Sri Balaji Prasanna Travels v. ACIT – [2021] 123 taxmann.com 210 (Bangalore – Trib.)

 

Short Overview:

 

Assessee was engaged in the business of providing vehicles on hire.

 

 During scrutiny proceedings Assessing Officer (AO) observed that assessee had not incurred payment towards drivers.

 

AO held that assessee was hiring the cars along with drivers and accordingly, the provisions of Section 194C shall be applicable.

 

As assessee had not deducted tax on payments above Rs. 30,000, AO disallowed 30% of such payment by invoking Section 40(a)(ia).

 

Assessee contended that there was no privity of contract between assessee’s client and third party vehicle owners and thus, there cannot be any sub-contract to invoke the provisions of section 194C.

 The revenue derived by assessee was shared with third-party vehicle owners, who were themselves carrying on the business of transport operators.

The arrangement between assessee and such third party vehicle owners was neither in the nature of a sub-contract nor in the nature of hire.

 It was more a case of a Joint Venture wherein two persons jointly performing work and share the revenue received between them.

 Hence, it was submitted that neither the provisions of section 194C nor the provisions of section 194I would be attracted.

On appeal, Bangalore ITAT held that a contract need not be in writing. Even an oral contract is good enough to invoke the provisions of section 194C.

The Karnataka High Court in the case of Smt. J. Rama v. CIT [2010] 194 Taxman 37 (Karnataka) held that Law does not stipulate the existence of a written contract as a condition precedent for invoking the provisions of section 194C with respect to payment of TDS.

The cab owners had received the payments from assessee towards the hiring charges, therefore, the presumption normally was that one would proceed on the basis that there was a contract for the hiring of vehicles.

Therefore, if assessee had made the payment for hiring the vehicles, the provisions of section 194C were clearly applicable.