2008 (11) TMI 322 - AT - Income Tax

Tribunal Upholds Deletion of Rs. 17.4L Addition; No TDS on Truck Hire Charges as No Work Contract Existed Under IT Act.

The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s order that deleted the Rs. 17,40,000 addition for truck hire charges. It was ... Liability for deduction of TDS u/s 194C - addition on hire charges - 'work'as used in ss. 194C(1) and (2) - CIT(A) deleted the addition made by AO - payment was made for hiring charges regarding hiring of trucks - whether the addition made by the AO has rightly been deleted by the learned CIT(A), holding that the provisions of s. 194C of the Act are not attracted? - HELD THAT:- It is not the case of the Department that the trucks taken on hire by the assessee from the truck owners were supplied by the truck owners to the assessee along with manpower, i.e., drivers and/or conductors. The trucks were undeniably put to use by the personnel of the assessee. Thus, nothing has been brought on record by the Department to the effect that manpower was provided along with the trucks to the assessee by the truck owners. Mere providing of the trucks without any manpower cannot be termed as carrying out of 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. as per CIT vs. Poompuhar Shipping Corporation Ltd.[2006 (1) TMI 60 - MADRAS HIGH COURT], the provisions of s. 194C are not attracted. Explanation III to s. 194C explains the expression 'work' as used in ss. 194C(1) and (2) of the Act. Obviously, the Explanation cannot operate beyond the field of the section read with the Explanation. The Explanation would be applicable if the assessee had made any payment for carrying out any work including, as per the Explanation, carriage of goods and passengers by any mode of transport other than by railways. The Explanation cannot apply to a situation not amounting to a contract for carrying out any work as contemplated in s. 194C, and entering into a contract for hiring of trucks is not equivalent to entering into a contract for carrying out any work. Therefore, Expln. III to s. 194C is not attracted to the facts of the present case. Therefore, no merit in the grounds raised by the Department, the same are hereby rejected, upholding the order of the CIT(A). Issues:Department's appeal against deletion of addition on account of hire charges invoking s. 40(a)(ia) of the IT Act, 1961 for the asst. yr. 2005-06.Analysis:1. The AO disallowed Rs. 17,40,000 addition for hire charges of trucks due to non-deduction of TDS under s. 194C. CIT(A) deleted the addition.2. Department argued continuous truck hiring activity was subject to TDS under s. 194C. Assessee contended no contract existed for carrying goods, so TDS not applicable.3. CIT(A) observed no contract between assessee and truck owners for carrying goods, so TDS under s. 194C not required.4. Tribunal noted CIT(A) reasoning that hiring charges were for capital asset use, not covered under s. 194C for TDS deduction.5. Tribunal referred to judgments where hiring of assets did not amount to work contract, hence TDS not applicable.6. Explanation III to s. 194C includes carriage of goods, but Tribunal found no work contract between assessee and truck owners.7. Tribunal held hiring trucks for business use did not constitute work contract, thus TDS not required under s. 194C.8. Tribunal concluded Explanation III to s. 194C did not apply to hiring charges, dismissing Department's appeal.9. The appeal of the Department was dismissed, upholding CIT(A) order deleting the addition.