Whether the activity of transportation of containers falls under the purview of provisions of Sec 194C?

When the payee has paid tax on an income on which payer fails to deduct tax at source, no liability arises against the payer u/s 201(1).

Income Tax Officer Vs Yash Container Terminal P Ltd

Decided by – ITAT Mumbai

ITA No. 6341/Mum/2009

(Asst Year- 2007- 08)

Decided on – 06.04.2011

PER R K PANDA, AM

This appeal filed by the revenue is directed against the order dated 24.9.2009 of the CIT(A)-14, Mumbai relating to Assessment Year 2007- 08.

2 Facts of the case, in brief, are that the assessee company is engaged in the business of transportation of cargo container and it is mainly done for M/s Nhava Sheva International Container Terminal Pvt Ltd (NSICT). A survey action u/s 133A of the I T Act was carried out at the office premises of the assessee on 31.1.2007. During the course of survey action, statement of the Director Shri Laxmichand Dharsi Mota was recorded on oath.

2.1 During the course of assessment proceedings, the Assessing Officer noted that the company has paid certain amounts to M/s Laxmichand Dharsi during the  financial year 2006-07 relating to Assessment Year 2007-08 and tax has been deducted thereon at source @ 1.12% being the payment made as sub­contractor. The Assessing Officer treated this payment as hire charges and accordingly, held that the assessee was liable to deduct tax at source as per provisions of sec. 194-I of the I T Act mainly on the ground that there is no written agreement for sub contract between the assessee and M/s Laxmichand Darshi. After verification of few bills, the Assessing Officer came to the conclusion that the amount paid to M/s Laxmichand Darshi is for the use of their containers and held that the assessee is liable to deduct TDS as provided under the provisions of sec. 194-I of the I T Act, 1961. The difference of TDS of Rs. 26,78,249/- was treated as short deduction of tax u/s 201(1) of the IT Act for non-payment of TDS in time as prescribed under the Act.

3 Before the CIT(A), it was submitted that the payments are made by the assessee for transportation of containers from one place to another as per the bills submitted by the sub-contractor for the transport of containers carried out by them. There is no written agreement and that there is oral understanding as stated in reply to Question no.7 put to the contractor during the course of survey. Merely because there is no written agreement it cannot be treated as hire charges as the assessee had correctly deducted TDS @ 1.12% and therefore the action of the Assessing Officer in holding the same as hire charges is wrong. It was submitted that M/s Laxmichand Dharshi, from whom taxes have been deducted as sub-contractor, have already considered the above amounts while paying taxes. Provisions of sec. 194-I, 194C and 194J were brought to the notice of the CIT(A). Various questions put to the Contractor during the course of survey were also brought to the notice of the CIT(A) and the bills submitted by M/s Laxmichand Dharshi were produced before the CIT(A) for perusal. It was submitted that no adverse inference can be drawn on the basis of the real nature of work carried by the party. It was submitted that the payments have been made for transportation of cargo containers and accordingly, it was submitted that tax @ 1.12% has been deducted at source out of payment made to sub contractor. The Assessing Officer is not justified in treating such payment as rent.

4 Based on the arguments advanced by the assessee, the CIT(A), relying on a couple of decisions, held that provisions of law contained in sec. 194C are applicable to payments debited under the head transport charges on account of transportation of containers done by the party to whom such payments have been made by the assessee. From the facts on record, it is clear that the assessee entered into a contract or understanding with M/s Laxmichand Dharshi for carrying out work of transportation of containers within the meaning of sec. 194C. Such activity has to be covered within the expression ‘work’ inclusively defined by Explanation III to sec. 194C of the I T Act. On the facts of the case, the payment is held to be on account of sub contract work. He held that existence of written contract is not a basic requirement as per law. The contract between the NSICT and the assessee also shows that the nature of transaction is that of transportation of container through trucks, which the assessee has sub^. contracted to M/s Laxmichand Dharshi and the other factors like preparation and submission of bills on the basis of transportation of container through trucks and the statement of the director’s recorded during the course of survey deposing the fact that M/s Laxmichand Dharshi has worked as sub contractor for transportation of container fully strengthens the case of the assessee that the tax has been rightly deducted u/s 194C of the I T Act.

