M/s Seven Hills Cargo Carriers, Rajahmundry V. The ITO, Ward-2, Rajahmundry

ITA 22/VIZ/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56878 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 21-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 03-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T LUCAS PETER
• Keywords: Reopening of assessment; Non-deduction of tax; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 194C; 148; 2

Judgement Text

ITA NO.22&23/VIZ/2011 M/S. SEVEN HILLS CARGO CARRIE R, RJY PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI D MANMOHAN, VICE PRESIDENT AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.22&23/VIZAG/2011 ASSESSMENT YEAR: 2005-06 & 2006-07 M/S. SEVEN HILLS CARGO CARRIER RAJAHMUNDRY ITO WARD-2 RAJAHMUNDRY (APPELLANT) PAN NO: AASFS 6881M VS. (RESPONDENT) APPELLANT BY: SHRI C. SUBRAHMANYAM, CA RESPONDENT BY: SHRI T. LUCAS PETER, CIT(DR) DATE OF HEARING: 14.12.2011 DATE OF PRONOUNCEMENT: 26.12.2011 ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEALS FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE COMMON ORDER DATED 05.01.2011 PASSED BY THE LD. CIT(A), RA JAHMUNDRY AND THEY RELATE TO THE ASSESSMENT YEARS 2005-06 & 2006-07. SINCE THE ISSUES URGED IN THESE TWO APPEALS ARE IDENTICAL IN NATURE, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. THE GROUNDS RAISED BY THE ASSESSEE IN THESE TWO YEARS GIVE RISE TO THE FOLLOWING TWO ISSUES: (A) VALIDITY OF RE-OPENING OF ASSESSMENT OF THE YEA RS UNDER CONSIDERATION. (B) APPLICABILITY OF PROVISIONS OF SEC.40(A)(IA) OF THE ACT ON THE FREIGHT CHARGES PAID ON THE LORRIES HIRED BY THE AS SESSEE. 3. THE FACTS RELATING TO THE ISSUES ARE STATED IN BRIEF. THE ASSESSEE FIRM IS CARRYING ON TRANSPORT BUSINESS BY UNDERTAKING TR ANSPORT CONTRACTS FROM VARIOUS CONCERNS, THE MAJOR CUSTOMER BEING M/S TRIV ENI GLASS LIMITED. THE ASSESSMENTS OF THE TWO YEARS UNDER CONSIDERATION WE RE INITIALLY COMPLETED ITA NO.22&23/VIZ/2011 M/S. SEVEN HILLS CARGO CARRIE R, RJY PAGE 2 OF 11 U/S 143(3) OF THE ACT, WHEREIN THE BOOK RESULTS WER E REJECTED AND CONSEQUENTLY THE INCOME WAS ESTIMATED. SUBSEQUENTL Y, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS FAILED TO DED UCT TAX AT SOURCE U/S 194C OF THE ACT ON THE FREIGHT CHARGES PAID BY IT. ACCO RDINGLY, THE ASSESSING OFFICER REOPENED THE ASSESSMENT OF THE TWO YEARS UN DER CONSIDERATION BY ISSUING NOTICES U/S 148 OF THE ACT. THE ASSESSEE CH ALLENGED THE REOPENING OF THE ASSESSMENT BEFORE LD CIT(A) THE ADDITION BU T COULD NOT SUCCEED. HENCE THE ASSESSEE IS BEFORE US CHALLENGING THE VAL IDITY OF REOPENING OF ASSESSMENT. 4. THE LD A.R SUBMITTED THAT THE ASSESSING OFFI CER, IN THE REASSESSMENT PROCEEDING, SIMPLY ADOPTED THE TOTAL INCOME ALREADY DETERMINED IN THE REGULAR ASSESSMENT PROCEEDINGS, TO WHICH HE HAS ADD ED THE AMOUNT DISALLOWED U/S 40(A)(IA) OF THE ACT. HE FURTHER SU BMITTED THAT THE TOTAL INCOME OF THE ASSESSEE IN THE TWO YEARS UNDER CONSI DERATION WAS ESTIMATED BY REJECTING THE BOOK RESULTS, WHICH MEANS THAT THE ASSESSING OFFICER HAS APPLIED HIS MIND TO ALL THE PROVISIONS OF THE ACT, INCLUDING THE PROVISIONS OF SEC. 194C, WHILE SO ESTIMATING THE INCOME. HENCE T HE REOPENING OF THE ASSESSMENT, IN ORDER TO EXAMINE THE APPLICABILITY O F PROVISIONS OF SEC. 194C, IS MERELY ON ACCOUNT OF CHANGE IN THE OPINION OF TH E ASSESSING OFFICER, WHICH IS NOT PERMISSIBLE UNDER THE ACT. IN THIS RE GARD, HE RELIED UPON THE DECISION OF HONBLE AP HIGH COURT IN THE CASE OF SI RPUR PAPER MILLS LTD VS. ITO (114 ITR 404). 