) of the Act, the AO disallowed the claim of expenses of ₹ 1,38,30,000/-. In view of the provisions of section 40(a)(ia) read with section 194C(2) of the Act. Aggrieved, assessee went in appeal before the CIT(A). 3. During the appellate proceedings before the CIT(A) the ld. AR of the assessee submitted that there was no contract between the assessee and the truck owners nor the assessee received any remuneration for providing trucks to BPCL and HCCL. The contract was between the assessee and the contract awarder companies namely BPCL and HCCL and for fulfilling the contract for transport of goods it had to hire trucks. But ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the deductions as brought out in the contract, if applicable. Therefore, the appellant as well as the truck driver would be equally liable for any loss incurred. Hence it is obvious that the truck drivers have also been fastened with the liabilities clauses in the agreement entered into by the appellant with the sub-contractor. From the modus operandi as brought out by the ld. AR as stated above, there exists an oral agreement with the transport owners. The terms and conditions are clearly laid down. Without the trucks the appellant could not be in any position to execute any part of the contract let alone the whole contract. In view of the above it can be concluded that a) The appellant is a contractor for HCCL and BPCL b) He does not own any transport vehicle c) He procures vehicles for the purpose of executing the contract d) The work of carrying out the transportation of goods is done by the transporters e) The appellant has an oral agreement with the truck owners f) The appellant receives transportation charges from the contracting companies after the companies have deducted any loss due to damages g) From this amount the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there was no contractual relationship between the assessee firm and the vehicle owners. The question of deduction of TDS from transportation payment which was received by the assessee as an arranger on behalf of BPCL and HCCL, does not arise and submitted as under :- - Assessee firm is doing business of arrangement of transportation on commission basis. - Assessee firm does not have any transport vehicle of its own. - The person with whom transport vehicles are available and who are desirous of giving it to the organization on continuous basis approaches the intermediary like assessee firm. - Assessee firm has contacts with various organizations that need transport vehicle on continuous basis. - In this type of arrangement though the entire payment will be received by the assessee firm as arranger, it will be credited to transport owner s account in the books of account maintained by assessee firm. Thus, the assessee firm acts as trustee like a member of stock exchange receives funds in his name and them in turn it is passed on to the customer who has sold the shares. - The operating cost of the transport vehicle rest with the transport vehic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor and a firm for applicability of charging section 194C(1) of the Income-tax Act, 1961]. In view of the same, it is humbly requested that the addition be not made by invoking the provisions of section 40(a)(ia) of the Income-tax Act, 1961. Further the ld. Counsel of the assessee has quoted various decisions of High Courts and the Tribunal in the Paper Book filed before us. 5. On the other hand, the ld. DR has relied on the orders of lower authorities and also emphasized that even if there is no agreement between the assessee and the truck owners but there is always existence of an oral agreement between the two. 6. We have heard the rival contentions and gone through the facts and circumstances of the case as well as various case laws and documents referred to in all the Paper Books filed by the assessee. The main point of examination in this appeal is, whether there is an existence of contractual relationship for arrangement of transportation between the assessee and the truck owners which can be covered within the definition of work as referred in section 194C of the Act. In the case of Mythri Transport Corporation vs. ACIT, ITAT Visakhapatnam Bench in ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, etc. Hence the reasoning of the tax authorities to hold that the payment made for hired vehicles is a sub-contract payment is not correct and not based on relevant considerations. Hence it cannot be said that the payments made for hired vehicles would fall in the category of payment towards a sub-contract with the lorry owners. In that case the assessee is not liable to deduct tax at source, as per the provisions of s.194C(2) on the payments made to the lorry owners for lorry hire. Consequently the provisions of s.40(a)(ia) shall not apply to such payments. Conclusion: Assessee is a transport contractee, having itself executed the whole of the contract for transportation of bitumen by hiring lorries from other lorry owners who simply placed the vehicles at the disposal of the assessee without involving themselves in carrying out any part of the work undertaken by the assessee, it cannot be said that the payments made for hiring of vehicles fell in the category of payments towards subcontracts and therefore, assessee was not liable to deduct tax at source as per the provisions of s.194C(2) from the payments made to the lorry owners and consequently provisions of s.40(a)(ia) wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the sports of Haldia, Visakhapatnam and Paradeep to Chennai and Tuticorin under contracts executed with the Tamil Nadu Electricity Board. The assessee owned three ships. Since three ships were not sufficient to carry out the contracts entered into by the assessee with Tamil Nadu Electricity Board, the assessee hired ships belonging to other shipping companies and paid hire charges to the other shipping companies for using their ships. The assessee, however, did not deduct tax under section 194C of the Income-tax Act before making payment of hire charges to the shipping companies. The Assessing Officer treated the assessee as in default and directed the assessee to pay the tax under section 201(1) of the Income-tax Act and also levied interest under section 201(1A). The Commissioner (Appeals) and the Tribunal held that section 194C was not applicable. On appeal to the High Court: Held, dismissing the appeal, that the payment of hire charges for taking temporary possession of the ships by the assessee-company would not fall within the provision of section 194C and hence no tax was required to be deducted. The hiring of ships for the purpose of using them in the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trucks: The appellant shall obtain the requisite road permits and other permits applicable for transportation of goods. The appellant shall bear the entire operational cost of the trucks etc. Item No. 4 Loss/damages of cylinders The appellant shall be solely responsible for the safe custody of the cylinders. Item No.5: Utilization of trucks The appellant shall operate all the trucks for all the stations awarded to it and it shall inform M/s. HPCL if any truck is withdrawn. Item No.6: Loading/unloading/handling of cylinders Loading/unloading of the cylinders shall be performed by the appellant. Item No.7: Transshipment The appellant shall undertake the movement of the produce entrusted to him by M/s. HPCL without transshipping. However, is the transshipment is inevitable, the transporter shall advise M/s. HPCL beforehand and also ensure that adequate care and precaution is taken to ensure the safe handling of the product. No additional charge will be paid by M/s. HPCL for transshipment. Item No.8: Security deposit/bank guarantee The appellant is to provide to M/s. HPCL bank guarantee for a specific amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue and the materials produced before us, it is apparent that the submissions of both the parties are acceptable. Accordingly, by following our decision in the case of the assessee for AY 2005-06 supra, we allow the appeal of the assessee for AY 2006-07 and delete the addition of ₹ 1,50,77,604/- made by the learned AO u/s 40 (a) (ia) of the Act which was further confirmed by the learned CIT(A). 13. In the result, both the appeals of the assessee are allowed. 8. If we examine the facts of the present case in the light of above decision of ITAT then it will reveal that there is no disparity on facts also. It is quite clear that HCCL and BPCL entered into contract solely with the assessee. All the responsibility for the transportation of goods was on the assessee and assessee did not enter into any subcontract with the transport agencies and used to take on the trucks as and when required for the destination as and where required. The separate lorry receipt/challan and separate payments were made on successful delivery of the goods. There is no material to suggest that the other lorry owners involved themselves in carrying out any part of the work undertaken by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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