Itta/284/2012 Of Commissioner Of Income Tax-Vi v. M/S Shri Gautam Gupta

HONOURABLE SRI JUSTICE GODA RAGHURAMAND HONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAO I.T.T.A.No.284 of 2012 JUDGMENT (per Hon’ble Sri Justice M.S.Ramachandra Rao): This appeal is filed under Section 260-A of the Income TaxAct, 1961 (for short ‘the Act’) by the Revenue challenging theorder dated 06-01-2012 in I.T.A.No.942/Hyd/2011 of the Income Tax AppellateTribunal, Hyderabad Bench “A”, Hyderabad. 2.The respondent/assessee is an individual and proprietor ofM/s.Gautam Carriers carrying on business as a transportcontractor. He filed a return of income on 29-10-2007 declaring anincome of Rs.3,35,290/- for the assessment year 2007-08. Later,the case was selected for scrutiny and notices under Section 143(2) and Section 142 (1) of the Act were issued. During the courseof the assessment proceedings, the assessing officer called forbooks of accounts, details of lorry freight charges paid etc. Aftergoing through the same, the assessing officer by order dated 21-12-2009 made the following additions: “I) Disallowance of interest of Rs.8,633/- under Section40 (a) (ia), amount paid to M/s.Rajadhani Road Carrierunder Section 194A, out of the total interest amount debitedto the Profit & Loss A/c. of40 (a) (ia), amount paid to M/s.Rajadhani Road Carrierunder Section 194A, out of the total interest amount debitedto the Profit & Loss A/c. of Rs.45,016/-, as the appellant had obtained Form No.15Gfrom M/s.Rajadhani Road Carriers but not filed the samebefore the CIT.from M/s.Rajadhani Road Carriers but not filed the samebefore the CIT. II) Disallowance of excess salary paid i.e. salary paid for 13months, to one Mr.Santan, amounting to Rs.2,300/-.months, to one Mr.Santan, amounting to Rs.2,300/-. III) Disallowance of Rs.1,699/- out of repairs andmaintenance as the AO observed that the repairing chargesare attributable to employees personal vehicle and is not abusiness expenditure. IV) Disallowance of Rs.44,701/- being the expenses fortelephone, petrol, conveyance and miscellaneous expensesin respect of the items as listed in annexure to theassessment order, are not supported by offer narration,contained voucher numbers and receiver’s name etc.Hence, the total of such vouchers amounting to Rs.44,701/-was disallowed. V) Disallowance of lorry freight charges of Rs.43,29,444/-being the freight charges paid exceeding Rs.50,000/- andfor not effecting TDS as per the provisions of Section194C(2) of the IT Act. It is seen from the assessmentorder that the appellant had contended before the AO that ithad obtained Form No.15-I from the concerned parties andhence TDS was not made. However, the AO citing theprovisions of Section 194C as also the Sub-Rule 3 of Rule29D that the Forms obtained in 15-I were not filed beforethe specified authority before 30[th] June of the followingfinancial year had disallowed the amount of Rs.43,29,444/-.” 3.Challenging the same, the assessee filed appeal to CIT (Appeals)-VI, Hyderabad which was numbered asI.T.A.No.0291/09-10/CIT(A)-VI/10-11. In the said appeal, theassessee, inter alia, contended that the disallowance of lorryfreight charges of Rs.43,29,444/- under Section 40 (a) (ia) of theAct is not valid as the deductees of TDS had furnished FormNo.15-I to the assessee; that mere delay in filing the said formsbefore CIT should not resultant in a disallowance under Section 40(a) (ia) of the Act; that filing of Form No.15-I is a proceduralrequirement which does not entail any disallowance of expenditurewhile computing the income as per provisions of Section 29 toSection 43-D; that no tax is deductible by the deductor in the faceof the certificates filed by the deductee; and that there is nodispute that the deductees have filed the forms and therefore the assessee/deductor was not required to deduct the tax in the faceof such certificates. assessee/deductor was not required to deduct the tax in the faceof such certificates. 4.The CIT (Appeals)-VI, Hyderabad, by order dated 13-01-2011 allowed the appeal in respect of interest debited to the Profitand Loss Account of Rs.8,633/- and also disallowance of the lorryfreight charges of Rs.43,29,444/- relying on the decision of theITAT, Visakhapatnam in the case of Mythri TransportCorporation reported in 124 ITD 40. In the said case the Tribunalhad held that as per the provisions of Section 194-C (2) of the Act,the sub contractor should carry out the whole or any part of thework undertaken by the assessee, that the lorry owners engagedby the assessee in the said case did not involve themselves incarrying of any part of the work undertaken by the assessee byspending their time, energy or by taking risks associated with themain contract work and therefore the payments made to the lorryowners is similar to simple payments made towards salaries, rentetc. It held that payments made for hired vehicles would not fall inthe category of payment towards a sub contract with lorry ownersand therefore the assessee was not liable to deduct tax at sourceas per the provisions of Section 194-C (2) of the Act on thepayments made to the lorry owners for lorry hire. Consequently,the provisions of Section 40 (a) (ia) of the Act will not apply tosuch payments. 