5. ON THE OTHER HAND, THE LD D.R SUBMITTED THAT THOUGH THE REGULAR ASSESSMENTS WERE COMPLETED BY ESTIMATING THE INCOME , YET THERE IS NO IOTA OF EVIDENCE TO SUGGEST THAT THE ASSESSING OFFICER D ID EXAMINE THE ISSUE OF APPLICABILITY OF PROVISIONS OF SEC. 194C OF THE ACT ON THAT OCCASION. ACCORDINGLY HE SUBMITTED THAT THE CONTENTION OF THE ASSESSEE IS WITHOUT ANY BASIS. HE FURTHER SUBMITTED THE ASSESSING OFFICER IS ENTITLED TO REOPEN THE ASSESSMENT IF HE HAS REASON TO BELIEVE THAT THERE I S ESCAPEMENT OF INCOME. ACCORDINGLY HE SUBMITTED THAT THE ASSESSING OFFICER HAD SUFFICIENT REASON TO ITA NO.22&23/VIZ/2011 M/S. SEVEN HILLS CARGO CARRIE R, RJY PAGE 3 OF 11 BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT IN THE I NSTANT CASE ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE ON THE FREIGHT CH ARGES PAID BY THE ASSESSEE. IN THIS REGARD, THE LD D.R PLACED RELIANC E ON THE FOLLOWING CASE LAW: (A) ALA FIRM VS. CIT (189 ITR 285 (SC)) (B) CIT VS. PUSHPAK ENTERPRISES (254 ITR 193 (DELH I)) WITH REGARD TO THE REASON TO BELIEVE, THE LD D.R D REW SUPPORT FROM THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RA JESH JHAVERI (291 ITR 500 (SC)). 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE RECORD. ON A PERUSAL OF THE ASSESSMENT ORDERS PASSED IN THE REGU LAR ASSESSMENT PROCEEDING, WE FIND THAT THERE IS NO EVIDENCE TO SU GGEST THAT THE ASSESSING OFFICER DID EXAMINE ABOUT THE APPLICABILITY OF THE PROVISIONS OF SEC. 194C OF THE ACT. HENCE, WE FIND MERIT IN THE CONTENTIONS O F LEARNED D.R IN THIS REGARD. IN THESE CIRCUMSTANCES, IN OUR VIEW, THERE IS NO REASON TO PRESUME THAT THE IMPUGNED NOTICES ISSUED BY THE ASSESSING O FFICER U/S 148 OF THE ACT ARE ON ACCOUNT OF CHANGE OF OPINION. HENCE WE DO NOT FIND MERIT IN THE CONTENTIONS OF THE LEARNED A.R AND ACCORDINGLY UPHO LD THE ORDER OF LD CIT(A) ON THIS ISSUE. 7. THE ASSESSEE ALSO CONTESTED THE ADDITION MAD E BY THE ASSESSING OFFICER UNDER SECTION 40(A)(IA) OF THE ACT BEFORE L EARNED CIT(A), BUT COULD NOT SUCCEED. HENCE THE ASSESSEE IS BEFORE US ON TH IS ISSUE ALSO. THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THA T HE HAS ARRANGED THE LORRIES ON BEHALF OF HIS PRINCIPAL BY CHARGING COMM ISSION FROM THE LORRY OWNERS. HOWEVER, THE ASSESSING OFFICER NOTICED THA T THE SAID PRINCIPALS HAD DEDUCTED TAX AT SOURCE ON FREIGHT PAYMENTS AND ISSU ED THE TDS CERTIFICATES IN THE NAME OF THE ASSESSEE. ACCORDINGLY, THE ASSE SSING OFFICER REJECTED THE SUBMISSIONS MADE BY THE ASSESSEE THAT IT HAS ONLY A RRANGED THE LORRIES ON COMMISSION BASIS. ACCORDINGLY HE HELD THAT THE ASS ESSEE IS LIABLE TO DEDUCT TAX AT SOURCE ON THE FREIGHT PAYMENTS MADE TO THE L ORRIES HIRED BY THE ASSESSEE. BEFORE THE ASSESSING OFFICER, AS WELL AS LD CIT(A), THE ASSESSEE ITA NO.22&23/VIZ/2011 M/S. SEVEN HILLS CARGO CARRIE