Commissioner of Income Tax-VI V. M/S Shri Gautam Gupta,

ITTA/284/2012

AI Insights

This case involves an appeal by the Revenue against the decision of the Income Tax Appellate Tribunal, Hyderabad, which had allowed the assessee's appeal regarding the disallowance of certain expenses under Section 40(a)(ia) of the Income Tax Act. The assessee, a transport contractor, had not deducted TDS on freight charges paid, claiming that Forms No.15-I obtained from the lorry owners exempted them from this requirement. The Tribunal initially sided with the assessee, referencing a prior case that interpreted Section 194-C(2) in a manner favorable to the non-deduction of TDS under similar circumstances. However, the Revenue challenged this interpretation, leading to the current appeal where the court emphasized the need for compliance with specific procedural requirements under Section 194-C(3), including the proper filing of Forms No.15-I and No.15-J.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 737270 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 02-11-2012
• Assessment Year: misc
• Other Referred Cases: Mythri Transport Corporation vs. ITAT, Visakhapatnam
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: K KUMAR
• Assessee Lawyers: S R ASHOK
• Keywords: Goods Carriage; Income Tax; Sub-contractor; TDS; Form No.15G; Form No.15-I; Form No.15-J
• Section: 142(1); 143(2); 194A; 40(a)(ia); 194C(2); 260-A; 194C(3)