5.Aggrieved by the same, the Revenue filed ITANo.942/Hyd/2011 to the Income Tax Appellate Tribunal, HyderabadBench “A”, Hyderabad. In the said appeal, the Revenue contendedas follows: “a) the learned Commissioner of Income-tax (Appeals) erred in holding that the fright paid by the assessee ofRs.43,29,444/- to the lorry owner (each payment to a singleowner exceeded Rs.50,000/- does not fall under theexpression sub-contractor in section 194C(2) in as much asthere is an oral contract between the lorry owner and theassessee for carrying goods of the assessee to differentdestinations. b) The learned CIT (Appeals) ought to have appreciatedthe facts that the assessing officer has established that theassessee did not submit form No.15I before theCommissioner of Income-tax concerned. When theassessee has obtained form 15I from the lorry owners it isclear that the intention of the assessee is that he is liable todeduct tax on the freight paid by him. The CIT (A) ought tohave appreciated the fact that the assessee has taken twostands one stating that he had obtained form No.15I from thelorry owners leading thereby accepting the TDS liability andthe other it does not fall under the expression ‘sub-contract-which are contrary.” 6.The Tribunal allowed the appeal and remanded the matterto the file of the assessing officer with a direction to examinewhether Forms No.15-I claimed to have been given by thedeductee to the assessee have been filed before the prescribedauthority and if he is satisfied that Form No.15-I given by thedeductees have been filed, to delete the addition of the sum ofRs.43,29,444/-. It was of the view that once the recipient-deductee has filed declaration in Forms No.15-I as per the Act, itis obligatory for the deductor not to deduct tax at source .It held that on filing such a declaration by the recipient, the deductor isobliged not to deduct tax and the liability to deduct tax at sourcewould cease. 7.Aggrieved thereby, the Revenue has filed this appealcontending that the Tribunal should have taken into account theprovisions of the second and third provisos of Section 194-C (3) ofthe Act also and ought not to have held that the assessee isentitled to the benefit of Section 194-C(3) merely on the strength of Forms No.15-I obtained from the deductee. 8.Heard Sri S.R.Ashok, learned Senior Standing Counsel forthe Income Tax Department and Sri K.Vasanth Kumar, learnedcounsel for the respondent. 7.Aggrieved thereby, the Revenue has filed this appealcontending that the Tribunal should have taken into account theprovisions of the second and third provisos of Section 194-C (3) ofthe Act also and ought not to have held that the assessee isentitled to the benefit of Section 194-C(3) merely on the strength of Forms No.15-I obtained from the deductee. 8.Heard Sri S.R.Ashok, learned Senior Standing Counsel forthe Income Tax Department and Sri K.Vasanth Kumar, learnedcounsel for the respondent. 9.The counsel for the appellant contends that the Tribunaloverlooked the second proviso to Section 194-C (3) of the Actwhich permits non-deduction of tax at source provided therecipient owned not more than two goods carriages at any timeduring the previous year and that the Tribunal ought to haveinsisted on compliance with this condition imposed by the secondand third provisos to Section 194-C (3) of the Act while remandingthe matter to the assessing officer in addition to its direction togive benefit of non-deduction of TDS if Form No.15-I had beenfiled. 10.Section 194-C at the relevant time ( i.e. prior to itsamendment by Finance (No.2) Act, 2009 (33 of 2009) with effectfrom 01-10-2009) inter alia stated that any person responsible forpaying any sum to any resident (i.e. contractor) for carrying outany work (including supply of labour for carrying out any work) inpursuance of a contract between the contractor and any individualwhose total sales, gross receipts or turnover from business orprofession carried on by him exceeded the monetary limitspecified under Clause (a) or Clause (b) of Section 44-AB duringthe financial year immediately proceeding the financial year inwhich such sum is credited or paid to the account of thecontractor, shall, at the time of credit of such sum to the accountof the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever isearlier, deduct an amount equal to 1% in the case of advertisingand in