Case Law Details
Sri. Shivamurthy Vs Add.CIT (Karnataka High Court)
The action of the revenue in denying the deduction under Section 40 (a) (ia) of the Act on the premise that the aggregate of the truck amount paid by the assessee with the different truck drivers was exceeding Rs.50,000/-cannot be countenanced as the contract cannot be with the trucks, it is with the personnel/driver of the truck/truck operators. The whole attempt made by the revenue to bring the assessee under the ambit of Section 194 C of the Act to deny the deduction under Section 40(a) (ia) of the Act is not supported by the material evidence. The truck operators if not the truck owners, cannot be considered as the sub contractors for the purpose of Section 194 C (2) of the Act. In the circumstances, we deem it proper to set aside the order of the Tribunal as well as the authorities and to restore the matter to the file of the Assessing Officer to reconsider the matter afresh in the light of the observations made herein above. The Assessing Officer shall record a finding after examining the contract if any, entered by the assessee with the truck owners/ operators and an appropriate decision shall be taken in accordance with law.
In the facts and circumstances of the case, it is made clear that the registration number of trucks/truck owner would not be relevant for the purpose of deciding the applicability of Section 194 C of the Act but it is the personnel/truck operator from whom the trucks are hired.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
This appeal is filed by the assessee under Section 260A of the Income Tax Act, 1961 [‘Act’ for short] challenging the order of the Income Tax Appellate Tribunal “A” Bench, Bangalore [‘Tribunal’ for short] dated 26.08.2016 passed in ITA No.553/Bang/2014 relating to the Assessment Year 2008-2009, whereby, the Tribunal has dismissed the appeal filed by the assessee confirming the order of the Assessing Officer.
2. The assessee is a proprietor of M/s.Sharada Transport and is engaged in the business of transportation. The assessee filed his return of income declaring total income of Rs.27,21,090/- on 31.10.2008 for the assessment year 2008-2009. An order of assessment under Section 143(3) of the Act was passed by the Assessing Officer disallowing the claim made under Section 40(a)(ia) of the Act mainly for the reason that the assessee has failed to deduct tax at source under Section 194C of the Act. Being aggrieved by the said order, the assessee preferred an appeal before the Commissioner (Appeals) which came to be dismissed, against which, an appeal was preferred before the Tribunal and the same having been dismissed, the assessee has preferred this appeal.
3. The appeal was admitted by this Court to consider the following substantial questions of law:
“i. Whether on the facts and circumstances of the case, the Tribunal erred in law in failing to follow the decision of the co-ordinate bench of the same jurisdiction?
ii. Whether, the findings of the Tribunal that the appellant had split the invoices, engaged in continuous transportation contracts and the price agreed not on the basis of per trip per lorry, are perverse?
iii. Whether, in the facts and circumstances of the case, the Tribunal was right in law in aggregating the payments on the basis of truck numbers for the purpose of determining the limit of Rs.50,000/- under Section 194C (3) of the IT Act?
iv. Whether, in the facts and in the circumstances of the case, the Tribunal was right in law in upholding disallowance under Section 40 (a) (ia) of the Act when proceeding under Section 201 was not initiated against the appellant by the
jurisdictional TDS officer?”
4. Learned counsel for the assessee placing reliance on the judgment of the Tribunal in the case of M/s.Deccan Roadways v/s The Additional of Commissioner of Income Tax in ITA No.468/Bang/2010 relating to the Assessment Year 2006-2007 submitted that in identical circumstances, the Tribunal has remitted the matter to the Assessing Officer for reconsideration with a direction to look into the issue comprehensively and to arrive at the conclusion as to whether the assessee’s case falls within the ambit of Section 194C of the Act or not. Despite citing the said order before the Tribunal, ignoring the same, the Tribunal proceeded to dismiss the appeal.
5. Learned counsel would submit that truck operators are not the truck owners. The proceedings concluded by the Tribunal is wholly unjustifiable and is not in consonance with the CBDT Circular No.715 dated 08.08.1995. It was argued that the Assessing Officer has grossly erred in disallowing the deduction under Section 40 (a)(ia) of the Act mainly considering the aggregate numbers of the trucks used by the assessee for transportation of the mines materials, irrespective of the different truck operators holding the authorisation to drive such trucks. It is not the case of the revenue that the aggregate payment made to particular truck holder exceeded prescribed limit under Section 194C of the Act i.e. Rs.50,000/- during the assessment year in question. This aspect has not been disputed nor genuineness of the same was doubted by the Assessing Authority. Inviting the attention of the Court to the earlier remand order, it was argued that a finding was recorded by the Assessing Officer after examining the genuineness of the transaction of the assessee with the truck holders, on detailed investigation, it was noticed that the assessee had no privacy of contract with the truck owners and the payments were made directly to the drivers by hiring their services along with vehicle for transportation after negotiating with them. Having so arrived at a decision, no further proceedings were held by the Assessing Officer to deny the deduction claimed by the assessee. However, proceedings were initiated relating to the assessment year under consideration and the claim made by the assessee under Section 40(a)(ia) of the Act was denied for not deducting the TDS under Section 194C of the Act.
6. It was further submitted that having considered the material evidence placed on record, the First Appellate Authority has categorically recorded a finding in favour of the assessee in this regard but finally proceeded to dismiss the appeal on flimsy grounds. Further, the Tribunal has not properly appreciated the arguments advanced by the assessee on the well settled principles of law relating to Section 40(a) (ia) and 194C of the Act with reference to Deccan Roadways (supra). Thus, the learned counsel seeks for interference of this Court and to answer the substantial questions of law in favour of the assessee.
7. The learned counsel for the revenue would submit that the Tribunal as well as the authorities have extensively analysed the material evidence on record in arriving at a decision and the particulars of the trucks used by the assessee were considered on the material documents placed on record by the assessee himself. On verifying the same, it was noticed that the same trucks were used multiple times and having regard to the truck numbers, number of trips and amount paid it was ex-facie apparent that the appellant/assessee was liable to deduct TDS on the aggregate basis of Rs.50,000/- under Section 194C of the Act. The assessee having violated the mandatory requirement, denial of the claim under Section 40(a) (ia) of the Act is justifiable. The learned counsel placing reliance on the judgment of the Hon’ble Apex Court in the case of Shree Choudhary Transport Company v/s Income Tax Officer reported in [2020] 118 taxmann.com 47(SC) submitted that the agreement though was oral between the appellant and the truck operator, the said oral contract also could be considered for determining the nature of the transaction and in this regard the Hon’ble Apex Court has categorically held that hiring services of the truck operators/ owners for the purpose of transportation could have only been under a contract between the assessee and truck operators/ owners. Whether such a contract was reduced into writing or not carries hardly any relevance. Hence, truck operators/ owners answered to the description of sub-contractor for carrying out the whole or part of the work undertaken by the contractor under Section 194C of the Act. In the light of this decision, the order passed by the Tribunal cannot be faulted with. Thus, it was submitted that the substantial questions of law deserve to be answered in favour of the revenue and against the assessee.
8. We have heard the learned counsel for the parties and perused the material on record.
9. Section 194C of the Act reads as under: [Payment on contractors.
“194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to-
i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family;
ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein.
(2) Where any sum referred to in sub-section(1) is credited to any account whether called “Supense 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.”
10. During the relevant period, Section 40 (a)(ia) of the Act reads as under:
“Amounts not deductible.
40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”, –
[a] in the case of any assessee –
[i]
[ia] Any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or subcontractor, being resident, for carrying out any work [including supply of labour for carrying out any work.”
11. A reading of these provisions would indicate that any person responsible for paying any sum to any resident in pursuance of contract 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 percent of such sum as income tax on income comprised therein.
12. On the ground that under Section 40(a)(ia) of the Act, any sum payable to a resident on which tax is deductible at source under Chapter XVII-B has not been deducted or, after deduction, has not been paid on or before the due date specified in sub section (1) of Section 139, is not deductible in computing the income tax chargeable under the head Profits and Gains of business or the profession, the claim made by the assessee was denied by the authorities as well as the Tribunal in the case on hand. The intention of the legislature could be gathered from the language employed i.e., to reduce the hardship to the tax payers.
13. It is not in dispute that in Circular No.715 dated 08.08.1995 for question No.9, i.e., “in the case of payment to transporters, can each GR be said to be a separate contract, even though payments for several GRs are made under one bill?”, the clarification given is that normally, each GR can be said to be a separate contract, if the goods are transported at one time. But if the goods are transported continuously in pursuance of a contract for a specific period or quantity, each GR will not be a separate contract and GRs relating to that period or quantity will be aggregated for the purpose of the TDS.
