Nasib Singh, Berhampur V. ACIT, Berhampur

ITA 440/CTK/2011

• Counselvise Citation: 44022114 RSA 2011
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 02-11-2011
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHY
• Assessee Lawyers: S BANDAPADHYA
• Keywords: Depreciation; Commercial expediency; Reassessment proceedings
• Section: 194C

Judgement Text

IN THE INC O ME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM , AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 440/CTK/2011 AND STAY PETITION NO.26/CTK/2011 (ASSESSMENT YEAR 2007 - 08) SRI NASIBSINGH, HILLPATNA, BERHAMPUR, ORISSA. PAN: AOKPS 4163 G VERSUS THE ASST.COMMISSIONER OF INCOME - TAX , BERHAMPUR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI S.BANDAPADHYA, AR FOR THE RESPONDENT SMT. PARAMITA TRIPATHY, DR DATE OF HEARING : 20.12.2011 DATE OF PRONOUNCEMENT : 13.01.2012 ORDER SHRI K.K.GUPTA, AM : THIS APPEAL BY THE ASSESSEE AGITATES THE CONFIRMATION OF DISALLOWANCE COMPUTED BY THE ASSESSING OFFICER INVOKING THE PROVISIONS OF SECTION 194C R.W.S. 40(A)(IA) OF THE INCOME - TAX ACT,1961. IN CONSEQUENCE THERETO THE ASSESSE E ALSO AGITATES THE LEARNED CIT(A) CONFIRMING THE DISALLOWANCE OF HIGHER RATE OF DEPRECIATION ON THE VEHICLES UTILISED BY THE ASSESSEE FOR HIRING OUT FOR ITS BUSINESS. 2. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD ARE THAT THE ASSESSEE WAS IN THE BUSIN ESS OF PLYING TRUCKS OWNED BY IT AND ALSO FROM OTHER TRUCK OWNERS AND FILED THE RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DECLARING 2,91,110 INCOME. NOTICE U/S.147 WAS ISSUED BY THE ASSESSING OFFICER ON THE REASONS TO BELIEVE THAT THE ASSESSEE HA D CLAIMED HIGHER DEPRECIATION @30% INSTEAD OF 15% WITHOUT SHOWING INCOME FROM PLYING OF TRUCKS ON HIRE AS A SEPARATE BUSINESS. THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS MAINLY USING ITS TRUCKS FOR THE PURPOSE OF HIRING OUT WHICH INCOME HAS BEEN RENDERED INSOFAR AS IT HAS ALSO INCURRED TRANSPORT CHARGES BY UTILISING THE TRUCKS OF OTHER OWNERS . DURING THE REASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN WHY THE PROVISIONS OF SECTION 40(A)(IA) IS NOT APPLIED ON THE PART PAYMEN TS MADE TO THE CONTRACTORS ITA NO.440/CTK/2011 AND STAY PETITION NO.26/CTK/2011 2 SUBJECT TO DEDUCTION OF TAX AT SOURCE WHEN A SUM OF 65,24,800 WAS PAID WITHOUT SUCH DEDUCTION. HE DISALLOWED THE SUM OF 65,24,800 FROM THE RETURNED INCOME AND ON THE ISSUE OF INVOKING THE PROVISIONS OF SECTION 147/148 HELD TH AT THE ASSESSEE HAD NOT SHOWN ANY INCOME FROM TRUCKS AND EXCAVATORS TO CLAIM DEPRECATION @30%. THE EXCESS DEPRECIATION WAS DISALLOWED AMOUNTING TO 9,41,615. AGGRIEVED THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY. 3. BEFORE THE LEARNED CIT(A ), IT WAS SUBMITTED BY THE ASSESSEE THAT HE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE FROM THE PAYMENTS IDENTIFIED BY THE ASSESSING OFFICER AS NOT COMPLYING TO THE PROVISIONS OF SECTION 194C. THE ASSESSEE HIMSELF BEING A TRANSPORT CONTRACTOR HAD UTILISED HI