The assessee has filed this appeal aggrieved by the order of the learned CIT(A)-IV, Baroda in appeal No.CAB/IV-N-227/2010-11 dated 20-10-2010, for the assessment year 2006-07.
2. The assessee in his appeal has raised the following grounds:
“1. The C. I. T.(Appeals) erred in upholding the reopening of assessment under section 147 by the Assessing Officer and in further upholding the addition of Rs. 14,56,138/- under section 40(a)(ia) for non-deduction of tax under section 194C, which was a part of the credit entry of Rs. 15,80,362/-.
2. The C. I. T. (Appeals) failed to comprehend the business of the assessee as mere agent working in transport business, in the course of which he will be collecting the payment from Hindustan Coca Cola Breweries Pvt. Ltd. and making the payment to the truck owners, in the process merely earning the commission; none the less being required to maintain accounts so that at all the times, he knows what is the amount to be received from the company and to be paid to the transport operators by the company. The C. I. T. (Appeals) could not appreciate that to such credit entry in the balance sheet, section 194C does not apply, and in particular, section 40(a) (ia) does not apply.
3. The C. I. T. (Appeals) failed to appreciate that the above amount of Rs. 14,56,138/- or for that matter, the about amount of Rs. 15,80,362/- was not the expenditure which the assessee had claimed in computing the income chargeable under the head “Profits and Gains of Business of Profession” as required by the opening words of section 40, and therefore, section 40(a) (ia) will not apply.
4. The C. I. T. (Appeals) failed to appreciate that in terms of section 40(a) (ia) will not apply because the above is not an amount which is payable to the creditors as contractor for carrying out any work of the assessee; the amounts are payable by the company to the transport operators.
5. The C. I. T. (Appeals) erred in upholding the levy of interest under section 234A, 234B and 234C.
6. The C. I. T. (Appeals) erred in upholding the order of the Assessing Officer.”
3. Though the assessee has raised six grounds in his appeal, grounds No.1 to 4 relates to two issues being reopening of the assessment u/s 147 of the Act which is not pressed and addition made for non-deduction of tax u/s 194C of the Act for Rs. 14,56,138/-.
The fifth ground relates to levy of interest u/s 234A, 234B and 234C of the Act which we hereby dispose off as consequential and the sixth ground being general in nature do not survive for adjudication. The assessee is an individual engaged in the business of transportation in the name and style of M/s. Saibaba Transport having office opposite to Coca Cola factory at village Goblaj, district Kheda and also is a partner of M/s. Saibana Hotel having 25% share of profit, filed his return of income for AY 2006-07 on 27-11-2006 declaring taxable income of Rs. 3,18,567/-. Initially, the case was processed u/s 143(1) of the Act on 28-02-2007 granting refund of Rs. 1,40,907/-. Later, on scrutiny of the accounts by the learned AO it was noticed that the assessee had shown sundry creditors as on 31-03-2006 for payment due to truck owners at Rs. 15,80,362/- out of which many of the creditors outstanding exceeded Rs. 20,000/- and thus as per the Act the assessee was required to deduct tax at source. Accordingly, the learned AO was of the opinion that income chargeable to tax has escaped assessment as provided u/s 147 of the Act and, therefore, initiated proceedings for re-assessment by issuing notice u/s 148 of the Act duly recording reasons. On further examining it was observed by the learned AO that the assessee had undertaken contract for transporting the products of Hindustan Coca Cola Breweries Pvt. Ltd.
He further observed that the assessee was fulfilling his obligations with the one truck he owned and the other trucks he hired. The Hindustan Coca Cola Breweries Pvt. Ltd., had paid an aggregate amount of Rs. 80,64,855/- to the assessee during the year under consideration for which the Company duly deducted TDS u/s 194C of the Act for a sum of Rs. 1,80,671/-. On further scrutiny of the accounts, the learned AO observed that out of the total sundry creditors of Rs. 15,80,362/- as on 31-03-2006 in 19 instances, sundry creditors was more than Rs. 20,000/- and the aggregate liability of all these 19 creditors amounted to Rs. 14,56,138/-.
Therefore the Ld.AO opined that the assessee was liable to deduct tax u/s 194C of the Act on the amount credited to all the 19 creditors aggregating to Rs. 14,56,138/-. However, it was found by the learned AO that the assessee had failed to do so. The learned AO subsequently issued a show cause notice to the assessee as to why this amount of Rs. 14,56,138/- should not be added to income of the assessee. The assessee furnished his written reply vide letter dated 16-12-2010 and the copy of CBDT Circular No.452 dated 17-02- 1986. The assessee had contended that the provisions of section 194C were not applicable to individual/HUF for the assessment year 2006-07. However, the argument of the assessee was rejected by the learned AO since assessee’s turnover exceeded the limit prescribed under the Act. Thereafter, the learned AO made an addition of Rs. 14,56,138/- u/s 40(a)(ia) of the Act and initiated proceedings u/s 271 (1) (c ) of the Act.