14. In the case of Deccan Roadways (supra), the question that fell for consideration before the Tribunal was that charges paid for truck to third party for the business use of the assessee whether attracted the provision of Section 194C of the Act and that the non deduction of TDS comes under the ambit of Section 40(a)(ia) of the Act, being identical to the issues involved herein, the Tribunal has categorically observed in paragraph 7 as under:
“7. Let us now analyze the issue on merits. No doubt, the Revenue had failed to bring any comprehensive and impeccable documentary evidence to nail the assessee that it had, in fact, entered into any contract – oral or otherwise – with the truck owners/drivers to carry the goods to their destinations. On the same breath, the assessee’s contention that ‘there was no instance of any goods being transported continuously in pursuance of a contract by any operator for any specific period or quantity Each trip by an operator is a separate contract and has no connection whatsoever with its earlier or future trips for us’ cannot be taken on its face value since the AO had, in his impugned order, observed that ‘In the course of assessment proceedings, the assessee has filed a Note Book where lorry No., amount paid and date, etc., are mentioned. The whole date ITA No.468/Bang10/ was fed into the computer and a programme was run to find out the payment done by the assessee to a particular lorry No. aggregating to Rs.50,000/- or more during the whole year. It is found from this exercise that the assessee has paid Rs.57,94,728/-to different lorry Nos. aggregating above Rs.50,000/-during the whole year for several number of trucks under taken by them on behalf of the assessee…” This fact has neither been addressed by the assessee nor the AO had brought on record any credible evidence to pin down the assessee. Of Course, the AO had conveniently taken shelter under the Circular No.715 dated 08.08.1995 of C.B.D.T. (precisely second part of answer to question No.9). However, he had not recorded his reasons unambiguously to bring the assessee’s case on par with the said Circular.
7.1. During the course of hearing, it was forcefully argued that the trucks were obtained on hire and the personnel of the assessee made use of the trucks for the assessee’s business etc. However, no tangible documentary proof was advanced even at the stage of hearing before this Bench to belie the stand of the authorities below.
7.2. It may be pointed out that some of the companies owning lorries/trucks would have engaged their vehicles with drivers to the assessee for transporting the goods. There were also quite possibilities that most of the lorry owners who themselves at the wheels could have been engaged by the assessee to carry the goods. There were also instances that some of the lorry companies having fleet of vehicles with adequate drivers on shifts would have lent their same vehicles with different drivers on different days for carrying the goods which could have ITA No.468/Bang10/ contributed in making a number of trips during the period and in some cases, the lorry companies could have leased out their vehicles on monthly basis to the persons who intended to drive such vehicles themselves to thrive their fortunes. This could have contributed the possibilities and instances of making repeated trips by a same truck or van during the course of the year. These aspects as to the existence of contract between the assessee and owner of the vehicle/driver of the vehicle/driver of the vehicle who may have hired the vehicle for his business, etc., have not been properly examined or/and looked into by the assessing officer.
7.3. In an overall consideration of the facts and circumstances of the issue as detailed in the fore-going paragraphs, we are of the considered view that the issue should be remitted back on the file of the AO for fresh consideration with an explicit direction to look into the issue comprehensively and to arrive at the conclusion in accordance with the provisions of the Act as to whether the assessee’s case falls within the ambit of the provisions of section 194C of the Act, of course, after affording a reasonable opportunity to the assessee of being heard. In the meanwhile, the assessee, through its Ld. A.R, is advised to furnish the names of addresses of the drivers/owners of the vehicles to whom it had alleged to have negotiated with regard to freight charges at the time of actual dispatch of goods etc., which would facilitate the AO to carry out the directions of this Bench in an expeditious manner. It is ordered accordingly.”
15. Though the learned counsel for the revenue has relied upon the judgment of the Hon’ble Apex Court in the case of Shree Choudhary Tansport Company (supra), we are not inclined to consider the same in the absence of any finding on the vital aspect of the matter as to the existence of any contract between the truck owner/ holder of the truck with the assessee. The action of the revenue in denying the deduction under Section 40 (a) (ia) of the Act on the premise that the aggregate of the truck amount paid by the assessee with the different truck drivers was exceeding Rs.50,000/-cannot be countenanced as the contract cannot be with the trucks, it is with the personnel/driver of the truck/truck operators. The whole attempt made by the revenue to bring the assessee under the ambit of Section 194 C of the Act to deny the deduction under Section 40(a) (ia) of the Act is not supported by the material evidence. The truck operators if not the truck owners, cannot be considered as the sub contractors for the purpose of Section 194 C (2) of the Act. In the circumstances, we deem it proper to set aside the order of the Tribunal as well as the authorities and to restore the matter to the file of the Assessing Officer to reconsider the matter afresh in the light of the observations made herein above. The Assessing Officer shall record a finding after examining the contract if any, entered by the assessee with the truck owners/ operators and an appropriate decision shall be taken in accordance with law.
In the facts and circumstances of the case, it is made clear that the registration number of trucks/truck owner would not be relevant for the purpose of deciding the applicability of Section 194 C of the Act but it is the personnel/truck operator from whom the trucks are hired.
With the aforesaid observations and directions, appeal stands allowed as indicted above sans answering the substantial questions of law, directing the Assessing Officer to re-examine the matter, keeping open all the rights and contentions of the parties.
