Akil Kureshi, J. - Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal, Ahmedabad {"Tribunal" for short} dated 12th April 2013. Issue pertains to assessment year 2007-08. Revenue has presented following question for our consideration :—
"Whether in the facts and circumstances of the case, the learned ITAT has erred in law in deleting the disallowance of Rs. 42,84,497/- under section 40(a)(ia) of the Income-tax Act made by the Assessing Officer and confirmed by the CIT [A] ?"
2. Briefly stated, the facts are that the respondent assessee had undertaken a contract of transporting the employees of Institute of Plasma Research {"IPR" for short} by supplying vehicles for the purpose. In the course of executing the contract, the assessee hired certain vehicles from a private agency and made payment of Rs. 42.84 lakhs [rounded off] for such hiring charges. The Assessing Officer contended that under section 194C of the Income-tax Act, 1961 {"Act" for short}, the assessee was required to deduct tax at source, while making such payment. The assessee admittedly not having done so, such payment would be hit by the provisions of Section 40(a)(ia) of the Act and the expenditure should be disallowed. The assessee contended that the assessee had only rented the vehicles and the said agency had not provided any service of carriage of passengers. The charges were therefore paid for renting or hiring of the vehicles. The Assessing Officer was unmoved. He disallowed the expenditure, making following observations :—
'3.2 Submissions of the assessee have been considered carefully. The assessee's submission that assessee is not liable to deduct tax at source under section 194C of the I.T Act as it is not coming within the purview of that section is not acceptable. Provisions of Section 194C lay down that tax is to be deducted at source where any sum is paid for carrying out "any work" in pursuance of a contract between the contractor and sub-contractor. Most important pact of section 194C is the word "carrying out any work" which is interpreted by the Hon'ble Supreme Court in the case of Associated Cement Companies v. CIT [1993] 201 ITR 435. Supreme Court held that "any work" occurring in section 194C means any work and not only a "work contract". The Act was amended to include Explanation III, where by certain types of jobs have been deemed as "work" for the purpose of Section 194C. As per Clause (c) of Explanation III, "carriage of goods and passengers by any mode of transport other than railways" is work for the purpose of section 194C and tax deduction is applicable. Implications of introduction of Explanation III have been interpreted by the Apex Court in the case of Birla Cement Works v. CBDT [2001] 115 Taxmann 359 (SC). Board has clarified the term 'transport contracts in Circular No. 681 dated 8/03/1994 that the term transport contracts would in addition to contracts for transportation and loading/unloading of goods also covers contracts for plying of buses, ferries, etc alongwith staff {e.g., Driver, Conductor, Cleaner, etc.}. On perusal of the provisions of Section 194C, the Board's Circular and the judicial interpretation, it is amply clear that the assessee was under obligation to deduct tax from the payments made. Submission of the assessee extracted above with regard to interpretation that carriage of passengers implies plying of vehicle at fixed destination at fixed rate, there cannot be a deviation of destination, etc is uncalled for and incorrect.
3.3 It is to be evident from the details submitted by the assessee and its submission that assessee is a contractor, sub-contractor is one who takes portion of contract from principal contractor or another sub-contract.
3.4 In view of the above, it is quite clear that assessee is liable to deduct TDS as per Section 194C. It is admitted fact that the assessee has not deducted tax from payment to other to the extent of Rs. 42,84,497/-, though he was liable to do so. In view of this, the assessee has not complied with the provisions of section 194C of the I.T Act and as such the provisions of section 40 (a)(ia) of the I.T Act are clearly attracted in the assessee's case.'
3. The assessee went in appeal. Before the appellate authority, assessee additionally relied on the terms of the agreement between the assessee and the IPR to further contend that no part of the assessee's responsibility arising out of the said agreement was further contracted out with a private agency. The CIT (A), however, basing reliance on the terms of the agreement negated the contention. The assessee thereupon approached the Tribunal. Tribunal, by the impugned judgment, allowed the assessee's appeal and reversed the deduction. The Tribunal referred to various terms of the agreement and observed as under :—
"9. From the above, it is apparent that the assessee is providing its vehicles alongwith other vehicles obtained on hire to M/s. IPR and performs the work of transportation. The risk of performing the work of transportation is with the assessee and not with the owners of the vehicles from whom the assessee had obtained the vehicles on hire. The assessee is paid transportation charges by IPR for the vehicles provided by it being either its own vehicles or vehicles obtained by it on hire from other parties. The revenue has not brought out any material on record to establish that the owners of the vehicles had performed the work of transportation. Further, from the facts before us, it is apparent that the assessee had presented the above mentioned facts throughout in its submissions which the Tribunal in its order misconceived that the assessee had stated "the owners of the vehicles from whom the assessee had obtained the vehicles had performed the work of transportation since they were in possession and control of the vehicles hired by the assessee and not the assessee."