S OWN VEHICLES IN THE BUSINESS OF RUNNING THEM ON HIRE AND AS SUCH WAS ENTITLED TO HIGHER RATE OF DEPRECIATION WAS THE ISSUE BEFORE THE ASSESSING OFFICER WHICH INCOME HAD BEEN SHOWN AS PER THE FINANCIAL STATEMENTS AVAILABLE TO THEM ON RECORD THEREFORE COUL D NOT BE SUBJECTED TO INVOKING THE PROVISIONS OF SECTION 40(A)(IA) ITSELF AS IT WAS THE MAIN BUSINESS OF THE ASSESSEE. THE ASSESSEE IN TURN HAD REDUCED THE HIRE CHARGES PAID TO TIPPER OWNERS WHOSE TIPPERS AND EXCAVATORS WERE ENGAGED FOR ASSESSEES BUSINESS WHEN THE ASSESSEE HAS BEEN ENGAGED AS A SUB - CONTRACTOR. THE ASSESSEE OWNED 4 TIPPERS AND 2 EXCAVATORS AND PURCHASED NEW LOADERS IN THE IMPUGNED YE AR WHICH FULLY JUSTIFIES THAT THE ASSESSING OFFICER WAS NOT WITHIN HIS JURISDICTION EITHER TO INVOKE THE PROV ISIONS OF SECTION 40(A)(IA) ON ASSUMING JURISDICTION FOR REASONS TO BELIEVE THAT THE ASSESSEE HAD NO T SHOWN INCOME FROM HIRING ITS TRUCKS AND EXCAVATORS WHICH INCOME HAD BEEN SHOWN IN THE PROFIT & LOSS ACCOUNT IN THE IMPUGNED ASSESSMENT YEAR. THE LEARNED CIT(A) CONSIDERED THE CASE OF THE ASSESSEE BY HOLDING A VIEW THAT THE PAYMENTS WERE FOR THE PURPOSE OF HAVING ENTERED INTO A CONTRACT WHEN HIRE CHARGES WERE PAID TO TIPPER OWNERS WHOSE ITA NO.440/CTK/2011 AND STAY PETITION NO.26/CTK/2011 3 TIPPERS AND EXCAVATORS WERE ENGAGED IN ASSESSEES WORK. THE ASSESSEE TH EREFORE, OUGHT TO HAVE EXPLAINED WHY THE PAYMENTS TO THEM WHICH FIVE CONTRACTORS AS INSCRIBED IN THE ASSESSMENT ORDER WERE NOT SUBJECTED TO TDS FOR WHOLE OF THE AMOUNT WHEN AMOUNT PARTLY PAID WAS SUBJECTED TO TDS AND DEPOSITED . IT WAS EXPLAINED BY THE ASSE SSEE THAT ALL THESE PERSONS TO WHOM THE PAYMENTS WERE MADE WERE NOT TO BE SUBJECTED TO TDS AS THEY WERE NOT UNDER OBLIGATION IN VIEW OF THE ASSESSEE HAVING CONTRACTUAL OBLIGATION WITH SHRI SARAT CHANDRA NAYAK FOR WHOM HE IS TO EXECUTE THE TERMS OF THE CONT RACT AS PER THE BILLS RAISED ON BY THE ASSESSEE. THE ASSESSEE WAS SUBJECTED TO SERVICE TAX AND THEREFORE FULFILLED THE CONTRACT DID NOT REQUIRE THE ASSESSEE TO FURTHER DEDUCT TAX AT SOURCE FROM THESE FIVE TRUCK OWNERS WHO HAD AGREED TO UTILIZE THE IR TRUCKS FOR THE PURPOSE OF THE ASSESSEE COMPLYING TO THE SUB - CONTRACT ENTERED BETWEEN THE ASSESSEE WITH SHRI SARAT CHANDRA NAYAK. THE LEARNED CIT(A) ALSO CONSIDERED THE CASE LAWS RELIED O N BY THE ASSESSEE BEFORE HIM WHICH INDICATED THAT THE MERE ARRANGEMENT OF T RANSPORTING THE MATERIAL AS PER THE TERMS OF THE CONTRACT ENTERED INTO WITH THE P AYE E S COULD NOT BE CONSIDERED AS THE CHARGES PAID FOR THE TRANSPORTATION WHO WERE TRANSPORTING THE GOODS OF THE ASSESSEE. THE LEARNED CIT(A) DISTINGUISHED THE CITED CASE LAWS AND NO THE BASIS OF THE REMAND REPORT CONCLUDED THAT THE ASSESSEE HAS SHIFTED ITS STAND FROM ONE POSITION TO THE OTHER DURING THE APPEAL PROCEEDINGS. HAVING AGREED TO THE PROPOSITION THAT HE IS USING THE TRUCKS AND OTHER VEHICLES FOR HIRING OUT IN AGREEMEN T WITH SHRI SARAT CHANDRA NAYAK WHEN SARAT CHANDRA NAYAK HAD DEDUCTED TAX @1.12% ON THE PAYMENTS