Section 194C of Income-tax Act does not stipulate existence of a written contract as a condition precedent for payment of TDS
The contract may be in writing or it may be oral but the liability to pay tax arises when the recipient of the said amount receives payment in excess of Rs. 20,000.
CASE LAWS DETAILS
DECIDED BY: HIGH COURT OF KARNATAKA, IN THE CASE OF: J. Rama v. CIT, APPEAL NO: ITA No. 418 of 2009, DECIDED ON July 19, 2010
The facts of the case are that the assessee is an individual deriving income from hiring of vehicles. For the Assessment Year 2005-06, return of income was filed on 30-10-2005 declaring an income of Rs. 8,27,740. The return was processed under section 143(1) on 23-3-2006 and a refund of Rs. 34,619 was issued to the assessee. Thereafter, the case was selected for scrutiny under CASS. Notice under section 143(2) was served on the assessee on 2-9-2006. In reply to the same, the assessee appeared, produced books of account and other details. It is seen from the said books and from the income and expenditure statement, the assessee had debited a sum of Rs. 88,12,432 as vehicle running expenses. When she was called upon to explain the said expenses, she had given elaborate accounts of vehicle running expenses. The said accounts disclosed that the assessee had not deducted the Tax Deducted at Source (TDS) as per the provisions of section 194(C) of the Income-tax Act, 1961 (For short, hereinafter referred to as “the Act”). In spite to sufficient opportunity granted the assessee did not. produce the particulars of the TDS, if any. However, the assessee contended in writing that the assessee is not liable to deduct TDS as there is no written or oral contract and that the assessee is not liafle under section 194C as individual charges for private service vehicle will not exceed Rs. 20,000. She also referred to Circular No. 93 dated 26-9-2002 stating that the liability to TDS would not arise. The said circular was superceded by a clarification issued by the Board which made it obligatory to deduct tax. The Assessing Officer held the contract entered into between the assessee and the persons who supplied the vehicle is a transport contract and not hiring of machinery and therefore, she was legally bound to deduct TDS. As the said deduction was not made. Section 40(A)(1a) is attracted. Accordingly, deduction on the amount paid to a sub-contractor on which tax has not been deducted at source was disallowed. Therefore, a sum of Rs.79,45,225 representing the said payment was brought to tax. There was a discrepancy in the accounts relating to amount covered under TDS certificates and therefore, a sum of Rs.6,82,968 was also added. Thus, a sum of Rs.94,55,933 was held to be taxable. Aggrieved by the said assessment order, the assessee preferred an appeal to the Commissioner of Income-tax.
The assessee is an individual deriving income from hiring of vehicles. Under a written agreement the assessee is providing vehicles to one of its customers, M/s Mahindra Transport Solutions Group. Clause 5 of the written agreement entered into between them stipulates that the provision of services would involve providing vehicles owned by the assessee or associates of assessee or agents, for transportation of the Employees of Thomson Corporation (International) Private Limited. The material on record discloses that the assessee is owning a fleet of vehicles. That is not sufficient to meet their obligations. Therefore, the assessee hired vehicles from the owners of the vehicles. There is no written agreement entered into between the assessee and such individual owners. It is those vehicles hired in the aforesaid manner which are utilised for performing the contract entered into between the assessee and its customers. In the absence of any material placed by the assessee, the only inference that can be drawn from the facts of this case is that the assessee has utilised ihe vehicles taken on lease to perform the written contract entered into between the assessee and various customers. Out of the transportation charges received under the aforesaid written contract, a substantial portion has been paid to the various owners of the vehicles towards transportation charges. Though a ground is taken that such payment is not in excess of Rs. 20,000and therefore, there is no obligation to deduct TDS, the material on record discloses that total amount paid towards transportation charges is roughly about Rs. 79,45,225. In the absence of any particulars, it cannot be said that there was no liability to deduct tax on that score. Law does not stipulate the existence of a written contract as a condition precedent for payment of TDS. The contract may be in writing or it may be oral but the liability to pay tax arises when the recipient of the said amount receives payment in excess of Rs. 20,000. Proviso (2) to sub-section 194(C) which is attracted to the facts of this case makes it very clear chat when a individual or Hindu Undivided Family whose total sales from the business or profession carried on by him in excess of the monetary limit 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 the sub-section. It is not in dispute that the turnover of the assessee exceeds the monetary limit specified under clause (a) or clause (b) of section 44AB. Therefore, the liability to deduct tax arises under the said proviso to the sub-contractor from whom the vehicles are hired and the said amount payable to the sub-contractor is in excess of Rs. 20,000. Therefore, the three authorities have concurrently held that the transaction in question is a transport contract. The liability to deduct out of the money paid to the sub-contractors does arise. Immediately, TDS is not deducted and the said amount is not paid to the authorities. Therefore, the claim for deduction under section 40(a) (ia) is not attracted and the authorities were justified in disallowing the said deduction and treating the said amount as the income of the assessee and claiming tax on that amount.