TaxTMI 
TaxTMI 
2012 (6) TMI 535
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....ncome-tax (Appeals) has erred in confirming the action of Assessing Officer in making disallowance of expenditure of Rs. 71,00,339/- u/s. 40(a)(ia) of the I.T. Act. 3.1. Facts in brief as emerged from the corresponding assessment order passed u/s. 143(3) of the IT Act dated 29/12/2009 were that the assessee in his individual capacity is stated to be in the business of civil work as a Proprietor of M/s. Sakhi Construction. About this issue, the AO has found that the assessee has claimed "transportation expenses" of Rs. 71,00,339/-. It was also noted by the AO that on that payment no tax was deducted at source. As per AO, the assessee was required to deduct the TDS as applicable u/s. 194C of the IT Act. According to AO, the assessee himself being a contractor, therefore, got the work done by those parties under an implied contract. Held, the payment was made in contravention of provision of section 40(a)(ia) of the Act, therefore, the amount claimed was disallowed by the AO. The matter was carried before the first appellate authority. 4. Before the first appellate authority, explanation of the assessee was as under: "2. In the course of appellate proceedings, it is submitted that ....
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.... construction work of peripherals and approach roads which is supposed to be carried out by him pursuant to contact with M/s. ANS Construction Ltd. In other words, if entire construction work is carried out by engaging other parties in that case the liability of assessee for making TDS under section 194C(2) could arise. However, same is not at all the case as for carrying out the subject work various activities are required to be performed by the assessee and as explained above various construction materials will have to be brought at the construction site for carrying out the subject work and in order to bring said materials, the services of transporters has been availed by assessee. It is worthwhile to mention here that assessee has not entered into any transportation contract with M/s. ANS Ltd. and therefore, payment of transport charges made to various parties does not fall under the head of sub-contract expenses. In view of the same, the provisions of section 194C(2) which provides for making TDS from sub-contract expenses, are not applicable and consequently, the question of making disallowance under section 40(a)(ia) for non-deduction of tax does not arise. 4. Without preju....
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....he appellant therefore is a contractor and M/s. A.N.S. Construction Ltd. was the contractee. According to him, M/s. A.N.S. Contruction Ltd. was the sub-contractor of M/s. Petronet LNG Ltd. The ground was dismissed as per the following discussion, relevant portion extracted below. "5.1....... The Assessing Officer has held that section 194C is applicable. As far as section 194C(1) is concerned, the same is applicable when payment is made from the contractee to the contractor and the appellant being an individual, sub-section (1) of section 194C is not applicable in the A.Y. 2007-08. The question, therefore, is whether in the appellant's case section 194C(2) is applicable or not. Sub-section (2) of above section applies in a situation where a contractor, i.e., the person executing the work who has entered into a contract with the principal, in pursuance of that contract enters into a contract with a sub-contractor for carrying out or supplying of labour for carrying out, of the whole or any part of the work undertaken by him (contractor), he shall make deduction of an amount equal to 1% of such sum at the time of payment in cash or cheque or draft or any other mode, whichever is ear....
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....l is, therefore, dismissed." 5. From the side of the assessee, ld. AR Mr. Sapnesh Sheth appeared and primarily argued that the provisions of section 194C(1) are applicable only in respect of a contractor and the provisions of section 194C(2) are applicable in respect of sub-contractor. Further he has mentioned that the provisions of section 194C(1), as stood for the year under consideration, did not apply on "individual". The assessee being an individual was not responsible for deduction of tax at source. Ld. AR has also placed on record the amended provisions of section 194C of the IT Act, which were applicable from 1st June, 2007. He has pleaded that earlier, as per the law applicable for the year consideration of section 194C, there was no liability of an individual to deduct the tax. Later on, by an amendment an individual has also been responsible for TDS if his total sales has exceeded the monitory limits prescribed u/s. 44AB of the I.T. Act. He has referred an agreement executed between M/s. A.N.S. Construction Ltd. and the assessee as a Proprietor of M/s. Sakhi Constructions. In terms of the said agreement dated 30th day of January, 2006 though the assessee is termed as a ....
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....cified in this section. As per the original section 194C(1) any person responsible for paying any sum to any contractor for carrying out any work in pursuance of a contract is required to deduct 2% TDS. However, as per section 194C(2), any person being a contractor responsible for paying any sum to any sub-contractor in pursuance of a contract with the sub-contractor for carrying out any work is required to deduct tax @ 1% at the time of payment. Sub-section (2) has later on made a provision according to which an individual or HUF, whose total sales exceeds the monitory limit prescribes u/s.44AB shall be liable to deduct income tax at the time of payment to a sub-contractor. It is further important to mention that vide an amendment with effect from 1-6-2007 an individual or HUF have also been inducted vide sub-clause (k) in section 194C(1) of the IT Act. At this juncture, it is worth to hold that as far as the AY in hand is concerned, i.e. AY 2007-08, this latest amendment of section 194C(1)(k) of the Act being introduced with effect from 1-6-2007 has no applicability. We therefore hold that if the Revenue Department had made an endeavour to invoke the provisions of section 40(a)(i....
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.... GR be said to be a separate contract, even though payments for several GRs are made under one bill? Answer : Normally, each GR can be said to be a separate contract, if the goods are transported at one time. But if the goods are transported continuously in pursuance of a contract for a specific period of quantity, each GR will not be a separate contract and all GRs relating to that period or quantity will be aggregated for the purpose of the TDS." 8. In the context of above clarification issued by the CBDT, if we examine the issue in hand, then in terms of the provisions of section 194C(2) of the Act conditions to be satisfied are (i) that the assessee should be a contractor, (ii) that the assessee should enter into a contract with a sub-contractor, (iii) that the sub-contractor should carry out any part of the work undertaken by the contractor and (iv) that the payment should be made for the work done. In a case, when a "contract" is assigned, generally the clauses are stringent that the contractor is to be responsible for all the acts and defaults committed. In the present case as well, when the M/s. A.N.S. Construction Ltd. had granted sub-contract dated 30-1-2006 to M/s. Sak....