M/S.p.k.ramasamy Nadar & Bros v. The Income Tax Officerward I(3)Virudhunagar

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 13.11.2013 Coram The Honourable Mrs.Justice CHITRA VENKATARAMANandThe Honourable Mr.Justice T.S.SIVAGNANAM Tax Case (Appeal) No.728 of 2013 M/s.P.K.Ramasamy Nadar & Bros.,98, PKR Buildings, Main BazaarVirudhunagar... Appellant -vs- The Income Tax OfficerWard I(3)Virudhunagar ... Respondent Tax Case Appeal filed under Section 260A of the Income Tax Act,1961 against the order dated 24.05.2013 passed by the Income TaxAppellate Tribunal, Chennai in ITA.No.1893/MDS/2011 which ispreferred against the order dated 20.09.2011 made in ITA No.402/2010-11 on the file of the Ciommissioner of Income Tax (Appeals)-II,Madurai; which is preferred against the order dated 31.12.2010 on thefile of the Income Tax Officer Ward I(3) Virudhunagar for theassessment year 2008-2009. For appellant:Mr.V.S.Jayakumar JUDGMENT (The Judgment of the Court was made by CHITRA VENKATARAMAN, J.)Following are the questions of law raised by the assessee inseeking admission of the Tax Case (Appeal) filed for the assessmentyear 2008-09. “ 1. Whether the Tribunal was right in law in holdingthat the payment made to the driver of the lorry of thesupplier is not payment to agent of the assessee and so rule6DD(k) of the Income Tax Rule 1961 cannot be invoked?2. Whether the Tribunal is right in holding that thedisallowance of cash payment under Section 40A(3) is properon the facts of the case ?” 2. The appellant firm carries on the business of manufacture andsale of dhalls and grains. The appellant made cash payments ofRs.7,80,027/- towards lorry freight in excess of the limit containedin Section 40A(3) of the Income Tax Act, 1961 (hereinafter called asthe "Act"). The Assessing Officer disallowed the same and added itto the income of the appellant. The Assessing Officer pointed out https://hcservices.ecourts.gov.in/hcservices/ that the lorry freight payments made throughout the year by theassessee were through cash payments only; since the assessee wasliable to deduct tax at source towards lorry freight made in excessof limit of Rs.20,000/- as per the provisions laid down under Section194C of the Act, interest under Section 234B and 234D was leviedapart from penalty proceedings initiated separately. Aggrieved bythe disallowance, the assessee filed appeal before the Commissionerof Income Tax (Appeals). 3. In the course of hearing, the assessee filed affidavits fromseven of the lorry owners out of 20 transporters, informing that theycollected the lorry freight in cash through the driver of the lorryconcerned, in which the goods were transported. The assesseecontended that the cash payments for goods and services were madethrough agents viz., the lorry drivers, hence, cash payment for lorryfreight paid to the lorry drivers cannot be disallowed under Section40(A)(3) read with Rule 6DD(k) of the Income tax Rules, 1962. Theassessee further contended that it had paid the charges to thedriver, who acted as their agent, who, in turn would hand over thecash to the transport operator; thus, the assessee claimed that therewas no case of levying penalty. 3. In the course of hearing, the assessee filed affidavits fromseven of the lorry owners out of 20 transporters, informing that theycollected the lorry freight in cash through the driver of the lorryconcerned, in which the goods were transported. The assesseecontended that the cash payments for goods and services were madethrough agents viz., the lorry drivers, hence, cash payment for lorryfreight paid to the lorry drivers cannot be disallowed under Section40(A)(3) read with Rule 6DD(k) of the Income tax Rules, 1962. Theassessee further contended that it had paid the charges to thedriver, who acted as their agent, who, in turn would hand over thecash to the transport operator; thus, the assessee claimed that therewas no case of levying penalty. 4. The First Appellate Authority held that the supplier of thegoods to the assessee could not certify that the lorry drivers hadacted as the agents of the assessee, on the other hand, the lorrydrivers acted on behalf of their principal viz., lorryowners/transport operators. The terms and conditions mentioned in thebills indicated that the transport operators took no responsibilityfor any kind of loss like leakage, spoilage, breakage etc., Thus, theCommissioner of Income Tax (Appeals) held that the claim of theassessee that the lorry drivers acted as an agent of the assessee wasa farfetched claim, thus, Rule 6DD(k) of the Income Tax Rules wouldnot be applicable to the facts of the assessee’s case. In the lightof the amended provisions of Section 40A(3) of the Act and Rule 6DDof the Income Tax Rules, disallowance was held as proper. Aggrievedby this, the assessee filed further appeal before the Income TaxAppellate Tribunal. 5. The Income Tax Appellate Tribunal, however, pointed out thatthe assessee had not placed any material to show that theremuneration was paid by the assessee to the lorry drivers for actingas agents for the assessee. The Income Tax Appellate Tribunal, thusheld that the truck drivers in receiving the payment of transportcharges from the assessee, has not acted as agents of the assesseerather at best, they could be treated as agents of the transportingcompany. In the circumstances, the Income Tax Appellate Tribunal,rejected the case of the assessee. Aggrieved by this, the presentTax Case (Appeal) filed seeking admission. 