Transport payments and TDS: mere hiring of lorries is not a sub-contract, so disallowance under tax law fails.

Disallowance under section 40(a)(ia) is not attracted where payments are made for hired lorries in the course of a transport arrangement and there is no material showing a contract with a truck owner or driver as a sub-contractor for part-performance of the work. Section 194C(2) applies only when a contractor engages a sub-contractor to carry out the whole or any part of the work undertaken by the contractor, and tax is deductible on that payment. On the stated facts, the vehicles were merely hired to perform the assessee's transport obligation, and the payments to drivers were made through the principal company with tax already deducted. Such payments were not sub-contract payments, so section 40(a)(ia) could not be invoked.

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Issues: Whether disallowance under section 40(a)(ia) of the Income-tax Act, 1961 was warranted for alleged non-deduction of tax at source on payments made for hired lorries and truck drivers under section 194C(2) of the Income-tax Act, 1961.

Analysis: Disallowance under section 40(a)(ia) applies only where the relevant amount is payable to a contractor or sub-contractor for carrying out work on which tax is deductible under Chapter XVII-B and such tax has not been deducted or paid within the prescribed time. Section 194C(2) is attracted only where there is a contract with a sub-contractor for carrying out the whole or any part of the work undertaken by the contractor. On the facts, the transport arrangement showed that the assessee had merely hired trucks for executing his own transport obligation, while payment to the drivers was made by the principal company on behalf of the transporter and tax was deducted at source there. There was no material to show that the truck owners or drivers had undertaken any part of the contractual work as sub-contractors.

Conclusion: The payments for hired vehicles did not constitute sub-contract payments, section 194C(2) was not attracted, and the disallowance under section 40(a)(ia) was unsustainable.

Ratio Decidendi: Mere hiring of vehicles for performance of a transport contract does not, more, create a sub-contract; in the absence of a contract for part-performance of the work by the vehicle owner, tax deduction under section 194C(2) is not required and section 40(a)(ia) cannot be invoked.

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