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2020 (11) TMI 903
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....llant's case. 2.1 The learned CIT[A] ought to have appreciated that the provisions of Section 194C had no application to the aforesaid payments discursively labeled as hire charges in as much as these payments represented the revenue shared by the appellant with third party vehicle owners for providing their vehicles to the appellant to discharge the appellant's contractual obligations with M/s.Orix Infrastructure Pvt. Ltd., under the facts and in the circumstances of the appellant's case. 2.2 The learned CIT[A] ought to have appreciated that there was a contract for transportation of employees between M/s Orix Infrastructure India Pvt. Ltd. and the appellant and there was no contract, either written or oral between the appellant and the third party vehicle owners for transportation and hence, the provisions of section 194C of the Act was not applicable. The learned CIT[A] ought to have appreciated that the substance of the arrangement / transaction had to be considered and it was apparent that the appellant had borne the fuel charges for the vehicles provided by third party vehicle owners and the revenue received by the appellant was shared b....
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....isallowance of Rs. 1,26,66,648/- being the vehicle hire charges on which TDS had not been deducted." 4. On appeal, CIT(A) observed that the assessee is liable to deduct TDS u/s 194C of the Income-tax Act,1961 ['the Act' for short] on the vehicle hire charges and the assessee failed to deduct the TDS hire charges the disallowance u/s made by AO u/s 40(a)(ia) of the Act is justified. Against this, the assessee is in appeal before us by way of above grounds. The Ld. A.R. submitted that the appellant firm carries on the business of providing vehicles to M/s. Orix Infrastructure India Pvt. Ltd., [hereinafter for short "Orix Company"]. The aforesaid Orix Company is itself in the said business i.e., providing vehicles on hire to the end user corporate companies, who are the ultimate users of the service provided by the Orix Company. The appellant is one of the vendors of the said company and entered into a Transport Service Agreement with the said company on 30/07/2014, a copy of which is placed at page 25 of the Paper book No.2 filed alongwith the written submissions. 4.1 Ld. A.R. further submitted that the appellant is also an aggregator of vehicles i.e., the appellant its....
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....ween them. Hence, it is submitted that neither the provisions of section 194C nor the provisions of section 194I of the Act would be attracted to the facts of the appellant's case in respect of the payments made by the appellant to such third party vehicle owners since the aforesaid payment have been made by one Joint Venturer to another. Reliance for this proposition is placed on the decision of the Hon'ble 1TAT, Hyderabad in the case of MEIL-SEWMAYTAS BHEL, a copy of which is placed at page 27 of the Paper book. Reliance is also placed on the decision of the Hon'ble ITAT Pune Bench, in the case of MUNICIPAL CORPORATION, a copy of which is placed at page 60 of the Paper book. Accordingly, the Ld. A.R. prayed that the disallowance made requires to be deleted. 5. On the other hand, Ld. D.R. submitted that assessee has paid the hire charges to the vehicle owners which falls under the purview of section 194C of the Act on which payment, assessee is liable to deduct TDS, which is not deducted by the assessee mainly the applicability of section 40(a)(ia) of the Act is justified. Accordingly, invoking of provisions of section 40(a)(ia) of the Act is justified is supported ....
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.... shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed 17[thirty] thousand rupees : Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds [seventy five] thousand rupees, the person responsible for paying such sums referred to in subsection (1) shall be liable to deduct income-tax under this section. (6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum. (7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6)....
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.... by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer."] 6.1 A plain reading of this Section makes it clear that "any person responsible for paying any sum to any resident (hereafter 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 specified person" is required to deduct tax at source under section from the amounts so paid or payable. There is no doubt that the assessee in this case has made the payments as hire charges to cab owners. The main contention of the assessee is, however, that the payments have not been made in pursuance of a contract between the assessee and the cab owners. Now the question arises before us, whether there is contractual relationship between the assessee and the persons to whom the assessee had made the payments in the nature of hiring of vehicles. In our opinion, a contract need not be in writing; even an oral contract is good enough to inv....
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....nserted by the Finance Act, 2012 would apply in the instant case. According to him, the second proviso is curative in nature intended to supply an obvious omission, take care of an unintended consequence and make the section workable. Section 40(a)(ia) without the second proviso resulted in the unintended consequence of disallowance of legitimate business expenditure even in a case where the payee in receipt of the income had paid tax. According to him, it has for long been the legal position that if the payee has paid tax on his income, no recovery of any tax can be made from the person who had failed to deduct the income tax at source from such amount. In Grindlays Bank v CIT, (1992) 193 ITR 457 (Cal) decided on September 5, 1989, it was held by the Hon'ble Calcutta High Court as follows at pages 469-470 of the reports: "A point has been made by the assessee that as a result of this deduction the department is realizing the tax twice on the same income. It does not appear that this point was agitated before the Tribunal. We, however, make it clear that if the amount of tax has already been realised from the employees concerned directly, there cannot be any question of furt....
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....bt that the second proviso was inserted to supply an obvious omission and make the section workable. The insertion of second proviso was explained by Memorandum Explaining The provision in Finance Bill, 2012, reported in 342 ITR (Statutes)234 at 260 & 261, which reads as under:- "E.RATIONALIZATION OF TAX DEDUCTION AT SOURCE (TDS) AND TAX COLLECTION AT SOURCE (TCS) PROVISIONS I. Deemed date of payment of tax by the resident payee. Under the existing provisions of Chapter XVII-B of the Incometax Act, a person is required to deduct tax on certain specified payments at the specified rates if the payment exceeds specified threshold. In case of non-deduction of tax in accordance with the provisions of this Chapter, he is deemed to be an assessee in default under section 201(1) in respect of the amount of such non-deduction. However, section 191 of the Act provides that a person shall be deemed to be assessee in default in respect of non/short deduction of tax only in cases where the payee has also failed to pay the tax directly. Therefore, the deductor cannot be treated as assessee in default in respect of non/short deduction of tax if the payee has di....
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....he disallowance under section 40(a)(ia) of certain business expenditure like interest, commission, brokerage, professional fee, etc. due to nondeduction of tax. It has been provided that in case the tax is deducted in subsequent previous year, the expenditure shall be allowed in that subsequent previous year of deduction. In order to rationalize the provisions of disallowance on account of non-deduction of tax from the payments made to a resident payee, it is proposed to amend section 40(a)(ia) to provide that where an assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, the, for the purpose of allowing deduction of such sum, it shall be deemed that the assessee had deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee. These beneficial provisions are proposed to be applicable only in the case of resident payee. These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-1....
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.... cab owners was not denied by the assessee but he argued that the provisions of section 194C(6) of the Act are applicable to his case. The learned DR further submitted that the Assessing Officer has not accepted the above argument of the assessee as provisions of section 194C(6) of the Act do not apply to the business of plying passenger vehicles. The learned DR submitted that the claim of the assessee that petrol and diesel expenses were in nature of reimbursement is also not acceptable for the reason that the provisions of TDS get attracted even in the case of reimbursement. The assessee has taken vehicle on hire along with the drivers and the payment made to the cab owners includes that for petrol and diesel. This is not the claim of the assessee that expenses of petrol and diesel are to be borne by him and he is just making payment to the cab owners for filling petrol / diesel in their vehicles. Besides the above argument, the learned DR also relied on the orders of the Income tax Authorities. 9. After considering the rival submissions and perusing the relevant material on record, it is observed that as agreed by and between the assessee and the cab owners, a vehicle was ....