R, RJY PAGE 4 OF 11 RELIED UPON THE DECISION OF ITAT, VISAKHAPATNAM BEN CH IN THE CASE OF M/S MYTHRI TRANSPORT CORPORATION REPORTED IN 124 ITD 40 . HOWEVER, THE ASSESSING OFFICER OBSERVED THAT THE FACTS OF THE IN STANT CASE ARE DIFFERENT AND HENCE THE SAID DECISION DOES NOT HAVE APPLICATI ON. THE LD CIT(A), ON THE OTHER HAND, OBSERVED THAT THE TRIBUNAL HAS EXAM INED THE QUESTION VIZ., WHETHER THE INDIVIDUAL VEHICLE OWNERS HAVE PERFORME D THE ROLE OF SUB- CONTRACTORS OR NOT IN THE CASE OF MYTHRI TRANSPORT CORPORATION, SUPRA. HE FURTHER OBSERVED THAT THE CONTRACT BETWEEN THE ASSE SSEE AND THE INDIVIDUAL VEHICLE OWNERS, PER SE IS A SEPARATE CONTRACT TO WH ICH THE PROVISIONS OF SEC. 194C SHALL APPLY. IT IS PERTINENT TO MENTION HERE THAT THE ASSESSEE IS NOT REQUIRED TO DEDUCT TAX AT SOURCE IF THE AMOUNT OF E ACH CONTRACT DOES NOT EXCEED RS.20,000/-. HOWEVER THE AGGREGATE AMOUNT P AID TO A PERSON IN A YEAR UNDER VARIOUS CONTRACTS EXCEEDS RS.50,000/-, T HE ASSESSEE IS REQUIRED TO DEDUCT TAX AT SOURCE ON THE ENTIRE PAYMENT MADE TO THAT PERSON. THE LD CIT(A) NOTICED THAT THE ASSESSING OFFICER DID NOT C ONSIDER THE AGGREGATE AMOUNT PAID IN A YEAR TO THE INDIVIDUAL VEHICLE OWN ERS IN ORDER TO FIND OUT THE APPLICABILITY OF THE PROVISIONS OF SEC. 194C OF THE ACT. ACCORDINGLY, THE LD CIT(A) ISSUED NOTICE OF ENHANCEMENT TO THE ASSES SEE IN BOTH THE YEARS IN ORDER TO ENHANCE THE DISALLOWANCE MADE U/S 40(A) (IA) OF THE ACT BY INCLUDING THE PAYMENTS MADE TO A PERSON IN EXCESS O F RS.50,000/- IN A YEAR. AFTER REJECTING THE CONTENTIONS OF THE ASSESSEE, TH E LEARNED CIT(A) CONFIRMED THE AMOUNT DISALLOWED U/S 40(A)(IA) IN BO TH THE YEARS INCLUDING THE AMOUNT ENHANCED BY HIM. 8. BEFORE US, THE LD A.R SUBMITTED THAT THE THE RE IS NO ORAL OR WRITTEN CONTRACT BETWEEN THE ASSESSEE AND THE INDIVIDUAL VE HICLE OWNERS AND HENCE THE PROVISIONS OF SEC. 194C(1) ARE NOT APPLICABLE. IN THIS REGARD, HE RELIED UPON THE ORDER DATED 18 TH DECEMBER 2009 PASSED BY HYDERABAD BENCH OF ITAT IN THE CASE OF K.SRINIVASA NAIDU IN ITA NO.719 /HYD/2009. HE FURTHER SUBMITTED THAT THE HIRING OF VEHICLE DOES NOT FALL IN THE CATEGORY OF CARRYING OF ANY WORK AND HENCE THE PROVISIONS OF SEC. 194C( 1) ALSO DO NOT APPLY AND IN SUPPORT OF THIS PROPOSITION, HE RELIED UPON THE ORDER DATED 11-08- ITA NO.22&23/VIZ/2011 M/S. SEVEN HILLS CARGO CARRIE R, RJY PAGE 5 OF 11 2011 PASSED BY THE VISAKHAPATNAM BENCH OF ITAT IN T HE CASE OF KRANTI ROAD TRANSPORT PVT. LTD IN ITA NO.358/VIZAG/2008. 9. ON THE CONTRARY, THE LEARNED D.R SUBMITTED T HAT THERE EXISTED A CONTRACT BETWEEN THE ASSESSEE AND THE LORRY OWNERS AND HENCE THE PROVISIONS OF SEC. 194C SHALL APPLY TO THE ASSESSEE . ACCORDINGLY HE SUBMITTED THAT, IF THERE IS FAILURE ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE U/S 194C OF THE ACT ON THE PAYMENTS MADE TO THE LORRY OWNERS, THE SAME IS LIABLE TO BE DISALLOWED U/S 40(A)(IA) O F THE ACT. IN THIS REGARD, THE LEARNED D.R RELIED UPON THE FOLLOWING CASE LAW: (A) J.RAMA (194 TAXMANN 37) (B) SREE CHOUDHRY TRANSPORT CO. (225 CTR 125 (RAJ )) (C) VELLAPALLI BROS. (196 TAXMANN 269) (D) V.M.SANKAR (127 ITD 316) 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAR EFULLY PERUSED THE RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FAC T THAT THE ASSESSEE HAS HIRED LORRIES FROM THE MARKET FOR EXECUTION OF THE CONTRACT UNDERTAKEN BY IT FOR TRANSPORTATION OF GOODS. IN THE CASE OF MYTHRI TRANSPORT CORPORATION CITED (SUPRA), IT HAS BEEN HELD THAT MERE HIRING OF TRUCKS CANNOT BE TREATED AS GIVING WORK ON SUB-CONTRACT, UNLESS THE LORRY OW NERS INVOLVED THEMSELVES IN CARRYING OUT ANY PART OF THE WORK UNDERTAKEN BY THE ASSESSEE BY SPENDING THEIR TIME, ENERGY AND ALSO BY TAKING THE RISKS ASSOCIATED WITH THE MAIN CONTRACT. IN THE INSTANT CASE ALSO, THE CONTE NTION OF THE ASSESSEE IS THAT IT HAS MERELY HIRED THE LORRIES FROM THE OPEN MARKET. IT IS NOT SHOWN BY THE REVENUE THAT THE LORRY OWNERS, FROM WHOM THE LORRIES WERE HIRED, UNDERTOOK THE RISKS ASSOCIATED WITH THE MAIN CONTRA CT. IN THAT CASE, MERE HIRING OF LORRIES WOULD NOT COME UNDER THE CATEGORY OF SUB-CONTRACT AS HELD IN THE CASE OF MYTHRI TRANSPORT CORPORATION, ( SUPRA). ACCORDINGLY THE PROVISIONS OF SEC. 194C(2) SHALL NOT APPLY TO THE A SSESSEE. 11. HOWEVER, THE LD CIT(A) AS WELL AS THE LEARN ED D.R HAS STATED THAT THE THERE EXISTED A SEPARATE CONTRACT BETWEEN THE A SSESSEE AND THE INDIVIDUAL VEHICLE OWNERS. HOWEVER, WITH REGARD TO THE DECISIONS RELIED ITA NO.22&23/VIZ/2011 M/S. SEVEN HILLS CARGO CARRIE R, RJY PAGE 6 OF 11 UPON BY LEARNED D.R, IT WAS SUBMITTED THAT THE SIGN IFICANCE OF THE WORDS FOR CARRYING OUT ANY WORK AS APPEARING IN SEC. 19 4C(1) WERE NOT CONSIDERED IN THOSE DECISIONS. IT WAS FURTHER SUBMI TTED THAT THE SIGNIFICANCE OF THOSE WORDS WERE DULY CONSIDERED BY THIS BENCH I N THE CASE OF KRANTI ROAD TRANSPORT PVT. LTD, IN ITS ORDER DATED 11-08-2 011 PASSED IN ITA NO.358/VIZAG/2008. IN THE SAID CASE, IT HAS BEEN H ELD THAT HIRING OF LORRIES WOULD NOT FALL IN THE CATEGORY OF CARRYING OUT ANY WORK. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVAT IONS MADE BY THE TRIBUNAL IN THE CASE OF KRANTI ROAD TRANSPORT PVT. LTD:- 11. FROM PLAIN READING OF THE PROVISIONS OF SECTIO N 194C OF THE ACT, WE FIND THAT TDS IS REQUIRED TO BE DEDUCTED WH EN ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO A CONTRACTOR FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT A NY WORK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND THE ASSESSEE AT PARTICULAR PERCENTAGE. THE SUB-SECTION 2 FURTHER C LARIFIES THAT WHERE A CONTRACTOR RESPONSIBLE FOR PAYING ANY SUM TO ANY SUB-CONTRACTOR IN PURSUANCE OF A CONTRACT WITH THE SUB-CONTRACTOR FOR CARRYING OUT OR FOR THE SUPPLY OF CARRYING OUT THE WHOLE OR ANY PAR T OF THE WORK UNDERTAKEN BY THE CONTRACTOR SHALL AT THE TIME OF C REDIT OF SUCH SUM TO THE ACCOUNT OF THE SUB-CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF CHEQUE OR DRAFT OR A NY OTHER NOTE IS REQUIRED TO DEDUCT THE TDS AT A PARTICULAR PERCENTA GE. IN BOTH THE PROVISIONS THE WORD WORK HAS BEEN USED AND THE SA ID WORD WORK HAS BEEN DEFINED UNDER EXPLANATION 3 ACCORDING TO WHICH THE EXPRESSION WORK INCLUDES ADVERTISING, BROADCASTIN G TELECASTING CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRA NSPORT OTHER THAN BY RAILWAYS AND CATERING. FOR THE PURPOSE OF IMPUGNED