Case Law Details
IN THE ITAT KOLKATA BENCH ‘A’
Lokesh Duggal
versus
Income Tax Officer, Ward 35(3), Kolkata
IT Appeal No. 1628 (Kol.) of 2009
[Assessment year 2006-07]
July 31, 2012
ORDER
Pramod Kumar, Accountant Member
The short issue that we are required to adjudicate in this appeal is whether or not the learned CIT(A) was justified in sustaining the disallowance of Rs 67,21,665 under section 40(a)(ia) r.w.s. 194 C of the Income Tax Act, 1961. The assessment year involved is 2006-07 and the impugned CIT(A)’s order dated 24th July 2009 was passed in the matter of assessment under section 143(3) of the Income Tax Act, 1961.
2. To adjudicate on this appeal, and for the reasons we will set out in a short while, only a few basic material facts need to taken note of. The assessee is an individual, and is engaged in the business of transportation of goods. During the course of business carried on by him, the assessee had to take several trucks on hire, from middlemen or agents of the subcontractor, so as to meet his requirements. It is on these payments that the assessee did not deduct tax at source under section 194 C, and, this non deduction of tax source from payments to the agents of the truck-owners, inter alia, resulted in the impugned disallowance under section 40(a)(ia). In appeal the CIT(A) has confirmed the disallowance. Aggrieved, assessee is in second appeal before us.
3. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position.
4. Interestingly, it is not even the case of the Assessing Officer that the assessee was a sub contractor, and rightly so because the assessee required these trucks on hire, from the middlemen or subcontractors, so as to fulfil the obligation of transporting the goods in the course of his business. The payments were not made for transporting the goods but for the hire of the trucks, and, therefore, on the admitted and undisputed facts of this case, it could not indeed be said that the payments were made by the subcontractor.
5. In the above factual backdrop, let us examine whether or not an individual, at the relevant point of time, had any obligations to deduct tax at source under section 194 C. We may, in this regard, refer to the observations made by a coordinate bench of this Tribunal in the case of Dr Raju L Bhatia v. Jt. CIT [2012] (134 ITD 615/18 taxmann.com 36 (Mum.) wherein, speaking through one of us (i.e. the Accountant Member), the coordinate bench has observed as follows:
There is no dispute between the parties that the provisions of Section 194 C(1) cannot be pressed into service in this case, since, at the material point of time, this tax withholding requirements did not extend to ‘individuals’ and that, it was only as a result of the amendment by the virtue of Finance Act 2008 w.e.f 1st June 2008, that individuals were imposed tax deduction obligations under section 194 C(1). The case of the revenue thus hinges on application of section 194 C(2), which, for ready reference, is reproduced below:
(2) Any person (being a contractor and not being an individual or a Hindu undivided family), responsible for paying any sum to any resident (hereafter in this section referred to as the subcontractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax on income comprised therein.
Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits 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 this sub-section.
Explanation I : For the purposes of sub-section (2), the expression “contractor” shall also include a contractor who is carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government of a foreign State or a foreign enterprise or any association or body established outside India.
Explanation II : For the purposes of this section, where any sum referred to in sub-section (1) or sub-section (2) is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
Explanation III : For the purposes of this section, the expression “work” shall also include –
(a) Advertising;
(b) Broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
(c) Carriage of goods and passengers by any mode of transport other than by railways;
(d) Catering.
7. A plain reading of the above provision indicates that in order to attract the applicability of Section 194C(2), the payment has to be made by a contractor to a sub-contractor for “carrying out or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply”. It is, therefore, a condition precedent, for invoking section 194C(2), that the payment in question has to be for carrying out a part of the work, or the work itself, undertaken by the contractor, or the supply undertaken by the contractor. ………………….
6. What follows from the above analysis, with which we are in considered agreement, that so far as pre June 2008 position is concerned, tax withholding obligations under section 194 C in respect of an individual only in cases where the payments were made to a sub contractor for carrying out a part off work, or the work itself, undertaken by the assessee and that too when such individual’s turnover from business or profession exceeded threshold specified in section 44AB. That condition is clearly not satisfied in the present case. It is not the revenue’s case that the payment is made for sub contracting the work, and, as we seen in the earlier discussion, there is nothing on record to even suggest so. That would have been the case, for example, when assessee received the goods for transportation and the assessee had made payment for such transportation of goods, not truck hire simplictor as is the case before us, to a third party. When it is not a case of sub contracting, it is wholly immaterial that assessee’s turnover exceeded the specified threshold under section 44AB, which, as we have noted above, applied only in respect of sub contracting work at the relevant point of time. Clearly, therefore, the assessee did not have any tax withholding obligation in respect of truck hire payments in the pre-amendment period. Once we come to the conclusion that the assessee did not have any obligations to deduct tax at source under section 194C, the very basis of impugned disallowance ceases to be good in law. The disallowance must, therefore, stand deleted for this short reason alone. In these circumstances, we also see no need to address ourselves to other very erudite legal contentions put forward by the learned counsel. The impugned disallowance stands deleted.
7. In the result, the appeal is allowed. It was so pronounced in the open court immediately upon conclusion of hearing.
