M/s Kranti Road Transport P Ltd, Vijayawada V. The ACIT, Circle-2(1), Vijayawada

ITA 358/VIZ/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56783 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 27-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: TH L PETER
• Keywords: Business expenditure; Revenue expenditure
• Section: 37(1); 194C; 37; 12

Judgement Text

ITA NO358/V/2008 KRANTI ROAD TRANSPORT P LTD., VJA. 1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 358 /VIZAG/ 20 08 ASSESSMENT YEAR : 2005 - 06 KRANTI ROAD TRANSP ORT PVT. LTD VIJAYAWADA VS. ACIT, CIRCLE - 2(1) VIJAYAWADA (APPELLANT) (RESPONDENT) PAN NO.AAACK 9322N APPELLANT BY: SHRI FIROZE B. ANDHYARUJINA ADVOCATE SHRI G.V.V. SATYANARAYANA, C.A. RESPONDENT BY: SHRI TH.L. PETER, CIT(DR) DATE OF HEARI NG: 23.6.2011 DATE OF PRONOUNCEMENT: 11 .8.2011 ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER:- THIS APPEAL IS PREFERRED BY THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) PERTAINING TO THE ASSESSMENT YEAR 2005-06 MA INLY ON TWO GROUNDS. FIRST GROUND RELATE TO THE DISALLOWANCE OF EXPENDIT URE OF RS.80,860/- U/S 37(1) OF THE INCOME-TAX ACT (HEREINAFTER CALLED AS AN ACT) AND THE OTHER GROUND RELATE TO THE DISALLOWANCE OF ` 1,16,14,599/- U/S 40A(IA) OF THE ACT ON NON-DEDUCTION OF TDS. 2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND DOCUMENTS PLACED ON RE CORD. WITH REGARD TO THE FIRST GROUND I.E. DISALLOWANCE OF ` 80,860/- U/S 37(1) OF THE ACT, THE FACTS BORNE OUT FROM THE RECORD ARE THAT THIS EXPENDITURE WAS INCURRED FOR VIOLATING TRAFFIC RULES BY ENTERING TOWN ON NO ENTRY TIMES, O NE WAY TRAFFIC VIOLATIONS AND THE ASSESSEE CLAIMED IT TO BE INCURRED WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE A.O. HAS REJECTED THE CLAIM OF TH E ASSESSEES ON THE GROUND THAT THESE EXPENSES HAVE BEEN INCURRED FOR THE PURP OSE WHICH IS IN OFFENCE AND PROHIBITED BY LAW AND SHALL NOT BE DEEMED TO HA VE BEEN INCURRED FOR THE ITA NO358/V/2008 KRANTI ROAD TRANSPORT P LTD., VJA. 2 PURPOSE OF BUSINESS OR PROFESSION AS EXPLAINED IN E XPLANATION TO SECTION 37(1) OF THE ACT. 3. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT( A) BUT DID NOT FIND FAVOUR WITH HIM. NOW THE ASSESSEE IS BEFORE US WIT H THE SUBMISSION THAT THESE EXPENSES ARE INCURRED DURING THE COURSE OF IT S BUSINESS ACTIVITIES. SINCE THE ASSESSEE IS ENGAGED IN THE TRANSPORT BUSINESS, THE VIOLATION OF TRAFFIC RULES ARE QUITE NORMAL FOR WHICH IT HAS TO PAY SOME PENAL TIES/FINES. THEREFORE, THESE PENALTIES OR FINE ARE IN COMPENSATORY NATURE AND IT SHOULD BE ALLOWED AS A REVENUE EXPENDITURE. 4. THE LD. D.R. ON THE OTHER HAND HAS SUBMITTED THA T THESE FINES/PENALTIES WERE IMPOSED FOR VIOLATION OF TRAFF IC RULES. THEREFORE, IT CANNOT BE ALLOWED AS A REVENUE EXPENDITURE U/S 37(1 ) OF THE ACT. 5. HAVING HEARD THE RIVAL SUBMISSIONS IN THE LIGHT OF RELEVANT PROVISIONS OF SECTION 37 OF THE ACT, WE FIND THAT UNDISPUTEDLY TH E ASSESSEE HAS PAID THE PENALTY/FINES FOR VIOLATION OF TRAFFIC RULES. SINC E THE PAYMENTS WERE MADE FOR INFRACTION OF LAW, IT IS HIT BY EXPLANATION TO SECT ION 37 OF THE ACT AND THEREFORE THE PENALTY OR FINE CANNOT BE CONSIDERED TO