DCIT, Circle - 3, Asansol, Asansol V. Sanjoy Transport Agency, Burdwan

ITA 1722/KOL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48234 (ITAT-KOLKATA)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 03-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SINGH
• Assessee Lawyers: S M SURANA
• Keywords: Depreciation; Non-deduction of tax
• Section: 194C

Judgement Text

, A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE . . . . . . . . , , , , ! ! ! ! /AND ' #!' , $% ) [BEFORE HONBLE SHRI G. D. AGRAWAL, V.P. & HONBLE SHRI MAHAVIR SINGH, JM] !& !& !& !& / I.T.A NO. 1722/KOL/2010 #'( )* #'( )* #'( )* #'( )*/ // / ASSESSMENT YEAR: 2007-08 DEPUTY COMMISSIONER OF INCOME-TAX, VS SANJOY TRAN SPORT AGENCY CIRCLE-3, ASANSOL (PAN-AAVFS 6659 N) ( ,- /APPELLANT ) (./,-/ RESPONDENT ) FOR THE APPELLANT: SHRI A. SINGH FOR THE RESPONDENT: SHRI S. M. SURANA $01 / ORDER PER MAHAVIR SINGH, JM ( ' ' ' ' #!' #!' #!' #!' , , , , $% $% $% $% ) THIS APPEAL BY REVENUE IS ARISING OUT OF THE ORDER OF CIT(A), ASANSOL IN APPEAL NO.84/CIT(A)/ASL/CIR-3/ASL/2009-10 VIDE DATED 22.06 .2010. THE ASSESSMENT WAS FRAMED BY ACIT, CIR-3, ASANSOL U/S.143(3) OF THE IN COME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2007- 08 VIDE HIS ORDER DATED 24.12.2009. 2. THE TWO INTERCONNECTED ISSUES IN THIS APPEAL OF THE REVENUE ARE AGAINST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE MADE BY ASSESSING OFFICER ON ACCOUNT OF PAYMENT OF HIRE CHARGES OF HEAVY EARTH MOVING MACHINES AMOUNTING TO RS.1,35,29,972/- AND SUM OF RS.2,24,78,140/- ON ACCOUNT OF PAYMENT OF HIRED VEH ICLES FOR TRANSPORTING EARTH MATERIAL BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) FOR NO N-DEDUCTION OF TAX U/S. 194-I AND LOWER DEDUCTION OF TAX U/S. 194C OF THE ACT. FOR THIS, T HE REVENUE HAS RAISED FOLLOWING GROUND NOS. 1 AND 2: I) WHETHER LD. CIT(A), ASL WAS JUSTIFIED IN DELETI NG THE ADDITION MADE BY THE A.O. U/S. 40(A)(IA) IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND MATERIALS AVAILABLE ON RECORDS. II) WHETHER LD. CIT(A), ASL WAS JUSTIFIED IN DELETI NG THE ADDITION MADE BY THE A.O. ON ACCOUNT OF NON DEDUCTION OF TAX U/S. 194I IN VIEW O F THE FACTS AND CIRCUMSTANCES OF THE CASE AND MATERIALS AVAILABLE ON RECORD. 3. BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS MADE DISALLOWANCE ON FOLLOWI NG HEADS: 2 ITA 1722/K/2010 SANJOY TRANSPORT AGENCY A.Y.07-08 1) DISALLOWED U/S. 40(A)(IA) RS.1,35,29,972/- 2) DISALLOWED NON-DEDUCTION OF TAX U/S. 194I RS.2 ,24,78,140/- THE ASSESSING OFFICER NOTED THAT THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF EARTH CUTTING, TRANSPORTING AND ROAD DEVELOPMENT AND DURING THE YE AR UNDER CONSIDERATION IT HAS DEBITED A SUM OF RS.1,35,29,972/- UNDER THE HEAD PAYMENT OF HIRE D HEAVY EARTH MOVING MACHINE FOR WHICH THE ASSESSEE HAS MADE PAYMENT TO DIFFERENT PARTIES AFTER DEDUCTING TAX @ 1%. ASSESSEE CLAIMED THAT IT HAD EXPENDED ON MAINTENANCE OF HEAVY EARTH MOVING MACHINES AT RS.5,78,19,190/- AND INCURRED OPERATING EXPENSES AT RS.6,17,88,713/-. T HE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY TAX WAS NOT DEDUCTED U/S. 194-I O F THE ACT, SINCE IT HAD TAKEN THE MACHINERY ON RENT AND RATE OF TDS U/S. 194-I OF THE ACT IS 20 %. THE ASSESSEE REPLIED THAT IT DID NOT TAKE ANY MACHINE ON HIRE OR RENT BUT A CONTRACT WAS GIVE N BY ASSESSEE FIRM FOR DOING CERTAIN WORK AND, THEREFORE, IT DID NOT FALL U/S. 194-I OF THE A CT BUT FALLS U/S. 194C AS SUB-CONTRACTOR AND ACCORDINGLY, IT HAS RIGHTLY DEDUCTED TAX AT 1%. TH E ASSESSING OFFICER WAS NOT CONVINCED WITH THE REPLY OF THE ASSESSEE AND HE DISALLOWED THE EXP ENDITURE OF RS.1,35,29,972/- BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. SIMILA RLY, THE ASSESSING OFFICER NOTED THAT IT HAD DEDUCTED A SUM OF RS.2,24,78,140/- UNDER THE HEAD PAYMENT OF HIRED VEHICLE FOR TRANSPORTING EARTH FOR WHICH IT HAD MADE PAYMENT TO DIFFERENT P ARTIES AFTER DEDUCTING TAX @ 1% U/S. 194C OF THE ACT. THE ASSESSING OFFICER REQUIRED THE ASSESS EE TO EXPLAIN AS TO WHY TDS U/S. 194 I OF THE ACT WAS NOT DEDUCTED. THE ASSESSEE REPLIED THAT IT DID NOT TAKE ANY VEHICLE ON HIRE BUT THE CONTRACT WAS GIVEN TO CONCERNED FIRM FOR DOING CERT AIN AMOUNT OF WORK, THEREFORE, THE FIRM DOES NOT FALL U/S. 194-I OF THE ACT AND FALLS U/S. 194C OF THE ACT AS A SUB CONTRACTOR. ACCORDINGLY, ASSESSING OFFICER DISALLOWED THIS EXPENDITURE ALSO FOR NON-DEDUCTION OF TAX U/S. 194-I OF THE ACT BY INVOKING PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A) ON BOTH THE ISSUES. 4. THE CIT(A) DELETED THE DISALLOWANCE BY OBSERVING IN PARA 7, 8 AND 9 OF HIS APPELLATE ORDER AS UNDER: 7. I HAVE CONSIDERED THE MATTER. FIRSTLY, SECTION 194I PERTAINS TO RENT RECEIVED FROM LETTING OUT OR HIRING OUT OF LAND, BUILDING, MACHIN ERY, PLANT, EQUIPMENT, FURNITURE OR FITTINGS. TRANSPORT VEHICLES SUCH AS TRUCKS OR LOR RIES ARE SPECIFICALLY EXCLUDED FROM THE PURVIEW OF THIS SECTION. IN FACT, TRANSPORT VE HICLES ARE ENTITLED TO A SEPARATE RATE OF DEPRECIATION IN THE DEPRECIATION SCHEDULE AS COM PARED TO PLANT AND MACHINERY. SECONDLY SECTION 194C SPECIFICALLY PROVIDES FOR DED UCTION OF TAX AT SOURCE FROM WORKS CONTRACT AND WORK HAS BEEN DEFINED IN CLAUS E (IV)(C) OF EXPLANATION TO SECTION 194C TO INCLUDE CARRIAGE OF GOODS AND PASSE NGERS BY ANY MODE