TaxTMI 
TaxTMI 
2009 (1) TMI 337
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.... lorries. The bills raised by the assessee with the principals contained details such as lorry number, tonnage of the product transported, the distance covered and the rate per tonne per running kilometer. According to the assessee, the amount received from the principals referable to the transport made on its own lorries falls within the category of gross receipts and the amount received on the bills raised by the assessee in connection with the lorries engaged by the assessee by hiring it from outsiders cannot be treated as its receipt since the assessee is entitled to only commission from such receipts. The assessee, therefore, prepared the trading and P&L a/c wherein it has shown the amount received on the lorries owned by the assessee and the commission received from the truck owners whose lorries were hired by the assessee. In the P&L a/c filed along with the return, the assessee credited a sum of Rs. 32,31,509 towards freight receipt which comprises of receipts pertaining to own lorries, i.e. Rs. 17,14,696 and commission of Rs. 15,16,813. During the course of scrutiny proceedings, the AO noticed from the tax audit report in Form 3CD that the gross turnover of the assessee on....
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.... to its own vehicles and the plying receipts attributable to the vehicles belonging to others; it has no interest in the profit or loss in respect of the plying receipts belonging to the others' vehicles, in as much as its interest terminates with the incidental commission. The assessee relied upon various case law in support of its contention that in such cases only commission has to be treated as the turnover and the AO is not entitled to recast the P&L a/c by including the receipts on behalf of the hired lorries and then to assume that the payments made to hired lorries ought to have been debited to the P&L a/c which in turn would be hit by s. 40 of the Act in the event of non-deduction of tax at source. 5.1 Learned CIT(A), by placing his reliance on the decision of Hon'ble Supreme Court in the case of CIT vs. British Paints India Ltd. (1991) 91 CTR (SC) 108 : (1991) 188 ITR 44 (SC), held that it is the duty of the AO to consider whether or not the books of account disclose true state of accounts and correct income. In the instant case, since the assessee has not routed through the P&L a/c, the entire freight receipts as well as the payment made for vehicles hired, th....
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.... of labour for carrying out the whole or part of the work undertaken by the contractor under a contract with any of the authorities named above or for the supply in terms of his contract with any of the aforesaid authorities." Finally learned CIT(A) dismissed the appeal of the assessee with following observations: "Against the above background if the appellant's case is examined, it is noticed that no doubt the appellant participated in the tender process and negotiated in order to get the transportation contracts from different contractees. However, for executing the said contract works within the stipulated time-limits the appellant didn't have adequate numbers of tank lorries. Consequently, the appellant approached some of the other tank lorry owners for hiring their tank lorries for the purposes of the execution of the contract. The tank lorries taken on hire were utilized for the purposes of the business of the execution of the contract during the entire contract period. The tank lorry owners from whom they were hired were paid the amounts after the receipt of the bills from the contractees by the appellant after retaining his share of profit which is terme....
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.... and such commission income has been duly accounted for. In view of the above, there is no liability to deduct tax on the payments made for hired lorries. Also there is no necessity that the receipts pertaining to these hired lorries have to be routed through the P&L a/c. Reliance was placed on the following decisions: (i) Paras Transport Co. vs. ITO (2005) 92 TTJ (Agra) 607; (ii) ITO vs. Bindra Ban Bansi Lal (2004) 90 TTJ (Asr) 747 : (2001) 78 ITD 228 (Asr). (d) Sec. 40(a)(ia) uses the word "payable" in contrast to the words "credited or paid" which were originally available in the relevant Finance Bill. Hence s. 40(a)(ia), if applicable, is attracted only to that amount which remains payable at the year end. In the instant case, the outstanding amount at the year end is only Rs. 16.63 lakhs. The dictionary meaning of the word "payable" is 'must be paid'. The Hon'ble Bombay High Court in the case of Abdulgafar A. Nadiadwala vs. Asstt. CIT (2004) 188 CTR (Bom) 232 : (2004) 267 ITR 488 (Bom) has held that in the absence of there being anything contrary to the context, the language of a statute should be interpreted according to the plain dictio....
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....ggests that the authority to decide the percentage of commission vests with the assessee. Hence it is a case of application of income and not diversion of income by overriding title as claimed by the assessee. (d) In order to bypass the provisions of TDS, the assessee has not routed the receipts pertaining to the hired lorries and the corresponding payments through the P&L a/c. (e) The usage of word 'payable' in the section does not make any difference since the word is akin to the word 'credited' which was available in the Finance Bill. There is no basis to assume that the word 'payable' would mean the amount outstanding at the year end. (f) If the payments made for hired lorries cannot be taken as sub-contract payments, such payments are liable for TDS under s. 194-I of the Act. 8. We have heard the rival contentions and perused the record. The issue before us may be decided if we answer following question: "Whether the vehicles hired by the assessee in execution of the transport contract can be termed as a 'sub-contract' and consequently the assessee is liable to deduct tax from the payment made for such vehi....
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....ot carried out any part of the work undertaken by the assessee. 8.3 (I) The following are the basis of the AO to come to the conclusion that the payment made for hired lorries is a sub-contract payment, liable for TDS under s. 194C(2) of the Act: (a) The assessee has entered into a contract with the parties and all payments are made to the assessee only. (b) The assessee is claiming the total TDS credit for the gross receipt where TDS was deducted. (c) The lorry owners are in no way connected with the party who gives work to the assessee. As the assessee could not manage the work with its own lorries, it took on hire lorries belonging to others on sub-contract, to carry out its contract work, for which payment is made by the assessee. There is no contact or relationship of any kind between the client (principal company) and the sub-contractor. (II) Learned CIT(A) has confirmed the order of the AO with following reasonings: (a) The tanker lorries taken on hire were utilized for the purposes of the business of the execution of the contract during the entire contract period. (b) The tanker lorry owners were paid only after receipt of ....