Case Law Details
Chandrakant Thackar Vs. Asst. CIT (ITAT Cuttack)
After having analyzed the totality of the facts and circumstances of the case and law in this respect, we are of the opinion that liability for deduction of tax at source of a contractor arises if he has allowed any other person to carry on whole or in part of a contract work taken by the contractor for doing himself and has also fastened liability which may arise as a result of non-performance of such contract meaning thereby that it is only when the contractor, having undertaken to execute the work in the capacity of a contractor, allocates whole or part of the work to somebody else and along with the fastening of liability also, that such other person can be said to be working in the capacity of sub-contractor otherwise not.
So far as the system of working in the line of transporters is concerned, it is quite common that the transporters enters into a contract with the parties for transporting their goods during a specific period and to specified destination but if the transporter is not able to transport the goods in his own truck/vehicle he hires trucks from other transporters or truck owners directly. In case he hires trucks from any other transporter on day-to-day requirement basis then such an arrangement cannot be said to be as a result of written or oral contract. Similarly, if he hires directly from the truck owners the same also cannot be said to be as a result of contract; meaning thereby that a transporter, who has entered into a contract of transport of goods of some parties, is unable to transport the goods in his own vehicle either because he has no sufficient number of vehicles or his vehicles are not available, he has to hire vehicles/trucks either through some other transporter or from truck owners directly, as the case may be. But in this case, the hiring is not a result of written or oral contract. The payments made in consequence of such hiring to the transporter or to the truck owners directly are also not a result of any written or oral contract and it is so because the liability fastened on the transporter (contractor) having entered into contract with the parties for transporting their goods is never fastened either on to the transporter or the truck owners from whom the trucks are hired.
We have no hesitation to accept the stand of the assessee that 106 parties were the truck owners and not transporters. Consequently hiring of their trucks as well as the payments made to them by the assessee, were not in consequence of any written or oral contract.
Having held as above, we are further of the opinion that when hiring of trucks and payment thereof was not in consequence upon any written or oral agreement, the natural outcome is that the provisions of section 194C, as has been held in the decisions referred to herein before, were also not applicable to the assessee’s case and it was so then as held in the aforesaid decisions itself, the assessee’s case was not hit by the provisions of section 40(a)(ia) of the Act.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
In this appeal the assessee has objected to the order of the Commissioner (Appeals) dated 22-9-2009 by way of as many as 16 grounds furnished along with the memorandum of appeal. However, later on the assessee furnished concise grounds containing only two grounds, which are in the following terms :–
“1. That the addition under section 40(a)(ia) is illegal as there was neither any oral nor written agreement between the assessee and transporters for carriage of goods nor it has been proved beyond reasonable doubts by the assessing officer that any freight charges were paid to them in pursuance of a contract for a specific period, quantity or price and hence the dis allowance of deduction of transport expenses and addition to the income returned under section 40(a)(ia) on mere suspicion and surmises and assumption that the payments were made to sub-contractor is illegal, misconceived and liable to be deleted CIT v. United Rice Land Ltd. (2008) 217 CTR (Punj. & Har.) 332.
2. That the addition under the head “Unexplained investment” amounting to Rs. 1,77,853 is uncalled for, illegal, excessive and without any basis as the accounts are duly verified and certified by the auditor and audited under section 44AB of the Income Tax Act, 1961. The discrepancy as observed by the learned assessing officer is not correct.”
2. At the time of hearing, the learned counsel for the assessee preferred not to press ground No. 2 and therefore, the same is rejected as not pressed.
3. So far as ground No. 1 is concerned, we have heard the parties.
4. The brief facts, as have been revealed from the records and are relevant for disposal of the issue involved in the sole surviving ground i.e., ground No. 1, relates to applicability of section 40(a)(ia) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), are that the assessee has been carrying on business of transport and return for the assessment year 2005-06 declaring an income of Rs. 11,79,990 was furnished on 31-10-2009. During the previous year relevant to the assessment year 2005-06, the assessee had contracted with the following four parties for transporting their goods :–