INDICATING THAT THE ASSESSEE IS A SUB - CONTRACTOR , THE ASSESSEE HAVING PAID TO THE TRUCK OWNERS , HAVING CREDITED A SUM OF 1,06,41,000 HAD DEDUCTED TAX ON THE REMAINING AMOUNTS BUT NOT 65,24,800 THEREFORE WAS CONSIDERED FOR DISALLOWANCE U/S.40(A)(IA) BY THE ASSESSING OFFICER WAS UPHELD. HOWEVER, HE ITA NO.440/CTK/2011 AND STAY PETITION NO.26/CTK/2011 4 DID GIVE A FINDING THAT THE ASSESSEE COULD NOT BE SAID TO HAVE ENGAGED ITS TIPPERS AND EXCAVATORS IN THE BUSINESS OF RUNNING THEM ON HIRE WHICH THE LEARNED COUNSEL FOR THE ASSESSEE HEREINAFTER WILL DEMONSTRATE AS A CONTRADICTION IN THE MIND OF THE LEARNED CIT(A) AS WELL. 4. THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITTED THAT THE SUBMISSIONS W ERE PLACED BEFORE THE ASSESSING OFFICER AND LEARNED CIT(A) ALONG WITH LEDGER COPIES OF THE PAYMENTS TO THE FIVE PARTIES ALONG WITH THE CITED CASE LAWS WHICH INDICATE THAT THE ASSESSING OFFICER IN HIS REMAND REPORT AND THE LEARNED CIT(A) IN HIS ORDER HAS CO NFUSED THE ISSUE AS A CONTRADICTION IN THE MIND OF THE ASSESSEE APPELLANT FROM THE BEGINNING. THERE IS NO QUESTION OF PAID OR PAYABLE INSOFAR AS THE FACTUAL ASPECTS AS HAVE BEEN CONSIDERED CLEARLY INDICATE THAT A PAYABLE DOES NOT NECESSARILY INDICATE UNDER A CONTRACT HAVING BEEN ENTERED INTO FOR THE PURPOSE OF INVOKING THE PROVISIONS OF SECTION 194C FOR CONSEQUENT CONSIDERATION U/S.40(A)(IA).THE LEARNED COUNSEL FOR THE ASSESSEE RELIED NO THE DECISION OF HONBLE P & H HIGH COURT IN THE CASE OF CIT V. UNITED RICE LAND LTD (174 TAXMANN 286) WHICH CLEARLY OPINES THAT AN ASSESSEE ENGAGING TRUCK OWNERS FOR EXECUTING HIS CARRYING OUT THE SUB - CONTRACT AND THE TRANSPORTATION CHARGES WERE PAID BY THE ASSESSEE DIRECTLY TO THE TRUCK OWNERS OR OPERATORS THERE BEING NO OR AL OR WRITTEN CONTRACT ENTERED INTO BY THE ASSESSEE AND TRANSPORTERS WHETHER THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE WAS NOT APPLICABLE INSOFAR AS THERE WAS NO AGREEMENT BETWEEN SRI SARAT CHANDRA NAYAK AND THE ACTUAL PAYEES. THE ASSESSEE BEING A SU B - CONTRACTOR ITSELF COULD NOT HAVE ENTERED INTO ANOTHER CONTRACT FOR THE PURPOSE OF MAKING PAYMENTS TO THE FIVE PARTIES WHO HAD UTILISED THEIR TRUCKS FOR THE ASSESSEES BUSINESS . HE SUBMITTED THAT ALL THE EXPENSES THAT WERE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF EXECUTING THE SUB - CONTRACT WAS F OR UTILISING THE 4 TIPPERS AND THE EXCAVATORS WHICH FELL SHORT ITA NO.440/CTK/2011 AND STAY PETITION NO.26/CTK/2011 5 OF EXECUTING THE SUB - CONTRACT TH EREFORE CANNOT BE FURTHER HELD FOR SUBJECTED TO DEDUCTION OF TAX AT SOURCE U/S.194C AND DISALLOWANCE U/S.40(A)(IA) . T HIS HAS NOT BEEN CLARIFIED EITHER BY THE ASSESSING OFFICER OR THE LEARNED CIT(A). THE ASSESSEE WAS UTILISING THE TRUCKS FOR HIS OWN WORK THEREFORE THE ASSESSEE COULD NOT BE SAID TO HAVE ENTERED INTO A CONTRACT FOR CARRYING OUT ANY WORK TO BE SUBJECTED TO D EDUCTION OF TAX AT SOURCE U/S .194C AS WAS HELD BY THE ITAT, AMRITSAR BENCH IN THE CASE OF SATISH AGARWAL& CO. [317 ITR (AT) 196]. ITAT, MUMBAI BENCHES ALSO HELD IN T HE CASE OF BHORUKA ROADLINES LTD., [317 ITR (AT) 193] THAT WHEN THE TRUCK OWNERS AND DRIVER S ARE SEPARATELY PAID FOR EACH TRUCK WITHOUT ANY AGREEMENT WITH THE AGENTS/SUPPLIERS, PROVISIONS OF SECTION 194C IS NOT ATTRACTED. IN THE CASE OF CIT V. ESSKAY CONSTRUCTION CO.,[267 ITR 618], HONBLE PUNJAB & HARYANA HIGH COURT HA S HELD THAT THE TRIBUNAL HAD FOUND THAT THERE WAS NO DIRECT CONTRACT BETWEEN ORIGINAL CONTRACTOR AND THE ULTIMATE PAYEES , THEREFORE WOULD NOT RESULT THE CONTRACT BEING EXECUTED FOR THE APPLICATION OF SECTION 194C(2). IN ANOTHER DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF D.RATHNAM [241 CTR (MAD) 476] , WHICH IS DIRECTLY APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COUNSEL SUBMITTED THAT NEITHER THE ASSESSING OFFICER NOR THE LEARNED CIT(A) HAS ASCERTAINED THAT THERE IS ANY MATERIAL TO SUGGEST THAT THERE WAS ANY CONTRACT BETWEEN THE ASSESSEE AND THOSE INDIVIDUALS BY WAY OF COMPOSITE CONTRACT OF HIRING OF THE VEHICLES , EQU IPMENTS ETC., BY ITSELF THEREFORE CANNOT BE A GROUND TO HOLD THAT THERE WAS A COMPOSITE CONTRACT BETWEEN THE ASSESSEE AS A SUB - CONTRACTO R FOR PLY ING OF TRUCKS FOR THE SAID SHRI SARAT CHANDRA NAYAK. HOWEVER, IN VIEW OF THE APPLICABILITY OF SECTIN194 - I AND NOT 194C WHICH CAME INTO OPERATION W.E.F. 1.6.2007, THE HONBLE COURT HELD THAT THERE IS NO NEED TO DEDUCT TAX FOR DISALLOWANCE U/S.40(A) (IA). IN ANOTHER DECISION PUNJAB & HARYANA HIGH COURT IN THE CASE OF BHAGWATI STEEL [214 CTR (P & H ) 480] IT ITA NO.440/CTK/2011 AND STAY PETITION NO.26/CTK/2011 6 HAS BEEN CATEGORICALLY HELD THAT THERE WAS NO PURPOSE TO GIVE A FINDING AS TO WHY THE PART OF THE PAYMENTS WERE SUBJECTED TO DEDUCTION OF TAX AT SOURCE WHICH PAYMENT HAS NOT BEEN CONSIDERED OTHER THAN FOR PAYMENTS WHEN THE WHOLE OF THE AMOUNT HAS BEEN CLAIMED AS EXPENDITURE WITHOUT GIVING ANY FINDINGS TO THE FATE OF TAX DEDUCTED AT SOURCE. THE LEARNED COUNSEL SUBMITTED , AS ALTERNATE ARGUMENT , THAT THE ASSESSEE IS MERELY HIRING THE TRUCKS OF OTHER TRUCK OWNERS AND NEVER IND ULGED IN SUB - CONTRACTING. THE OTHER TRUCK OWNERS MERELY LET OUT THEIR TRUCKS FOR S OME FIXED AND TEMPORARY PURPOSE AND THEIR DUTIES WOULD BE LIMITED TO THE EXTENT OF CARRYING OUT TH E GOODS FROM ONE POINT TO ANOTHER. THEY ARE NEVER CONFRONTED WITH THE MAIN CONTRACTEE OF THE ASSESSEE NOR DO THEY STEP IN THE SHOES OF THE ASSESSEE BEFORE THEM. THUS, EVEN IF IT BE CONSIDERED THAT THERE WERE SOME CONTRACTS BETWEEN THE ASSESSEE AND THE OTHE R TRUCK OWNERS, THAT WOULD LEAD TO THE FINDING THAT THEY WERE INDEPENDENT CONTRACTORS IN RESPECT OF PARTICULAR JOBS ALLOTTED TO THEM AND NOT AT ALL, THE SUB - CONTRACTORS ON BEHALF OF THE ASSESSEE IN RESPECT OF THE MAIN CONTRACT UNDERTAKEN BY THE ASSESSEE FR OM THE MAIN CONTRACT OR . FOR THIS PROPOSITION, THE LEARNED COUNSEL RELIED ON THE DECISION OF ITAT, VIASDKHAPATNAM BENCH IN THE CASE OF MYTHRI TRANSPORT CORPORATON [124 TTJ (VISAKHA) 970] WHEREIN THE CHARACTERISTIC OF A SUB - CONTRACT HAS BEEN SPELT OUT CLEA RLY. IN THAT CASE THE ASSESSEE HAD HIRED THE TRUCKS OF OTHER TRUCK OWNERS AND THE INDIVIDUAL VEHICLE OWNERS WERE SIMPLE HIRERS OF THE VEHICLES AND THAT THEY WERE NOT FASTENED WITH ANY OF THE LIABILITIES OF THE CONTRACTOR WITH THE MAIN CONTRACTEES. THE TRI BUNAL HELD THAT SHARING THE LIABLILTY OF THE CONTRACT WAS AN ESSENTIAL REQUIREMENT OF THE SUBCONTRACTORSHIP. THE TRIBUNAL HELD, - LN THE INSTANT CASE, THERE IS NO MATERIAL TO SUGGEST THAT THE OTHER LORRY OWNERS INVOLVED THEMSELVES IN CARRYING OUT ANY PART OF THE WORK UNDERTAKEN BY THE ASSESSEE BY SPENDING ITA NO.440/CTK/2011 AND STAY PETITION NO.26/CTK/2011 7 THEIR TIME, ENERGY AND BY TAKING THE RISKS ASSOCIATED WITH THE MAIN CONTRACT WORK. THUS, ACCORDING TO THE TRIBUNAL, A SUB - CONTRACT WOULD REQUIRE STEPPING IN THE SHOES OF THE MAIN CONTRACTOR AND INVOLVI NG HIMSELF IN EXECUTION OF THE MAIN CONTRACT WORK BY EVEN UNDERTAKING THE RISK INVOLVED IN THE MAIN CONTRACT WORK. SO FAR AS THE PRESENT CASE IS CONCERNED, THE OTHER TRUCK OWNERS, WHOSE TRUCKS THE APPELLANT TOOK ON HIRE FROM TIME TO TIME, ONLY HIRED OUT TH EIR TRUCKS AND EVEN IF THERE MIGHT HAVE BEEN SOME CONTRACTS BETWEEN THEM AND THE APPELLANT, THEY COULD, BY NO MEANS, BE CONSIDERED AS SUBCONTRACTORS IN RESPECT OF THE CONTRACT WORKS UNDERTAKEN BY THE APPELLANT. THEY DID NOT HAVE TO FACE THE MAIN CONTRACTEE S NOR DID THEY UNDERTAKE ANY PART OF THE RISKS INVOLVED IN THE MAIN CONTRACT WORKS. HENCE, IF AT ALL THE PROVISIONS OF SECTION 194 OF THE ACT WOULD APPLY TO THE PRESENT CASE, IT WILL BE ONLY SUB - SECTION 194 C (1) RELATING TO THE LIABILITY OF DEDUCTING TAX A T SOURCE FROM PAYMENTS MADE TO CONTRACTORS AND NOT SUB - SECTION 194 C (2) RELATING TO PAYMENTS MADE TO SUB - CONTRACTORS. PRIOR TO THE AMENDMENT OF SUB - SECTION 194C(1) BY THE FINANCE ACT, 2007 WITH EFFECT FROM 01 - 06 - 2007, AN INDIVIDUAL WAS NOT REQUIRED UN DER THAT SUB - SECTION TO DEDUCT ANY TAX AT SOURCE FROM PAYMENTS MADE TO A CONTRACTOR. THE LIABILITY TO DEDUCT TAX AT SOURCE WAS THERE ONLY IN RESPECT OF PAYMENTS MADE TO SUB - CONTRACTORS. THE AMENDED PROVISIONS OF THAT SUB - SECTION VIZ. 194 C (1), GRO U PING IN EVEN INDIVIDUALS WOULD, THEREFORE, NOT BE APPLICABLE TO THE YEAR UNDER PRESENT APPEAL VIZ. A.Y. 2006 - 07. SINCE, IN THE INSTANT CASE, THE TRUCK OWNERS CANNOT BE CONSIDERED AS SUB - CONTRACTORS OF THE APPELLANT, HENCE, THERE WAS NO LIABILITY ON THE PART OF THE APPELLANT TO DEDUCT TAX AT SOURCE FROM THE PAYMENTS MADE TO THEM. THEREFORE, THERE WOULD BE NO QUESTION OF APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT TO THE PRESENT CASE. THE DISALLOWANCE, THEREFORE, MADE UNDER THAT SECTION, IS CLEARLY ILL EGAL AND THUS, DESERVES TO BE DELETED IN FULL. ITA NO.440/CTK/2011 AND STAY PETITION NO.26/CTK/2011 8 5. ON THE SECOND ISSUE, THE LEARNED COUNSEL HAS RELIED ON THE PROPOSITION THAT THE WORD OF HIRED OUT HAS BEEN MISCONSTRUED BY THE AUTHORITIES BELOW. THE ASSESSEE WAS GIVEN A SUB CONTRACT FOR HIRE ITS VEHICL ES BEING TIPPERS AND EXCAVATORS. VARIOUS JUDICIAL PRONOUNCEMENTS INTERPRETED THE LAW GOVERNING THE LAW FOR CLAIM OF DEPRECIATION AT A HIGHER RATE WHEN THE ASSETS ARE USED FOR THE PURPOSE OF EARNING INCOME BY HIRING THEM OUT. THERE IS NO QUALITATIVE DIFFERE NCE BETWEEN LEASE OF THE VEHICLE FOR A SPECIFIED PERIOD FOR CONSIDERATION AND LETTING THE VEHICLE ON HIRE FOR SHORT DURATION ON PAYMENT OF HIRE CHARGES. THE FACT THAT THE ASSESSEE CHOSE TO LEASE OUT THE TRUCKS DOES NOT ON THAT SCORE DISENTITLE HIM TO CLAIM THE BENEFIT OF THE HIGHER RATE OF DEPRECIATION. HE RELIED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. MADAN AND CO. [254 ITR 445 (MAD)]. IN ANOTHER DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF M.G.F (INDIA) LTD [285 ITR 1 42) IT WAS HELD THAT THERE WAS NO DISPUTE THAT THE VEHICLES WHICH WERE THE SUBJECT MATTER OF THE LEASE AGREEMENTS WERE IN FACT GIVEN BY THE ASSESSEE TO THIRD PARTIES. TO THIS EXTENT, THE REQUIREMENT OF LAW HAD BEEN MET. THERE WAS NO ADDITIONAL REQUIREMENT ON THE ASSESSEE TO SHOW THAT THE THIRD PARTIES HAD USED THOSE VEHICLES FOR HIRE. HE ALSO RELIED ON ANOTHER DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF SHIVA TEX YAN LTD [302 ITR 20] AND THE DECISION OF HONBLE APEX COURT IN THE CASE OF GUPTA GLOBA L EXIM P. LTD [305 ITR 132] WHICH DECISIONS INDICATE THAT WHAT IS REQUIRED FOR ALLOWING DEPRECIATION AT A HIGHER RATE THE ASSESSEE SHOULD BE IN THE BUSINESS OF HIRING OUT THE VEHICLES. HE PRAYED THAT THE ASSESSEES CLAIM OF HIGHER DEPRECIATION MAY BE ALLOW ED. 5. THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. SHE SUBMITTED THAT THE ASSESSEE HAVING DEDUCTED TAX AT SOURCE ON THE P ART AMOUNT THERE F ORE WAS NOTED BY THE LEARNED CIT(A) AS A CHANGE OF STAND ITA NO.440/CTK/2011 AND STAY PETITION NO.26/CTK/2011 9 WHICH THE ASSESSEE IS NOT ABLE TO SUBSTANTI ATE AS OF NOW. IT IS AN AFTERTHOUGHT WHEN THE AMOUNTS HAVE BEEN DISALLOWED U/S.40(A)(IA) THAT THE AMOUNT ALREADY DEDUCTED AT SOURCE AS CLAIMED BY THE ASSESSEE AS EXPENDITURE ON THE PAYMENTS MADE TO THE RESPECTIVE PARTIES. THE LEARNED CIT(A) AFTER OBTAINING THE REMAND REPORT VERIFIED THAT THE ASSESSEE HAD FAILED TO DEDUCT TAX A T SOURCE IN ACCORDANCE WITH THE PROVISIONS OF INCOME - TAX ACT,1961 WAS SUBJECTED TO DISALLOWANCE INSOFAR AS THE ASSESSEE BEING A SUB - CONTRACTOR OF SRI SARAT CANDRA NAYAK COULD NOT ESTAB LISH THAT THE HIRING CHARGES PAID TO THE TIPPER OWNERS WHOSE TIPPERS AND EXCAVATORS WERE ENGAGED IN THE ASSESSEES WORK WERE NOT PART OF ANY ORAL OR WRITTEN CONTRACT. THE FACTS CLEARLY INDICATE THAT THE ASSESSEE WAS HIRING OUT ITS VEHICLES FROM WHICH IT HA S REDUCED THE PAYMENTS MADE TO THE TRUCK OWNERS RENDERING INCOME FROM SUB - CONTRACT THEREFORE WAS RIGHTLY CONSIDERED FOR DISALLOWANCE U/S.40(A)(IA). THEREFORE IN CONSEQUENT THERETO, THE LEARNED CIT(A) ALSO HAS RIGHTLY SUSTAINED THE DISALLOWANCE FOR THE CLAI M OF HIGHER DEPRECIATION. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES. ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE INCLINED TO FIND THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE ARE COVERED BY THE CASE LA WS CITED AT BAR. IT WAS NOT A CHANGE OF STAND TAKEN BY THE ASSESSEE INSOFAR AS THE PART DEDUCTION WAS NOT TO BE TAKEN AS CONTRAVENING THE PROVISIONS OF SECTION 194C R.W.S. 40(A)(IA). THE ASSESSEE BEING A TRANSPORT CONTRACTOR HAVING EXECUTED WHOLE OF THE CO NTRACT FOR TRANSPORTATION BY HIRING LORRIES FROM OTHER LORRY OWNERS WHO SIMPLY PLACED THE VEHICLES AT THE DISPOSAL OF THE ASSESSEE WITHOUT INVOLVING THEMSELVES FOR CARRYING ANY PART OF THE WORK UNDERTAKEN BY THE ASSESSEE COULD NOT BE SAID TO HAVE MADE THE PAYMENTS FOR HIS BUSINESS INVOLVING DEDUCTION OF TAX AT SOURCE TO ANOTHER CONTRACTOR. THE WORK CONTRACT AS DEFINED EXCLUDE PAYMENTS FOR HIRING OUT ITA NO.440/CTK/2011 AND STAY PETITION NO.26/CTK/2011 10 LORRIES THEREFORE COULD NOT BE SUBJECTED TO CONSIDER THE ISSUE OF CLAIMING OF HIGHER DEPRECIATION ALSO. THE A SSESSEE OWNS THOSE ASSETS WHICH ARE LEASED OUT FOR THE PURPOSE OF HIRING OUT AND THE NATURE OF BUSINESS CLEARLY ENTITLES THE ASSESSEE TO CLAIM HIGHER DEPRECIATION WHEN THE ASSESSEE FOR THE VOLUME OF WORK HIRES OTHER TRUCKS FROM OTHER TRUCK OWNERS FOR EXECU TING ITS CONTRACT. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUPPLIED A PAPER BOOK WHEREIN THE PAYMENT TO THE TRUCK OWNERS CLEARLY INDICATE THAT THEY HAVE NOT BEEN MADE AS PART OF THE CONTRACT ENTERED BETWEEN THE ASSESSEE AND THEM. THE EXPENDITURE INCURRED FOR HIRING OUT ITS OWN VEHICLES HAS BEEN INDICATED WHEN THE MAIN CONTRACT RECEIPTS HAVE BEEN REDUCED AGAINST THE PAYMENTS MADE TO THESE TRUCK OWNERS CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE THAT THERE WAS NO CONTRACT BETWEEN SHRI SARAT CHANDRA NAYAK AN D THE TURCK OWNERS WHOSE PAYMENTS HAVE BEEN DISALLOWED U/S.40(A)(IA). THE ASSESSEE WAS ENTITLED TO HIGHER DEPRECIATION THEREFORE IS GLARING ON THE BASIS OF THE CONDUCT OF THE ASSESSEE IN EXECUTING THE CONTRACT WHICH HAS BEEN SUPPORTED BY THE CASE LAWS CITE D BY THE LEARNED COUNSEL AS MENTIONED ABOVE. THE BILL RAISED BY THE ASSESSEE CHARGING SERVICE TAX CLINCHES THE ISSUE THAT THE MAIN CON TRACTOR DEDUCTING TAX AT SOURCE ON PAYMENTS TO THE ASSESSEE BY WAY OF SUB - CONTRACT @1.12%. THEREFORE, WE FIND NO INFIRMITY IN THE SUBMISSION OF THE ASSESSEE THAT THERE COULD HAVE BEEN ORAL OR WRITTEN CONTRACT BETWEEN THE ASSESSEE AND THE PAYEES OR FOR THAT MATTER BETWEEN SHRI SARAT CHANDRA NAYAK AND THE PAYEES. THE AUTHORITIES BELOW THEREFORE, DID NOT SUGGEST THAT THERE OUGHT TO HAVE BEEN A CONTRACT EITHER IMPLIED OR OTHERWISE TO HOLD THAT THE ASSESSEE WAS DEDUCTING TAX AT SOURCE U/S.194C. AS HAS BEEN POINTED OUT BY THE LEARNED COUNSEL THE CASE LAWS DIRECTLY INVOLVE THE ASSESSEES CLAIMING OF EXPENDITURE PURELY ON THE BASIS OF EXECUTING THE CONTRACT WHEN HE HIMSELF IS A CONTRACTOR LEASING OUT ITS TRUCKS FOR THE PURPOSE OF ITS BUSINESS BY HIRING IT ITA NO.440/CTK/2011 AND STAY PETITION NO.26/CTK/2011 11 OUT. THERE WAS NO