By TIOL News Service

CHANDIGARH, FEB 23, 2016: THE issue is - Whether section 194C(2) has any application when the assessee was merely acted in representative capacity and there was no separate contract between the assessee and its sub contractors for performance of the work and whether in such a case section 40(a)(ia) can be made applicable. NO is the answer.

Facts of the case

The assessee is a firm which derives income by taking tenders from various food agencies for transferring the bags of food-grains from their godowns to other palaces. During the year assessee received Rs. 85,19,255/- as transportation charges. As per TDS certificates, the contractual receipts from various government agencies were shown at Rs. 84,92,855/-. According to AO, these payments were covered u/s 194C. Out of this payment, the assessee further debited Rs. 78,77,384/- as transportation expenses. Payment of Rs. 79,77,384/- was made to 174 transporters involved in the work carried out by the assessee. AO considered the payments made by assessee to the truck operators as sub contractual payments and thus provisions of Section 194C were held to be applicable. It was pleaded before AO that all the truck operators owned not more than two trucks and hence no tax was deductible. With regard to second proviso to sub section 3 of Section 194C it was pleaded before AO that the assessee was not eligible for obtaining TAN and hence could not file Form 15-J before CIT after obtaining 15-I Form from the truck operators. The assessee was eligible for obtaining TAN only when it had deducted tax as it could apply for the same within one month after deduction of tax as prescribed u/s 203A read with Rule 114A(3). AO held that the assessee was required to deduct tax at source as per the provisions of section 194C on sub contractual payments made to the truck operators which it failed and therefore, the entire sub contractual payments in excess of Rs. 50,000/- were disallowed in view of the provisions of section 40(a)(ia). Thus, an addition of Rs. 63,10,197/- was made to the income of the assessee. Assessment was completed u/s 143(3) at income of Rs. 65,66,877/-. An addition of Rs. 63,10,197/- was made by AO u/s 40(a)(ia) by disallowing the payments made to the Truck operators in excess of Rs. 50,000/- treating these payments as sub contractual payments on which no tax was deducted at source by the assessee as required u/s 194C. On appeal, CIT(A) allowed the appeal holding that provisions of section 194C were not applicable to the payments made by the assessee to the truck operators and deleted the disallowance of Rs. 63,10,197/- made u/s 40(a)(ia). On further appeal, Tribunal dismissed the appeal and confirmed the order passed by the CIT(A).

Held that,

++ it is not disputed by counsel for the revenue that the issue has already been decided against the revenue by this Court in ITA No.120 of 2012 (CIT I, Ludhiana vs. M/s Truck Operator Union, Adda Jodhan Mandi, Ludhiana) vide order dated 7.8.2012 wherein it was recorded that counsel for the revenue has very fairly accepted that similar issue involved in respect of the same assessee for the earlier assessment year has been decided against the revenue by this Court in CIT v. Truck Operators' Union, (2011) 339 ITR 532, wherein it was held that section 194C(2) had no application in the circumstances of the case when the union was merely acting in representative capacity and there was no separate contract between the union and its members for performance of the work as required for applicability of section 194C(2). In such circumstances, section 40(a)(ia) was not applicable, as rightly held by the CIT(A) and the Tribunal. Counsel for the Revenue also points out that same view has been taken by the High Court of Himachal Pradesh in its order dated 20th October 2009 in IT Appeal No.30 of 2005 CIT v. Ambuja Darla Kashlog Mangu Transport Co. Op. Society and others, 2009-TIOL-667-HC-HP-IT against which SLP was dismissed by SC on 17th January 2011 being SLP (Civil.../2011 CC 259 of 2011 CIT v. Ambuja D.Mangu Transport Cooperative Society. In view of the above, no substantial question of law arises. The appeal is dismissed. In view of the above, the substantial questions of law are answered against the revenue and the appeal stands dismissed.

(See 2016-TIOL-318-HC-P&H-IT)