OF TRANSPORT OTHER THAN RAILWAYS. IN THE PRESENT CASE, THE PAYM ENT HAS BEEN MADE FOR CARRIAGE OF GOODS. THE A.O. HAS LAID STRONG EMPHASIS ON FACT TH AT THE ASSESSEE HAD INCURRED OPERATING AND MAINTENANCE EXPENSES FOR THE TRANSPOR T VEHICLES BELONGING TO THE OTHER PARTIES AND HENCE IT WAS A CASE OF RENT ON WHICH TA X WAS DEDUCTIBLE UNDER SECTION 1941. I HAVE EXAMINED THE MATTER AND DISCUSSED IN D ETAIL THE ISSUE IN PARAGRAPH- 4 OF 3 ITA 1722/K/2010 SANJOY TRANSPORT AGENCY A.Y.07-08 THIS ORDER AND HAVE ARRIVED AT THE CONCLUSION THAT THE MAINTENANCE AND OPERATING EXPENSES IN RESPECT OF THE HEMMS AND TRUCKS PERTAIN ED TO THE ASSESSEES OWN HEMMS AND TRUCKS. FURTHER THE A.O. HAS POINTED OUT TO THE FACT OF ABSENCE OF A CONTRACT BETWEEN THE ASSESSEE AND THE TRANSPORT OPE RATORS AND HAS COME TO THE CONCLUSION THAT IN THE ABSENCE OF A CONTRACT, PROVI SIONS OF SECTION 194C WOULD NOT APPLY. I HAVE CONSIDERED THE MATTER. THE QUESTION AS TO W HETHER THE PAYMENTS WERE MADE IN PURSUANCE OF A CONTRACT IS A QUESTION OF FA CT AND WILL HAVE TO BE EXAMINED FOR EACH CASE INDIVIDUALLY AND ON A STANDALONE BASI S. IT CANNOT BE ANYBODYS CASE THAT THERE CANNOT BE A POSSIBILITY OF THE EXISTENCE OF A CONTRACT IN ALL CASES WHERE TRANSPORT CHARGES ARE PAID. THUS, THE MAIN ISSUE TO BE EXAMINED IS AS TO WHETHER THE PAYMENTS WERE MADE PURSUANT TO A CONTRACT, WRITTEN OR VERBAL. BEFORE DISCUSSING THE FACTS OF THE CASE UNDER APPEAL IT WOULD BE APPROPRI ATE TO DISCUSS AS TO WHAT IS A CONTRACT. THE COMMON SENSE MEANING OF A CONTRACT IS THAT IT IS AN AGREEMENT WITH SPECIFIC TERMS BETWEEN TWO OR MORE PERSONS IN WHICH THERE IS A PROMISE TO DO SOMETHING IN RETURN OF A CONSIDERATION. THIS IS AT THE HEART OF MOST BUSINESS DEALINGS. THE EXISTENCE OF CONTRACT REQUIRES FINDING OF THE F OLLOWING FACTUAL ELEMENTS (A) AN OFFER (B) ACCEPTANCE OF THAT OFFER (C) PROMISE TO P ERFORM (D) AGREEMENT REGARDING CONSIDERATION (E) A TIME OR EVENT WHEN PERFORMANCE MUST BE MADE THAT IS MEETING COMMITMENTS (F) TERM AND CONDITIONS OF PERFORMANCE, INCLUDING FULFILLING OF COMMITMENTS (G) ACTUAL PERFORMANCE. THE ASSESSEE IS A TRANSPORT CONTRACTOR AND TRANSPORTS SAND, EARTH ETC. FOR THIS PURPOSE, THE A SSESSEE OBTAINED THE SERVICES OF VARIOUS VEHICLE OWNERS/DRIVERS TO CARRY OUT THIS WO RK. I HAVE GIVEN A LIST OF THE POSSIBLE FACTUAL ELEMENTS WHICH ARE REQUIRED FOR TH E EXISTENCE OF A CONTRACT. IT WOULD BE WORTHWHILE TO ANALYZE WHETHER THE ACTIVITIES OF THE ASSESSEE OF TRANSPORTING SAND CONSTITUTED A CONTRACT. THE SAID ANALYSIS IS AS UND ER :- A) AN OFFER AN OFFER BY THE ASSESSEE OR HIS EMPLO YEES OR BROKERS TO THE VEHICLE OPERATORS FOR