IT: Where assessee engaged in business of transport and hiring of trucks, made payment for truck hire charges without deducting tax at source, since it was not clear as to whether said payments were for transportation of goods in form of independent contract or it was made to sub-contractors as a part of back to back hiring arrangements, impugned disallowance made under section 40(a)(ia) was to be set aside and, matter was to be remanded back for disposal afresh
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[2013] 35 taxmann.com 234 (Ahmedabad - Trib.)
IN THE ITAT AHMEDABAD BENCH 'B'
Laxmandas Tolaram Gurnani
v.
Income-tax Officer, Ward - 9(4) Ahmedabad*
PRAMOD KUMAR, ACCOUNTANT MEMBER
AND KUL BAHARAT, JUDICIAL MEMBER
AND KUL BAHARAT, JUDICIAL MEMBER
IT APPEAL NO. 3442 (AHD.) OF 2010
[ASSESSMENT YEAR 2007-08]
[ASSESSMENT YEAR 2007-08]
APRIL 29, 2013
Section 194C, read with section 40(a)(ia), of the Income-tax Act, 1961 - Deduction of tax at source - Contractors/sub-contractors, payments to [Transport contracts] - Assessment year 2007-08 - Assessee was engaged in business of transport, hiring trucks and warehousing - He made payments of truck hire charges without deducting tax at source - Assessing Officer thus disallowed said payments under section 40(a)(ia) - Whether in case assessee used hired truck in course of carrying out his business of transportation of goods, it would be an independent contract and, thus, payments for truck hire could not be treated as payments to sub-contractor - Held, yes - Whether, in such a situation, provisions of section 194C(2) would not come into play - Held, yes - Whether, however, in case hire of trucks was in course of back to back hiring arrangements, it would clearly be a case of sub-contracting and provisions of section 194C(2) would come into play - Held, yes - Whether since there was no finding on aforesaid aspect, impugned disallowance was to be deleted and matter was to be remanded back for disposal afresh - Held, yes [Para 6][Matter remanded]
FACTS
| ■ | The assessee was engaged in the business of transport, hiring trucks and warehousing. In the course of the assessment proceedings, the Assessing Officer noticed that the assessee had paid truck hire charges without deducting tax at source. | |
| ■ | The assessee submitted that payments of truck hire charges were not under a sub-contract, but under a separate standalone contract, and, accordingly, the provisions of section 194C, requiring the assessee to deduct tax at source from payments to sub-contractor, would not apply to payments in question. | |
| ■ | The Assessing Officer, however, took a view that the assessee was a contractor, as he carried on the business of transport, and the payments for hire of trucks was nothing but a payment for sub-contract work. | |
| ■ | On said basis, the Assessing Officer disallowed payments made by assessee under section 40(a)(ia), read with section 194C. | |
| ■ | The Commissioner (Appeals) upheld said disallowance. | |
| ■ | On appeal: |
HELD
| ■ | There is no dispute between the parties that the provisions of section 194C(1) cannot be pressed into service in this case, since, at the material point of time, tax withholding requirements did not extend to 'individuals' and that, it was only as a result of the amendment by the virtue of Finance Act, 2008 with effect from 1-6-2008, that individuals were imposed tax deduction obligations under section 194C(1). The case of the revenue thus hinges on application of section 194C(2). [Para 4] | |
| ■ | In the present case, the assessee is mainly engaged in the business of transporting of goods, and, in the course of carrying out such business, he takes the trucks on hire for transportation of goods, the truck hire is an independent and standalone contract which, though essentially an integral part of the business of transportation, cannot be said to be a sub-contract. However, a perusal of material on record available before the authorities below does not help to reach any specific finding to that effect either. | |
| ■ | If that be the case, the assessee may not have any tax withholding obligation in respect of truck hire payments in the pre-amendment period. Therefore, everything hinges on the findings as to whether the trucks were hired for the purpose of hiring out simplicitor of trucks, or for the purpose of use of these trucks in the course of transportation of goods by the assessee. [Para 5] | |
| ■ | In a case in which the assessee used the hired truck in the course of carrying out his business of transportation of goods, and not that of hiring out trucks, the payments for truck hire could not be treated as payments to sub-contractor, and, accordingly, the provisions of section 194C(2), and, therefore, the provisions of section 40(a)(ia) cannot come into play. The impugned disallowance, therefore, will have to be deleted. | |
| ■ | In case, however, it is found that trucks were hired by the assessee for back-to-back hiring out of trucks by the assessee, it will indeed be a case of sub-contracting the work, and, to that extent, provisions of section 194C(2) will indeed come into play. | |
| ■ | With aforesaid observations, impugned disallowance was set aside and the matter was remanded back for disposal afresh. [Para 6] |
S.N. Divatia for the Appellant. Y.P. Verma for the Respondent.
ORDER
Pramod Kumar, Accountant Member - By way of this appeal, the assessee has challeneged correctness of CIT(A)'s order dated 12th October 2010, in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2007-08. Grievance raised by the assessee, in substance, is that the learned CIT(A) erred in sustaining the disallowance of expenditure of Rs 6,50,000 incurred by the assessee on hiring of trucks, the ground that the assessee had failed to discharge his tax withholding obligations in respect of the same.