CONTROVERSY, THE CARRIAGE OF GOODS AND PASSENGERS B Y ANY MODE OF TRANSPORT OTHER THAN BY RAILWAYS IS CONSIDERED TO B E THE WORK WHICH CAN BE ASSIGNED TO THE CONTRACTOR OR SUB-CONTRACTOR FOR ITS CARRYING OUT. 12. IN THE INSTANT CASE, THE ASSESSEE IS A TRANSPOR TER AND BOOKS THE CONSIGNMENT OF DIFFERENT PARTIES FOR ITS TRANSPORTA TION. SOMETIMES, THE ASSESSEE HIRES THE TRUCKS AND LORRIES OF OTHERS FOR THE TRANSPORTATION OF THE CONSIGNMENT BOOKED BY IT. TH E ASSESSEE HAS MADE OUT A CASE THAT HE HAS SIMPLY HIRED THE LORRIE S AND TRUCKS TO TRANSPORT ITS CONSIGNMENT UNDER ITS OWN CONTROL AND SUPERVISION. THE MOVEMENT OF TRUCKS AND LORRIES ARE GOVERNED BY THE ASSESSEE ITSELF AND NOT THE TRUCK OWNERS. TRUCK OWNERS SIMP LY HIRE OUT THEIR TRUCKS FOR ITS USE BY THE ASSESSEES AGAINST CERTAIN HIRE CHARGES. THE REVENUE HAS NOT MADE OUT A CASE THAT THE ASSESSEE H AS ENGAGED OR HIRED THE TRUCKS FOR TRANSPORTATION OF THE CONSIGNM ENT BOOKED BY IT UNDER THE CONTROL AND SUPERVISION OF TRUCK OWNERS. THEREFORE, THE ITA NO.22&23/VIZ/2011 M/S. SEVEN HILLS CARGO CARRIE R, RJY PAGE 7 OF 11 ASSESSEE HAS NOT ASSIGNED ANY WORK TO THE LORRY/TRU CK OWNERS AS PER PROVISIONS OF SECTION 194C OF THE ACT. THE QUESTIO N INVOLVED IN THIS CASE WHETHER THE ASSESSEE IS REQUIRED TO DEDUCT THE TDS ON PAYMENT OF HIRE CHARGES MADE TO LORRY OWNERS WAS AL SO EXAMINED BY US IN THE CASE OF SHRI M. SITARAMAIAH VS. ACIT, IN THE LIGHT OF OUR FINDING IN THE CASE OF M/S. MYTHRI TRANSPORT CORPOR ATION AND IN THAT CASE WE CONCLUDE THAT THE PAYMENTS MADE TO TANKER O WNER WOULD NOT FALL IN THE CATEGORY OF A SUB-CONTRACTOR FOR CA RRYING OUT THE WHOLE OR PART OF CONTRACT LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 194C OF THE ACT. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THAT CASE ARE EXTRACTED HEREUNDER: 9. WE HEARD THE RIVAL CONTENTIONS AND ALSO PERUSED THE RECORD. IN THE CASE OF M/S MYTHRI TRANSPORT CORPORATION, SU PRA, RELIED UPON BY THE ASSESSEE, THIS BENCH HAS REFRAMED THE Q UESTION AND ALSO ANALYZED THE PROVISIONS OF SECTION 194C(2) AS UNDER:- 8. .THE ISSUE BEFORE US MAY BE DECIDED I F WE ANSWER THE FOLLOWING QUESTION. WHETHER THE VEHICLES HIRED BY THE ASSESSEE IN EXECUTION OF THE TRANSPORT CONTRACT AND BE TERME D AS A SUB-CONTRACT AND CONSEQUENTLY THE ASSESSEE I S LIABLE TO DEDUCT TAX FROM THE PAYMENT MADE FOR SUCH VEHICLES U/S 194C(2) OF THE ACT? IN THE INSTANT CASE, THE ASSESSI NG OFFICER HAS INVOKED THE PROVISIONS OF SEC.40(A)(IA) TO DISALLOW THE PAYMENTS MADE FOR HIRED LORRIES AS ACCORDING TO HIM , SUCH PAYMENTS REPRESENT PAYMENT TO SUB-CONTRACTORS LIABLE FOR TAX DEDUCTION AT SOURCE U/S 194C(2) OF T HE ACT AND THE ASSESSEE HAS FAILED TO DEDUCT TDS U/S 194C(2). SECTION 194C)(2) OF THE ACT, WHICH IS RELEVANT IN THIS CONTEXT, READS AS UNDER: ANY PERSON (BEING A CONTRACTOR AND NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY) RESPONSI BLE FOR PAYING ANY SUM TO ANY RESIDENT (HEREAFTER IN TH E SECTION REFERRED TO AS THE SUB-CONTRACTOR) IN PURSU ANCE OF A CONTRACT WITH THE SUB-CONTRACTOR FOR CARRYING OUT OR FOR THE SUPPLY OF LABOUR FOR CARRYING OUT , THE WHOLE OR ANY PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR OR FOR SUPPLYING WHETHER WHOLLY OR PARTLY ANY LABOUR WHICH THE CONTRACTOR HAS UNDERTAKEN TO SUPPLY SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE SUB-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, ITA NO.22&23/VIZ/2011 M/S. SEVEN HILLS CARGO CARRIE R, RJY PAGE 8 OF 11 DEDUCT AN AMOUNT EQUAL TO ONE PER CENT OF SUCH SUM AS INCOME TAX ON INCOME COMPRISED THEREIN. 