BE THE BUSINESS EXPENDITURE U/S 37 OF THE ACT. WE, THEREFORE, FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND WE CONFIRM THE SAME. 6. WITH REGARD TO NEXT GROUND I.E. DISALLOWANCE OF ` 1,16,14,599/- U/S 40A(IA) OF THE ACT. FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT DURING THE YEAR ASSESSEE HAS ENGAGED/HIRED VEHICLES FROM S EVERAL PERSONS AND HAS PAID HIRE CHARGES TO THEM. THE ASSESSEE HAS ALSO T AKEN VEHICLES ON HIRE FROM MANAGING DIRECTOR, DIRECTOR AND THEIR FAMILY MEMBER S. DURING THE ASSESSMENT PROCEEDINGS, A.O. HAS ASKED THE ASSESSEE TO PRODUCE A COPY OF LEDGER ACCOUNTS OF LORRY CHARGES WHERE HIRE CHARGES PER LORRY ARE LESS THAN ` 50,000/-. THE A.O. HAS ALSO GATHERED INFORMATION THAT TDS HAS BEEN DEDUCTED ON HIRE CHARGES OF ` 1,99,17,916/-. FROM THE DETAILS FURNISHED BEFORE HIM, THE A.O. HAS QUANTIFIED THE HIRE CHARGE S AT ` 1,16,14,599/- WHERE THE AGGREGATE AMOUNTS EXCEEDS ` 50,000/-. THE ASSESSEE HAS CLAIMED DURING ITA NO358/V/2008 KRANTI ROAD TRANSPORT P LTD., VJA. 3 THE ASSESSMENT PROCEEDINGS THAT NO TDS HAS BEEN DED UCTED SINCE HIRE CHARGES ARE OUT OF AMBIT OF EXPRESSION WORK. THE A.O. HAS NOT ACCEPTED THE CONTENTION OF THE ASSESSEE AND HELD THAT THE PR OVISION OF SECTION 194C ARE VERY MUCH APPLICABLE TO THE HIRE CHARGES WHERE THE AGGREGATE AMOUNT EXCEEDS ` 50,000/- AND FOR NON-DEDUCTION OF TDS U/S 194C, HE DISALLOWED THE PAYMENT OF ` 1,16,14,599/- U/S 40A(IA) OF THE ACT. 7. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT( A) WITH THE SUBMISSION THAT HE HAS PAID TRUCK HIRE CHARGES TO T HOSE PERSONS WHO HAD GIVEN THEIR VEHICLES ON HIRE TO THE ASSESSEE. THER EFORE, THE PROVISIONS OF SECTION 194C COULD NOT BE INVOKED. THE PROVISIONS OF SECTION 194C ARE ATTRACTED TO THOSE CONTRACTS WHICH ARE FOR CARRIAGE OF GOODS AND DISALLOWANCE OF PAYMENT CAN BE MADE IF TDS WAS NOT DEDUCTED. IN SUPPORT OF HIS CONTENTION, HE PLACED A RELIANCE UPON THE JUDGEMENT OF THE MADRAS HIGH COURT IN THE CASE OF CIT VS. POOMPUHAR SHIPPING COR PORATION 282 ITR 003. THE ASSESSEE FURTHER ARGUED BEFORE THE CIT(A) THAT PROVISIONS OF SECTION 194C ARE APPLICABLE WHERE A PERSON PAYS ANY SUM TO A CONTRACTOR FOR CARRYING OUT ANY WORK IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND THE PAYER AND THE PAYER SHALL DEDUCT TDS AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF CONTRACTOR. ASSESSEE HAS SIMPLY TAKEN T HE VEHICLES FROM OTHER PARTIES ON HIRE AND TRANSPORTED GOODS UNDER HIS OWN SUPERVISION. THEREFORE, NO WORK WAS ASSIGNED TO THE TRUCK OR LORRY OWNERS A ND AS SUCH PROVISIONS OF SECTION 194C CANNOT BE INVOKED. HE FURTHER PLACED A RELIANCE UPON THE JUDGEMENT OF THE KERALA HIGH COURT IN THE CASE OF C BDT VS. COCHIN GOODS TRANSPORT ASSOCIATION 236 ITR 993. THE CLAIM OF TH E ASSESSEE WAS EXAMINED BY THE CIT(A) BUT HE WAS NOT CONVINCED WITH IT AND THE DISALLOWANCE WAS CONFIRMED. 8. NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND REITERATED ITS CONTENTIONS. THE LD. COUNSEL FOR TH E ASSESSEE HAS ALSO PLACED A HEAVY RELIANCE UPON THE ORDER OF THE TRIBUNAL IN TH E CASE OF SHRI M. SEETARAMAIAH VS. ACIT ITA NO.355 OF 2008 AND MYTHRI TRANSPORT CORPORATION IN ITA NO.183/V/2008, IN SUPPORT OF HIS CONTENTIONS THAT WHEREVER THE TRUCK, ITA NO358/V/2008 KRANTI ROAD TRANSPORT P LTD., VJA. 4 LORRIES OR OTHER VEHICLES ARE HIRED TO TRANSPORT TH E CONSIGNMENT OF ITS CUSTOMERS UNDER ITS OWN SUPERVISION AND CONTROL THE PAYMENT OF HIRE CHARGES WOULD NOT ATTRACT THE PROVISIONS OF SECTION 194C OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO INVITED OUR ATTENTION TO THE PROVISIONS OF SECTION 194C OF THE ACT WITH THE SUBMISSION THAT THE TDS WO ULD ONLY BE DEDUCTED WHEN PAYMENT IS MADE TO THE CONTRACTORS FOR CARRYIN G OUT ANY WORK, IN PURSUANCE TO CONTRACT BETWEEN THE CONTRACTOR AND TH E PERSONS MENTIONED IN CLAUSE (A) TO CLAUSE (K) OF SUB-SECTION (1) OF SECT ION 194C OF THE ACT. THE WORD WORK HAS BEEN DEFINED IN EXPLANATION 3 AND A CCORDING TO THE DEFINITION, WORK INCLUDES CARRIAGE OF GOODS AND PA SSENGERS BY ANY MODE OF TRANSPORT OTHER THAN BY RAILWAYS. BUT THE HIRING O F TRUCK, LORRIES OR OTHER VEHICLES WOULD NOT FORM PART OF THE WORK. THEREFO RE, THE HIRING OF LORRIES AND TRANSPORTING THE GOODS UNDER ITS OWN SUPERVISIO N WOULD NOT BE CALLED TO BE A WORK TO BE CARRIED OUT IN PURSUANCE TO A CON TRACT BY THE CONTRACTOR. THEREFORE, IN THE INSTANT CASE, THIS PROVISION OF S ECTION 194C CANNOT BE INVOKED AS THE ASSESSEE HAS SIMPLY HIRED THE LORRIE S AND TRUCKS FOR TRANSPORTATION OF THE GOODS OF ITS CUSTOMERS UNDER ITS OWN CONTROL AND SUPERVISION WITH ALL RESPONSIBILITIES OF TRANSPORTA TION OF GOODS. 9. THE LD. D.R. ON THE OTHER HAND HAS SUBMITTED THA T PROVISIONS OF SECTION 194C ARE EXPLICITLY CLEAR THAT WHENEVER THE CONTRACTOR IS ASKED TO PERFORM A WORK THE TDS IS REQUIRED TO BE DEDUCTED O N PAYMENT TO A CONTRACTOR SUBJECT TO OTHER CONDITIONS. THE LORRY AND TRUCKS WERE HIRED ALONG WITH THE DRIVERS FOR TRANSPORTATION OF THE GOODS AN D THE RESPONSIBILITY OF THE TRUCK DRIVERS ARE TO TRANSPORT THE GOODS IN SAFE AN D SOUND CONDITIONS. THE TRUCKS WERE HIRED FOR A PARTICULAR PURPOSE I.E. TRA NSPORTATION OF GOODS AND THEREFORE THE WORK EXECUTED BY THE TRUCK DRIVERS FA LLS WITHIN THE DEFINITION OF THE WORK DEFINED IN EXPLANATION 3 OF SECTION 194C OF THE ACT. THUS, ON NON- DEDUCTION OF TDS, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE PAYMENT U/S 40A(IA) OF THE ACT. 10. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE RECORD, WE FIND THAT THE ASSESSEE IS A ITA NO358/V/2008 KRANTI ROAD TRANSPORT P LTD., VJA. 5 TRANSPORTER AND OWNED CERTAIN LORRIES AND TRUCKS FO R TRANSPORTING THE CONSIGNMENTS. BESIDES HIS OWN TRUCKS AND LORRIES, ASSESSEE HAS ALSO HIRED THE LORRIES AND THE TRUCKS FROM OUTSIDERS FOR WHICH HIRE CHARGES WERE PAID. NOW THE QUESTION ARISE, WHETHER PAYMENT OF HIRE CHA RGES TO THE TRUCK OWNERS ATTRACT PROVISIONS OF SECTION 194C OF THE ACT? BEF ORE DWELLING UPON THE ISSUE, WE PREFER TO EXAMINE THE SCOPE OF PROVISIONS OF SEC TION 194C OF THE ACT. FOR THE SAKE OF REFERENCE, WE EXTRACT THE PROVISIONS AS UNDER: 194C. PAYMENTS TO CONTRACTORS AND SUB-CONTRACTORS (1) A NY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT (HER EINAFTER 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) THE CENTRAL GOVERNMENT OR ANY STATE GOVERNMENT; OR (B) ANY LOCAL AUTHORITY; OR (C) ANY