4. Being aggrieved the assessee carried the matter in appeal before the learned CIT(A). During the course of appellate proceedings, the assessee submitted a letter dated 12-09-2011 stating that the outstanding payment of Rs. 14,56,138/- included (i) payment made to Laxmi Auto Service for Rs. 30,000/- and (ii) payment made to Krishna Petroleum for Rs. 2,68,925/- for purchases.
Therefore, judiciously learned CIT(A) remitted back the issue to the file of the learned AO with direction that “in case if these payments are found not to be in the nature of contracts or sub-contracts, disallowance u/s 40(a) (ia) of the Act will not be applicable and addition made on account of the same shall be deleted and in case if it is found that these payments are in the nature of sub-contracts, the additions shall be sustained.” Further, an amount of Rs. 1,50,000/- and Rs. 1,30,000/- being sundry creditors for non-contractual payments was remitted back to the file of the learned AO with similar directions. Thereafter, the learned CIT(A) sustained an addition of Rs. 8,77,213/- u/s 40 (a) (ia) of the Act being payment made by the assessee to the truck owners for sub-contracting transportation work.
5. The assessee is now, in appeal before us aggrieved of the order of the learned CIT(A). The learned AR submitted before us that the assessee had undertaken contract from M/s. Hindustan Co-co- Cola Breweries Pvt. Ltd., for transportation of their products. It was further submitted that the assessee complied with the contractual obligations by transporting the products of the company by engaging its own truck as well as by hiring trucks from the market. The assessee argued that he had not sub-let the work to the subcontractors but had hired the vehicles and performed the work himself. It was, therefore, contended that the provisions of section 194C of the Act will not apply in the present case.
6. The learned DR relied on the orders of the revenue and prayed that the order of the learned CIT(A) may be sustained since he had judiciously considered the issue and even remitted back the issues related to payment for Rs. 2,98,925/-, Rs. 1,50,000/- and Rs. 1,30,000/- for verification and only sustained an amount of Rs. 8,77,213/- for disallowance u/s 40 (a) (ia) of the Act.
7. We have heard the rival submissions and carefully perused the materials on record. From the facts of the case, it is apparent that the assessee is one of the main contractors for transporting the products of M/s.Hindustan Co-co-Cola & Breweries Pvt. Ltd. In order to execute the assignment given by the company to the assessee, the assessee engaged his own truck as well as had hired trucks from other owners. The entire payment of transportation was made by the company to the assessee after deducting tax. This establishes that there is no nexus between the company and the owners of the truck engaged by the assessee. The company has deducted TDS for all the payments made to the assessee. Therefore, it is clearly established that the assessee is responsible for the entire transportation job assigned by the company to the assessee. In order to comply with the assignment, the assessee had hired vehicles from the market. There is nothing on record before us to show that the assessee had sub-let his work to other truck owners. After obtaining the payments from the company, the assessee had paid hire charges to the owners of the trucks from whom he had hired the trucks retaining a portion of the same for his job of execution of the work.
Thus, from the facts available before us it can be construed that the assessee had hired the trucks along with drivers and executed the work himself. In such case the provisions of section 194C of the Act will not be attracted. We place reliance on the following decisions:
(i) CIT Vs Poompuhar Shipping Corporation Ltd., 282 ITR 3 (Mad.) (2006) wherein it was held that “provisions of section 194C will not be applicable when ships are hired for transportation of goods by the assessee.”
(ii) CIT Vs United Rice Land Ltd. 217 CTR (P&H) 332 wherein the Hon’ble Punjab & Haryana High Court was pleased to held that “There being neither any oral or written agreement between the assessee and the transporters for carriage of goods nor it is proved that any freight charges were paid to them in pursuance of a contract for a specific period, quantity or price, the assessee was not liable to deduct tax under s. 194C from the payments made to the transporters.”
(iii) Further, in the case K. Srinivas Naidu Vs CIT reported in 131 TTJ 17 (Hyd) it was held that “In the absence of any evidence on record to prove that the assessee individual had made payment of freight charges to the owners of the truck in pursuance of any contract as a contractor and not as a sub-contractor, it cannot be held that the assessee was a contractor and the provisions of s. 194C(1) applied to such payment and not s. 194C(2), however, amount having been paid and not payable, s. 40 (a) (ia) could not be invoked to disallow the claim.”
8. From the facts of the case before us, we do not have any hesitation to hold that the assessee had only hired out the trucks and was in possession and control of the trucks and thereby carried out the work of transportation himself. Therefore, the provisions of section 194C of the Act will not apply in this case and we hold the issue in favour of the assessee. It is ordered accordingly. Since the assessee has not pressed the issue of reopening u/s.147 of the Act we hereby dismiss the ground as not pressed.
9. In the result, the appeal of the assessee is allowed.