8.1 ACCORDING TO OUR UNDERSTANDING, SECTION 194C ( 2) IS ATTRACTED IF ALL THE FOLLOWING CONDITIONS ARE SA TISFIED. 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 CONTRACTOR. C)THE SUB-CONTRACTOR SHOULD CARRY OUT THE WHOLE OR ANY PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR. D)PAYMENT SHOULD BE MADE FOR A CARRYING OUT THE WHOLE OR ANY PART OF THE WORK. AFTER CONSIDERING THE REASONING GIVEN BY THE AO AS WELL THE LD CIT (A), THE TRIBUNAL CAME TO THE FOLLOWING CONC LUSION. 8.5 IT IS NOT ESTABLISHED BY THE REVENUE THAT OTHER LORRY OWNERS, FROM WHOM THE VEHICLES WERE HIRED, HAVE ALS O BEEN FASTENED WITH ANY OF THE ABOVE SAID LIABILITIE S. IN A SUB-CONTRACT, A PRUDENT CONTRACTOR WOULD INCLUDE ALL THE LIABILITY CLAUSES IN THE AGREEMENT ENTERED INTO BY HIM WITH THE SUBCONTRACTOR. THE ASSESSEE HAS ALSO CLAIMED BEFORE THE TAX AUTHORITIES THAT THE RESPONSIBILITY IN THE WHOLE PROCESS LIES WITH IT ON LY. THOUGH THE PASSING OF LIABILITY IS NOT THE ONLY CRI TERIA TO DECIDE ABOUT THE EXISTENCE OF SUB-CONTRACT, YET THI S CONTENTION OF THE ASSESSEE RED WITH THE LIABILITY C LAUSES OF THE WORK ORDER CITED ABOVE, SUPPORTS ITS SUBMISS ION THAT THE INDIVIDUAL VEHICLE OWNERS AREA SIMPLE HIRE RS OF THE VEHICLES. 8.6 AS PER THE PROVISIONS OF SEC.194 (2), AS EX PLAINED IN PARA 8.1 SUPRA, THE SUB-CONTRACTOR SHOULD CARRY OUT THE WHOLE OR ANY PART OF THE WORK UNDERTAKEN BY THE ASSESSEE. THE DICTIONARY MEANING OF THE WORDS CAR RY OUT IS TO CARRY INTO PRACTICE; TO EXECUTE; TO ACCOMPLISH. IT SIGNIFIES A POSITIVE INVOLVEMENT I N THE EXECUTION OF THE WHOLE OR ANY PART OF THE MAIN WORK BY SPENDING HIS TIME, MONEY, ENERGY ETC. AND FURTHER T AKING THE RISKS IN CARRYING ON THE SAID ACTIVITY. IN THE INSTANT CASE, THERE IS NO MATERIAL TO SUGGEST THAT THE OTHE R LORRY OWNERS INVOLVED THEMSELVES IN CARRYING OUT ANY PART OF THE WORK UNDERTAKEN BY THE ASSESSEE BY SPENDING THE IR ITA NO.22&23/VIZ/2011 M/S. SEVEN HILLS CARGO CARRIE R, RJY PAGE 9 OF 11 TIME, ENERGY AND BY TAKING THE RISKS ASSOCIATED WIT H THE MIN CONTRACT WORK. IN THE ABSENCE OF THE ABOVE SAI D CHARACTERISTICS ATTACHED TO A SUB-CONTRACT IN THE I NSTANT CASE, THE PAYMENT MADE TO THE LORRY OWNERS STANDS A T PAR WITH THE PAYMENTS MADE TOWARDS SALARIES, RENT, ETC. HENCE THE REASONING OF THE TAX AUTHORITIES, WHICH I S STATED IN PARA 8.3 SUPRA, TO HOLD THAT THE PAYMENT MADE FOR HIRED VEHICLES IS A SUBCONTRACT PAYMENT, IN OUR OPINION, IS NOT CORRECT AND NOT BASED ON RELEVANT CONSIDERATIONS. HENCE, IN OUR CONSIDERED OPINION, I T CANNOT BE SAID THAT THE PAYMENTS MADE FOR HIRED VEHICLES WOULD FALL IN THE CATEGORY OF PAYMENT TOWA RDS A SUB-CONTRACT WITH THE LORRY OWNERS. IN THAT CASE THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE, AS PER THE PROVISIONS OF SEC.194C (2) ON THE PAYMENTS MADE TO THE LORRY OWNERS FOR LORRY HIRE. CONSEQUENTLY, THE PRO VISIONS OF SEC.40(A)(IA) SHALL NOT APPLY TO SUCH PAYMENTS. 