S. 194C(2) No TDS on freight paid to lorry owners who merely placed the vehicles at assessee disposal & never involved themselves in work to be carried out by assessee for FCI

Assessee not liable to deduct TDS u/s. section 194C(2) on payment of freight charges made to lorry owners who merely placed the vehicles at the disposal of the assessee and never involved themselves in the work to be carried out by the assessee for FCI

ITO Vs. Vijay Bharat Roadlines Pvt. Ltd. (ITAT Delhi) –Whether the assessee was not liable to deduct tax at source as per the provisions of section 194C(2) of the Act , for the payment of freight charges  amounting to 1,32,58,651/- made to the lorry owners and consequently, the provisions of section 40(a)(ia) of the Act were not applicable to such payments. Held, Yes the payments in question were made to lorry/truck owners who merely placed the vehicles at the disposal of the assessee and never involved themselves in the work to be carried out by the assessee for FCI.

IN THE INCOME TAX APPELLATE TRIBUNAL

(DELHI BENCH ‘H’ : NEW DELHI)

ITA No. 1963/Del./2010

(Assessment Year: 2006- 07)

ITO Vs. Vijay Bharat Road lines Pvt. Ltd.

ORDER

PER A.D.JAIN:JM

This is department’s appeal for assessment year 2006-07 against the order dated 26.02.2010 passed by the CIT(A)-XIX, New Delhi, deleting the dis allowance of Rs. 1,32,58,651/-, made u/s 40(a)(ia) of the I.T. Act, 1961, on account of non-deduction of tax at source on the freight charges paid by the assessee company.

2. While making the addition, the Assessing Officer observed, inter alia, that the assessee had failed to furnish the details of TDS effected on freight charges paid and to produce the books of account; that as such, it was clearly a case of non-deduction of tax at source on the freight charges paid and the assessee was deliberately avoiding filing the details; that therefore, it was assumed that the assessee had not deducted tax at source; that as per the provisions of section 194C of the Act, the assessee was liable to deduct tax at source on the freight charges on the carriage of goods; that payment exceeding Rs. 50,000 had been made in each case; that as such, the assessee was not  covered in the exception provided in the proviso to section 194C(3)(i) of the Act; that the assessee had not brought on record any declaration, as provided under Rule 29D of the Income Tax Rules, 1962; that therefore, the assessee was liable to deduct tax at source on the freight charges paid; that the assessee had failed to deduct tax at source on the freight charges amounting to Rs. 1,32,58,651/-; that such the expense had been incurred on account of payment of freight charges on which TDS had not been deducted, as required u/s 194C of the Act; and that hence, such expenses were being disallowed within the meaning of section 40(a)(ia) of the Act and added to the income of the assessee.

3. By virtue of the impugned order, the CIT(A) deleted the disallowance.

4.  Aggrieved, the department has filed the present appeal.

5. Challenging the impugned order, the Ld.DR contended that the CIT(A) has erred in deleting the dis allowance of Rs. 1,32,58,651/- made u/s 40(a)(ia) of the Act, on account of non-deduction of tax at source by the assessee company on the freight charges paid by it; that while doing so, the CIT(A) has gone wrong in admitting additional evidence in contravention of Rule 46A of the Income Tax Rules, 1962, particularly when the assessee had not furnished the requisite details before the Assessing Officer and no compliance was made even to the show cause notice issued by the Assessing Officer; that such additional evidence was in the shape of declaration in Form No. 15J, which was wrongly admitted by the CIT(A), despite the fact that the affidavit of Shri Sant Gopal Gupta, one of the directors of the assessee company, also filed as fresh evidence before the CIT(A) regarding non-receipt of show-cause notice, stood rejected by the CIT(A); that the CIT(A) has erred in relying on the declaration filed in Form No.15 J, ignoring the fact that the assessee had failed to produce the parties who had stately submitted a declaration in Form No.15-I to the assessee company, before the Assessing Officer, as directed by the CIT(A) in the remand proceedings; that the CIT(A) has gone wrong in holding that the freight payments amounting to Rs. 14,43,246/- were liable for TDS, being below the limit for TDS; that while doing so, the CIT(A) failed to appreciate that the assessee had not produced any evidence or books of account, either in the original assessment proceedings, or during the remand proceedings, in spite of the Assessing Officer having specifically asked the assessee to do so; and that the CIT(A) has also erred in holing that the provisions of section 194C of the Act are not applicable to the assessee’s case, even though Explanation (iv)(c) to section 194C of the Act specifically provides that “work” includes carriage of goods and passengers by any mode of transport other than by Railways.

