TaxTMI 
TaxTMI 
TaxTMI 
2017 (7) TMI 536
X X X X Extracts X X X X
X X X X Extracts X X X X
....use 9 of CBDT guidelines and notices u/s 143(2) & 142(1) of the Act were issued. In response to notices, the authorized representative of the assessee appeared from time to time and furnished the books of accounts and information/documents as called for. 3. During the course of assessment proceedings, the A.O. noticed that the assessee has incurred freight charges of ` 4,43,45,100/-. To ascertain the correctness of expenditure incurred in the assessee and also to examine the applicability of provisions of section 194C of the Act for deduction of tax at source, the A.O. issued a show cause notice and asked to furnish necessary details of expenditure along with TDS particulars. In response to show cause notice, the assessee vide letter dated 19.11.2009 submitted that he is involved in the business of transport contract entered into an agreement with ITC Limited for transport of goods from its manufacturing facilities to various places of customers. The assessee further submitted that to execute contract, he has hired lorries from various parties to be deployed to M/s. ITC Limited for transportation of goods. The assessee further submitted that the trucks will be hired directly from ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... also incorporated that in the event of any loss or damage caused to the consignment, the driver/owner of the truck will be responsible to make good the loss to the assessee as valued by him. The signature of owner/driver on the L/R authenticate the acceptance of the liabilities of the assessee by the lorry owner/driver. The A.O. further observed that the L/R is the basis for payment of freight, hence, the payment cannot be a hire payment as claimed by the assessee. Therefore, opined that the freight charges paid by the assessee need to be treated as payment to sub contractors as defined u/s 194C(2) of the Act. Since, the assessee failed to deduct tax at source u/s 194C of the Act, the total expenditure incurred towards freight charges cannot be allowed as deduction u/s 40(a)(ia) of the Act. 6. In so far as computation of capital gain, the A.O. observed that the assessee has purchased agricultural land in the year 1980 for the purpose of carrying out agricultural operations, which is evident from the fact that he had declared agricultural income from said land for all the assessment years. The A.O. further observed that though assessee claims to have converted capital asset into s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....source u/s 194C of the Act does not arise. The assessee further contended that he had hired lorries in the open market as and when required for the purpose of transportation of goods. It was further submitted that he had entered into a transport contract agreement with M/s. ITC Limited for transportation of goods from its manufacturing facilities to various places. In the process, he had hired lorries from the owners without there being any written or oral contract and the lorries are hired on various places depending upon the requirement and hence, it cannot be considered as contract or sub contract as defined u/s 194C(2) of the Act. The assessee further submitted that the provisions of section 194C of the Act would apply, only when there is a contract between the parties for execution of work including transportation of goods. He had neither entered into any contract nor taken vehicles on regular basis, therefore, the payments made to lorry owners cannot be considered as payment made towards execution of works contract as defined u/s 194C of the Act. The assessee further submitted that the payments were directly made to the drivers or who so ever was incharge of vehicles and the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of responsibilities for the assessee and all the risk involved in transport of goods are rest with the assessee. The A.O. treated the freight payments as payment made to sub contractors merely on the ground that the lorry receipts clearly indicates that the driver/lorry owners have undertaken the risk associated with the goods. The CIT (A) further observed that it is seen that the lorries are placed at the disposal of the ITC Limited for transport of the goods. The goods are loaded and transported at the responsibility of the assessee. The assessee makes advance payment to the lorry driver at the time of loading goods and after delivery the lorry driver goes back and takes the balance amount. Thus, in the impugned activity elements of contract are absent and as such the action of the A.O. in applying the provisions of section 194C of the Act is not approved. Since, it is held that the provisions of section 194C of the Act have no application and accordingly, the provisions of section 40(a)(ia) of the Act have also no application, accordingly, directed the A.O. to delete additions made towards disallowance of freight charges. 10. In so far as computation of capital gain, the CIT(A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rovisions of section 194C of the Act and accordingly, the payment made to lorry owners are nothing but a payment made to sub contractors. It is the contention of the assessee that the expenditure incurred under the head 'freight charges' is a payment made for mere hiring of vehicles without any written or oral contract with the lorry owners. The assessee further contented that the risk of transportation of goods is rest with him. The lorry owners/drivers does not take any responsibility of risk. Any damages to the goods while in the transportation is fully on the assessee. Therefore, the payments made to the lorry owners cannot be considered as payment made to sub contractors as defined u/s 194C(2) of the Act. 12. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The A.O. disallowed freight charges for failure to deduct tax at source u/s 194C of the Act. According to the A.O., the expenditure incurred under the head 'freight charges' is nothing but payment made to sub contractors which attracts TDS provisions u/s 194C(2) of the Act. The provisions of section 194C of the Act require any person who is resp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y of safe movement of goods. The L/Rs further indicate that in the event of any damages to the goods, on account of negligence of the truck/lorry owners or drivers, then the lorry owners are liable to bear the cost of goods. The A.O. without appreciating the proper facts, simply came to the conclusion that the L/Rs issued by the assessee indicates that there exist a contract between the assessee and the lorry owners. But, the fact remains that the total responsibility of risk involved in the goods is rest with the assessee. The assessee merely hired the vehicles and deployed the vehicles at the disposal of the ITC Limited. Therefore, we are of the considered view that the payments made to lorry owners are not coming within the ambit of the provisions of section 194C of the Act. 14. The assessee has relied upon the decision of ITAT, Visakhapatnam in the case of Kranti Road Transport Private Limited Vs. ACIT, (2012) 50 SOT 15. The coordinate bench of this Tribunal, under similar circumstances, observed that whenever the lorries and trucks are hired by the assessee to be used in his business under its own supervision and control, then TDS is not required to be deducted on payment mad....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... whenever the lorries and trucks are hired by the assessee for its own use in any manner under its own control and supervision, the TDS is not required to be deducted on payment made by the contractor to the lorry/truck owners. In the instant case, the assessee has hired the trucks/lorries for transporting of the consignment booked by it under its own supervision and control with all responsibility and liabilities. Therefore, the hiring of truck and lorries cannot be called to be the work as per definition given in Explanation 3 of section 194C and consequent thereto, the assessee is not liable for deduction of TDS on payment to lorry/truck owners as per section 194C Therefore, there was no merit in the order of Commissioner (Appeals) and it was to be set aside. [Para 13]" 15. The assessee relied upon the decision of Hon'ble High Court of Punjab & Haryana, in the case of CIT(TDS) Vs. United Rice Land Limited (2010) 322 ITR 594. The Hon'ble High Court, has observed that in the absence of any oral or written agreement between the assessee and the transporters for carriage of goods, freight charges paid to the lorry owners are not coming within the ambit of provisions of section 194....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de by the A.O. We do not find any error in the order of the CIT(A). Hence, we are inclined to uphold the CIT(A) order and dismiss the ground raised by the revenue. 17. The next issue that came up for our consideration is computation of capital gain on sale of land. The factual matrix of the case which leads to the impugned additions are that during the financial year relevant to assessment year 2007-08, the assessee has sold land admeasuring 2.98 acres and computed resultant profit under the head 'income from business and income from capital gains' as per the provisions of section 45(2) of the Act. The A.O. observed that the assessee has failed to prove conversion of capital asset into stock-intrade with necessary evidences. The A.O. further observed that the fact clearly indicates that the assessee has sold his capital asset. According to the A.O., the assessee failed to prove conversion of capital asset therefore, the resultant profit from sale of land would be assessable under the head 'income from capital gains'. The A.O. has given various reasons to come to the conclusion that the impugned land is sold as a capital asset, but not as stock-in-trade. The A.O. further observed t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ricultural land into various parts cannot constitute adventure in the nature of trade or commerce. According to the A.O., the assessee never involved in the business of trading in lands. The A.O. further observed that the assessee failed to prove conversion of capital asset into stock-in-trade with necessary evidences. According to the A.O., the documents furnished by the assessee and his financial statements for the financial year 2005-06 and tax audit report issued by the auditor clearly indicates that there is no conversion of capital asset into stock-in-trade during the relevant financial year. 20. The only question that needs to be examined is on the facts and in the circumstances of the case the profit from sale of land is assessable under the head 'income from business' or under the head ' income from capital gains'. The term 'buisness' includes any adventure in the nature of trade, commerce or manufacture. In order to find whether a transaction of purchase and subsequent sale amounts to an adventure in the nature of trade, the initial intention is an important factor, but not a conclusive one. The subsequent events and the assessee's conduct are also important factors and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ims that merely because the books of accounts not disclosed the conversion of capital asset into stock-in-trade, the characteristics of the transaction would not change. 22. We find force in the arguments of the assessee, for the reason that the assessee has proved its intention to carry out adventure in the nature of trade on the said land. The assessee has converted the land into stock-in-trade, formed sites before it was sold. Therefore, from the above facts, it is very clear that the assessee has involved in the business of real estate which is evident from the fact that the assessee has computed resultant profit from sale of impugned land by applying the provisions of section 45(2) of the Act. Once the assessee has proved the conversion of capital asset into stock-in-trade, the provisions of section 45(2) of the Act come into play and the income is to be determined in accordance with the said section. In this case, the assessee has applied the provisions of section 45(2) of the Act and computed capital gain as well as business income after conversion of capital asset into stock-in-trade. Therefore, we are of the view that the documents furnished by the assessee clearly indica....