10. THE POINTS ON WHICH LD DR SOUGHT TO DISTING UISH THE FACTS OF THE INSTANT CASE WITH THE FACTS AVAILABLE IN THE CASE OF M/S MYTHRI TRANSPORT CORPORATION VIZ., IDENTIFYING THE VEHICLE AT THE STAGE OF BIDDING PROCESS ITSELF, MODE OF PAYMENT O F HIRE CHARGES OR THE SHARING OF ADVANTAGE IN THE CONTRACT, IN OUR OPINION, ARE NOT DETERMINATIVE OF THE NATURE OF RELATIONSHIP BET WEEN THE ASSESSEE AND THE TANKER OWNERS. THERE IS NO ASSURA NCE THAT THE ASSESSEE, ON IDENTIFYING THE TANKERS AT THE STAGE O F BIDDING PROCESS, WOULD AUTOMATICALLY GET THE CONTRACT. AS R IGHTLY CONTENDED BY THE LD AR SUCH IDENTIFICATION MAY BE O NE OF THE QUALIFICATION REQUIRED EVEN FOR PARTICIPATING IN TH E TENDER PROCESS. SO ALSO THERE ARE MANY WAYS OF COMPENSATING THE TAN KER OWNERS FOR USING THE VEHICLE AND THE METHODOLOGY FOLLOWED BY THE ASSESSEE TO PASS ON THE ENTIRE HIRE CHARGES, INCLUD ING DIESEL ESCALATION CHARGES, EXCEPT RETAINING A COMMISSION O F 5% IS ONE OF THE MODES OF PAYMENT. HENCE THE ABOVE SAID FACTO RS CAN NOT SUPPORT THE CASE OF THE REVENUE. AS POINTED OUT I N THE CASE OF M/S MYTHRI TRANSPORT CORPORATION, WHAT IS REQUIRED TO BE SEEN IS WHETHER THE TANKER OWNERS HAVE MADE A POSITIVE INVO LVEMENT IN THE EXECUTION OF WHOLE OR ANY PART OF THE MAIN CON TRACT BY SPENDING HIS TIME, MONEY, ENERGY AND FURTHER TAKING THE RISKS INVOLVED IN EXECUTION THEREOF. EXCEPT FOR GIVING THE TANKERS ON HIRE TO THE ASSESSEE, THERE IS NO MATERIAL TO SUGGE ST THAT THEY CARRIED OUT WHOLE OR ANY PART OF THE WORK BY SPEN DING THEIR TIME, ENERGY AND BY TAKING RISKS ASSOCIATED WITH TH E MAIN CONTRACT WORK. ONE FINE DISTINCTION THAT MAY BE C ONSIDERED IS WHETHER A PERSON HAS ACTUALLY CARRIED OUT THE WHOLE OR PART OF THE MAIN CONTRACT OR DOES HE ENABLE THE ASSESSEE TO CARRY OUT THE CONTRACT. FOR EXAMPLE, THE SALARIED EMPLOYEE O F THE ITA NO.22&23/VIZ/2011 M/S. SEVEN HILLS CARGO CARRIE R, RJY PAGE 10 OF 11 ASSESSEE SHOULD HAVE CARRIED OUT THE WORK OF LIFTIN G THE PRODUCT, TRANSPORTED IT AND DELIVERED THE SAME TO THE DESTIN ATION POINT. IT CANNOT BE SAID, BY ANY STRETCH OF IMAGINATION, THAT THE SAID EMPLOYEE HAS EXECUTED ANY PART OF CONTRACT FOR THE REASON THAT HE IS NOT LIABLE TO THE RIGHTS AND LIABILITIES ATTA CHED WITH THE EXECUTION OF THE CONTRACT. SIMILARLY, IN THE INSTA NT CASE, THE TANKER OWNERS HAVE SIMPLY HIRED OUT THE TANKERS TO THE ASSESSEE IN ORDER TO ENABLE HIM TO CARRY OUT THE CONTRACT WO RK AND THEY HAVE NOT EXECUTED ANY PART OF CONTRACT. THE TANKE RS WERE MADE AVAILABLE TO THE ASSESSEE FOR USING THEM FOR THE BU SINESS OF THE ASSESSEE UNDER HIS CONTROL AND SUPERVISION. MORE S O, AS PER CLAUSE 16 OF THE AGREEMENT ENTERED WITH ONGC, THE A SSESSEE IS NOT ENTITLED TO ASSIGN OR SUB-CONTRACT ANY PART OF THE CONTRACT TO ANY ONE WITHOUT THE PRIOR PERMISSION OF THE ONGC AN D THERE IS NO IOTA OF EVIDENCE TO SUGGEST THAT THE ASSESSEE HA S EVEN SOUGHT SUCH PERMISSION FROM ONGC TO ASSIGN ANY PART OF CON TRACT.. IT IS ALSO NOT ON RECORD THAT THE GOODS WERE LIFTED, TRAN SPORTED AND DELIVERED BY THE TANKER OWNERS AT THEIR OWN RISKS. HENCE, IN OUR OPINION, THE TANKER OWNERS CANNOT BE SAID TO HAVE C ARRIED OUT THE WHOLE OR PART OF THE WORK. IN VIEW OF THE FORE GOING DISCUSSIONS, WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE LD DR THAT THE ASSESSEE HAS MADE THE SUB-CONTRACT EVEN FR OM THE STAGE AT WHICH THE VEHICLES WERE IDENTIFIED FOR PAR TICIPATING IN THE BIDDING PROCESS. 