TRANSPORTING THE GOODS SUBJECT TO PAY MENT OF CONSIDERATION AND OTHER CONDITIONS. (B) ACCEPTANCE OF THAT OFFER THE VEHICLE OPERATOR S ACCEPT THE OFFER. (C) PROMISE TO PERFORM THE VEHICLE OPERATORS AGRE E TO TRANSPORT THE GOODS FROM POINT X TO POINT Y. (D) AGREEMENT REGARDING CONSIDERATION THE QUANTUM OF CONSIDERATION IS AGREED UPON BY BOTH PARTIES. (E) A TIME OR EVENT WHEN PERFORMANCE MUST BE MADE T HAT IS MEETING COMMITMENTS THE VEHICLE OPERATORS AGREE TO TRANSPORT THE GOODS WITHIN A GIVEN TIME FRAME. (F) TERMS AND CONDITIONS OF PERFORMANCE INCLUDING F ULFILLING OF COMMITMENTS THE GOODS MUST BE DELIVERED WITHOUT LOSS OR PILFERAGE. (G) ACTUAL PERFORMANCE THE GOODS ARE ACTUALLY TRA NSPORTED AS PER THE TERMS AND CONDITIONS. A PERUSAL OF THE ABOVE WOULD SHOW THAT ALL THE ELE MENTS OF A CONTRACT EXISTED WHEN THE ASSESSEE WAS ENGAGING TRANSPORT VEHICLES. AS PER SECTION 194C, TAX IS TO BE DEDUCTED IN CASE OF VERBAL CONTRACTS ALSO. IT MAY ALSO BE POINTED OUT THAT VERBAL CONTRACTS ARE ALSO VALID CONTRACTS UNDER THE INDIAN CONTRACT ACT. FURTHER, CARRIAGE OF GOODS IS DEFINED TO BE WORK AS PER CLAUSE (IV) (C) OF SECTION 194C. IT WOULD THUS BE EVIDENT THAT THE PAYMENTS FELL WITHIN THE PURVIE W OF SECTION 194C AND THE A.O. WRONGLY HELD THAT TAX WOULD BE DEDUCTIBLE U/S. 194I . I AM OF THE CONSIDERED OPINION THAT THE PAYMENTS DID NOT CONSTITUTE PAYMENT OF REN T AS ENVISAGED IN SECTION 194I. I, 4 ITA 1722/K/2010 SANJOY TRANSPORT AGENCY A.Y.07-08 THEREFORE, HOLD THAT THE ASSESSEE HAD RIGHTLY DEDUC TED TAX U/S. 194C AND THE EXPENDITURE WAS THEREFORE NOT LIABLE FOR DISALLOWAN CE UNDER THE PROVISIONS OF SECTION 40(A)(IA) AND THE SAME IS THEREFORE DELETED. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE US ON BOTH INTER-CONNECTED ISSUES. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT ASSESSEE FIRM IS ENGAGED IN THE BUSINE SS OF EARTH CUTTING, TRANSPORTING AND ROAD DEVELOPMENT AND FOR THAT IT HAS MADE THE FOLLOWING PAYMENTS BY DEDUCTING TAX @ 1% BY INVOKING SECTION 194C OF THE ACT AS A SUB-CONTRACTO R:- I) PAYMENT FOR HEAVY EARTH MOVING MACHINERY AT RS.1 ,35,29,972/- II) PAYMENT FOR HIRED VEHICLE FOR TRANSPORTING EART H AT RS.2,24,78,114/- WE FIND THAT THE ASSESSEE WAS DEDUCTING TDS @1% U/S . 194C OF THE ACT ON THE PAYMENTS MADE TO SUB-CONTRACTORS FOR LAST MANY YEARS IN RESPECT T O THE ABOVE PAYMENTS. WE FIND THAT IT IS A FACT THAT THERE WAS NO CHANGE IN NATURE AND STYLE OF BUS INESS DURING THIS YEAR WHAT WAS IN THE LAST YEARS. EVEN THOUGH THE ASSESSEE HAS INCURRED EXPEN DITURE CLAIMED ON MAINTENANCE AND OPERATING EXPENSES FOR HIS OWN TRUCK AND NOT FOR TH E HIRED TRUCKS. AS PER SCHEDULE N