THE ACIT, CIRCLE - 2(1), Vijayawada V. K.V. Subba Rao, Vijayawada

ITA 501/VIZ/2014

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9945 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 28-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Non-deduction of tax
• Section: 143(3); 194C; 263

Judgement Text

ITA NO.501/VIZAG/2014 SRI K.V. SUBBA RAO, VIJAYAWADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.501/VIZAG/2014 ( / ASSESSMENT YEAR: 2007-08) ACIT, CIRCLE - 2(1), VIJAYAWADA VS. SRI K.V. SUBBA RAO, VIJAYAWADA [PAN: AAC FK5028N ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI M.N. MURTHY NAIK, DR / RESPONDENT BY : SHRI C. SUBRAHMANYAM, AR / DATE OF HEARING : 27.07.2016 / DATE OF PRONOUNCEMENT : 12.08.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A), VIJAYAWADA DATED 5.6.2014 FOR THE ASSESSMEN T YEAR 2007-08. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF TRANSPORT OF IRON O RE AND COAL TO VARIOUS ITA NO.501/VIZAG/2014 SRI K.V. SUBBA RAO, VIJAYAWADA 2 MINING COMPANIES AND METAL TRADING COMPANIES. THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-0 8 ON 31.10.2007 ADMITTING TOTAL INCOME OF ` 18,32,535/-, WHICH WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') ON 26.9.2008. SUBSEQUENTLY, THE ASSESSMENT HAS BEEN C OMPLETED U/S 143(3) OF THE ACT AND DETERMINED TOTAL INCOME OF ` 29,84,865/-. THEREAFTER, THE CIT, VIJAYAWADA REVISED ASSESSMENT ORDER U/S 263 OF THE ACT, ON THE GROUND THAT THE ASSESSEE HAS FAILED TO DEDUCT TDS ON TRANSPORTATION CHARGES U/S 194C OF THE ACT AND ACCO RDINGLY DIRECTED THE A.O. TO PASS FRESH ASSESSMENT ORDER. THE A.O., AS PER THE DIRECTIONS OF THE CIT U/S 263 OF THE ACT, PASSED FRESH ASSESSMENT ORDER U/S 143(3) R.W.S. 263 OF THE ACT AND DISALLOWED TRANSPORTATION CHARGES OF ` 2,59,52,945/- UNDER THE PROVISIONS OF SECTION 40(A) (IA) OF THE ACT FOR NON-DEDUCTION OF TAX AT SOURCE U/S 194C OF THE ACT. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE SUBMITTED THAT IT IS ENGAGED IN THE BUSINESS OF BULK TRANSPOR TATION OF IRON ORE AND COAL TO VARIOUS MINING COMPANIES AND METAL TRADING COMPANIES. DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2007- 08, IT HAS EXECUTED TRANSPORT WORK UNDER VARIOUS CONTRACTS WITH M/S. MS PL LIMITED, HOSPET, ITA NO.501/VIZAG/2014 SRI K.V. SUBBA RAO, VIJAYAWADA 3 HKT MINING (P) LTD., HOSPET AND OTHER COMPANIES. T HE ASSESSEE FURTHER SUBMITTED THAT IN THE PROCESS, IT HAS ENGAGED LORRY FROM VARIOUS INDIVIDUALS AND PAYMENT HAS BEEN MADE ON EACH TRIP WITHOUT ANY FORMAL AGREEMENT, THEREFORE, THE ARRANGEMENT WITH LORRY OW NERS WOULD NOT COME WITHIN THE MEANING OF