2014 (4) TMI 1278 - AT - Income Tax

Tribunal rules in favor of assessee, rejecting Revenue's appeals. (a)(ia)

The Tribunal ruled in favor of the assessee, dismissing the Revenue's appeals for both assessment years. It held that the provisions of Section 194C were ... TDS u/s 194C - amount paid to the lorry drivers/owners exceeded the threshold limit of ₹ 50,000 - disallowance U/s. 40(a)(ia) - CIT (A) held that the amendment to Section 194C (1) (k) of the Act is applicable from 01.06.2007 i.e., for the relevant assessment year 2008-09 onwards - HELD THAT:- As decided in SATISH AGGARWAL AND COMPANY. [2008 (11) TMI 322 - ITAT AMRITSAR] nothing had been brought on record by the Department to the effect that man power was provided along with the trucks to the assessee by the truck owners. Mere provision of the trucks without any man power could not be termed as carrying out any work by the truck owners, for which any payment was made by the assessee. When the assessee entered into a contract for the purpose of taking temporary possession of trucks from the truck owners, it did not amount to the assessee entering into any contract for carrying out any work. Once the contract was not for carrying out any work, the provisions of section 194C were not attracted. Explanation III to Section 194C can not apply to a situation not amounting to a contract for carrying out any work as contemplated in section194C, and entering into a contract for hiring of trucks was not equivalent to entering into a contract for carrying out any work. Therefore, Explanation III to section 194C was not attracted Provisions of section 194C will not be applicable in the present assessee’s case before us and therefore, provisions of Section 40(a)(ia) cannot be invoked for both the assessment years. Accordingly, this issue is decided in favour of the assessee. Issues Involved:1. Applicability of amendment to Section 194C(1)(k) of the Income Tax Act, 1961 from 01.06.2007.2. Disallowance under Section 40(a)(ia) for payments exceeding the threshold limit.3. Contractual relationship between the assessee and lorry owners/drivers.4. Deduction of TDS under Section 194C for hiring trucks.5. Validity of disallowance of expenditure under Section 40(a)(ia).Detailed Analysis:1. Applicability of Amendment to Section 194C(1)(k):The Revenue contended that the amendment to Section 194C(1)(k) should apply retrospectively, affecting the assessment year 2007-08. However, the Commissioner of Income Tax (Appeals) [CIT (A)] ruled that the amendment is applicable from 01.06.2007, thus relevant for the assessment year 2008-09 onwards. Consequently, invoking Section 40(a)(ia) for the assessment year 2007-08 by the Assessing Officer (AO) was deemed erroneous.2. Disallowance under Section 40(a)(ia) for Payments Exceeding Threshold Limit:For the assessment year 2009-10, the CIT (A) restricted the disallowance under Section 40(a)(ia) to Rs. 11,24,684 out of Rs. 4,89,75,838, as the payments to lorry drivers/owners exceeded the threshold limit of Rs. 50,000 during the relevant year. The assessee challenged this partial disallowance, arguing that there was no contractual relationship to invoke Section 194C.3. Contractual Relationship Between Assessee and Lorry Owners/Drivers:The CIT (A) observed that there was no written or oral contract between the assessee and lorry owners/drivers, which is necessary to attract the provisions of Section 194C. The assessee hired trucks on a trip-by-trip basis without any continuous or specific contract, thus not constituting a subcontract.4. Deduction of TDS under Section 194C for Hiring Trucks:The assessee argued that the provisions of Section 194C were not applicable as the trucks were hired for business use without any work as contemplated under Section 194C. The CIT (A) supported this view, stating that the responsibility of transporting goods was on the assessee, not the truck owners/drivers. The payments made were for hiring trucks, not for carrying out any work under a contract.5. Validity of Disallowance of Expenditure under Section 40(a)(ia):The Tribunal upheld the CIT (A)'s decision, emphasizing that Section 194C requires a contract for carrying out any work, which was absent between the assessee and the lorry owners/drivers. The Tribunal cited various judgments, including CIT vs. Poompuhar Shipping Corporation Ltd. and Deputy Commissioner of Income-Tax v. Satish Aggarwal and Co., which clarified that hiring trucks does not constitute a contract for carrying out work under Section 194C. Thus, the disallowance under Section 40(a)(ia) was not warranted.Conclusion:The Tribunal dismissed the Revenue's appeals for both assessment years and allowed the assessee's cross objections. It was concluded that the provisions of Section 194C were not applicable, and consequently, the disallowance under Section 40(a)(ia) could not be invoked. The judgment was pronounced on 25th April 2014 at Chennai.