1. Prakash Industries Ltd., Koira, Sundargarh,
2. Utkal Ispat (P.) Ltd., Barbil, Keonjhar,
3. M/s N.K. Bhojani (P.) Ltd., Bhubaneswar, and
4. Ash Trading Co., Jurudi, Keonjhar.
During the course of assessment proceedings, the assessing officer noticed that the assessee had claimed an expenditure on account of transportation charges to the tune of Rs. 2,17,63,728 and had not deducted tax at source. In view of these facts, the assessing officer seems to have called upon the assessee to furnish the details of payments on account of transportation charges to furnish the details of transporting charges giving the name, amount paid and registration number of vehicle of the payee, which was consisting of 106 names as under :–
| S.No. | Name of the transporter | Amount | No. of vehicle |
| 1. | Abdul Kalam Azad | 82,385 | OR-09C–9022 |
| 2. | Abdul Karim | 67,031 | OR-09D-5648, OR09E-3058 |
| 3. | A.C. Rout | 4,07,388 | OR-09D-6705 |
| 4. | Ajaya Kumar Sahoo | 1,90,590 | OR-09D-3935 |
| 5. | A.K. Patnaik | 2,89,754 | OR-09D 5940, OR-09D-5988, OR-09D-6561, OR-09D-7380 |
| 6. | A.K. Shaw | 1,53,644 | OR-09D-5461 |
| 7. | A.K. Sinddhu | 1,52,328 | OR-04D-8249 |
| 8. | Alam Ansari | 2,55,307 | OR-09D-1649, OR09E-0294 |
| 9. | Amit Kumar | 59,274 | OR-09A-2240 |
| 10. | Anand Singh | 1,26,369 | OR-09E-5351 |
| 11. | A. Parida (Arati Parida) | 70,159 | OR-09D-5280 |
| 12. | Arati Parida | 82,611 | –do– |
| 13. | Arbin Kumar Gupta | 4,08,684 | OR-09B-4706, OR-09D-5746 |
| 14. | Arjun Palit | 56,569 | OR-14J-2851 |
| 15. | Ashok Sahou (A.K. Shaw) | 1,35,254 | OR-09D-5461 |
| 16. | Babulal Mohanta | 2,61,391 | OR-09B-9330, OR-09B-9331, OR-09B-9332, OR-09B-9335, OR 09B-9701, OR-09C-1697 |
| 17. | Baldev Singh | 18,41,823 | JH-05D-8735, OR-14J-5421, OR-14J-5422, OR-14J-5601, OR-14J-6461, OR 14J-6460, OR-09C-7322 |
| 18. | Bashudev Behera | 73,323 | OR-09D-5310 |
| 19. | B. Behera (Basudev Behera) | 1,20,899 | do |
| 20. | Beddev Singh (Baldev Singh) | 51,449 | JH-05D-8735, OR-14J-5421, OR-14J-5422, OR-14J-5601, OR-14J-6461, OR-14J-6460, OR-09C-7322 |
| 21. | Bharat Chandra Mahanta | 61,434 | OR-09D-5249 |
| 22. | Bholanath Rajbhar | 55,138 | OR-09D-6031 |
| 23. | Bijaya Jaiswal | 55,318 | JH-06A-7517 |
| 24. | Bikash Nayak | 4,52,630 | OR-09D-4294 |
| 25. | Biranchi Mahanta | 59,598 | OR-09B-9392 |
| 26. | B.K. Jena | 84,147 | OR-04C-8421 |
| 27. | B. Mohapatra | 90,310 | OR-09D-8233 |
| 28. | B.N. Rajbhar (Bholanath Rajbhar) | 2,80,869 | OR-09D-6031 |
| 29. | C. Barik | 60,170 | OR09C7084 |
| 30. | C.C. Savolia | 6,25,401 | OR-09D-1937, OR-09D-7037, OR-04B-8737 |
| 31. | CM. Munda | 1,37,943 | OR-09D-5285 |
| 32. | Debasish Kar | 6,92,789 | OR-09A-8448, OR-04B-8448 |
| 33. | Debendra Kumar | 1,24,304 | OR09E-0935 |
| 34. | Dhaneswar Sahoo | 1,26,812 | OR-05R-8976 |
| 35. | D.K. Srivastav | 72,315 | OR 09D-4722, OR-09D-4723 |
| 36. | D. Mahanta | 79,068 | OR-09D-6157 |
| 37. | D. Sahoo (Dhaneswar Sahoo) | 1,44,206 | OR-05R-8976 |
| 38. | D. Sandil | 1,09,732 | OR-09D-7015 |
| 39. | D. Singh | 61,468 | OR-04D-3693, OR-09A-2093 |
| 40. | Ganesh Mahanta | 53,015 | OR-04C-0501 |
| 41. | G. Mahakhud | 1,13,764 | OR-09E-5342 |
| 42. | Goutam Palai | 1,92,761 | OR-09D3551 |
| 43. | G. Patra (Gurucharan patra) | 61,691 | OR09C-8511 |
| 44. | Gurucharan Patra | 2,70,926 | –do– |
| 45. | Hemanta Sahay | 1,27,641 | OR-09D-2897, OR 09D-3433, OR-09F-1073 |
| 46. | Hira Lal Jaiswal | 84,959 | OR 14J-4683 |
| 47. | Imran Mallik | 1,54,891 | OR-09D-7120, OR-09D-3995, OR-09C-9620, JH-05D-2335, OR-09E-4113 |