CORPORATION ESTABLISHED BY OR UNDER A CENTRAL, STATE OR PROVINCIAL ACT; OR (D) ANY COMPANY; OR (E) ANY CO-OPERATIVE SOCIETY; OR (F) ANY AUTHORITY, CONSTITUTED IN INDIA BY OR UNDER ANY LAW, ENGAGED EITHER FOR THE PURPOSE OF DEALING WITH AN SATISFYIN G THE NEED FOR HOUSING ACCOMMODATION OR FOR THE PURPOSE OF PLANNIN G, DEVELOPMENT OR IMPROVEMENT OF CITIES, TOWNS AND VIL LAGES, OR FOR BOTH; OR (G) ANY SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRA TION ACT, 1860 (21 OF 1860) OR UNDER ANY LAW CORRESPONDING TO THAT ACT IN FORCE IN ANY PART OF INDIA; OR (H) ANY TRUST; OR (I) ANY UNIVERSITY ESTABLISHED OR INCORPORATED BY OR UN DER A CENTRAL, STATE OR PROVINCIAL ACT AND AN INSTITUTION DECLARED TO BE A UNIVERSITY UNDER SECTION 3 OF THE UNIVERSITY (J) ANY FIRM; OR (K) ANY INDIVIDUAL OR A HINDU UNDIVIDED FAMILY OR AN AS SOCIATION OF PERSONS OR A BODY OF INDIVIDUALS, WHETHER INCORPORA TED OR NOT, OTHER THAN THOSE FALLING UNDER ANY OF THE PRECEDING CLAUSES, WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BU SINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LI MITS SPECIFIED UNDER CLAUSE (A) OR CLAUSE (B) OF SECTION 44AB DURI NG THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WH ICH SUCH SUM IS CREDITED OR PAID TO THE ACCOUNT OF THE CONTRACTOR. SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACC OUNT OF CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CH EQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO (I) ONE PER CENT IN CASE OF ADVERTISING (II) IN ANY OTHER CASE TWO PER CENT, ITA NO358/V/2008 KRANTI ROAD TRANSPORT P LTD., VJA. 6 OF SUCH SUM AS INCOME-TAX ON INCOME COMPRISED THERE IN; PROVIDED THAT NO INDIVIDUAL OR A HINDU UNDIVIDED FAMILY SHAL L 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 EXCLU SIVELY FOR PERSONAL PURPOSE OF SUCH INDIVIDUAL OR ANY MEMBER OF HINDU U NDIVIDED FAMILY. (2) ANY PERSON (BEING A CONTRACTOR AND NOT BEING A N INDIVIDUAL OR A HINDU UNDIVIDED FAMILY) RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT (HEREAFTER IN THIS SECTION REFERRED TO AS THE SUB-C ONTRACTOR) IN PURSUANCE 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 PARTL Y ANY LABOUR WHICH THE CONTRACTOR HAS UNDERTAKEN TO SUPPLY SHALL, AT THE T IME 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 OTH ER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO ONE PER CENT OF SUCH SUM AS INCOME-TAX ON INCOME COMPRISED THEREIN; PROVIDED THAT ANY INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WH OSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAU SE (A) OR CLAUSE (B) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH SUCH SUM IS CREDITED OR PAID TO THE A CCOUNT OF THE SUB- CONTRACTOR, SHALL BE LIABLE TO DEDUCT INCOME-TAX UN DER THIS SUB-SECTION. EXPLANATION-IFOR THE PURPOSES OF SUB-SECTION (2), THE EXPRESSION CONTRACTOR SHALL ALSO INCLUDE A CONTRACTOR WHO IS CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WO RK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND THE GOVERNMENT OF A FOREIGN STATE OR A FOREIGN ENTERPRISE OR ANY ASSOCIATION OR BODY ESTAB LISHED OUTSIDE INDIA. EXPLANATION-II FOR THE PURPOSES OF THIS SECTION, WHERE ANY