M/s. Decent Lorry Services, Hyderabad V. ITO, Ward-5(2), Hyderabad

ITA 1113/HYD/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6289 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 08-08-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 17-07-2012
• Court: TRIBUNAL
• Department Lawyers: U MINICHANDRAN
• Assessee Lawyers: P BALAKRISHNA
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1113/HYD/2012 ASSESSMENT YEAR: 2006-07 M/S. DECENT LORRY SERVICES, HYDERABAD [PAN: AABFD8065B] VS INCOME TAX OFFICER, WARD-5(2), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P. BALA KRISHNA, AR FOR REVENUE : SMT U. MINICHANDRAN, DR DATE OF HEARING : 25-08-2016 DATE OF PRONOUNCEMENT : 02-09-2016 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-V, HYDERABAD D ATED 23-04-2012, ON THE ISSUE OF DISALLOWANCE U/S. 40(A) (IA) OF THE INCOME TAX ACT [ACT]. THE APPEAL WAS FILED WITH A D ELAY OF THIRTEEN DAYS AND THE REASON FURNISHED WAS THAT THE PARTNER HAS FALLEN SICK AND THEREFORE, DUE TO ILL-HEALTH, THE MEMO COULD NOT BE SIGNED AND APPEAL COULD NOT BE SUBMITTED. CONSIDERING THE REQUES T, WE HEREBY CONDONE THE DELAY OF THIRTEEN DAYS IN FILING TH E APPEAL MEMO. 2. BRIEFLY STATED, ASSESSEE IS A LORRY TRANSPORT CONTRA CTOR AND IN THE COURSE OF DOING BUSINESS, IT HIRES LORRIE S FOR I.T.A. NO. 1113/HYD/2012 M/S. DECENT LORRY SERVICES :- 2 -: TRANSPORTATION OF GOODS, MOSTLY TO ON THE SPOT AVAILABI LITY OF TRUCKS. SOMETIMES, BROKERS ARE ALSO ENGAGED BY CHARGING COMM ISSION FROM TRUCK DRIVERS OR OWNERS. ASSESSEE HAS PAID TOTALLY A N AMOUNT OF RS. 71,92,213/- TOWARDS LORRY HIRE CHARGES. ON THE R EASON THAT ASSESSEE HAS NOT DEDUCTED TAX ON THE ABOVE AMOUNTS AND THE PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE, ASS ESSING OFFICER (AO) ISSUED SHOW CAUSE NOTICES TO ASSESSEE ASKING FOR COMPLIANCE WITH THE PROVISIONS. IT WAS SUBMITTED THAT THE PAYMENTS O F LORRY HIRE DEBITED TO P&L A/C COVERS PAYMENTS AT VARIOUS POI NTS OF OFFICES AND BRANCHES AND AMOUNT PAID TO EACH PARTY WI LL NOT EXCEED RS. 20,000/- AND SO THE PROVISIONS OF SECTION 40(A)(I A) ARE NOT APPLICABLE. IT WAS FURTHER SUBMITTED THAT ASSESSEE UNDER TAKES TO TRANSPORT THE GOODS OF VARIOUS CUSTOMERS FOR VARIOUS DESTINATIONS AND ORDERS ARE PLACED WITH BROKERS FOR TRUCKS. THE B ROKERS ARRANGE THE TRUCKS BY CHARGING COMMISSION FROM TRUCK D RIVERS OR OWNERS AND ASSESSEE PAYS ONLY THE HIRE CHARGES. TH ERE IS NO CONTRACT THAT THE LORRY OWNERS OR DRIVERS AND THEREFOR E, THE PROVISIONS OF SECTION 194C ARE NOT APPLICABLE. LD.AO HOWEVER, HAS NOT ACCEPTED THE CONTENTIONS BY STATING AS UNDER: THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE. A SUB- CONTRACTOR WOULD MEAN ANY PERSON WHO ENTERS INTO A CONTRACT WITH THE CONTRACTOR FOR CARRYING OUT THE WHOLE OR PART O F WORK UNDERTAKEN BY THE CONTRACTOR. IN THE PRESENT CASE THE ASSESSE E IS A TRANSPORT CONTRACTOR WHO UNDERTAKES WORK OF