WORK AS DEFINED UNDER SEC. 194C OF THE ACT. IT WAS FURTHER ARGUED THAT IT HAS ENTERED INTO AGREEMENT WITH THE COMPANIES FOR TRANSPORTATION OF GOODS AND THE RISK ASSOCIATED WITH TRANSPORTATION OF GOODS IS REST WITH THE ASSESSEE A ND THE LORRY OWNERS DEPLOYED THE VEHICLES AT THE DISPOSAL OF THE ASSESS EE, THEREFORE, THE TRANSPORTATION CHARGES PAID IS NOT COMING WITHIN TH E MEANING OF WORKS AS DEFINED U/S 194C OF THE ACT. TO SUPPORT HIS ARG UMENTS, RELIED UPON THE DECISION OF ITAT, VISAKHAPATNAM IN THE CASE OF MYTHRI TRANSPORT CORPORATION VS. ACIT IN ITA NO.183/VIZAG/2008, P. R AMACHANDRA RAO VS. ACIT IN ITA NO.387/VIZAG/2008 AND KRANTI ROAD T RANSPORT PVT. LTD. VS. ACIT IN ITA NO.358/VIZAG/2008. THE CIT(A) AFTE R CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO FOLLOWING THE DECISION OF JURISDICTIONAL ITAT, HELD THAT AGREEMENT BETWEEN TH E ASSESSEE AND THE TRUCK OWNERS IS NOT COMING WITHIN THE DEFINITION OF CONTRACT AS DEFINED U/S 194C OF THE ACT, CONSEQUENTLY, ANY PAYMENT MADE TO LORRY OWNERS IS NOT LIABLE FOR TDS U/S 194C OF THE ACT. WITH THESE OBSERVATIONS, DIRECTED THE A.O. TO DELETE THE ADDITIONS MADE UNDE R THE PROVISIONS OF ITA NO.501/VIZAG/2014 SRI K.V. SUBBA RAO, VIJAYAWADA 4 SECTION 40(A)(IA) OF THE ACT. AGGRIEVED BY THE CIT (A) ORDER, THE REVENUE IS IN APPEAL BEFORE US. 4. THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) IS NO T JUSTIFIED IN HOLDING THAT THE PAYMENTS MADE IN EXCESS OF ` 20,000/- ARE NOT LIABLE FOR TDS AS PER THE PROVISIONS OF SECTION 194C OF TH E ACT, WHEN ON THE SAME SET OF FACTS AND CIRCUMSTANCES, THE REVISIONAR Y AUTHORITY HELD THAT THE ASSESSEE IS LIABLE TO DEDUCT TDS. THE LD. D.R. FURTHER ARGUED THAT THE CIT(A) IS NOT JUSTIFIED IN HOLDING THAT THE CON DITIONS LAID DOWN IN EXPLANATION 3 TO SECTION 194C OF THE ACT ARE NOT AP PLICABLE TO THE ASSESSEE. THE LD. D.R. FURTHER ARGUED THAT IT IS N OT A MERE HIRING OF TRUCKS FROM THE OPEN MARKET, BUT A CONTRACT BETWEEN THE ASSESSEE AND THE LORRY OWNERS FOR TRANSPORTATION OF GOODS WHICH IS COMING WITHIN THE DEFINITION OF WORKS U/S 194C OF THE ACT. THE LD. D .R. FURTHER ARGUED THAT THE ASSESSEE IS INVOLVED IN THE BUSINESS OF TR ANSPORTATION OF IRON ORE FOR VARIOUS COMPANIES AND IN THE PROCESS ENTERED IN TO AGREEMENT WITH THE COMPANIES FOR TRANSPORTATION OF GOODS AND ALSO PROVIDING MINIMUM NUMBER OF TRUCKS. THE ASSESSEE HAS USED HIS OWN TR UCKS FOR THE PURPOSE OF TRANSPORTATION OF GOODS AND ALSO HIRED T RUCKS FROM OUTSIDERS ON FIXED CHARGES BASIS. THE FACTS OF THE CASE LAWS RELIED UPON BY THE ASSESSEE ARE DIFFERENT FROM THE FACTS OF THE PRESEN T CASE, ACCORDINGLY ITA NO.501/VIZAG/2014 SRI K.V. SUBBA RAO, VIJAYAWADA 5 THE CIT(A) ERRED IN RELIED UPON THOSE CASE LAWS TO DELETE THE ADDITION MADE BY THE A.O. THEREFORE, REQUESTED TO UPHELD ASS ESSMENT ORDER. 