SUM REFERRED TO IN SUB-SECTION (1) OR SUB-SECTION (2) IS CREDITED T O ANY ACCOUNT, WHETHER CALLED SUSPENSE ACCOUNT OR BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE PERSON LIABLE TO PAY SUCH INCOME, SUCH CREDITIN G SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE A ND THE PROVISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY. EXPLANATION-III FOR THE PURPOSES OF THIS SECTION, THE EXPRESSION WORK SHALL ALSO INCLUDE (A) ADVERTISING; (B) BROADCASTING AND TELECASTING INCLUDING PRODUCTION O F PROGRAMMES FOR SUCH BROADCASTING OR TELECASTING; (C) CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRA NSPORT OTHER THAN BY RAILWAYS; (D) CATERING. (3) NO DEDUCTION SHALL BE MADE UNDER SUB-SECTION (1 ) OR SUB-SECTION (2) FROM ITA NO358/V/2008 KRANTI ROAD TRANSPORT P LTD., VJA. 7 (I) THE AMOUNT OF ANY SUM CREDITED OR PAID OR LIKEL Y TO BE CREDITED OR PAID TO THE ACCOUNT OF, OR TO, THE CONTRACTOR OR SUB-CON TRACTOR, IF SUCH SUM DOES NOT EXCEED TWENTY THOUSAND RUPEES; PROVIDED THAT WHERE THE AGGREGATE OF THE AMOUNTS OF SUCH SUM S CREDITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE FINANCIAL YEAR EXCEEDS FIFTY THOUSAND RUPEES, THE PERSON RESPONSIBLE FOR P AYING 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 LIKE LY 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 TH E 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 CA RRIAGES 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 T HE PERSON AUTHORIZED BY IT SUCH PARTICULARS AS MAY BE PRESCRIBED IN SUCH FO RM AND WITHIN SUCH TIME AS MAY BE PRESCRIBED; OR (II) ANY SUM CREDITED OR PAID BEFORE THE 1 ST DAY OF JUNE, 1972; OR (III) ANY SUM CREDITED OR PAID BEFORE THE 1 ST 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 CONTRACT OR AND THE SUB- CONTRACTOR IN RELATION TO ANY WORK (INCLUDING SUPPL Y OF LABOUR FOR CARRYING OUT ANY WORK) UNDERTAKEN BY THE CONTRACTOR FOR THE CO-OPERATIVE SOCIETY. 11. FROM PLAIN READING OF THE PROVISIONS OF SECTION 194C OF THE ACT, WE FIND THAT TDS IS REQUIRED TO BE DEDUCTED WHEN ANY P ERSON RESPONSIBLE FOR PAYING ANY SUM TO A CONTRACTOR FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND THE ASSESSEE AT PARTICULAR PERCENTAG E. THE SUB-SECTION 2 FURTHER CLARIFIES THAT WHERE A CONTRACTOR RESPONSIB LE 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 PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR 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 CHEQUE OR DRAFT OR ANY OTHER NOTE IS REQUIRED TO DEDUCT THE TDS AT A PARTICULAR PERCENTAGE. IN BOTH THE PROVISIONS THE WORD WORK HAS BEEN USED AND THE SAID WORD WORK HAS BEEN DEFINED UNDE R EXPLANATION 3 ITA NO358/V/2008 KRANTI ROAD TRANSPORT P LTD., VJA. 8 ACCORDING TO WHICH THE EXPRESSION WORK INCLUDES A DVERTISING, BROADCASTING TELECASTING CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN BY RAILWAYS AND CATERING. FOR THE PURPOSE OF IMPUGNED CONTROVERSY, THE CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRA NSPORT OTHER THAN BY RAILWAYS IS CONSIDERED TO BE 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. THE ASSESSEE HAS MADE OU T A CASE THAT HE HAS SIMPLY HIRED THE LORRIES AND TRUCKS TO TRANSPORT