4. Learned counsel Shri Varun Patel for the Revenue vehemently contended that the Tribunal committed an error in reversing the decision of the revenue authorities. The payments made by the assessee were clearly hit by Section 194C of the Act. He submitted that the assessee had for the first time canvassed before the Commissioner that in view of the agreement between the assessee and the IPR, the question of relationship between the contractor and sub-contractor would not arise. Referring to the terms of the agreement, counsel contended that part of the work undertaken by the assessee under the said agreement was assigned to the sub-contractor. Looked from any angle, even otherwise, such payment would fall under section 194C of the Act. On the other hand, learned counsel Shri Shah appearing for the respondent supported the judgment of the Tribunal and opposed the appeal.
5. From the record, it clearly emerges that the Assessing Officer desired to bring the payment made by the assessee within the net of sub-section (2) of section 194C of the Act. Though not specifically stated so in the order itself, the tenor of the order is clear that he treated the relationship between the assessee and the third party [private agency] as that of contractor and sub-contractor. It was precisely on the said premise, he based his observations and conclusions and held that the payments were covered under section 194C of the Act. Merely because he did not refer to sub-section (2) thereof, would not change this position. A short question therefore is - was there relationship between the assessee and the supplier of the vehicles as one of contractor and sub-contractor ? In this respect, in addition to perusing the judgment of the Tribunal, we have also examined the terms of the agreement dated 15th September 2005 entered into between the assessee and the IPR.
5.1 Clause (1) thereof pertains to "scope of work" and includes providing, operating and maintaining in good condition six buses having 52 or more seat capacity and 2 mini-buses of 25 seats capacity for 14 hours per day to transport the staff/official visitors from various destinations to the campus and back on the routes and timings, as decided by the Institute from time to time. Clause (3) pertains to "termination of the contract" and authorizes the IPR or the contractor to terminate the same by following certain procedure. Clause (4) envisages the contractor to deposit a sum towards security deposit. Clause (5) pertains to duties of the contractor, which includes the following :—
"(e) The contractor shall provide and run 6 buses having 52 or more seats capacity and 2 mini-buses of 25 seats capacity to the IPR for transportation of staff and other authorized persons of IPR at the time mentioned in the service schedule or as decided from time to time. Contractor shall have to deploy required number of vehicles, which are in excellent working condition and models later than 2002.
(g) The vehicles mentioned above are meant for transportation of IPR Staff/visitors. Maintaining of proper time schedule for each and every trip is the essence of this contract. If the normal coordination is not found satisfactory, the contractor shall deploy his representative on all working days for effective control and coordination. He shall remain available once in a week and also whenever required.
(h) The Buses and Minibuses should be in perfect road worthy condition with good outlook and interior. Contractor shall keep the vehicles in the good operating condition at all times. Procurement of fuel, lubricants, spares, etc., shall be arranged by him at his own cost. Timely maintenance and up-keep of the vehicles shall be carried out by the contractor before it is pointed out by the IPR. The seat covers shall be good and clean. If he fails to comply with the above, IPR shall order the contractor to replace the vehicles immediately in addition to levying a fine, as mentioned hereinabove, if deemed fit.
(j) The rates quoted by the contractor and accepted by IPR are inclusive of wages to drivers, conductors, cleaners and supervisors, cost of fuel, lubrication, etc., expenses for maintenance of vehicles, payment of all taxes to Government and to local authorities etc., as levied from time to time.
(l) The contractor shall be responsible for the acts of omissions and commissions by the persons employed by him either inside or outside the IPR premises. He should verify the antecedents of the persons employed by him before deploying them to IPR.