Judgement Text

"HONOURABLE SRI JUSTICE GODA RAGHURAM AND HONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAO I.T.T.A.No.284 of 2012 JUDGMENT (per Hon’ble Sri Justice M.S.Ramachandra Rao): This appeal is filed under Section 260-A of the Income Tax Act, 1961 (for short ‘the Act’) by the Revenue challenging the order dated 06-01-2012 in I.T.A.No.942/Hyd/2011 of the Income Tax Appellate Tribunal, Hyderabad Bench “A”, Hyderabad. 2. The respondent/assessee is an individual and proprietor of M/s.Gautam Carriers carrying on business as a transport contractor. He filed a return of income on 29-10-2007 declaring an income of Rs.3,35,290/- for the assessment year 2007-08. Later, the case was selected for scrutiny and notices under Section 143 (2) and Section 142 (1) of the Act were issued. During the course of the assessment proceedings, the assessing officer called for books of accounts, details of lorry freight charges paid etc. After going through the same, the assessing officer by order dated 21- 12-2009 made the following additions: “I) Disallowance of interest of Rs.8,633/- under Section 40 (a) (ia), amount paid to M/s.Rajadhani Road Carrier under Section 194A, out of the total interest amount debited to the Profit & Loss A/c. of Rs.45,016/-, as the appellant had obtained Form No.15G from M/s.Rajadhani Road Carriers but not filed the same before the CIT. II) Disallowance of excess salary paid i.e. salary paid for 13 months, to one Mr.Santan, amounting to Rs.2,300/-. III) Disallowance of Rs.1,699/- out of repairs and maintenance as the AO observed that the repairing charges are attributable to employees personal vehicle and is not a business expenditure. IV) Disallowance of Rs.44,701/- being the expenses for telephone, petrol, conveyance and miscellaneous expenses in respect of the items as listed in annexure to the assessment order, are not supported by offer narration, contained voucher numbers and receiver’s name etc. Hence, the total of such vouchers amounting to Rs.44,701/- was disallowed. V) Disallowance of lorry freight charges of Rs.43,29,444/- being the freight charges paid exceeding Rs.50,000/- and for not effecting TDS as per the provisions of Section 194C(2) of the IT Act. It is seen from the assessment order that the appellant had contended before the AO that it had obtained Form No.15-I from the concerned parties and hence TDS was not made. However, the AO citing the provisions of Section 194C as also the Sub-Rule 3 of Rule 29D that the Forms obtained in 15-I were not filed before the specified authority before 30th June of the following financial year had disallowed the amount of Rs.43,29,444/-.” 3. Challenging the same, the assessee filed appeal to CIT (Appeals)-VI, Hyderabad which was numbered as I.T.A.No.0291/09-10/CIT(A)-VI/10-11. In the said appeal, the assessee, inter alia, contended that the disallowance of lorry freight charges of Rs.43,29,444/- under Section 40 (a) (ia) of the Act is not valid as the deductees of TDS had furnished Form No.15-I to the assessee; that mere delay in filing the said forms before CIT should not resultant in a disallowance under Section 40 (a) (ia) of the Act; that filing of Form No.15-I is a procedural requirement which does not entail any disallowance of expenditure while computing the income as per provisions of Section 29 to Section 43-D; that no tax is deductible by the deductor in the face of the certificates filed by the deductee; and that there is no dispute that the deductees have filed the forms and therefore the assessee/deductor was not required to deduct the tax in the face of such certificates. 4. The CIT (Appeals)-VI, Hyderabad, by order dated 13-01- 2011 allowed the appeal in respect of interest debited to the Profit and Loss Account of Rs.8,633/- and also disallowance of the lorry freight charges of Rs.43,29,444/- relying on the decision of the ITAT, Visakhapatnam in the case of Mythri Transport Corporation reported in 124 ITD 40. In the said case the Tribunal had held that as per the provisions of Section 194-C (2) of the Act, the sub contractor should carry out the whole or any part of the work undertaken by the assessee, that the lorry owners engaged by the assessee in the said case did not involve themselves in carrying of any part of the work undertaken by the assessee by spending their time, energy or by taking risks associated with the main contract work and therefore the payments made to the lorry owners is similar to simple payments made towards salaries, rent etc. It held that payments made for hired vehicles would not fall in the category of payment towards a sub contract with lorry owners and therefore the assessee was not liable to deduct tax at source as per the provisions of Section 194-C (2) of the Act on the payments made to the lorry owners for lorry hire. Consequently, the provisions of Section 40 (a) (ia) of the Act will not apply to such payments. 5. Aggrieved by the same, the Revenue filed ITA No.942/Hyd/2011 to the Income Tax Appellate Tribunal, Hyderabad Bench “A”, Hyderabad. In the said appeal, the Revenue contended as follows: “a) the learned Commissioner of Income-tax (Appeals) erred in holding that the fright paid by the assessee of Rs.43,29,444/- to the lorry owner (each payment to a single owner exceeded Rs.50,000/- does not fall under the expression sub-contractor in section 194C(2) in as much as there is an oral contract between the lorry owner and the assessee for carrying goods of the assessee to different destinations. b) The learned CIT (Appeals) ought to have appreciated the facts that the assessing officer has established that the assessee did not submit form No.15I before the Commissioner of Income-tax concerned. When the assessee has obtained form 15I from the lorry owners it is clear that the intention of the assessee is that he is liable to deduct tax on the freight paid by him. The CIT (A) ought to have appreciated the fact that the assessee has taken two stands one stating that he had obtained form No.15I from the lorry owners leading thereby accepting the TDS liability and the other it does not fall under the expression ‘sub-contract- which are contrary.” 