| 48. | I. Singh | 1,69,998 | OR-04C-0102 |
| 49. | Jogeswar Gope | 50,391 | OR-09D-0228 |
| 50. | Jyoti Ranjan | 1,26,876 | OR-04D 4040, OR-09D-9264 |
| 51. | Kashinath Sahoo | 1,36,159 | OR-09D-5795 |
| 52. | K. Behera (M. Behera) | 59,888 | OR-09D 3117 |
| 53. | Kishore Kumar Mohanta | 65,995 | OR 09D-1173, OR 09D-1174 |
| 54. | K. Mahakhud | 2,50,866 | OR-09D-7558 |
| 55. | K. Patra | 67,823 | OR-09D-3957 |
| 56. | K.T.C. Barbil (Santosh) | 1,19,452 | OR-09C 8951 |
| 57. | Lambodar Palai | 1,70,474 | OR-09D-6004 |
| 58. | Laxmidhar Munda | 1,76,959 | OR-09D-4734 |
| 59. | L. Jaiswal | 2,01,835 | OR-09D 5032, OR-09D-5042, OR 09C-5364, OR-09C-34 |
| 60. | M. Behcra | 2,05,386 | OR-09D-31 17 |
| 61. | Md. Farid | 1,03,610 | JH-02C-7260, JH 02C-8629, JH-02C-8628 |
| 62. | Md. Imran Mallik (Imran Mallik) | 9,38,857 | OR 09D-7120, OR-09D-3995, OR-09C-9620, JH-05D-23, OR-09E-4113 |
| 63. | M.D.K. Akhlar | 58,971 | OR-09D-9191 |
| 64. | Md. Mobarkh | 86,991 | OR-15G-8628, OR 16B-9307, OR-15G-8934 |
| 65. | M.D. Sabudin | 71,732 | OR-09D-6609 |
| 66. | Metal Trading Agencies (Hemanta Sanay) | 64,932 | OR-09D-2897, OR-09D-3433, OR-09F-1073 |
| 67. | W. Giri | 2,69,696 | OR-09D-6579 |
| 68. | M.K. Dash | 1,54,799 | OR 09D-4863 |
| 69. | Nilambar Karua | 3,76,392 | OR-09D-6678 |
| 70. | Nilu Karua (Nilambar Karua) | 67,278 | –do– |
| 71. | N.K. Barik | 68,311 | OR-09C-8465 |
| 72. | Pankaj Kumar Nayak | 1,23,603 | OR-09D-3662, OR-04B 8502 |
| 73. | Parth Samanth Ray | 2,47,521 | OR 09D-3182 |
| 74. | Pawan Sahoo | 69,572 | OR-09C-9187 |
| 75. | P.C. Das | 5 1,254 | OR-09D-6504, OR-09E-2391 |
| 76. | P.O. Giri | 94,874 | OR-09D-8502, OR 09D-5637 |
| 77. | P. Lama | 1,69,897 | OR-09D-8337 |
| 78. | P.L. Sahani | 1,36,122 | OR-09D-5788 |
| 79. | P. Mahanta | 1,48,195 | OR-09C-9570 |
| 80. | Pratap Sahoo (Father- Kashinath Sahoo) | 1,60,201 | OR-09D-5795 |
| 81. | P. Samantray (Parth Samanth Ray) | 58,867 | OR-09D-3182 |
| 82. | Rabi Charan | 1,17,410 | OR-09E-3038 |
| 83. | Rabindara Panda | 84,408 | OR-09D-5427 |
| 84. | Rajesh Kumar Agarwal | 69,017 | OR-09D-7775 |
| 85. | Rajesh Prasad Shaw | 58,987 | OR-09D-6302, OR-09D-6320 |
| 86. | Rajeshwar Sharama | 3.54,476 | OR 09D-2360, OR 090-9260 |
| 87. | Raj Kumar | 58,055 | OR 09D-9209, OR-05R-2395 |
| 88. | R. Khatoon | 2,31,787 | JH-06A-5624 |
| 89. | R.K. Siddhu | 2,27,843 | OR-09C-8819, OR-09D-6529 |
| 90. | Sahoo Trading Agencies | 56,466 | OR-04D-2503 |
| 91. | Sartkar Pradhan | 1,74,496 | OR-09D-4459, OR-04B-6837 |
| 92. | Santosh | 66,885 | OR-09C-8951 |
| 93. | S.C. Kar | 54,631 | OR-09C-5988 |
| 94. | S.C. Mahanta | 89,552 | OR-09C-0703, OR-09C-0942 |
| 95. | Sidnarih Dash | 75,494 | OR-OSE-6097 |
| 96. | Sikandar Khan | 96,444 | OR-09D-5300 |
| 97. | S. Jena | 2,51,630 | OR-09D-4716 |
| 98. | S.K. Abdula | 68,668 | OR-09D-7324 |
| 99. | S.K. Mohanta | 1,07,371 | OR-09D-5890 |
| 100. | S.N. Jaiswal | 1,65,929 | OR-04B-9190, OR-09D-2190 |
| 101. | S. Purohit | 50,416 | OR-09E-4532, OR-Q9E-4533 |
| 102. | S.S. Ali | 96,255 | OR-09D-4844 |
| 103. | S. Srivastav | 58,981 | OR-09C-4360, OR-09C-4361 |
| 104. | S.S. Sahoo | 52,915 | OR-09D-5098 |
| 105. | Sukh Lal Munda | 61,940 | OR-09C-6827 |
| 106. | Surendra Singh | 2,62,295 | OR-09D-5406 |
| TOTAL | 1,76,35,660 |
The assessing officer reproduced the above list at p. 2 of the assessment order but seems to have omitted to record the registration number of trucks/vehicles owned by each one of them.
