2012 (8) TMI 187 - AT - Income Tax

Tribunal rules in favor of assessee on disallowance & TDS liability, citing pre-deduction by payer.

The Tribunal allowed the appeal of the assessee, ruling that the disallowance under Section 40(a)(ia) was unwarranted as TDS was already deducted by M/s. ... TDS – disallowance u/s 40(a) (ia) of the Income Tax Act on the ground that assessee failed to deduct the TDS while making payments to the transporters - AO’s opinion is that assessee has availed services of the truck drivers or transporters for carrying out the work of M/s. Jai Prakash Associates thus there exist sub contractor ship and the assessee should have deducted the tax – Held that:- Assessee has not assigned any sub contractor ship to any of the transporter. He has simply hired the trucks for carrying out his contract - payments have been made by M/s. Jai Prakash directly to those drivers such payment is to be construed as made to the assessee - AO is not justified in making disallowance u/s 40(a)(ia) of the Act on account of non deduction of TDS u/s 194C(2) of the Income Tax Act - disallowance deleted – In favor of assessee Issues Involved:1. Disallowance of expenses under Section 40(a)(ia) of the Income Tax Act, 1961.2. Applicability of Section 194C for deduction of TDS on payments made to transporters.Issue-wise Detailed Analysis:1. Disallowance of Expenses under Section 40(a)(ia):The primary issue in this case is whether the disallowance of Rs. 6,77,46,176/- under Section 40(a)(ia) of the Income Tax Act, 1961, was justified. The Assessing Officer (AO) disallowed this amount on the grounds that the assessee failed to deduct TDS while making payments to the transporters. The assessee argued that the payments were made by M/s. Jaiprakash Associates Ltd. on behalf of the assessee, and TDS was already deducted by them.The Tribunal observed that Section 40(a)(ia) stipulates disallowance of amounts payable to a contractor or sub-contractor for carrying out any work on which tax is deductible under Chapter XVII-B, and such tax has not been deducted or paid. The Tribunal noted that the payments made to the transporters were already subjected to TDS by M/s. Jaiprakash Associates Ltd., and hence, there was no requirement for the assessee to deduct TDS again.2. Applicability of Section 194C for Deduction of TDS:The second issue is whether the payments made to the transporters fall under the purview of Section 194C, which mandates TDS deduction for payments to contractors and sub-contractors. The AO contended that the assessee should have deducted TDS under Section 194C(2) as the payments were made to sub-contractors. The assessee argued that there was no sub-contract, and the transporters were merely hired for carrying out the work.The Tribunal examined the conditions under Section 194C(2), which requires a contract between the contractor and sub-contractor for carrying out any part of the work undertaken by the contractor. The Tribunal referred to several judicial precedents, including the decisions of the Himachal Pradesh High Court in CIT v. Ambuja Darla Kashlog Mangu Transport Co-op. Society [2010] 188 Taxman 134 and the ITAT Visakhapatnam Bench in Mythri Transport Corporation v. Asstt. CIT [2010] 124 ITD 40, which held that mere hiring of trucks does not constitute a sub-contract.The Tribunal concluded that the payments made by M/s. Jaiprakash Associates Ltd. to the truck drivers were on behalf of the assessee, and TDS was already deducted. Additionally, there was no sub-contract between the assessee and the transporters, and hence, the provisions of Section 194C(2) were not applicable. The Tribunal allowed the appeal of the assessee and deleted the disallowance made by the AO under Section 40(a)(ia).Conclusion:The Tribunal allowed the appeal of the assessee, concluding that the disallowance under Section 40(a)(ia) was not justified as TDS was already deducted by M/s. Jaiprakash Associates Ltd. Furthermore, the Tribunal held that the payments made to transporters did not fall under the purview of Section 194C(2) as there was no sub-contract, and hence, the assessee was not liable to deduct TDS.