TRANSPORTATION OF GOODS FROM VARIOUS PARTIES AND IT ENTRUSTS THE WORK TO LORRY O WNERS/DRIVERS. THEREFORE, IT IS TO BE TREATED AS WORK GIVEN ON SUB -CONTRACT AND PROVISIONS OF SECTION 194C APPLIES. ACCORDINGLY, T HE PAYMENTS MADE TOWARDS HIRE CHARGES WITHOUT DEDUCTION OF TAX AT SOURCE UNDER CHAPTER XVIIB ARE REQUIRED TO BE DISALLOWED. U/S. 40(A)(IA) OF THE I.T. ACT, THE CASE LAWS RELIED ON BY THE ASSESS EE ARE NOT APPLICABLE IN THIS CASE AS THE FACTS OF THE CASE DI FFER. AS PER THE BOOKS OF ACCOUNTS PRODUCED THE PAYMENTS MADE TOWARDS HIRE CHARGES AT RS. 50,000 OR MORE TO EAC H LORRY I.T.A. NO. 1113/HYD/2012 M/S. DECENT LORRY SERVICES :- 3 -: OWNER/DRIVER DURING THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR 2006-07 WITHOUT DEDUCTION OF TAX ARE RS. 4,38, 790/-. THE SAME IS DISALLOWED AND ADDED TO THE INCOME RETURNED . 2.1. THUS, OUT OF RS. 71,92,213/- DEBITED TO P&L A/C , AO DISALLOWED AN AMOUNT OF RS. 4,38,790/- STATED TO BE PAI D TOWARDS HIRE CHARGES AT RS. 50,000/- OR MORE TO EACH LORRY OW NER/DRIVER. 3. BEFORE THE LD. CIT(A), THE SAME CONTENTIONS WERE REITERATED BUT LD. CIT(A) ALSO AGREED WITH ASSESSEE B Y STATING AS UNDER: 5.2 I HAVE SEEN CAREFULLY THE FACTS AND EVIDENCE. IN THE CURRENT CASE, THE ARGUMENTS OF THE APPELLANT ARE NO T CORRECT THAT THERE WAS NO CONTRACT WITH ANYONE. THE APPELLANT I S A GOODS TRANSPORTER AND FREQUENTLY UTILIZES THE SERVICES OF EITHER ITS OWN LORRIES OR OF LORRIES BELONGING TO OTHER PERSONS. THERE IS DEFINITELY A CONTACT VIS--VIS THE RATE TO BE CHARGED, THE CHARG ES FOR DISTANCE, ETC. SUCH A BUSINESS CANNOT BE CARRIED OUT WITHOUT THE EXISTENCE OF A VERBAL CONTRACT. MOREOVER, THE CASE LAW QUOTED B Y THE APPELLANT DOES NOT APPLY IN THE CURRENT SCENARIO BECAUSE THE FACTS ARE DIFFERENT. GIVEN THE ABOVE FACTS AND CIRCUMSTANCES , I HOLD THAT IT IS THE APPELLANT WHO UNDERTAKES THE TRANSPORT THE GOOD S OF VARIOUS CUSTOMERS. THE APPELLANT IS NOT AN AGENT WHO WILL GET A MEETING ARRANGED WITH THE CUSTOMERS AND THE LORRY DRIVER AN D TAKE COMMISSION. RATHER, THE APPELLANT GIVES HIS OWN BI LL AND UNDERTAKES THE FULL RESPONSIBILITY OF THE TRANSPORT ATION. FURTHER, WHETHER THE APPELLANT PURCHASES ITS OWN LORRIES OR SUB-CONTRACTS A PORTION OF THE WORK IS AN INTERNAL ARRANGEMENT OF H OW IT WANTS TO CONDUCT BUSINESS. THIS DOES NOT CHANGE THE NATURE OF THE BUSINESS OR THE NATURE OF THE CONTRACT. THE ASSESSEE IS NOT TAKING COMMISSIONS BUT UNDERTAKING FULL CONTRACTS FOR TRAN SPORTATION. GIVEN THE ABOVE FACTS AND CIRCUMSTANCES, I HOLD THA T THE TDS WAS TO BE DEDUCTED AND THE ADDITION MADE BY THE ASSESSING OFFICER IS CORRECT. 4. AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERUSIN G THE ORDERS OF THE AUTHORITIES, WE ARE OF THE OPINION THAT N O DISALLOWANCE CAN BE MADE U/S. 40(A)(IA) OF THE ACT, AS THERE IS NO I.T.A. NO. 1113/HYD/2012 M/S. DECENT LORRY SERVICES :- 4 -: CONTRACT BETWEEN ASSESSEE AND LORRY OWNERS/DRIVERS. IN FACT, THERE MAY BE AN ORAL CONTRACT WHEN ASSESSEE UNDERTAKES TO TRAN SPORT THE GOODS. WHAT ASSESSEE RECEIVES AS TRANSPORTATION CHARG ES ARE ENTIRELY DIFFERENT FROM WHAT ASSESSEE PAYS TO LORRY OW NER OR DRIVER WHICH IS NOT A TRANSPORTATION CHARGE BUT A LORRY HIRE CHARGE. THERE CANNOT BE CONTRACT, EVEN ORALLY, AS CONSIDERED B Y THE LD. CIT(A) FOR THIS SORT OF WORK. THE SAME ISSUE WAS CO NSIDERED BY THE CO-ORDINATE BENCH AT VISAKHAPATNAM IN THE CASE OF MYT HRI TRANSPORT CORPORATION VS. ACIT [124 ITD 40], WHICH WA S RELIED ON BY ASSESSEE BEFORE THE LD. CIT(A) AS WELL, BUT LD. CI T(A) SEEMS TO HAVE NOT CONSIDERED THE SAME. 4.1. IN THE ABOVE REFERRED CASE OF MYTHRI TRANSPORT CORPORATION VS. ACIT [124 ITD 40], (SUPRA) ON SIMILA R FACTS, THE CO-ORDINATE BENCH AT VISAKHAPATNAM HAS HELD AS UNDER: HELD SECTION 194C(2) IS ATTRACTED IF ALL THE FOLLOWING C ONDITIONS 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 CAN TRACTOR. (C) THE SUB-CONTRACTOR SHOULD CARRY OUT THE WHOLE O R ANY PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR. (D) PAYMENT SHOULD BE MADE FOR CARRYING OUT THE WHO LE OR ANY PART OF THE WORK. IN THE INSTANT CASE, THE ASSESSEE WAS A TRANSPORT C ONTRACTOR AND HAD ENTERED INTO AN AGREEMENT WITH PARTIES WHEREBY IT UNDERTOOK TO TRANSPORT BITUMEN TO VARIOUS POINTS AS PER THEIR DI RECTIONS. ACCORDING TO THE ASSESSEE, THE LORRIES USED FOR THE SAID PURPOSE I.T.A. NO. 1113/HYD/2012 M/S. DECENT LORRY SERVICES :- 5 -: WERE SPECIALLY DESIGNED WITH PROPER HEATING ARRANGE MENTS. THE CLAIM OF THE ASSESSEE WAS THAT SINCE IT DID NOT HAV E REQUIRED NUMBER OF LORRIES, IT HAD TO HIRE LORRIES FROM OTHE RS WHO SIMPLY PLACED THE VEHICLES AT THE DISPOSAL OF THE ASSESSEE . THE ASSESSEE ALONE, UNDER ITS CONTROL AND SUPERVISION, HAD EXECU TED WHOLE OF THE CONTRACT. ACCORDING TO THE ASSESSEE, THE INDIVIDUAL LORRY OWNERS HAD NOT CARRIED OUT ANY PART OF THE WORK UNDERTAKEN BY THE ASSESSEE. [PARA 8.2J] THE STRINGENT CLAUSES OF THE WORK ORDER SUGGESTED T HAT THE ASSESSEE WOULD BE SOLELY RESPONSIBLE FOR ALL THE ACTS AND DE FAULTS COMMITTED BY IT AND/OR ITS EMPLOYEES. [PARA 8.4] IT WAS NOT ESTABLISHED BY THE REVENUE THAT OTHER LO RRY OWNERS, FROM WHOM THE VEHICLES WERE HIRED, HAD ALSO BEEN FASTENE D WITH ANY OF THE ABOVESAID LIABILITIES. IN A SUB-CONTRACT, A PRU DENT CONTRACTOR WOULD INCLUDE ALL THE LIABILITY CLAUSES IN THE AGRE EMENT ENTERED INTO BY HIM WITH THE SUB-CONTRACTOR. THE ASSESSEE HAD AL SO CLAIMED BEFORE THE TAX AUTHORITIES THAT THE RESPONSIBILITY IN THE WHOLE PROCESS LAY WITH IT ONLY. THOUGH THE PASSING OF LIA BILITY WAS NOT THE ONLY CRITERIA TO DECIDE ABOUT THE EXISTENCE OF A SU B-CONTRACT, YET THIS CONTENTION OF THE ASSESSEE, READ WITH THE LIABILITY CLAUSES OF THE WORK ORDER, SUPPORTED ITS SUBMISSION THAT THE INDIV IDUAL VEHICLE OWNERS WERE SIMPLE HIRERS OF THE VEHICLES. [PARA 8. 