IT S CONSIGNMENT UNDER ITS OWN CONTROL AND SUPERVISION. THE MOVEMENT OF TRUCKS AN D LORRIES ARE GOVERNED BY THE ASSESSEE ITSELF AND NOT THE TRUCK OWNERS. TRUC K OWNERS SIMPLY HIRE OUT THEIR TRUCKS FOR ITS USE BY THE ASSESSEES AGAINST C ERTAIN HIRE CHARGES. THE REVENUE HAS NOT MADE OUT A CASE THAT THE ASSESSEE H AS ENGAGED OR HIRED THE TRUCKS FOR TRANSPORTATION OF THE CONSIGNMENT BOOKED BY IT UNDER THE CONTROL AND SUPERVISION OF TRUCK OWNERS. THEREFORE, THE AS SESSEE HAS NOT ASSIGNED ANY WORK TO THE LORRY/TRUCK OWNERS AS PER PROVISION S OF SECTION 194C OF THE ACT. THE QUESTION INVOLVED IN THIS CASE WHETHER TH E ASSESSEE IS REQUIRED TO DEDUCT THE TDS ON PAYMENT OF HIRE CHARGES MADE TO L ORRY OWNERS WAS ALSO EXAMINED BY US IN THE CASE OF SHRI M. SITARAMAIAH V S. 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 OWNER WOU LD NOT FALL IN THE CATEGORY OF A SUB-CONTRACTOR FOR CARRYING OUT THE W HOLE OR PART OF CONTRACT LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 194C OF T HE ACT. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THAT CASE ARE EXTRA CTED HEREUNDER: 9. WE HEARD THE RIVAL CONTENTIONS AND ALSO PER USED THE RECORD. IN THE CASE OF M/S MYTHRI TRANSPORT CORPORATION, SUPRA , RELIED UPON BY THE ASSESSEE, THIS BENCH HAS REFRAMED THE QUESTION 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. ITA NO358/V/2008 KRANTI ROAD TRANSPORT P LTD., VJA. 9 WHETHER THE VEHICLES HIRED BY THE ASSESSEE IN EXECUTION OF THE TRANSPORT CONTRACT AND BE TERMED AS A SUB-CONT RACT AND CONSEQUENTLY THE ASSESSEE IS LIABLE TO DEDUCT TAX FROM THE PAYME NT 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 PAYMENT S MADE FOR HIRED LORRIES AS ACCORDING TO HIM, SUCH PAYMENTS REPRESENT PAYMENT T O 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) RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT (HEREAFTER IN THE SECTION REFERRED TO AS THE SUB-CO NTRACTOR) IN PURSUANCE 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 T HE CONTRACTOR OR FOR SUPPLYING WHETHER WHOLLY OR PARTLY ANY LABO UR WHICH THE CONTRACTOR HAS UNDERTAKEN TO SUPPLY SHALL, AT THE T IME 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 OTH ER MODE, WHICHEVER IS EARLIER, 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 1 94C (2) IS ATTRACTED IF ALL THE FOLLOWING CONDITIONS ARE SATISFIED. A) THE ASSESSEE SHOULD BE A CONTRACTOR B) THE ASSESSEE, IN HIS CAPACITY AS A CONTRACTOR, SHOU LD 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 AN Y 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 AS THE LD CIT (A), THE TRIBUNAL CAME TO THE FOLLOWING CONCLUSION. 8.5 IT IS NOT ESTABLISHED BY THE REVENUE THAT OTHER LOR RY OWNERS, FROM WHOM THE VEHICLES WERE HIRED, HAVE ALSO BEEN FASTEN ED WITH ANY OF THE ABOVE SAID LIABILITIES. IN A SUB-CONTRACT, A P RUDENT CONTRACTOR WOULD INCLUDE ALL THE LIABILITY CLAUSES IN THE AGRE EMENT 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 ONLY. THOUGH THE PASSING OF LIABILITY IS N OT THE ONLY CRITERIA TO DECIDE ABOUT THE EXISTENCE OF SUB-CONTRACT, YET THI S CONTENTION OF THE ASSESSEE RED WITH THE LIABILITY CLAUSES OF THE WORK ORDER CITED ABOVE, SUPPORTS ITS SUBMISSION THAT THE INDIVIDUAL VEHICLE OWNERS AREA SIMPLE HIRERS OF THE VEHICLES. 