2016 (11) TMI 721 - HC - Income Tax

High Court Upholds Tribunal Decision on Tax Disallowance for Sub-Contractor Payments

Prasanna Radha Krishnan Versus Income-Tax Officer

The High Court upheld the Tribunal's decision to disallow payments made to a sub-contractor under section 40(a)(ia) of the Income-tax Act due to ... TDS u/s 194C - status of sub-contractor - non deduction of tds - Held that:- Tribunal came to a finding that Sri Suresh is a sub-contractor of the assessee. This factual finding of the Tribunal is based on its findings that lump sum payments were made by the assessee to Suresh and that Suresh was entirely responsible for transportation without even accounting to the assessee the expenses incurred by him for discharge of the transportation work. The Tribunal further found that if Suresh was her employee as contended by the assessee, Suresh would have furnished to the assessee the truck numbers, names and addresses of the truck owners, drivers and the payments made by him to each of the trucks engaged by him. The Tribunal found that none of these details were furnished by the assessee at any stage of the proceedings either before the Assessing Officer or the first appellate authority or the Tribunal. Such a finding of fact arrived at by the Tribunal that Sri Suresh was a sub-contractor, is not perverse to be interfered in an appeal under section 260A of the Income-tax Act. Once we accept the status of Sri Suresh as a sub-contractor, the liability under section 194C is automatically attracted. Admittedly, the assessee has not effected deduction under the said section. Consequence thereof is disallowance under section 40(a)(ia) of the Income-tax Act. - Decided against assessee Issues:Challenge to disallowance under section 40(a)(ia) of the Income-tax Act for non-compliance with section 194C.Analysis:The appeal was filed by the assessee against the order of the Income-tax Appellate Tribunal disallowing payments made to a sub-contractor under section 40(a)(ia) due to non-compliance with section 194C during the assessment year 2009-2010. The Commissioner had found that the payments made to the sub-contractor should have had deductions under section 194C. The assessee contended that the sub-contractor was an employee, not a sub-contractor, but the Commissioner disagreed. The Tribunal upheld the Commissioner's decision, leading to the current challenge.The main question before the High Court was whether the Tribunal was correct in holding that the appellant was liable to deduct tax under section 194C and whether the addition of income due to disallowance under section 40(a)(ia) should be upheld. The Tribunal found that the sub-contractor was indeed a sub-contractor based on various factors, including lump sum payments, sole responsibility for transportation, and lack of detailed accounting to the assessee. The Tribunal noted that if the sub-contractor was an employee, certain details would have been provided, which were not. The High Court determined that this factual finding by the Tribunal was not unreasonable and, therefore, upheld the decision.As the High Court accepted the sub-contractor's status as a sub-contractor, the liability under section 194C was deemed to apply. Since the assessee had not made deductions under this section, the consequence was disallowance under section 40(a)(ia) of the Income-tax Act. Consequently, the High Court found no grounds to interfere with the Tribunal's decision to dismiss the appeal, ruling in favor of the Revenue and against the assessee. Thus, the appeal was ultimately dismissed.