TaxTMI 
TaxTMI 
2011 (8) TMI 747
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.... traffic violations and the assessee claimed it to be incurred wholly and exclusively for the purpose of business. The A.O. has rejected the claim of the assessees on the ground that these expenses have been incurred for the purpose which is in offence and prohibited by law and shall not be deemed to have been incurred for the purpose of business or profession as explained in explanation to section 37(1) of the Act. 3. The assessee preferred an appeal before the CIT(A) but did not find favour with him. Now the assessee is before us with the submission that these expenses are incurred during the course of its business activities. Since the assessee is engaged in the transport business, the violation of traffic rules are quite normal for which it has to pay some penalties/fines. Therefore, these penalties or fine are in compensatory nature and it should be allowed as a revenue expenditure. 4. The Ld. D.R. on the other hand has submitted that these fines/penalties were imposed for violation of traffic rules. Therefore, it cannot be allowed as a revenue expenditure u/s 37(1) of the Act. 5. Having heard the rival submissions in the light of relevant provisions of section 37 of the Ac....
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....ct between the contractor and the payer and the payer shall deduct TDS at the time of credit of such sum to the account of contractor. Assessee has simply taken the vehicles from other parties on hire and transported goods under his own supervision. Therefore, no work was assigned to the truck or lorry owners and as such provisions of section 194C cannot be invoked. He further placed a reliance upon the judgement of the Kerala High Court in the case of CBDT v. Cochin Goods Transport Association [1999] 236 ITR 993/103 Taxman 29. The claim of the assessee was examined by the CIT(A) but he was not convinced with it and the disallowance was confirmed. 8. Now the assessee has preferred an appeal before the Tribunal and reiterated its contentions. The Ld. Counsel for the assessee has also placed a heavy reliance upon the order of the Tribunal in the case of M. Seetaramaiah v. ACIT ITA No.355 of 2008 and Mythri Transport Corporation v. Asstt. CIT [2010] 124 ITD 40 (Visakhapatnam), in support of his contentions that wherever the truck, lorries or other vehicles are hired to transport the consignment of its customers under its own supervision and control the payment of hire charges would n....
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....tion 194C of the Act? Before dwelling upon the issue, we prefer to examine the scope of provisions of section 194C of the Act. For the sake of reference, we extract the provisions as under: 194C. Payments to contractors and sub-contractors.-(1) Any person responsible for paying any sum to any resident (hereinafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and- (a) The Central Government or any State Government; or (b) Any local authority; or (c) Any corporation established by or under a Central, State or Provincial Act; or (d) Any company; or (e) Any co-operative society; or (f) Any authority, constituted in India by or under any law, engaged either for the purpose of dealing with an satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or (g) Any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act i....
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....mits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the subcontractor, shall be liable to deduct income-tax under this sub-section. Explanation-I - For the purposes of sub-section (2), the expression "contractor" shall also include a contractor who is carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government of a foreign State or a foreign enterprise or any association or body established outside India. Explanation-II - For the purposes of this section, where any sum referred to in sub-section (1) or sub-section (2) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. Explanation-III - For the purposes of this section, the expression "work" shall also include- (a) Advertising; (b) Broadcasting and ....
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....r carrying out any work) in pursuance of a contract between the contractor and the assessee at particular percentage. The sub-section 2 further clarifies that where a contractor responsible for paying any sum to any sub-contractor in pursuance of a contract with the sub-contractor for carrying out or for the supply of carrying out the whole or any part of the work undertaken by the contractor shall at the time of credit of such sum to the account of the sub-contractor or at the time of payment thereof in cash or by issue of cheque or draft or any other note is required to deduct the TDS at a particular percentage. In both the provisions the word "work" has been used and the said word "work" has been defined under explanation 3 according to which the expression "work" includes advertising, broadcasting telecasting carriage of goods and passengers by any mode of transport other than by railways and catering. For the purpose of impugned controversy, the carriage of goods and passengers by any mode of transport other than by railways is considered to be the work which can be assigned to the contractor or sub-contractor for its carrying out. 12. In the instant case, the assessee is a t....
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....ads as under: "Any person (being a contractor and not being an individual or a Hindu Undivided family) responsible for paying any sum to any resident (hereafter in the section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income tax on income comprised therein." 8.1 According to our understanding, section 194C (2) is attracted if all the following conditions are satisfied. (a) The assessee should be a contractor (b) The assessee, in his capacity as a contractor, should enter into a contract with a sub contractor for carrying out the whole or any part of the work undertaken by the contractor. (c) The sub-contractor should carry out the whole ....
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....rce, as per the provisions of sec.194C (2) on the payments made to the lorry owners for lorry hire. Consequently, the provisions of sec.40(a)(ia) shall not apply to such payments. 10. The points on which Ld DR sought to distinguish the facts of the instant case with the facts available in the case of M/s Mythri Transport Corporation viz., identifying the vehicle at the stage of bidding process itself, mode of payment of hire charges or the sharing of advantage in the contract, in our opinion, are not determinative of the nature of relationship between the assessee and the tanker owners. There is no assurance that the assessee, on identifying the tankers at the stage of bidding process, would automatically get the contract. As rightly contended by the Ld AR such identification may be one of the qualification required even for participating in the tender process. So also there are many ways of compensating the tanker owners for using the vehicle and the methodology followed by the assessee to pass on the entire hire charges, including Diesel escalation charges, except retaining a commission of 5% is one of the modes of payment. Hence the above said factors can not support the case o....