8.6 AS PER THE PROVISIONS OF SEC.194 (2), AS EXPLAINED IN PARA 8.1 SUPRA, THE SUB-CONTRACTOR SHOULD CARRY OUT THE WHOLE OR AN Y PART OF THE WORK ITA NO358/V/2008 KRANTI ROAD TRANSPORT P LTD., VJA. 10 UNDERTAKEN BY THE ASSESSEE. THE DICTIONARY MEANING OF THE WORDS CARRY OUT IS TO CARRY INTO PRACTICE; TO EXECUTE ; TO ACCOMPLISH. IT SIGNIFIES A POSITIVE INVOLVEMENT IN THE EXECUTION O F THE WHOLE OR ANY PART OF THE MAIN WORK BY SPENDING HIS TIME, MONEY, ENERGY ETC. AND FURTHER TAKING THE RISKS IN CARRYING ON THE SAID AC TIVITY. 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 THEIR TIME, ENERGY AND BY TAKING THE RISKS ASSOCIATED WITH THE MIN CONTRACT WORK. IN TH E ABSENCE OF THE ABOVE SAID CHARACTERISTICS ATTACHED TO A SUB-CONTRA CT IN THE INSTANT CASE, THE PAYMENT MADE TO THE LORRY OWNERS STANDS A T PAR WITH THE PAYMENTS MADE TOWARDS SALARIES, RENT, ETC. HENCE T HE REASONING OF THE TAX AUTHORITIES, WHICH IS STATED IN PARA 8.3 SU PRA, TO HOLD THAT THE PAYMENT MADE FOR HIRED VEHICLES IS A SUBCONTRACT PA YMENT, IN OUR OPINION, IS NOT CORRECT AND NOT BASED ON RELEVANT C ONSIDERATIONS. HENCE, IN OUR CONSIDERED OPINION, IT CANNOT BE SAID THAT THE PAYMENTS MADE FOR HIRED VEHICLES WOULD FALL IN THE CATEGORY OF PAYMENT TOWARDS A SUB-CONTRACT WITH THE LORRY OWNERS. IN THAT CAS E THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE, AS PER THE PROV ISIONS OF SEC.194C (2) ON THE PAYMENTS MADE TO THE LORRY OWNERS FOR LO RRY HIRE. CONSEQUENTLY, THE PROVISIONS 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 O F M/S MYTHRI TRANSPORT CORPORATION VIZ., IDENTIFYING THE VEHICLE AT THE ST AGE OF BIDDING PROCESS ITSELF, MODE OF PAYMENT OF HIRE CHARGES OR THE SHARING OF A DVANTAGE IN THE CONTRACT, IN OUR OPINION, ARE NOT DETERMINATIVE OF THE NATURE OF RELATIONSHIP BETWEEN THE ASSESSEE AND THE TANKER OWNERS. THERE IS NO AS SURANCE THAT THE ASSESSEE, ON IDENTIFYING THE TANKERS AT THE STAGE O F BIDDING PROCESS, WOULD AUTOMATICALLY GET THE CONTRACT. AS RIGHTLY CONTENDE D BY THE LD AR SUCH IDENTIFICATION MAY BE ONE OF THE QUALIFICATION REQU IRED EVEN FOR PARTICIPATING IN THE TENDER PROCESS. SO ALSO THERE ARE MANY WAYS OF COMPENSATING THE TANKER OWNERS FOR USING THE VEHICLE AND THE METHODOLOGY FO LLOWED BY THE ASSESSEE TO PASS ON THE ENTIRE HIRE CHARGES, INCLUDING DIESE L ESCALATION CHARGES, EXCEPT RETAINING A COMMISSION OF 5% IS ONE OF THE MODES OF PAYMENT. HENCE THE ABOVE SAID FACTORS CAN NOT SUPPORT THE CASE OF THE REVENUE. AS POINTED OUT IN THE CASE OF M/S MYTHRI TRANSPORT CORPORATION, WH AT IS REQUIRED TO BE SEEN IS WHETHER THE TANKER OWNERS HAVE MADE A POSITIVE I NVOLVEMENT IN THE EXECUTION OF WHOLE OR ANY PART OF THE MAIN CONTRAC T BY SPENDING HIS TIME, MONEY, ENERGY AND FURTHER TAKING THE RISKS INVOLVE D IN EXECUTION THEREOF. EXCEPT FOR GIVING THE TANKERS ON HIRE TO THE ASSESS EE, THERE IS NO MATERIAL TO SUGGEST THAT THEY CARRIED OUT WHOLE OR ANY PART O F THE WORK BY SPENDING THEIR TIME, ENERGY AND BY TAKING RISKS ASSOCIATED W ITH THE MAIN CONTRACT WORK. ONE FINE DISTINCTION THAT MAY BE CONSIDERED IS WHET HER 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, T