Brief of the case:
Himachal Pradesh High Court in the case of M/s Palam Gas Service Vs. CIT held that execution of outsourced transportation work without any assistance from the outsourcer is a clear case of sub-contracting making the person outsourcing his contract liable to deduct tax on the payments made to sub-contractors u/s 194C.
Facts of the case:
- The assessee is engaged in the business of purchase and sale of LPG cylinders under the name of M/s Palam Gas Service. During the course of assessment proceedings, it was noticed by the Assessing Officer that the main contract of the assessee for carriage of LPG was with the Indian Oil Corporation.
- The assessee had received the total freight payments from the IOC Rs. 32,04,140/-.The assessee in turn, got the transportation of LPG done through 3 persons, namely Bimla Devi, Sanjay Kumar and Ajay to whom he made the freight payment amounting to Rs. 20,97,689/-.
- The A.O. observed that the assessee had made a sub-contract with these three persons and, therefore, he was liable to deduct tax at source from the payment of Rs. 20,97,689/-. On account of his failure to do so, the said freight expenses were disallowed by the A.O. as per the provisions of Section 40 (a) (ia) of the Act.
- The appeal made by the assessee against the order was rejected by both CIT (A) and ITAT.
- Aggrieved by the same assessee is in appeal before the High Court.
Contention of the Assessee:
- The provision of Section 194C (2) is not applicable to the assessee’s case as the payments were made under an independent contract between him and the truck owners. Therefore, his case fall within the purview of Section 194C (1) of the Act.
- It was also argued the payments could not be disallowed u/s 40(a) (ia) because they were already paid and not remain unpaid (payable) at the year end.
Contention of the Revenue:
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