6. Learned counsel appearing for the assessee submitted that the transactions were genuine one and that a person can act in multiplecapacity and the relationship of each person vis-a-vis eachtransaction has to be given due weightage. He placed reliance on thedecision reported in (2013) 259 CTR (Delhi) 15 (R.C.Goel Vs.Commissioner of Income Tax) and contended that there could not be atechnical and narrow interpretation of Rule 6DD(k) of the Income TaxRules, but can be extended to the benefit of the assessee and thatthe exigencies of the business deserved to be considered in thiscase. 7. Heard learned counsel appearing for the assessee and perusedthe materials on record. 6. Learned counsel appearing for the assessee submitted that the transactions were genuine one and that a person can act in multiplecapacity and the relationship of each person vis-a-vis eachtransaction has to be given due weightage. He placed reliance on thedecision reported in (2013) 259 CTR (Delhi) 15 (R.C.Goel Vs.Commissioner of Income Tax) and contended that there could not be atechnical and narrow interpretation of Rule 6DD(k) of the Income TaxRules, but can be extended to the benefit of the assessee and thatthe exigencies of the business deserved to be considered in thiscase. 7. Heard learned counsel appearing for the assessee and perusedthe materials on record. 8. As already noted in the preceding paragraph, there is hardlyany material to substantiate the case of the assessee that the lorrydriver acted in the dual capacity one of which happened to be as theagent of the assessee. A reading of the affidavit extracted in theorder of the Commissioner of Income Tax (Appeals) show that the lorryowner collected the freight from the assessee through the driver forthe concerned lorry; lorry freight was paid in cash by the assesseeto the lorry drivers because they needed cash to purchase diesel,tyres and spare parts and for repairs en route. It is further statedthat the lorry drivers could not receive the cheques from theassessee since they were their proprietors of P.K.Ramasamy Nadar &Bros. Virudhunagar, and they did not have any bank account to encashcheques in places like Virudhunagar; in the circumstances, the lorrydriver acted as an agents of the assessee, to receive the lorry hirein cash. We find that the facts narration contained in the affidavitat best would only contain the modality on receiving the freight fromthe assessee and that the lorry drivers acted only on behalf of thelorry owners and collected the freight from the assessee. The reasonwhy they collected cash was also given in the affidavit. We do notfind such a submission made by the sellers on behalf of the lorrydriver would establish the case of the assessee that the lorry driveracted in a dual capacity. 9. The remand report dated 27.07.2011 from the Assessing Officerfurther pointed out that the assessee and the authorizedrepresentative had informed the Assessing Officer that in the courseof hearing for assessment held on 15.07.2011, the payers were not ina position to furnish the affidavit that the lorry payments hadalready been recorded in their books of accounts and they wereassessed to tax before their respective Assessing Officer. The sevenlorry transporters out of twenty transporters had filed affidavit,which contained no relevant particulars given about the receipt bythe drivers, who according to the assessee operated in dual capacity. 10. As far as the reliance placed on the decision of the DelhiHigh Court reported in (2013) 259 CTR (Del) 15 (R.C.Goel Vs.Commissioner of Income Tax) is concerned, we find that the assessee 10. As far as the reliance placed on the decision of the DelhiHigh Court reported in (2013) 259 CTR (Del) 15 (R.C.Goel Vs.Commissioner of Income Tax) is concerned, we find that the assessee therein was executing catering contracts for Railways in respect oftwo trains. In those trains, its personnel were deployed for sale ofsmall articles of daily necessity and use to the passengers. Thus,payments received by them were necessarily in cash. These amountswere collected by the vendors and in turn handed over to theassessee. In terms of the contract, the assessee was bound tomaintain constant supplies in the trains and ensure that at no pointin time could the passengers be deprived of these article (which arefood articles, soft drinks and other items necessary for travel).Thus, the Delhi High Court pointed out that the expression in Rule6DD(k) of the Income Tax Rules "who is required to make payment incash" to be read in the context of the nature of business activities;the consequence of instances of payments through account payeecheques in small businesses which are dependant on such supplieswould be to completely stifle, if not stop, the business activities.Thus, the Delhi High Court held that Rule 6DD(k) of the Income TaxRules would apply to the case of the assessee. 11. As far as the present case is concerned, we do not find thatthe judgment of the Delhi High Court reported in (2013) 259 CTR (Del)15 (R.C.Goel Vs. Commissioner of Income Tax) would be of anyrelevance to accept the plea of the assessee. Quite apart from thefact that such a plea was not taken in the present case, inparticular as regards the nature of business, the assessee's onlyclaim before the authorities was that the driver acted in dualcapacity, for which there is no evidence. Being pure question of factwithout any material to substantiate the case of the assessee, wereject the case of the assessee. 12. In the result, the Tax Case (Appeal) stands dismissed. Nocosts. Sd/- Assistant Registrar //True Copy// Tax Case (Appeal) No.728 of 2013TMN(CO)JJM (13.12.2013)