REQUIREMENT FOR THE ASSESSEE TO OBTAIN THE DETAILS OF THE PAYEES TO BE SUBJECTED TO DEDUCTION OF TAX AT SOURCE AS THEY WERE NOT SUB - SUB - CONTRACTORS. THE SAID PARTIES DID NOT GET SUBSTITUTED IN THE PLACE OF THE ASSESSEE BEFORE THE MAIN CONTRACTOR WHOSE GOODS THE ASSESSEE WAS CARRYING. THESE PARTIES DID NOT GET BURDENED WITH ANY LIABILITY WHICH THE ASSESSEE HAD VIS - - V IS HIS CONTRACTOR. THE ASSESSING OFFICER ON HIS OWN HAS HELD THEM AS CONTRACTORS WHICH IS PATENTLY INCORRECT WHEN THE AMOUNTS WERE TO BE PAID IN ACCORDANCE WITH THE COMMERCIAL EXPEDIENCY. THE ASSESSING OFFICER ALSO DOES NOT ACKNOWLEDGE THEM AS SUB - CONTRACT OR WHEN THE PROVISIONS OF SUB - SECTION (1) OF SECTION 194C REQUIRES PAYMENT TO THE CONTRACTORS ONLY. IN OTHER WORDS, THE APPLICABILITY OF SUB - SECTION (1) OF SECTION 194C HAS BEEN DONE AWAY WITH ASSESSING OFFICER HIMSELF IN HIS REMAND REPORT. THE LEARNED CIT (A) THEREFORE DID NOT GIVE A FINDING TO SUSTAIN THE DISALLOWANCE ASSESSED BY THE ASSESSING OFFICER U/S.40(A)(IA) TO SUGGEST THAT THERE WAS ANY CONTRACT BETWEEN THE ASSESSEE AND THOSE INDIVIDUAL BY WAY OF A COMPOSITE CONTRACT FOR LABOUR AS WELL AS HIRING O F THE VEHICLES AND EQUIPMENTS ETC. IN THIS VIEW OF THE MATTER, WE HAVE NO H ESITATION TO SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF 65,24,800 MADE U/S.40(A)(IA). 7. ON THE SUSTENANCE OF THE DISALLOWANCE OF THE CLAIM OF HIGHER DEPRECIATION AS HAVE BEE N DELIBERATED BY US ON THE ISSUE, WE ARE INCLINED TO HOLD THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE APPROPRIATE INSOFAR AS THE ASSESSEE HAS CLEARLY HIRED THEM OUT BY WAY OF A SUB - CONTRACT ITS MACHINERY AND EQUIPMENTS WHICH INCOME HAS BEEN RETU RNED BY THE ASSESSEE THEREFORE COULD NOT BE SAID TO HAVE BEEN REDUCED FROM THE EXPENDITURES INCURRED FOR HIRING OUT THE VEHICLES OF THE OTHER TRUCK OWNERS. THE WORD HIRED USED BY THE LAW WAS TO ONLY INDICATE THAT SOME INCOME ITA NO.440/CTK/2011 AND STAY PETITION NO.26/CTK/2011 12 SHOULD BE RENDERED TO TAXATION BY UTILIZATION OF THOSE ASSETS AND NOT THAT ASSETS WHICH CAN ONLY BE HIRED OUT CAN BE USED FOR CLAIMING HIGHER DEPRECIATION. THE FACT THAT THE ASSESSEE CHOSE TO LEASE OUT THE TRUCKS DOES NOT ON THAT SCORE DISENTITLE HIGHER RATE OF DEPRECIATION. WE ARE INCLINE D TO UPHOLD THE CONTENTIONS SUPPORTED BY THE CASE LAWS AND DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION @30% ON THE ASSETS USED FOR HIRING OUT BY THE ASSESSEE FOR THE EXECUTION OF SUB - CONTRACT. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS AL LOWED. 9. THE APPEAL HAVING BEEN DISPOSED OF, THE STAY PETITION FILED BY THE ASSESSEE BECOMES INFRUCTUOUS AND THE SAME IS THEREFORE DISMISSED AS SUCH. S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBE R DATE: 13.01.2012 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: SRI NASIBSINGH, HILLPATNA, BERHAMPUR, ORISSA. 2. THE RESPONDENT: THE ASST.COMMISSIONER OF INCOME - TAX , BERHAMPUR. 3. THE CIT, 4. T HE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.