10.1 HENCE, IN OUR CONSIDERED OPINION ALSO, THE PAYMENTS MADE TO TANKER OWNERS WOULD NOT FALL IN THE CATEGOR Y OF PAYMENT MADE TO A SUB-CONTRACTOR FOR CARRYING OUT THE WHOLE OR PART OF THE CONTRACT LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 194C(2) OF THE ACT. IN THAT CASE, THE ADDITION MADE U/S 40(A) (IA) IS LIABLE TO BE DELETED AND WE ORDER ACCORDINGLY. 13. HAVING CAREFULLY EXAMINED THE LEGAL PROPOSIT IONS LAID DOWN BY THE TRIBUNAL IN THE AFORESAID CASE AND THE PROVISIO NS OF SECTION 194C OF THE ACT, WE ARE OF THE CONSIDERED OPINION THAT T DS AS PER SECTION 194C IS REQUIRED TO BE DEDUCTED WHEN THE PAYMENTS A RE MADE TO THE CONTRACTOR FOR CARRYING OUT THE WORK I.E. CARRI AGE OF GOODS AND PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN BY R AILWAYS SUBJECT TO OTHER CONDITIONS PRESCRIBED U/S 194C OF THE ACT BUT WHENEVER THE LORRIES AND TRUCKS ARE HIRED BY THE ASSESSEE FOR IT S OWN USE IN ANY MANNER UNDER ITS OWN CONTROL AND SUPERVISION, THE T DS IS NOT REQUIRED TO BE DEDUCTED ON PAYMENT MADE BY THE CONT RACTOR TO THE LORRY/TRUCK OWNERS. IN THE INSTANT CASE, THE ASSES SEE HAS HIRED THE TRUCKS/LORRIES FOR TRANSPORTING OF THE CONSIGNMENT BOOKED BY IT UNDER ITS OWN SUPERVISION AND CONTROL WITH ALL RESPONSIBI LITY AND LIABILITIES. THEREFORE, THE HIRING OF TRUCK AND LORRIES CANNOT B E CALLED TO BE THE WORK AS PER DEFINITION GIVEN IN EXPLANATION 3 OF SE CTION 194C OF THE ACT AND CONSEQUENT THERETO, THE ASSESSEE IS NOT LIA BLE FOR DEDUCTION ITA NO.22&23/VIZ/2011 M/S. SEVEN HILLS CARGO CARRIE R, RJY PAGE 11 OF 11 OF TDS ON PAYMENT TO LORRY/TRUCK OWNERS AS PER SECT ION 194C OF THE ACT. WE THEREFORE, FIND NO MERIT IN THE CIT(A)S O RDER AND WE SET ASIDE THE SAME AND DIRECT THE A.O. TO ALLOW THE PAY MENT CLAIMED BY THE ASSESSEE. 12. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE IN CLINED TO FOLLOW THE DECISIONS RENDERED BY THIS BENCH IN THE CASE OF M/S MYTHRI TRANSPORT CORPORATION AND M/S KRANTI ROAD TRANSPORT PVT. LTD, REFERRED (SUPRA). ACCORDINGLY, BY FOLLOWING THE DECISIONS RENDERED IN M/S KRANTI ROAD TRANSPORT PVT. LTD, (SUPRA), WE HOLD THAT THE ASSES SEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE ON THE FREIGHT CHARGES AS PER THE PROVISIONS OF SEC. 194C OF THE ACT. ACCORDINGLY, WE SET ASIDE THE ORD ER OF LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELE TE THE IMPUGNED ADDITION. 13. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED . PRONOUNCED ON 26.12.2011 SD/- SD/- (D MANMOHAN) (B R BASKARAN) VICE PRESIDENT ACCOUNTANT M EMBER VG/SPS VISAKHAPATNAM, DATE: 26 TH DECEMBER, 2011 COPY TO 1 M/S. SEVEN HILLS CARGO CARRIERS, DR.NO.6-2-10, T. NAGAR, RAJAHMUNDRY, EAST GODAVARI DISTRICT 2 ITO WARD-2, RAJAHMUNDRY 3 4. THE CIT RAJAHMUNDRY THE CIT(A), RAJAHMUNDRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM