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of <h1>Tribunal Rules No TDS Deduction Required for Payments to Third Parties</h1> <h3>Bhail Bulk Carriers Versus Income-tax Officer, 22 (2) (1), Vashi</h3> Bhail Bulk Carriers Versus Income-tax Officer, 22 (2) (1), Vashi - [2012] 50 SOT 622 Issues Involved:1. Disallowance of Rs. 56,03,210/- under section 40(a)(ia) for failure to deduct tax under section 194C.Issue-wise Detailed Analysis:1. Disallowance under Section 40(a)(ia) for Failure to Deduct Tax under Section 194C:The appellant, a partnership firm engaged in the business of transport contracting, received freight charges of Rs. 2,83,06,986/- for transporting oils for BPCL and other companies. The firm used its own tankers and hired additional tankers from outside parties to fulfill its contractual obligations. During the assessment proceedings, the Assessing Officer (AO) noted that the appellant paid Rs. 1,79,03,198/- as freight charges to various parties but failed to deduct TDS under section 194C for payments totaling Rs. 56,03,210/- made to three parties. Consequently, the AO disallowed this amount under section 40(a)(ia).Before the Commissioner of Income Tax (Appeals) [CIT(A)], the appellant argued that hiring tankers from outside parties did not constitute a sub-contract, as the appellant was solely responsible for the contract with BPCL. The appellant cited case laws Kavita Chug v. ITO and ITO v. Indian Roadlines, arguing that hiring tankers does not amount to a sub-contract under section 194C. The CIT(A) agreed that the appellant bore the risk and liability of the contract but held that the payments to outside parties fell under section 194C(1), thus justifying the disallowance.Before the Tribunal, the appellant contended that there was only one contract with BPCL and no sub-contract with outside parties. The appellant cited the judgment of the Hon'ble Madras High Court in CIT v. Poompuhar Shipping Corpn. Ltd., which held that hiring ships for business use does not fall under section 194C. The appellant argued that neither section 194C(1) nor section 194C(2) applied.The Tribunal examined the facts and found that the appellant was solely responsible for the transportation contract with BPCL. There was no evidence of any contract or sub-contract with the outside tank owners. The Tribunal noted that the CIT(A) accepted that the outside tank owners did not share any responsibility or liability with the appellant. Therefore, the payments to outside parties did not fall within the purview of section 194C, as there was no contract for carrying out work between the appellant and the outside parties.The Tribunal relied on the judgment of the Hon'ble Madras High Court in Poompuhar Shipping Corpn. Ltd., which held that hiring ships for business use does not amount to a contract for carrying out work under section 194C. Applying this principle, the Tribunal concluded that the appellant was not liable to deduct TDS under section 194C(1) for payments made to outside parties. Consequently, the disallowance under section 40(a)(ia) was deleted, and the appellant was granted relief of Rs. 56,03,210/-.Conclusion:The Tribunal allowed the appeal, holding that the appellant was not required to deduct TDS under section 194C(1) for payments made to outside parties, and consequently, the disallowance under section 40(a)(ia) was deleted.
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