any other case 2% of such sum as income tax on incomecomprised therein. Sub clause (3) of the said Section provided as follows: “(3)No deduction shall be made under sub- section (1) orsub- section (2) from- (i)the amount of any sum credited or paid or likely to becredited or paid to the amount of, or to, the contractor orsub-contractor, if such sum does not exceed twentythousand rupees: Provided that were the aggregate of the amountsof such sums credited or paid or likely to be credited orpaid during the financial year exceeds fifty thousandrupees, the person responsible for paying such sumsreferred to in sub-section (1) or, as the case may be,sub-section (2) shall be liable to deduct income-tax underthis section: Provided further that no deduction shall be madeunder sub-section (2), from the amount of any sumcredited or paid or likely to be credited or paid during theprevious year to the account of the sub-contractor duringthe course of business of plying, hiring or leasing goodscarriages, on production of a declaration to the personconcerned paying or crediting such sum, in theprescribed form and verified in the prescribed mannerand within such time as may be prescribed, if such sub-contractor is an individual who has not owned more thantwo goods carriages at any time during the previousyear: Provided also that the person responsible forpaying any sum as aforesaid to the sub-contractorreferred to in the second proviso shall furnish to theprescribed income-tax authority or the person authorizedby it such particulars as may be prescribed in such formand within such time as may be prescribed; or; (ii)any sum credited or paid before the 1st dayof June, 1972; or (iii)any sum credited or paid before the 1st dayof June, 1973 , in pursuance of a contract between thecontractor and a co- operative society or in pursuance ofa contract between such contractor and thesubcontractor in relation to any work (including supply of labour for carrying out any work) undertaken by thecontractor for the co- operative society. Provided also that the person responsible forpaying any sum as aforesaid to the sub-contractorreferred to in the second proviso shall furnish to theprescribed income-tax authority or the person authorizedby it such particulars as may be prescribed in such formand within such time as may be prescribed; or; (ii)any sum credited or paid before the 1st dayof June, 1972; or (iii)any sum credited or paid before the 1st dayof June, 1973 , in pursuance of a contract between thecontractor and a co- operative society or in pursuance ofa contract between such contractor and thesubcontractor in relation to any work (including supply of labour for carrying out any work) undertaken by thecontractor for the co- operative society. -Explanation For the purpose of clause (i),“goods carriage” shall have the same meaning as in theExplanation to sub-section (7) of section 44AE”. 11.Thus TDS under Section 194-C should be made from thepayment made by an assessee to his sub contractor at the rate of2% unless such sum did not exceed Rs.20,000/- or where the subcontractor is an individual engaged in the business of plying, hiringor leasing goods carriages and he does not own more than twogoods carriages at any time during the previous years . In thelatter case, the sub contractor should give a declaration to thateffect in Form No.15-I of the Act (as per second proviso to Section194-C (3) (i) ) to the person making the payment i.e the deductee/assessee and also if the assessee files a declaration as to thepayments made to the sub contractor in Form No.15-J of the Act(as per the third proviso to Section 194-C (3)(i) ). This legalposition is not disputed by the counsel for the respondent. 12.In view of the provisions of Section 194-C and in particularsecond and third provisos to clause (i) sub section (3) thereof, thecontention of the Revenue/appellant herein has to be upheld. Accordingly, we uphold the order of remand made by the Tribunalto the assessing authority in the impugned order and direct theassessing authority to examine not only whether Form Nos.15-Iclaimed to have been given by the deductee to the assessee hadbeen filed before the prescribed authorities or not but also toexamine whether Form No.15-J has been filed by the assesseeindicating the amounts paid by him to the sub contractors (heavygoods carriages/trucks owners) as per the second and third provisos to clause (i) of sub section (3) of Section 194-C of theAct. The assessing authority shall pass an order in accordancewith law after giving the assessee a reasonable opportunity ofhearing. 13.The appeal by the Revenue is therefore allowed to theabove extent. No costs. ____________________________ JUSTICE GODA RAGHURAM Date:02-11-2012kvr __________________________________ JUSTICE M.S.RAMACHANDRA RAO