4.1 After considering the aforesaid list, the assessing officer considered the payments to each one of them as payments to the transporters probably in view of the fact that the names of the truck/vehicle owners were listed in the column “name of the transporter” and therefore, came to the conclusion that these payments were to the transporters and as a result of contract/sub-contract. He, therefore, invoked the provisions of section 40(a)(ia) of the Act, because the payments to each one of the persons listed in the list were more than Rs. 50,000 and the assessee has not deducted tax at source. This action of the assessing officer resulted in dis allowance of the assessee’s claim of expenditure on account of transporting charges amounting to Rs. 1,76,02,096.85.
4.2 The assessee went in appeal before the Commissioner (Appeals) and furnished written reply as per letter dated 9-2-2009 which has been reproduced by the Commissioner (Appeals) in para 2 of the appellate order, which reads as under :–
“1. That as has been rightly mentioned in the assessment order, the appellant carries its work through sub-contractors and as such tax was needed to be deducted from payments/credits made to them. However, as per 2nd and 3rd proviso to sub-clause (1) of clause (3) to section 194C, if the sub-contractor is an individual who has not owned more than two goods carriage at any time during the year, no deduction of tax shall be made, if, the payer furnishes to the IT authority such particulars as may be prescribed in such form and within such time as prescribed.
2. That the said forms being 15-1 and 153 (sic) and the time-limit for the year under appeal being 30-6-2005, the appellant had submitted the said particulars on 26-5-2005 before the IT authority. The copies of such forms and proof of submission are enclosed herewith.
The above being the fact, the learned assessing officer did not allow further time for submitting the same and hurriedly passed the order on 30-11-2007 when the said assessment was to be barred by limitation on 31-12-2007. The learned assessing officer did not allow opportunity to the assessee despite having adequate time in completing the assessment.”
4.3 The aforesaid reply of the assessee was forwarded by the Commissioner (Appeals) to the assessing officer for the purpose of submission of assessing officer’s comments on the assessee’s reply. The assessing officer submitted his reply as per his letter dated 22-4-2009 which has been recorded by the Commissioner (Appeals) in para 2 of the appellate order itself, which reads as under :–
“4.1 As per rule 20D (sic) of Income Tax Rules, 1962, Form No. 15-I received from sub-contractors along with Form No. 153 (sic) shall be furnished to the CIT so designated by the Chief CIT within which area of jurisdiction of the office of the contractor is situated on or before the 30th June, following the financial year. Whereas in the instant case the assessee claimed that Form Nos. 15-I and 153 (sic) were filed before the ITO, Keonjhar Ward, Keonjhar, as such a reference was made to ITO, Keonjhar and he was requested to confirm the receipt of such declaration in Form Nos. 15-I and 15J from the assessee Sri Chandrakant Thacker.
4.2 In his letter No. ITO/KJR/2008-09/2003, date 14-3-2009 the ITO has categorically denied to have received any such declaration in From Nos. 15-I and 15J from the assessee Sri Chandrakant Thacker. As regards the receipt of filing of Form Nos. 15-I and 15J, submitted by the assessee before the learned Commissioner (Appeals), the ITO has stated that signature/endorsement made therein is not related to officials working in the month of May, 2005 in the office of the ITO, Keonjhar Ward, Keonjhar. The ITO, Keonjhar has also filed the photocopy of attendance register for the month of May, 2005 as token of evidence.
5. The assessee Sri Chandrakant Thacker was also summoned under section 131 of the Income Tax Act, 1961 and his statement was recorded wherein he was asked to explain the reason for not producing the copies of Form No. 15-I received from the sub-contractors during the course of assessment proceeding. He was also asked to explain the reason for not filing the Form Nos. 15-I and 15J before the CIT, Sambalpur. But he failed to offer any convincing explanation.
6. Thus it reveals from the inquiry that additional evidence filed by the assessee before the learned Commissioner (Appeals), Bhubaneswar is afterthought and has got no merit for consideration. Copy of the letter of ITO, Keonjhar along with copy of attendance sheet for the month of May, 2005 and statement of assessee Sri Chandrakant Thacker recorded under section 131 on 18-3-2009 are enclosed herewith.”
4.4 Thereafter the Commissioner (Appeals) provided a copy of the assessing officer’s comments to the assessee for his comments, who furnished his comments as per reply dated 19-5-2009 wherein it was submitted that “the declarations in original accompanied with a forwarding letter were submitted before the IT authority on 26-5-2005 which were acknowledged through seal and signature. The said documents being sent through a staff, he was not that much knowledgeable to ensure that a serial number has to be allotted to such receipt”.