HE SALARIED EMPLOYEE OF THE ASSESSEE SHOULD HAVE CARRIED OUT THE WORK OF LI FTING THE PRODUCT, ITA NO358/V/2008 KRANTI ROAD TRANSPORT P LTD., VJA. 11 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 LIAB LE TO THE RIGHTS AND LIABILITIES ATTACHED WITH THE EXECUTION OF THE CONTRACT. SIMIL ARLY, IN THE INSTANT CASE, THE TANKER OWNERS HAVE SIMPLY HIRED OUT THE TANKERS TO THE ASSESSEE IN ORDER TO ENABLE HIM TO CARRY OUT THE CONTRACT WORK AND THEY HAVE NOT EXECUTED ANY PART OF CONTRACT. THE TANKERS WERE MADE AVAILABLE TO THE ASSESSEE FOR USING THEM FOR THE BUSINESS OF THE ASSESSEE UNDER HIS CON TROL AND SUPERVISION. MORE SO, AS PER CLAUSE 16 OF THE AGREEMENT ENTERED WITH ONGC, THE ASSESSEE IS NOT ENTITLED TO ASSIGN OR SUB-CONTRACT ANY PART OF THE CONTRACT TO ANY ONE WITHOUT THE PRIOR PERMISSION OF THE ONGC AND THERE IS NO IOTA OF EVIDENCE TO SUGGEST THAT THE ASSESSEE HAS EVEN SOUGHT SUCH PERM ISSION FROM ONGC TO ASSIGN ANY PART OF CONTRACT.. IT IS ALSO NOT ON RE CORD THAT THE GOODS WERE LIFTED, TRANSPORTED AND DELIVERED BY THE TANKER OWN ERS AT THEIR OWN RISKS. HENCE, IN OUR OPINION, THE TANKER OWNERS CANNOT BE SAID TO HAVE CARRIED 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 T HE ASSESSEE HAS MADE THE SUB-CONTRACT EVEN FROM THE STAGE AT WHICH THE VEHIC LES WERE IDENTIFIED FOR PARTICIPATING IN THE BIDDING PROCESS. 10.1 HENCE, IN OUR CONSIDERED OPINION ALSO, THE PAYMENTS MADE TO TANKER OWNERS WOULD NOT FALL IN THE CATEGORY OF PAYMENT MA DE 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 A DDITION MADE U/S 40(A)(IA) IS LIABLE TO BE DELETED AND WE ORDER ACCORDINGLY. 13. HAVING CAREFULLY EXAMINED THE LEGAL PROPOSITION S LAID DOWN BY THE TRIBUNAL IN THE AFORESAID CASE AND THE PROVISIONS O F SECTION 194C OF THE ACT, WE ARE OF THE CONSIDERED OPINION THAT TDS AS PER SE CTION 194C IS REQUIRED TO BE DEDUCTED WHEN THE PAYMENTS ARE MADE TO THE CONTR ACTOR FOR CARRYING OUT THE WORK I.E. CARRIAGE OF GOODS AND PASSENGERS BY A NY MODE OF TRANSPORT OTHER THAN BY RAILWAYS SUBJECT TO OTHER CONDITIONS PRESCRIBED U/S 194C OF THE ACT BUT WHENEVER THE LORRIES AND TRUCKS ARE HIRED B Y THE ASSESSEE FOR ITS OWN USE IN ANY MANNER UNDER ITS OWN CONTROL AND SUPERVI SION, THE TDS 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 RESPONSIBILITY AND LIABILITIES. THEREFORE, THE HIRING OF TRUCK AND LORRIES CANNOT BE CALLED TO BE THE WORK AS PER DEFINITION GIVEN IN EXPLANATION 3 OF SECTION 194C OF THE ACT A ND CONSEQUENT THERETO, THE ASSESSEE IS NOT LIABLE FOR DEDUCTION OF TDS ON PAYM ENT TO LORRY/TRUCK OWNERS ITA NO358/V/2008 KRANTI ROAD TRANSPORT P LTD., VJA. 12 AS PER SECTION 194C OF THE ACT. WE THEREFORE, FIND NO MERIT IN THE CIT(A)S ORDER AND WE SET ASIDE THE SAME AND DIRECT THE A.O. TO ALLOW THE PAYMENT CLAIMED BY THE ASSESSEE. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 11.8.2011 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 11 TH AUGUST, 2011 COPY TO 1 KRANTI ROAD TRANSPORT (P) LT D., 5 TH ROAD, AUTONAGAR, VIJAYAWADA - 7 2 ACIT, CIRCLE - 2(1), VIJAYAWADA 3 THE CI T, VIJAYAWADA 4 THE CIT (A) , VIJAYAWADA 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM