TDS under section 194C & payment made to truck owner without deducting TDS
Overview :
Where truck driver had only acted as a temporary custodian of money paid by assessee for onward transfer/payment to ultimate truck owners and could not decide the entire terms and condition of transport such as rate of freight, weight to be carried for specific destination and other liabilities attached with the said transportation on his own, therefore, AO had rightly disallowed the said expenses under section 40(a)(ia) for non-deduction of tax at source.
Assessee was engaged in the business of transport and steel processing. AO alleged that assessee had paid transportation charges, crane charges and lifting charges to various truck owners and failed to deduct tax at source under section 194C, therefore disallowed the said sum under section 40(a)(ia) for non deduction of TDS. Assessee contended that since there was no oral or written contract entered into by assessee with any truck owner, therefore provision of section 194C would not be applicable.
It was held that truck driver had only acted as a temporary custodian of money paid by assessee for onward transfer/payment to ultimate truck owners and effectively payments were made by assessee only to truck owners through truck drivers. It could be safely concluded that there was an oral contract entered into by assessee with the ultimate truck owner during the medium of the truck drivers for which payments on account of transportation charges were made. Therefore, provisions of section 194C were applicable and disallowance under section 40a(ia) was rightly made by AO.
Decision: Against the assessee.
IN THE ITAT, KOLKATA BENCH
- BALAGANESH, A.M. & S.S. VISWANETHRA RAVI, J.M.
ITO v. Anil Kumar Nevatia
I.T.A No. 1479/Kol/2017
19 September, 2018
Appellant by: K. Mondal, Sr. DR
Respondent by: K.K. Surana, learned AR
ORDER
- Balaganesh, A.M.
This appeal by the Revenue arises out of the order of the learned Commissioner (Appeals)-12, Kolkata [in short the ld. CIT(A)] in Appeal No. 17/Commissioner (Appeals)-12/Kol/Wd.40(1)/2015-16 dt. 1-3-2017 against the order passed by the ITO, Ward-40(1), Kolkata [in short the ld. AO] under section 143(3)/263/143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 2-3-2015 for the assessment year 2009-10.
- The only issue to be decided in this appeal is as to whether the learned Commissioner (Appeals) was justified in deleting the disallowance made in the sum of Rs. 1,17,40,659 under section 40(a)(ia) of the Act towards transportation charges, in the facts and circumstances of the case.
- Brief facts of this issue are that the assessee is an individual engaged in the business of transport and steel processing. The assessee derives his income from his proprietorship business under name and style ‘M/s. Sunny Steel Processors’ and ‘Shree Balaji Road Lines’. The return of income for assessment year 2009-10 was filed by the assessee individual on 30-9-2009 declaring total income of Rs. 7,87,470. The assessment was completed under section 143(3) of the Act on 20-5-2011 determining total income of Rs. 8,88,130. Subsequently the said assessment order was set aside by the learned Administrative Commissioner under section 263 of the Act treating the order of the learned assessing officer as erroneous and prejudicial to the interest of revenue with a direction to pass a fresh assessment order and re-compute the assessee’s income after making sufficient enquiry and giving due opportunity to the assessee. The learned assessing officer from the audited financial statements of Shree Balaji Road Lines observed that the assessee has paid transportation charges of Rs. 1,86,60,256; crane charges of Rs. 2,90,173 and lifting charges of Rs. 3,92,971 totaling to Rs. 1,91,59,588. On going through the profit and loss account of Shree Balaji Road Lines on account of total transportation expenses of Rs. 1,86,60,256 being represented by Bawal Branch (Rs. 1,12,07,396); Rampur Branch (Rs. 37,93,981) & Ghajiabad Branch (Rs. 36,58,879), the assessee furnished the truck wise details of the same. The learned assessing officer out of total transportation charges paid for Bawal Branch in the sum of Rs. 1,12,07,396 observed that the assessee had incurred transportation charges of Rs. 57,54,430 to various truck owners on which provisions of section 194C of the Act would be applicable as no deduction of tax at source made by the assessee.
Similarly out of total payments of Rs. 37,93,981 made towards transportation charges to various truck owners from Rampur Branch, the learned assessing officer observed that a sum of Rs. 18,28,018 was paid without deduction of tax at source. The learned assessing officer also observed that the assessee has made payment of Rs. 4,99,332 towards transportation charges to various truck owners without deduction of tax at source.
Since no details were submitted on account of transportation of charges of Ghaziabad Branch in the sum of Rs. 36,58,879, the learned assessing officer assumed that the same was made without deduction of tax at source by the assessee in violation of section 194C of the Act. Accordingly, the learned assessing officer proposed to disallow the sum of Rs. 1,17,40,659 (57,54,430 + 18,28,018 + 4,94,332 + 36,58,879) under section 40(a)(ia) for payments made towards transportation charges to various truck owners in violation of provisions of section 194C of the Act. The assessee submitted before the learned assessing officer that there was no oral or written contract entered into by the assessee with any truck owner. The payments were not made to the truck owners. Instead the payments were made only to the truck drivers. Since there was no oral or written contract, the assessee pleaded that provisions of section 194C of the Act would not be applicable. It was also pleaded that the payments made to individual truck drivers never exceeded Rs. 20,000 in a day.
- The learned assessing officer found the aforesaid explanation of the assessee as not satisfactory and proceeded to make disallowance under section 40a(ia) of the Act. The learned Commissioner (Appeals) deleted the said disallowance by observing that the learned assessing officer had held the assessee liable for deduction of tax only on the assumption that assessee was having agreement with the parties through whom trucks were arranged for transportation of goods. He further observed that it was not established by the learned assessing officer that money regarding freight charges was paid to them in pursuance of contract for specific period, quantity or price. Accordingly, he deleted the disallowance made in the sum of Rs. 1,17,40,659 under section 40(a)(ia) of the Act. Aggrieved the revenue is in appeal before us.
- We have heard rival submissions. The learned DR vehemently argued that the assessee had used the same truck numbers for transporting its goods and hence explanation of the assessee that payments were made only to the truck drivers and that no oral or written contract was entered into with the truck owners could not be believed and not substantiated with any evidence. The learned AR on the other hand reiterated his submissions before the lower authorities. He specifically drew our attention to the details of various payments made to truck drivers which are enclosed at para 4(a) and 4(b) of the paper book. We have gone through the same and we find that the assessee has made payment on account of transportation charges for transporting goods in same trucks on a frequent basis. From the details it could be observed that there is no dispute that the aggregate payments towards those individual trucks during the year had indeed exceeded Rs. 50,000 even though the payment made on a single day had not exceeded Rs. 20,000. The explanation of the learned AR that the payments were made only to the truck drivers and not to the truck owners is hard to believe inasmuch as the payments so made eventually reaches only the truck owner as the truck driver cannot have the benefit of enjoying the said money. In other words, truck driver had only acted as a temporary custodian of the money paid by the assessee for onward transfer/payment to the ultimate truck owners. Hence effectively payments were made by the assessee only to the truck owners through the truck drivers. We are of the considered opinion that the truck driver cannot decide the entire terms and condition of the transport such as rate of freight, weight to be carried for specific destination and other liabilities attached with the said transportation on his own without consent of the truck owner. Hence it could be safely concluded that there is an oral contract entered into by the assessee with the ultimate truck owner during the medium of the truck drivers for which payments on account of transportation charges were made. Hence, we hold that the provisions of section 194C are applicable in the instant case and disallowance under section 40(a)(ia) of the Act have rightly been made by the learned assessing officer. Accordingly, grounds raised by the revenue are allowed.
- In the result, the appeal of the revenue is allowed.