4.5 The assessee further contended that this being the first year of the application of stringent provision, the truck owners did not allow deduction of tax and that the assessing officer in the remand report has only stressed on procedural lapses without making any inquiry. Therefore, the assessee furnished another reply dated 28-8-2009 which has been reproduced by the Commissioner (Appeals) in para 2.2 of his order, which reads as under :–
“2.2 It was contended that the appellant is a transport contractor and has engaged other truck owners to execute the transportation work on as and when basis without any contract being signed. The appellant did assign any particular portion of work. No sub-contract agreement either written or oral exists between the appellant and the outside truck owners. There being no tendering process, there is no offer and acceptance which are main ingredients for a valid contract. Therefore, the appellant was not liable to deduct tax under section 194C of the Income Tax Act 1961 from payments made to the truck owners/drivers. In this regard, the appellant relied upon the decision of Cuttack Bench of Tribunal in ITA No. 179/Ctk/2009, date 23-7-2009 in the case of R.R. Caryying Corpn. v. Asstt. CIT, Circle-1(1), Sambalpur [Reported at (2009) 126 TTJ (Ctk.) 240–Ed.]. The following extract of the above decision is quoted as under :–
‘Thus, we find it undisputed that the assessee is a transporter executing various contracts by engaging its own vehicles and transporters’ vehicles. The assessing officer disallowed the payments by observing that payments were made to the transporter as sub-contractor. There is nothing on record to suggest that any contract existed between the assessee and the alleged transporter as sub-contractor. There is neither written nor oral agreement in this regard. There is no dispute to the settled legal proposition that written agreement is not compulsory. Even oral agreement can be inferred in the facts and circumstances of the case. The assessing officer has not made out the case that on the basis of the contract of the business by the assessee there existed contractor and sub-contractor relationship between the assessee and the alleged sub-contractor. The assessing officer has not made out the case that the alleged sub-contractor has been engaged on some definite terms and conditions for executing the work of the assessee. Basically, the assessee has engaged different transporters for executing its different works. Even there is nothing on record to suggest that the assessee has assigned any particular portion of work to a particular transporter. So the assessing officer was not justified in making dis allowances by invoking the provisions of section 40(a)(ia). Accordingly, the dis allowance in question is cancelled’.”
4.6 In support of the aforesaid submissions, the assessee had relied on the decisions in the following cases :–
I. CIT v. United Rice Land Ltd. (2008) 174 Taxman 286 (Punj. & Har.)
II. National Transport [IT Appeal No. 95 (Ctk.) of 2008, date 6-5-2009]
III. Ankul Bhandar v. ITO [IT Appeal No. 134 (Ctk.) of 2008, date 26-2-2009]
IV. United Rice Land Ltd. case (supra)
V. Gurudev Singh [IT Appeal No. 201 (Ctk.) of 2008, date 6-5-2009]
4.7 It was in view of the above facts and circumstances of the case that the Commissioner (Appeals) dismissed the assessee’s appeal by distinguishing the decision of High Court of Punjab and Haryana in the case of United Rice Land Ltd. (supra) on the ground that in that case the assessee was having dealings with the truck owners, was making payments direct to the truck owners for hiring of their trucks, whereas in the present case the assessee has made payments to 106 transporters.
4.7.1 The Commissioner (Appeals) further held that in the case before the Hon’ble Punjab and Haryana High Court, transporters were working as the middlemen arranging trucks for the assessee and payments for transportation were being made to the truck owners.
4.8 The Commissioner (Appeals) further came to the conclusion that the assessee’s dealing with 106 parties who according to him were transporters, was as a result of oral contract. The relevant part of his order as contained in paras 3, 3.1, 3.2 and 3.3, is reproduced as under :–
“3. I have given careful consideration to the matter. The additional ground of appeal which resulted in a remand report from the assessing officer reflecting the claim of the appellant regarding filing of Form Nos. 15-I and 15J is not being pressed. Therefore, it is not necessary to adjudicate the same.
3.1 The appellant has now taken a stand that it did not have any written or oral contract with the truck owners so as to attract the provisions of section 194C. Section 194C in sub-section (1) refers to payment of any sum for carrying out any work in pursuance of a contract between the contractor and other listed entities. The appellant has relied upon the decision of Cuttack Bench of Tribunal in the case of R.R. Carrying Corpn. case (supra). In this case as well as in the other orders of Tribunal referred to therein have drawn support from the decision of the Punjab and Haryana High Court in the case of CIT v. United Rice Land Ltd. (2008) 217 CTR (Punj. & Har.) 332. A close reading of the judgment in the case of United Rice Land Ltd. (supra) reveals that the decision has been rendered in the context of a different set of facts. Here the transporters were not transporting goods but merely arranging the trucks for the assessee for a consideration of Rs. 200 per truck. It will be relevant to reproduce the factual position as described in para 2 of the judgment :–
These trucks were provided by the transporters who were having links with the truck operators and their consideration for providing such services was about Rs. 200 per truck. This consideration was charged by the transporter from the truck owners/operators. The hire charges were paid by the assessee directly to the truck owners/drivers or through transporters.’