5J] AS PER THE PROVISIONS OF SECTION 194C(2), THE SUB-C ONTRACTOR SHOULD CARRY OUT THE WHOLE OR ANY PART OF THE WORK UNDERTA KEN BY THE ASSESSEE. THE DICTIONARY MEANING OF THE WORDS 'CARR Y OUT' .: 'TO CARRY INTO PRACTICE; 'TO EXECUTE:' 'TO ACCOMPLISH'. IT SIGNIFIES A POSITIVE INVOLVEMENT IN THE EXECUTION OF THE WHOLE OR ANY PA RT OF THE MAIN WORK BY SPENDING ONE'S TIME, MONEY, ENERGY, ETC., A ND FURTHER, TAKING THE RISKS IN CARRYING ON THE SAID ACTIVITY. IN THE INSTANT CASE, THERE WAS NO MATERIAL TO SUGGEST THAT THE OTHER LOR RY OWNERS INVOLVED THEMSELVES IN CARRYING OUT ANY PART OF THE WORK UNDERTAKEN BY THE ASSESSEE BY SPENDING THEIR TIME, ENERGY AND BY EKING THE RISKS ASSOCIATED WITH THE MAIN CONTRACT W ORK. IN THE ABSENCE OF THE ABOVESAID CHARACTERISTICS ATTACHED T O A SUB- CONTRACT IN THE INSTANT CASE, THE PAYMENT MADE TO THE LORRY OWNERS STOOD AT PAR WITH THE PAYMENTS MADE TOWARDS SALARIES, RENT, ETC. HENCE, THE REASONING OF THE TAX AUTHORITIES, TO HOLD THAT THE PAYMENT MADE FOR HIRED VEHICLES WAS A SUB-CONTRACT PAYMENT, WAS NOT CORRECT AND WAS NOT BASED ON RELEVANT CONSIDERATIONS. HENCE, IT COULD NOT BE SAID THAT THE PAYMENTS MADE FOR HIRED VEHICLES WOUL D FALL IN THE CATEGORY OF PAYMENT TOWARDS A SUB-CONTRACT WITH THE LORRY OWNERS. IN THAT CASE THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE, AS PER THE PROVISIONS OF SECTION 194C(2), ON THE PAYME NTS MADE TO THE I.T.A. NO. 1113/HYD/2012 M/S. DECENT LORRY SERVICES :- 6 -: LORRY OWNERS FOR LORRY HIRE. CONSEQUENTLY, THE PROV ISIONS OF SECTION 40(A)(IA) WOULD NOT APPLY TO SUCH PAYMENTS. [PARA 8 .6] IN THE RESULT, THE APPEAL OF THE ASSESSEE WAS TO BE ALLOWED. [PARA 9] 5. IN THE PRESENT CASE, ASSESSEE DOES NOT EVEN HAVE A CONTRACT TO SUPPLY WITH HIS PARTIES ON A REGULAR BASIS. IT UNDERTAKES TRANSPORTATION OF GOODS AS AND WHEN A PARTICU LAR PERSON REQUIRES THEM TO BE TRANSPORTED. WHEN THERE IS NO REGULAR CONTRACT, AS IN THE CASE OF MYTHRI TRANSPORT CORPORATI ON VS. ACIT [124 ITD 40] (SUPRA), THE QUESTION OF SUB-CONTRACT DOES NOT ARISE ON THE FACTS OF THE CASE. ON THE FACTS OF THE CASE, WE ARE OF THE OPINION THAT THE PROVISIONS OF SECTION 194C ARE NOT APPLICABLE. FOLLOWING THE PRINCIPLES LAID DOWN BY THE ABOVE SAID DECISION, WE ARE OF THE OPINION THAT SINCE THE AMOUNT PAID AS HIRE C HARGES ARE NOT COVERED BY THE PROVISIONS OF SECTION 194C, QUESTION OF DISALLOWANCE U/S. 40(A)(IA) DOES NOT ARISE. IN VIEW OF THAT, ASSESSEES GROUNDS ARE ALLOWED. AO IS DIRECTED TO AL LOW THE AMOUNT SO DISALLOWED. 6. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND SEPTEMBER, 2016 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD, DATED 2 ND SEPTEMBER, 2016 TNMM I.T.A. NO. 1113/HYD/2012 M/S. DECENT LORRY SERVICES :- 7 -: COPY TO : 1. M/S. DECENT LORRY SERVICES, 5-5-502, M.J. MARKET , HYDERABAD. 2. THE INCOME TAX OFFICER, WARD-5(2), HYDERABAD. 3. CIT (APPEALS)-V, HYDERABAD. 4. CIT-IV , HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.