5. ON THE OTHER HAND, THE LD. A.R. FOR THE ASSESSEE STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). THE A.R. FURTHER SUBMITTED THAT THE AGREEMENT BETWEEN THE ASSESSEE A ND THE LORRY OWNERS IS A MERE HIRING OF TRUCKS, BUT NOT A SUB CO NTRACT AS DEFINED UNDER THE PROVISIONS OF SECTION 194C OF THE ACT, AC CORDINGLY THE A.O. WAS NOT CORRECT IN DISALLOWING TRANSPORTATION CHARG ES BY INVOKING PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE A. R. FURTHER SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT, VISAKHAPATNAM IN THE CASE OF MYTHRI TRANSPORT CORPO RATION VS. ACIT IN ITA NO.183/VIZAG/2008, P. RAMACHANDRA RAO VS. ACIT IN ITA NO.387/VIZAG/2008 AND KRANTI ROAD TRANSPORT PVT. LT D. VS. ACIT IN ITA NO.358/VIZAG/2008. THE A.R. FURTHER SUBMITTED THAT ON SIMILAR FACTS, THE HONBLE ITAT, HELD THAT MERE HIRING OF TRUCKS DOES NOT AMOUNT TO CONTRACT OR SUB CONTRACT AS DEFINED UNDER THE PROVI SIONS OF SECTION 194C(2) OF THE ACT. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. DISALLOWED TRANSPORTATION CHARGES ON THE GROUN D THAT THE ASSESSEE ITA NO.501/VIZAG/2014 SRI K.V. SUBBA RAO, VIJAYAWADA 6 HAS FAILED TO DEDUCT TDS UNDER THE PROVISIONS OF SE CTION 194C OF THE ACT. THE A.O. FURTHER WAS OF THE OPINION THAT THE ASSESS EE HAS INCURRED TRANSPORTATION CHARGES AND INDIVIDUAL PAYMENTS EXCE EDS RS. 20,000/- AND AGGREGATE OF SUCH PAYMENTS EXCEEDS THE SPECIFIE D LIMIT UNDER THE PROVISIONS OF SECTION 194C OF THE ACT, ACCORDINGLY OUGHT TO HAVE DEDUCTED TDS. THE A.O. FURTHER WAS OF THE OPINION THAT THE ASSESSEE HAS FAILED TO DEDUCT TDS, ACCORDINGLY, THE AMOUNT I NCURRED UNDER THE HEAD TRANSPORTATION CHARGES IS NOT ALLOWABLE AS D EDUCTION UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. IT IS THE CONTENTION OF THE ASSESSEE THAT AMOUNT INCURRED UNDER THE HEAD TRANSP ORTATION CHARGES DOES NOT COME WITHIN THE DEFINITION OF CONTRACT OR SUB CONTRACT AS DEFINED UNDER THE PROVISIONS OF SECTION 194C OF THE ACT. THE ASSESSEE FURTHER SUBMITTED THAT IT IS INVOLVED IN THE BUSINE SS OF TRANSPORTATION OF IRON ORE AND IN THE PROCESS IT HAS HIRED TRUCKS FRO M VARIOUS LORRY OWNERS. THE ASSESSEE FURTHER CONTENDED THAT THE TRUCKS WHIC H ARE ENGAGED IN TRANSPORTATION OF IRON ORE TO VARIOUS PORTS APPROAC H THE ASSESSEE FOR THEIR RETURN LOAD. IT HAS HIRED TRUCKS FROM OPEN MA RKET. IT HAS PAID PART OF AGREED AMOUNT AT THE TIME OF LOADING THE MATERIA L INTO TRUCKS FOR THEIR FUEL AND RUNNING EXPENSES