The above factual position is again repeated in para 4 of the order which has reproduced an extract from the order of the Tribunal as under :–
‘……… We have also carefully gone through the certificates furnished by M/s East West Cargo Movers and M/s. Leeladhar Pasoo Forwaders as placed on the record, according to which these concerns arranging the shipment i.e., arranging the vessels/ship, loading and clearing the port dues and were covering handling charges for these services. Similarly, other alleged transporters were not transporting the goods of the assessee, but merely arranging a truck for which services charges of Rs. 250-200 were collected from the truck owners/operators. Whatever truck charges instructed by the assessee, were paid by them to the truck owners after ensuring that goods reached to them in full quantity, thus, the assessee was just reimbursing what these parties have paid as per the instructions of the, assessee and on its behalf…..’
From the above, it is clear that the transporters were playing the role of a middlemen arranging trucks for the assessee and payments for transportation were being made to the truck owners. The transporters were earning only a small fee of Rs. 200-250.
3.2 However, the facts in the present case are clearly distinguishable. Here the payments are made to the transporters for transportation of goods. They are listed in pp. 2, 3 and 4 of the assessment order. There is no finding in the assessment order that these transporters were only arranging trucks for a payment of small fee and payments have been made to the truck owners and not to the transporters. The appellant has also not filed any evidence to the contrary. Therefore, any payment to them in the nature of transportation charges will invite the provisions of section 194C as the definition of work in Explanation (iii) below section 194C(2) includes ‘carriage of goods and passengers by any mode of transport other than railways’.
3.3 There is no legal controversy that oral contracts are also recognized under The Indian Contract Act, 1872. CBDT Circular No. 93, date 26-9-1972 has clarified that the provisions of section 194C ‘are wide enough to cover not only written contact but also oral contracts.’ Since the contention of the appellant in this case is that there was no written contract with the concerned parties, it is to be ascertained whether the transactions were governed by any oral agreement/contract. The moot question is what could be the evidence of an oral contract. It has to be ascertained from the acts and conduct of the parties to the arrangement. The undisputable facts in this case are that the appellant had engaged several transporters to carry goods and payments amounting to Rs. 2,19,63,728 were made to them. These are comprehensive business transactions and will not take place on their own. Payments will not flow to the transporters automatically. There has to be discussion between the appellant and these transporters about the carriage of goods, the destination of trucks and the amount of transportation charges to be paid. There has to be a proposal in this regard from one of the parties and when accepted by the other party, it will give rise to an agreement. Even if, it is not reduced to writing, it remains a contract or an oral contract. Therefore, I reject the contention of the appellant that the provisions of section 194C will not be applicable in his case. The dis allowance under section 40(a)(ia) of the Income Tax Act, 1961 as made by the assessing officer is upheld.”
4.9 It was in view of the above facts and circumstances of the case that the assessee has come up in appeal before the Tribunal.
5. The learned Authorized Representative of the assessee disputed the findings of the revenue authorities specially that of the Commissioner (Appeals) that in the present case the assessee was dealing with the transporters and not with the truck owners and that it was making payments to the transporters and not the truck owners and as a result of oral contract, by submitting that it is quite evident from the list submitted by the assessee before the assessing officer that the assessee had been hiring trucks from 106 truck owners directly and not through the transporters. According to him, when the assessee has furnished the registration number of each truck owned by each one of 106 parties, the assessing officer should not have considered the said 106 parties as transporters. It was further submitted that similar mistake was committed by the learned Commissioner (Appeals) when he considered 106 persons as transporters when, in fact, they were the truck owners. He, therefore, submitted that none of 106 parties was transporter but each one of them was truck owner and the assessee had paid hire charges for hiring of their trucks directly to them.
5.1 The learned Authorized Representative of the assessee further submitted that none of these truck owners falls within the ambit of definition of “sub contractor” because as held by the Honorable Himachal Pradesh High Court in the case of ITO v. Rama Nand & Co. (1987) 163 ITR 702 (HP) it would mean any person who entered into a contract with the contractor for carrying out the whole or part of work undertaken by the contractor and since in the present case the assessee had not assigned any part or whole of the work undertaken by the assessee in the capacity of contractor for transporting of goods of four parties.
5.2 The learned Authorized Representative of the assessee further submitted that liability to deduct tax under section 194C of the Act can be fastened on the transporter only if it is found, as a matter of fact, that freight charges were paid by the contractor in pursuance to a contract for a specified period, quantity or price for a specified work either as a result of written or oral contract between the parties for carrying of goods. Referring to the present case, the learned Authorized Representative of the assessee submitted that there is no written or oral agreement of the assessee with any one of 106 truck owners and revenue has also not brought any evidence in this regard. According to him, simply to allege that all the 106 truck owners were transporters and were working in the capacity of sub-contractor as a result of oral contract is of no use to the Revenue. He therefore, submitted that in the present case, carrying of goods by 106 truck owners being not in pursuance of a contract entered between the assessee and the truck owners, the assessee was not liable to deduct tax at source under section 194C of the Act and in support of the same, relied on the decision of Hon’ble Punjab and Haryana High Court in the case of United Rice Land Ltd. case (supra).