2. The issue lies in a narrow compass of undisputed material facts. The assessee is engaged in the business of, as stated in the assessment order itself, "transport, and hiring trucks and warehousing". In the course of the assessment proceedings, the Assessing Officer noticed that the assessee has paid truck hire charges amonting to Rs 6,50,000, but has not deducted any tax at source from the same. When Assessing Officer required the assessee to show cause as to why this amount not be disallowed under section 40(a)(ia), it was stated by the assessee that payments of truck hire charges are not under a sub contract, but under a separate standalone contract, and, accordingly, the provisions of Section 194C, requiring the assessee to deduct tax at source from payments to sub-contractor, will not apply to these payments. This submission did not, however, satisfy the Assessing Officer. He was of the view that the assessee is a contractor, as he carries on the business of transport, and the assessee pays for hire of trucks which is nothing but a payment for subcontract work. On this basis, the Assessing Officer disallowed Rs 6,50,000, on account of truck hire, under section 40(a)(ia) r.w.s. 194C. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. Thee assessee is not satisfied and is in further appeal before us.
3. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
4. There is no dispute between the parties that the provisions of Section 194C(1) cannot be pressed into service in this case, since, at the material point of time, this tax withholding requirements did not extend to 'individuals' and that, it was only as a result of the amendment by the virtue of Finance Act 2008 w.e.f 1st June 2008, that individuals were imposed tax deduction obligations under section 194C(1). The case of the revenue thus hinges on application of section 194C(2), which, for ready reference, is reproduced below:
"(2) Any person (being a contractor and not being an individual or a Hindu undivided family), responsible for paying any sum to any resident (hereafter in this section referred to as the subcontractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax on income comprised therein.
Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the sub-contractor, shall be liable to deduct income-tax under this sub-section.
Explanation I : For the purposes of sub-section (2), the expression "contractor" shall also include a contractor who is carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government of a foreign State or a foreign enterprise or any association or body established outside India.
Explanation II : For the purposes of this section, where any sum referred to in sub-section (1) or sub-section (2) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
Explanation III : For the purposes of this section, the expression "work" shall also include -
| (a) | Advertising; | |
| (b) | Broadcasting and telecasting including production of programmes for such broadcasting or telecasting; | |
| (c) | Carriage of goods and passengers by any mode of transport other than by railways; | |
| (d) | Catering" |
5. A plain reading of the above provision indicates that in order to attract the applicability of Section 194C(2), the payment has to be made by a contractor to a sub-contractor for "carrying out or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply". It is, therefore, a condition precedent, for invoking section 194C(2), that the payment in question has to be for carrying out a part of the work, or the work itself, undertaken by the contractor, or the supply undertaken by the contractor. What follows from the above analysis is that so far as pre June 2008 position is concerned, tax withholding obligations under section 194 C in respect of an individual only in cases where the payments were made to a sub-contractor for carrying out a part of work, or the work itself, undertaken by the assessee. That would have been the case, for example, when assessee received the goods for transportation and the assessee had made payment for such transportation of goods, not truck hire simplictor. That is certainly not the case before us because the charges paid by the assessee are not for transportation of goods but simply for the payment of truck hire. Alternatively, when the assessee is engaged in the business of giving out trucks on hire and it is in the course of this business activity that the assessee has order for hire of trucks, and, to execute that work, the assessee takes truck on hire from someone else, this will also be a case for sub-contracting. There is no finding to this effect in the orders of the authorities below, even though the scope of assessee's business, as evident from a perusal of the assessment order, may indeed extend to such a transaction as well. If the hire of trucks is in the course of such back to back hiring arrangements, it will clearly be case of sub-contracting and the provisions of Section 194 C(2) will come into play. As we have noted earlier, in the present case, the assessee is mainly engaged in the business of transporting of goods, and, in a situation in which the assessee is doing the business of transport of goods, and in the course of carrying out such business, he takes the trucks on hire for transportation of goods, the truck hire is an independent and standalone contract which, though essentially an integral part of the business of transportation, cannot be said to be a sub contract. However, a perusal of material before us as indeed orders of the authorities below, does not help us reach any specific finding to that effect either. If that be the case, the assessee may not have any tax withholding obligation in respect of truck hire payments in the pre-amendment period. Therefore, everything hinges on the findings as to whether the trucks were hired for the purpose of hiring out simplictor of trucks, or for the purpose of use of these trucks in the course of transportation of goods by the assessee.
6. When the above position was set out before the learned representatives, they very graciously agreed to the matter being restored to the file of the Assessing Officer for adjudication de novo in the light of above legal position. In a case in which the assessee has used the hired truck in the course of carrying out his business of transportation of goods, and not that of hiring out trucks, the payments for truck hire cannot be treated as payments to sub-contractor, and, accordingly, the provisions of Section 194C(2), and therefore, the provisions of Section 40(a)(ia) cannot come into play. The impugned disallowance, therefore, will have to be deleted. In case, however, it is found that trucks were hired by the assessee for back to back hiring out of trucks by the assessee, it will indeed be a case of sub-contracting the work, and, to that extent, provisions of Section 194 C(2)will indeed come into play. However, as we have heard this case only on the limited issue of scope of Section 194C(2), the assessee will have the liberty to raise other legal issues, as he may be advised, as well. While giving effect to these directions, and thus deciding the matter afresh, he will give due and fair opportunity of hearing to the assessee, decide the matter in accordance with the law in a fair and objective manner, by way of a speaking order, and after giving a reasonable opportunity of hearing to the assessee. We direct so.
7. In the result, the appeal is allowed for statistical purposes in the terms indicated above.
SUNILRegards
Prarthana Jalan
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