4.1 The CIT(A) has also favourably considered the alternate ground raised by the assessee, according to which, if tax due has been paid by the deductee assessee, then the amount cannot be recovered from the deductor in view of the decision of the Honourable Supreme Court in the case of Hindustan Coco Cola Beverages P Ltd vs CIT reported in 293 ITR 226(SC) and CBDT circular no.275/201/95-IT(B) dated 29.1.1995.

5 Aggrieved with such order of the CIT(A), the revenue is in appeal here before us with the following grounds:

i) On the facts and in the circumstances of the case and in law the ld CIT(A) erred in not appreciating the facts that there was neither any written agreement nor any written arrangement between the assessee company and MIs Laxmichand Dharshi on the basis of which the hiring charges paid can be treated as sub-contract.

ii) On the facts and in the circumstances the case and in the ld CIT(A) erred in not appreciating the facts that the relevant bills issued by MIs Laxmichand Dharshi mentioned that the payment were made for the hire charges for use of their containers and thus, fall under the purview of sec. 194-I of the Act.

iii) On the facts and in the circumstances of the case and in law the ld CIT(A) erred in not accepting the fact that w. e.f 13. 7. 2006 section 194-I has been amended to expand the definition of ‘rent’ to include payment for hiring of machinery, plant or equipment and assesse ‘s payment were in the nature of rent for the meaning of sec 194-I of IT Act, 1961.

iv) On the facts and in the circumstances of the case and in law the ld CIT(A) was not correct in deleting the demand raised u/s 201(1) and 201(1A).

6   We have considered the rival submissions made by both the parties, perused the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute to the fact that the assessee has deducted tax @ 1.12% from the payments made to M/s Laxmichand Dharshi during the financial year 2006-07 u/s 194C of the I T Act being the payment made to sub contractor. According to the AO, such payments made to M/s Laxmichand Dharshi has to be treated as hire charges paid for transportation of containers/trucks as per bills raised since there is no written contract/ sub contract agreement between the parties concerned. Therefore, the assessee was liable to deduct tax at source as per provisions of sec. 194-I of the I T Act @ 22.44% of the hire charges paid. We find, the CIT(A) has decided the issue in favour of the assessee on two counts. Firstly, according to the CIT(A), the payments made by the assessee to M/s Laxmichand Dharshi for carrying out the work of transportation of containers fall within the meaning of sec. 194C of the I T Act. Secondly, since the deductee assessee has paid the tax due; therefore, in view of the decision of the Honourable Supreme Court in the case of Hindustan Coco Cola Beverages P Ltd (supra), payments cannot be recovered from the deductor.

6.1 Although the revenue has taken a ground challenging the order of the CIT(A) in holding that the payment made by the assessee to M/s Laxmichand Dharshi does not come under the provisions of sec. 194-I, we find, the revenue has not taken any ground challenging the order of the CIT(A) in accepting the alternate ground raised by the assessee; according to which, if the tax due has been paid by the deductee then the amount cannot be recovered from the deductor. Since the ld CIT(A) has given a finding that the payee has already considered the amount while paying the tax due, therefore, the same cannot be recovered from the assessee. The findings of the ld CIT(A) has neither been proved to be false nor incorrect. Since the revenue has not challenged the favourable decision of the CIT(A) on the alternate ground raised by the assessee before him; therefore, the assessee cannot be held as an assessee in default for short deduction of tax u/s 201(1) in respect of the amount of Rs. 26,78,249/-. Since the order of the ld CIT(A) has to be sustained on the basis of the alternate ground raised by the assessee before him which has not been challenged by the revenue; therefore, the grounds raised by the revenue become academic in nature. Accordingly, the grounds raised by the revenue are dismissed.