5.3 The learned Authorized Representative of the assessee further relied on the following decisions of the Tribunal, Cuttack Bench, wherein the Tribunal, on similar facts and circumstances of the case as that of the assessee, has after following the decision of Honorable Punjab and Haryana High Court in the case of United Rice Land Ltd. case (supra) held that the appellants were not liable to deduct tax under section 194C of the Act and therefore, payments made to truck owners are not hit by the provisions of section 40(a)(ia) of the Act :–
(1) R.R. Caryying Corpn. v. Asstt. CIT (2009) 126 TTJ (Ctk.) 240
(2) Gurudev Singh case (supra)
(3) National Transport case (supra)
(4) Ankul Bhandar case (supra)
5.4 The learned Authorized Representative of the assessee further, for the meaning of “sub-contractor”, conditions for attracting the provisions of section 194C(2), relied on the decision of the Tribunal, Visakhapatnam in the case of Mythri Transport Corpn. v. Asst. CIT (2009) 124 TTJ (Visk.) 970, specifically para 5.5 at pp. 974 to 975 and para 8.1 at p. 978 of the report. This decision was further relied upon by the learned Authorized Representative of the assessee for the submission that the revenue has not established that the truck owners from whom the vehicles were hired also have been fastened with any of the liabilities. The individual vehicle owners are simple hirers of vehicle.
5.5 The learned Authorized Representative of the assessee further submitted that the mistake in making the caption as “transporter” instead of “truck owners” in the list submitted by the counsel of the assessee could not be considered as detrimental to the assessee’s case and for that proposition relied on the decision of Honorable Supreme Court in the case of Concord of India Insurance Co. Ltd. v. Smt. Nirmala Devi (1979) 118 ITR 507. Further reliance was placed on the decision of Mahaveer Prasad Jain v. CIT (1988) 172 ITR 331 (MP) for the proposition that the appellant cannot be penalized for the failure of the advocate.
5.6 The learned Authorized Representative of the assessee further submitted that since the decisions of Co-ordinate Bench i.e., Tribunal, Cuttack Bench in all the four cases already referred herein above are on similar facts with that of the assessee, the Bench should follow the same and should not deviate from findings therein. Reliance was placed on the decision of Honorable Supreme Court in the case of Union of India v. Raghubir Singh (1989) 178 ITR 548, Reliance was further placed on the decision in the case of Society of Presentation Sisters v. ITO (2009) 125 TTJ (Coch.)(TM) 909 and in the case of CIT v. Ram Narain Goel (1997) 224 ITR 180 (Punj. & Har.) for the proposition that suspicion, howsoever strong could not take the place of evidence or proof. This was in the context of Authorized Representative of the assessee’s submission that revenue authorities have proceeded on the basis of suspicion that the 106 parties were transporters without bringing any material on record.
5.7 Concluding his submissions, the learned Authorized Representative of the assessee submitted that since the facts and circumstances of the assessee’s case are similar as to the facts and circumstances as were in the case before the Tribunal, Cuttack Bench as well as the case before the Honorable Punjab and Haryana High Court, the assessee’s case is fully covered by these decisions and therefore, the appeal of the assessee is liable to be allowed.
6. The learned Departmental Representative, on the other hand, supported the order of the Commissioner (Appeals) by referring to the provisions of section 194C(2) of the Act and the findings of the Commissioner (Appeals).
7. We have considered the rival submissions, facts and circumstances of the case and various decisions relied upon by the parties as well as the provisions of section 194C and section 40(a)(ia) of the Act. After having analyzed the totality of the facts and circumstances of the case and law in this respect, we are of the opinion that liability for deduction of tax at source of a contractor arises if he has allowed any other person to carry on whole or in part of a contract work taken by the contractor for doing himself and has also fastened liability which may arise as a result of non-performance of such contract meaning thereby that it is only when the contractor, having undertaken to execute the work in the capacity of a contractor, allocates whole or part of the work to somebody else and along with the fastening of liability also, that such other person can be said to be working in the capacity of sub-contractor otherwise not.