6. The Tribunal allowed the appeal and remanded the matter to the file of the assessing officer with a direction to examine whether Forms No.15-I claimed to have been given by the deductee to the assessee have been filed before the prescribed authority and if he is satisfied that Form No.15-I given by the deductees have been filed, to delete the addition of the sum of Rs.43,29,444/-. It was of the view that once the recipient- deductee has filed declaration in Forms No.15-I as per the Act, it is obligatory for the deductor not to deduct tax at source .It held that on filing such a declaration by the recipient, the deductor is obliged not to deduct tax and the liability to deduct tax at source would cease. 7. Aggrieved thereby, the Revenue has filed this appeal contending that the Tribunal should have taken into account the provisions of the second and third provisos of Section 194-C (3) of the Act also and ought not to have held that the assessee is entitled to the benefit of Section 194-C(3) merely on the strength of Forms No.15-I obtained from the deductee. 8. Heard Sri S.R.Ashok, learned Senior Standing Counsel for the Income Tax Department and Sri K.Vasanth Kumar, learned counsel for the respondent. 9. The counsel for the appellant contends that the Tribunal overlooked the second proviso to Section 194-C (3) of the Act which permits non-deduction of tax at source provided the recipient owned not more than two goods carriages at any time during the previous year and that the Tribunal ought to have insisted on compliance with this condition imposed by the second and third provisos to Section 194-C (3) of the Act while remanding the matter to the assessing officer in addition to its direction to give benefit of non-deduction of TDS if Form No.15-I had been filed. 10. Section 194-C at the relevant time ( i.e. prior to its amendment by Finance (No.2) Act, 2009 (33 of 2009) with effect from 01-10-2009) inter alia stated that any person responsible for paying any sum to any resident (i.e. contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and any individual whose total sales, gross receipts or turnover from business or profession carried on by him exceeded the monetary limit specified under Clause (a) or Clause (b) of Section 44-AB during the financial year immediately proceeding the financial year in which such sum is credited or paid to the account of the contractor, shall, at the time of credit of such sum to the account of the 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 1% in the case of advertising and in any other case 2% of such sum as income tax on income comprised therein. Sub clause (3) of the said Section provided as follows: “(3) No deduction shall be made under sub- section (1) or sub- section (2) from- (i) the amount of any sum credited or paid or likely to be credited or paid to the amount of, or to, the contractor or sub-contractor, if such sum does not exceed twenty thousand rupees: Provided that were the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds fifty thousand rupees, the person responsible for paying such sums referred to in sub-section (1) or, as the case may be, sub-section (2) shall be liable to deduct income-tax under this section: Provided further that no deduction shall be made under sub-section (2), from the amount of any sum credited or paid or likely to be credited or paid during the previous year to the account of the sub-contractor during the course of business of plying, hiring or leasing goods carriages, on production of a declaration to the person concerned paying or crediting such sum, in the prescribed form and verified in the prescribed manner and within such time as may be prescribed, if such sub- contractor is an individual who has not owned more than two goods carriages at any time during the previous year: Provided also that the person responsible for paying any sum as aforesaid to the sub-contractor referred to in the second proviso shall furnish to the prescribed income-tax authority or the person authorized by it such particulars as may be prescribed in such form and within such time as may be prescribed; or; (ii) any sum credited or paid before the 1st day of June, 1972; or (iii) any sum credited or paid before the 1st day of June, 1973 , in pursuance of a contract between the contractor and a co- operative society or in pursuance of a contract between such contractor and the subcontractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the co- operative society. Explanation- For the purpose of clause (i), “goods carriage” shall have the same meaning as in the Explanation to sub-section (7) of section 44AE”. 11. Thus TDS under Section 194-C should be made from the payment made by an assessee to his sub contractor at the rate of 2% unless such sum did not exceed Rs.20,000/- or where the sub contractor is an individual engaged in the business of plying, hiring or leasing goods carriages and he does not own more than two goods carriages at any time during the previous years . In the latter case, the sub contractor should give a declaration to that effect in Form No.15-I of the Act (as per second proviso to Section 194-C (3) (i) ) to the person making the payment i.e the deductee /assessee and also if the assessee files a declaration as to the payments made to the sub contractor in Form No.15-J of the Act (as per the third proviso to Section 194-C (3)(i) ). This legal position is not disputed by the counsel for the respondent. 12. In view of the provisions of Section 194-C and in particular second and third provisos to clause (i) sub section (3) thereof, the contention of the Revenue/appellant herein has to be upheld. Accordingly, we uphold the order of remand made by the Tribunal to the assessing authority in the impugned order and direct the assessing authority to examine not only whether Form Nos.15-I claimed to have been given by the deductee to the assessee had been filed before the prescribed authorities or not but also to examine whether Form No.15-J has been filed by the assessee indicating the amounts paid by him to the sub contractors (heavy goods carriages/trucks owners) as per the second and third provisos to clause (i) of sub section (3) of Section 194-C of the Act. The assessing authority shall pass an order in accordance with law after giving the assessee a reasonable opportunity of hearing. 13. The appeal by the Revenue is therefore allowed to the above extent. No costs. ____________________________ JUSTICE GODA RAGHURAM __________________________________ JUSTICE M.S.RAMACHANDRA RAO Date:02-11-2012 kvr "