AND THE BALANCE AMOUNT HA S BEEN PAID AFTER COMPLETION OF TRIP. THE ASSESSEE FURTHER ARGUED TH AT THE ARRANGEMENT BETWEEN ASSESSEE AND THE TRUCK OWNERS IS A MERE HIR ING OF TRUCKS, BUT ITA NO.501/VIZAG/2014 SRI K.V. SUBBA RAO, VIJAYAWADA 7 NOT A CONTRACT OR SUB CONTRACT AS DEFINED UNDER THE PROVISIONS OF SECTION 194C OF THE ACT, SO AS TO INVOKE THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 7. THE ONLY ISSUE THAT CAME UP FOR OUR CONSIDERATIO N IS WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE THE IMPUGNED PA YMENTS ARE COMING WITHIN THE MEANING OF WORKS CONTRACT AS DEFINED U/S 194C OF THE ACT. THE LD. A.R. FOR THE ASSESSEE, AT THE TIME OF HEARI NG SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF COORDI NATE BENCH OF THIS TRIBUNAL, IN THE CASE OF MYTHRI TRANSPORT CORPORATI ON VS. ACIT (2010) 124 ITD 40. WE FIND THAT THE COORDINATE BENCH OF TH IS TRIBUNAL, UNDER SIMILAR CIRCUMSTANCES, HELD THAT HIRING OF TRUCKS A ND LORRIES CANNOT BE CALLED TO BE THE WORK AS PER THE DEFINITION GIVEN I N EXPLANATION 3 TO SECTION 194C OF THE ACT AND CONSEQUENTLY THE ASSESS EE IS NOT LIABLE FOR DEDUCTION OF TDS ON PAYMENT TO LORRY/TRUCK OWNERS A S PER THE PROVISIONS OF SECTION 194C OF THE ACT. THE RELEVAN T PORTION OF THE ORDER IS REPRODUCED HEREUNDER: SEC. 1940(2) IS ATTRACTED IF ALL THE FOLLOWING CON DITIONS ARE SATISFIED (A) THE ASSESSEE SHOULD BE A CONTRACTOR, (B) THE ASSESS EE, IN HIS CAPACITY AS A CONTRACTOR, SHOULD ENTER INTO A CONTRACT WITH SUB-C ONTRACTOR 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 CARRYING OUT THE WHOLE OR ANY PART OF THE WORK. THE STRINGEN T CLAUSES IN THE WORK ORDER SUGGEST THAT THE ASSESSEE IS SOLELY RESPONSIB LE FOR ALL THE ACTS AND DEFAULTS COMMITTED BY THE ASSESSEE AND/OR ITS EMPLO YEES IT IS NOT ITA NO.501/VIZAG/2014 SRI K.V. SUBBA RAO, VIJAYAWADA 8 ESTABLISHED BY THE REVENUE THAT OTHER LORRY OWNERS, FROM WHOM THE VEHICLES WERE HIRED, HAVE ALSO BEEN FASTENED WITH A NY OF THE ABOVE SAID LIABILITIES. IN A SUB-CONTRACT, A PRUDENT CONTRACTOR WOULD INCLUDE ALL THE LIABILITY CLAUSES IN THE AGREEMENT ENTERED INTO BY HIM WITH THE SUB- CONTRACTOR. THE ASSESSEE HAS ALSO CLAIMED BEFORE TH E TAX AUTHORITIES THAT THE RESPONSIBILITY IN THE WHOLE PROCESS LIES WITH I T ONLY. THOUGH THE PASSING OF LIABILITY IS NOT THE ONLY CRITERIA TO DEC IDE ABOUT THE EXISTENCE OF SUB-CONTRACT, YET THIS CONTENTION OF THE ASSESSEE R EAD WITH THE LIABILITY CLAUSES OF THE WORK ORDER SUPPORTS ITS SUBMISSION T HAT THE INDIVIDUAL VEHICLE OWNERS ARE SIMPLE HIRERS OF THE VEHICLES AS PER THE PROVISIONS OF S 194C(2), THE SUB-CONTRACTOR SHOULD CARRY OUT THE