7.1 So far as the system of working in the line of transporters is concerned, it is quite common that the transporters enters into a contract with the parties for transporting their goods during a specific period and to specified destination but if the transporter is not able to transport the goods in his own truck/vehicle he hires trucks from other transporters or truck owners directly. In case he hires trucks from any other transporter on day-to-day requirement basis then such an arrangement cannot be said to be as a result of written or oral contract. Similarly, if he hires directly from the truck owners the same also cannot be said to be as a result of contract; meaning thereby that a transporter, who has entered into a contract of transport of goods of some parties, is unable to transport the goods in his own vehicle either because he has no sufficient number of vehicles or his vehicles are not available, he has to hire vehicles/trucks either through some other transporter or from truck owners directly, as the case may be. But in this case, the hiring is not a result of written or oral contract. The payments made in consequence of such hiring to the transporter or to the truck owners directly are also not a result of any written or oral contract and it is so because the liability fastened on the transporter (contractor) having entered into contract with the parties for transporting their goods is never fastened either on to the transporter or the truck owners from whom the trucks are hired. This view is fully supported by the decision of Honorable Punjab and Haryana High Court in the case of United Rice Land Ltd. (supra), which has been relied upon by the assessee, wherein the Hon’ble High Court has held as under :–
“Head note: TDS–Under section 194C–Payment to transporters for arranging trucks–Commissioner (Appeals) has recorded a finding of fact that there was neither any oral or written agreement between the assessee and the transporters for carriage of goods nor it has been proved that any freight charges were paid to them in pursuance of a contract for a specific period, quantity or price–Tribunal too has clearly stated that nothing has been brought on record by the assessing officer to prove that there was written or oral agreement between the parties for carriage of goods–Therefore, assessee was not liable to deduct tax under section 194C from the payments made to the transporters.
7. As per provisions of section 194C of the Income Tax Act any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract shall at the time of credit of such sum or at the time of payment thereof in cash or by cheque deduct a tax thereon at a prescribed rate. However, no such deduction at source is required to be made if the sum paid or credited does not exceed Rs. 20,000. In the present case, the assessing officer had held the assessee liable for deduction of tax only on the assumption that assessee was having agreement with the parties through whom trucks were arranged for transportation of goods. However, the Commissioner (Appeals) has recorded a finding of fact that there was neither any oral or written agreement between the assessee and transporters for carriage of goods nor it has been proved that any sum of money regarding freight charges was paid to them in pursuance of a contract for specific period, quantity or price. This finding of fact was recorded by the Commissioner (Appeals) after considering the certificate furnished by the transporters. The Tribunal has also recorded a finding of fact that the Department has not controverted the said finding of the Commissioner (Appeals) even before the Tribunal. While recording this finding of fact, the Tribunal has clearly stated that nothing has been brought on record by the assessing officer to prove that there was no (sic) written or oral agreement between the alleged parties for carriage of the goods.”
7.2 So far as the present case is concerned, we are of the opinion that the facts and circumstances of the present case being similar to the facts and circumstances of the case as were before the Honorable High Court and Tribunal (barring a mistake that the assessee’s counsel while furnishing a list listing the names of truck owners as transporters, which in our opinion, was not so fatal so as to penalize the assessee by way of considering the payments to these parties as a result of oral contract) and the assessee’s clarification that 106 parties were truck owners having not been refuted by the learned Departmental Representative at the time of hearing, we have no hesitation to accept the stand of the assessee that 106 parties were the truck owners and not transporters. Consequently hiring of their trucks as well as the payments made to them by the assessee, were not in consequence of any written or oral contract.
7.3 Without prejudice to the above, even if we consider the 106 parties as transporters, then also the revenue having not brought any material on record to establish that the hiring of vehicles from them and the payments thereof were in consequence of any written or oral agreement the observation of the Commissioner (Appeals) that oral agreement can be ascertained, from the accounts and conduct of the parties is not sustainable on the facts and circumstances of the case, because no such accounts and conducts of the assessee, which could suggest that there was oral contract, have been brought on record by the revenue. The theoretical observation of the Commissioner (Appeals) is of no use.
8. In view of the above and on the totality of the facts and circumstances of the case, we are of the opinion that the issue involved in the present case is squarely covered by the decision of Honorable Punjab and Haryana High Court in the case of United Rice Land Ltd.(supra), of Honorable Himachal Pradesh High Court in the case of Rama Nand & Co. (supra) and by the four decisions of the Tribunal, Cuttack Bench which have been referred in arguments of the learned Authorized Representative of the assessee and therefore, respectfully following the same we uphold the assessee’s plea that hiring of trucks from 106 parties and payments of freight or hiring of charges to them was not in consequence upon any written or oral agreement.
9. Having held as above, we are further of the opinion that when hiring of trucks and payment thereof was not in consequence upon any written or oral agreement, the natural outcome is that the provisions of section 194C, as has been held in the decisions referred to herein before, were also not applicable to the assessee’s case and it was so then as held in the aforesaid decisions itself, the assessee’s case was not hit by the provisions of section 40(a)(ia) of the Act.
In view of the above findings, we direct deletion of the addition made by the assessing officer by invoking the provisions of section 40(a)(ia) of the Act and confirmed by the Commissioner (Appeals).
In the result, the assessee’s appeal is allowed.
Sir my question is that we have hied a truck from a union of transporter having its own PAN but no vehicle in its own name.One vehicle is provided to us by the union. as we have no oral or written contract with the vehicle owner the Section 194C should not be applicable