OF P&L ACCOUNT WHEREIN OPERATING EXPENSES CONSISTING OF FU EL AND LUBRICANT, SALARY, OVERTIME, FOODING, BONUS, LEAVE ALLOWANCE ETC. IS DEBITED UNDER THE HE AD OPERATING EXPENSES FOR OWN TRUCK AND HEMM AND IT WAS STATED THAT THE SAME SCHEDULE ALSO DEBITS PAYMENTS FOR HIRED VEHICLES AND THIS AMOUNT WAS ALLOWED BY THE AO. WE FIND THAT THE REV ENUE COULD NOT CONTROVERT THE ARGUMENT, WHICH IS CARRIED BY THE ASSESSEE FROM THE VERY BEGI NNING, THAT THESE EXPENSES WERE FOR ASSESSEES OWN HEMM AND TRUCKS AND THE OPERATING EX PENSES CONSISTS ON ITEMS SUCH AS PUJA BONUS AND LEAVE ALLOWANCE, WHICH WAS NOT PAID TO TH E EMPLOYEES OF THE OTHER CONCERNS. EVEN THE CONTROL OVER THE VEHICLES HIRED BY ASSESSEE VES TED WITH THE OWNERS OF THE VEHICLES AND NOT WITH THE ASSESSEE FIRM. THE PAYMENT WAS ON THE BAS IS OF REMOVAL OF MATERIAL OR EARTH WORK ON PER METRIC TON BASIS OR ON PER CUBIC METER BASIS. WE FIND THAT THE CIT(A) HAS RECORDED A CATEGORICAL FINDING THAT THIS FACT IS EVIDENCED FRO M THE BOOKS OF ACCOUNT AND RELEVANT DOCUMENTS PRODUCED BEFORE THE AO AT THE ASSESSMENT STAGE AND EVEN BEFORE CIT(A). THE ASSESSEE ALSO PRODUCED SOME SAMPLE CONTRACTS BEFORE THE AO AT THE TIME OF ASSESSMENT, WHICH CLEARLY SHOWS THAT THE PAYMENTS WERE ON CONTRACT BASIS AND NOT A RENT OR HIRE CHARGES ON DAILY BASIS. WE FIND THAT THE ASSESSEE EVEN PRODUCED COPIES OF CONTRACT WITH SOME OF THE SUB-CONTRACTORS AT THE FIRST APPELLATE STAGE IN SUPPORT OF ITS CONTENTION AND RE VENUE COULD NOT REBUT THE SAME. IN VIEW OF THESE FACTS, WE ARE OF THE VIEW THAT THE ASSESSEE F IRM HAS MADE THESE PAYMENTS ON THE BASIS OF SUB-CONTRACTS ENTERED WITH SUB-CONTRACTORS AND ACCO RDINGLY IS LIABLE TO DEDUCT TDS UNDER THE 5 ITA 1722/K/2010 SANJOY TRANSPORT AGENCY A.Y.07-08 PROVISIONS SEC. 194C OF THE ACT AND NOT U/S. 194I O F THE ACT. WE CONFIRM THE ORDER OF CIT(A) AND THIS COMMON ISSUE OF THE REVENUES APPEAL IS DI SMISSED. WE ORDER ACCORDINGLY. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. 7. ORDER PRONOUNCED IN OPEN COURT ON 30.6.2011. SD/- SD/- . . . . . . . . , , , , ' ' ' ' #!' #!' #!' #!' , $% (G. D. AGRAWAL) (MAHAVIR SINGH) VICE PRESIDENT JUDICIAL MEMBER ( 2 2 2 2) )) ) DATED 30TH JUNE, 2011 PRONOUNCED BY SD/- (S.V.MEHROTRA) SD/-(M.SINGH) AM/30.6.11 JM/30.6.11 34 #'5 #6 JD.(SR.P.S.) $01 7 .##8 08)9- COPY OF THE ORDER FORWARDED TO: 1 . ,- / APPELLANT DCIT, CIRCLE-3, ASANSOL 2 ./,- / RESPONDENT, M/S. SANJOY TRANSPORT AGENCY, 42, N.S .B. ROAD, RANIGANJ, PIN-713 347, BURDWAN. 3 . #1' ( )/ THE CIT(A), ASANSOL 4. #1' / CIT, ASANSOL 5 . ?#@ .#' / DR, KOLKATA BENCHES, KOLKATA /8 .#/ TRUE COPY, $01'A/ BY ORDER, ' ! /ASSTT. REGISTRAR .