WH OLE OR ANY PART OF THE WORK UNDERTAKEN BY THE ASSESSES. THE DICTIONARY MEA NING OF THE WORDS CARRY OUT' IS TO CARRY INTO PRACTICE', 'TO EXECUTE, TO ACCOMPLISH IT SIGNIFIES A POSITIVE INVOLVEMENT IN THE EXECUTION OF THE WHOL E OR ANY PART OF TH4 MAIN WORK BY SPENDING HIS TIME, MONEY, ENERGY, ETC AND FURTHER TAKING THE RISKS IN CARRYING ON THE SAID ACTIVITY. IN THE I NSTANT CASE, THERE IS NO MATERIAL TO SUGGEST THAT THE OTHER LORRY OWNERS INV OLVED THEMSELVES IN CARRYING OUT ANY PART OF THE WORK UNDERTAKEN BY THE ASSESSEE BY SPENDING THEIR TIME, ENERGY AND BY TAKING THE RISKS ASSOCIAT ED WITH THE MAIN CONTRACT WORK. IN THE ABSENCE OF THE ABOVE SAID CHA RACTERISTICS ATTACHED TO A SUB-CONTRACT IN THE INSTANT CASE, THE PAYMENT MADE TO THE LORRY OWNERS STANDS AT PAR WITH THE PAYMENTS MADE TOWARDS SALARIES, RENT, EKE. HENCE THE REASONING OF THE TAX AUTHORITIES TO HOLD THAT THE PAYMENT MADE FOR HIRED VEHICLES IS A SUB-CONTRACT PAYMENT IS NOT CORRECT AND NOT BASED ON RELEVANT CONSIDERATIONS, HENCE, IT CANNOT BE SAI D THAT THE PAYMENTS MADE FOR HIRED VEHICLES WOULD FALL IN THE CATEGORY- OF PAYMENT TOWARDS A SUBCONTRACT WITH THE LORRY OWNERS. IN THAT CASE THE ASSESSEE IS RIOT LIABLE TO DEDUCT TAX AT SOURCE, AS PER THE PROVISIONS OF 5 . 194C(2), ON THE PAYMENTS MADE TO THE LORRY OWNERS FOR LORRY HIRES C ONSEQUENTLY, THE PROVISIONS OF S. 4O(A)(IA) SHALL NOT APPLY TO SUCH PAYMENTS. 8. THE COORDINATE BENCH, IN THE CASE OF MYTHRI TRAN SPORT CORPORATION VS. ACIT (2010) 124 ITD 40, HELD THAT MERE HIRING O F TRUCKS IS NOT COMING WITHIN THE MEANING OF CONTRACT OR SUB CONTRA CT AS DEFINED U/S 194C OF THE ACT, LIABLE FOR DEDUCTION OF TDS UNDER THE PROVISIONS OF SECTION 194C OF THE ACT. SINCE, THE TRIBUNAL HAS AL READY TAKEN A PARTICULAR VIEW ON THE IMPUGNED ISSUE AND THE DECIS ION OF THE LD. CIT(A) IS IN ACCORDANCE WITH THE SAID LAW, WE DO NOT FIND ANY REASON TO ITA NO.501/VIZAG/2014 SRI K.V. SUBBA RAO, VIJAYAWADA 9 INTERFERE WITH THE ORDER OF THE LD. CIT(A). HENCE, WE INCLINED TO UPHOLD THE CIT(A) ORDER AND DISMISS THE APPEAL FILED BY TH E REVENUE. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 12 TH AUG16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER ! /VISAKHAPATNAM: % /DATED : 12.08.2016 VG/SPS '! (! /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ACIT, CIRCLE-2(1), VIJAYAWAD A 2. / THE RESPONDENT SRI K.V. SUBBA RAO, D.NO.54-20- 11/5, SRI NAGAR COLONY, RING ROAD, VIJAYAWADA 3. ) / THE CIT, VIJAYAWADA 4. ) ( ) / THE CIT(A),VIJAYAWADA 5. ! , , , , ! / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // /0 , (SR.PRIVATE SECRETARY) , , ! / ITAT, VISAKHAPATNAM