6. The Ld.Counsel for the assessee, on the other hand, has placed strong reliance on the impugned order. It has been contended that the assessee is a transport contractor and it moves stock for FCI, as per different agreements entered into between the assessee and FCI; that TDS had not been deducted on the payments amounting to Rs. 1,32,58,651/-, made to truck/lorry owners, for supply of hiring of vehicles, under the head “freight charges”; that it was in the absence of any declaration in Form No.15-I, read with Rule 29D of the Income Tax Rules, 1962, from the suppliers of the lorries to the assessee, that the Assessing Officer invoked the provisions of section 40(a)(ia) read with section 194C of the Act; that it was in the first appellate proceedings, that the assessee filed the following documents as additional evidence:

(1)  Affidavit of Shri Ravinder lain, CA and AR who represented

(2) Affidavit of Shri Sant Gopal Gupta, director of the assessee company.

(3) Copy of Form 15 ] filed with the CIT(TDS) on 12.06.2006.

(4)  Copy of Form 15 I received from parties.

(5) Details of freight charges showing inapplicability of TDS.

(6)  Copy of agreements with parties for whom work performed by the assessee.

It has been further submitted that the above being additional evidence, the matter was remanded to the Assessing Officer by the CIT(A); that the Assessing Officer objected to the admission of the additional evidence by way of affidavits, for the reason that the deponents of the affidavits had not been produced for verification of the contents of the affidavits; that apropos the Form Nos.15I & 15], the Assessing Officer, in the remand report, stated that though the copies of the Form 15] contained a stamp impression of the office of the CIT(TDS), receipt thereof in the office of the CIT(TDS) had neither been confirmed nor denied, for the reason that the record was not traceable, since the receipt register was either mis-placed or destroyed in a fire and as such, the Assessing Officer was not able to comment thereon; that however, the plausible conclusion was, that had the assessee submitted the form No.15 ] before the CIT(TDS) by 12.6.06, they would certainly have been submitted by the assessee before the Assessing Officer also; that it was in these circumstances, that the affidavits had not been taken on record as additional evidence by the CIT(A), whereas the Form Nos.15-I and 15-] along with details of freight charges paid had been so admitted, holding them to be essential to decide the issue under consideration and in the interest of justice; while deleting the dis allowance, the CIT(A) has correctly followed ‘Mythri Transport Corporation vs. ACIT’, 124 TT] 970 (Visakha); that apropos the amount of Rs. 14,43,246/-, the payments were undeniably of less than Rs.  50,000/- in the entire year and no single payment exceeded Rs. 20,000/-, i.e., the prescribed limit for the purpose of TDS; that so far as regards the payment of Rs. 1,18,15,405/-, the assessee had furnished Form Nos.15-I & 15-] and so, the legal requirement was met and TDS was not attracted; and that therefore, there being no error whatsoever in the order of the CIT(A), the same be confirmed while dismissing the appeal filed by the department, which carries no merit.

8. We have heard both the parties and have perused the material on record. Apropos the grievance of the department that Form No.15] was wrongly admitted by the CIT(A), in the face of the fact that in that very stroke, the CIT(A) had rejected the additional evidence by way of affidavit of Shri Sant Gopal Gupta, one of the directors of the assessee company, the CIT(A) has observed in the impugned order that the affidavits of both Shri Ravinder ]ain, CA and Shri Sant Gopal Gupta, AR, director of the assessee company, were not being admitted, since the assessee had remained unable to produce these persons, due to which, the contents of the affidavits were incapable of being verified.

9. As for the admission of Form No.15 ], as additional evidence, it remains undisputed that these documents were essential to decide the issue of applicability of section 194C of the Act and the consequent liability of the assessee u/s 40(a)(ia) of the Act, as pointed out by the Ld.Counsel for the assessee. On the issue of admission of this additional evidence, the matter had been duly remanded by the CIT(A) to the Assessing Officer. The Assessing Officer, in the remand report, had expressed only a conjuncture by stating that if these documents had been filed by the assessee before the CIT(TDS), there was no reason why the assessee could not have furnished the same before the Assessing Officer also. This, despite the fact that the copy of this Form No.15] produced by the assessee contained a stamp impression of the office of the CIT(TDS). On enquiry by the Assessing Officer, the office of the CIT(TDS) was not able to deny receipt thereof.

10. So far as regards the merits of the case, the CIT(A) has placed reliance on the case of ‘Mythri Transport Corporation vs. ACIT’ (supra), wherein, the assessee, a transport contractor, had itself executed a 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 was in these facts, that the Tribunal held that it could not be said that payments made for hiring of vehicles fell in the category of payments towards the sub-contract and that therefore, the assessee was not liable to deduct tax at source as per the provisions of section 194C(2) of the Act from the payments made to the lorry owners and consequently, the provisions of section 4O(a)(ia) of the Act were not applicable to such payments.

11. The present case is exactly similarly situated. Herein, the assessee is a transport contractor for FCI, for movement of stock. The freight charges were paid to lorry/truck owners for supply/hiring of vehicles. These facts remain entirely undisputed. Hence, in keeping with ‘Mythri Transport Corporation vs. ACIT’ (supra), the assessee had executed the contract of transportation of stock of FCI by hiring lorries/trucks from other lorry/truck owners, who had simply placed their lorries/trucks at the disposal of the assessee and who were themselves in no way directly involved in carrying out any part of the work undertaken by the assessee with FCI. That being so, “Mythri Transport Corporation vs. ACIT'(supra) is squarely applicable to the present case. No decision to the contrary had been brought to our notice.

12. Besides, the factual finding of the CIT(A) that the payments of Rs. 14,43,24O/- were payments of less than Rs. 50,000/- in the whole year and that no payment exceeded Rs. 20,000, remains unhinged. The CIT(A) had admitted the details of freight charges paid by the assessee, as additional evidence, which has nowhere been disputed or challenged by the department. That being so, it does not now lie in the mouth of the department to state that this was only a plea of the assessee since the assessee had not produced any evidence or books of account, either during the assessment proceedings, or during the remand proceedings. Pertinently, in the remand report also, no challenge was raised by the Assessing Officer to the details of freight charges, as filed by the assessee before CIT(A).

13. In view of the above, it cannot at all be said that the CIT(A) has erred in holding that the provisions of section 194C are not applicable to the assessee’s case. Though the department seeks to rely on Explanation (iv)(c) below section 194C of the Act, it has not been shown as to how the said Explanation is detrimental to the assessee’s case. ‘Mythri Transport Corporation’ (supra) does not stand overruled. True, “work” within the meaning of the said Explanation (iv)(c) to Section 194 (wrongly mentioned as Explanation III in ground no.6 taken by the department) includes carriage of goods and passengers by any mode other than by Railways. The fact remains that the payments in question were made to lorry/truck owners who merely placed the vehicles at the disposal of the assessee and never involved themselves in the work to be carried out by the assessee for FCI. ‘Mythri Transport Corporation vs. ACIT’ (supra) thus holds sway.

14. In view of the above discussion, finding no merit therein, the grievance sought to be raised by the department is rejected while confirming the well-reasoned order passed by the CIT(A).

15. In the result, the appeal filed by the department is dismissed.

Order pronounced in open court on 23.06.2011.