(n) The contractor shall bear the full and exclusive liability for payment of Government taxes, comprehensive insurance, registration, RTO licences, etc., which may be in force and may come into force from time to time during the pendency of contract. The contractor shall produce copy of receipts issued by the concerned authorities in proof of having complied with the above statutory obligations."
5.2 Clause (6) requires contractor to maintain sufficient number of drivers with valid driving licence, cleaners, conductors, supervisors, etc., as approved by IPR for smooth and efficient running of vehicles at all times. Clause (8) provides that the contractor shall be required to pay remuneration to such persons deployed with minimum wages assured. Clause (10) pertains to "rates" at which the contractor would receive the payment. Clause (11) pertains to "mode of payment". Clause (12) pertains to "Penalty". Clause (14) pertains to "price escalation". Clauses (16) to (20) pertain to dispute resolution mechanism.
The last clause of importance is clause (13), which pertains to "sub-contract" and reads as under :—
"That the contractor shall not without prior consent in writing of the IPR assign or sublet contract or any part thereof. If he assigns or grants sub-contract to any person without obtaining prior consent of IPR, he shall be doing so at his own risk and that shall not relieve the contractor of any obligation, duty or responsibility under the contract."
6. From the above, it could be seen that the entire task was assigned to the respondent-assessee by the IPR for transportation of its employees and the guests; for which the assessee had to maintain certain number of vehicles in good working condition and to deploy necessary staff and for such purpose, IPR agreed to pay rent. The entire task was to be performed by the contractor and could not be assigned to a sub-contractor without prior permission of the IPR.
7. As held and observed by the Tribunal, the Revenue did not bring out any material to establish that the owner of the vehicles performed the work of transportation. The assessee had merely hired the vehicles for performing its part of the contract with IPR. That being the position, the Revenue's stand that the work of transportation or part thereof was assigned to a sub-contractor was rightly not accepted by the Tribunal.
8. In a judgment dated 9th October 2012 in case of CIT v. Prashant H. Shah [2013] 29 taxmann.com 296/216 Taxman 287 (Guj.) the Division Bench of this Court considered the provisions of Section 194C and in particular, sub-section (2) thereof in connection with the contract for construction. When the Revenue contended that the contractor had engaged a sub-contractor for performance of part of the work, the Court observed as under :—
"(8) Sub-section (2) of section 194C requires that any person, that is, a contractor responsible for paying any sum to any resident sub-contractor in pursuance of a contract with the sub-contractor for carrying out or for supply of labour for carrying out the whole or any part of the work undertaken by the contractor or for supplying any labour, which the contractor had undertaken to supply has to, at the time of credited such sum to the account of sub-contractor, or at the time of payment in cash or in any other manner, deduct TDS at the specified rate.
(9) For application of sub-section (2) of section 194C, the requirement is that there is a contractor who has undertaken to carry out any work or supply of labour, a part of such work or supply of labour is executed through a sub-contractor and in pursuance of execution of such work, the payment is being made either in cash or in any other manner or the same is being credited in the account of the sub-contractor. Only under such circumstances, the requirement of deducting tax at source on such payment would arise on the part of the contractor.
(10) The Tribunal, upon detailed examination of the nature of relationship between the assessee and the transporter, came to the conclusion that this is not a case of sub-contract. The Tribunal noted that none of the responsibilities of the contractor vis-a-vis the execution of the work were fastened on the transporters. The Tribunal noted that the assessee had indemnified ANS Construction against any legal or financial liability if such liability arises in future out of such contract. The assessee was solely responsible for execution of the work. No part of such liability was fastened on the transporters. The assessee had only availed of the services of such transporters for carrying out the material to the site. The Tribunal, therefore, concluded and rightly so in our opinion that this was not a case of relationship between the assessee contractor and the transporters in the capacity of sub-contractors.
(11) To reiterate, for application of section 194C(2) of the Act what was necessary was a relationship between the contractor and sub-contractor and not merely be hiring of an agency by the contractor during the course of execution of the work. In the present case, such vital requirement of relationship of a contractor and sub-contractor between the assessee and the transporters was missing. The Tribunal, in our view, was perfectly justified in holding that liability to deduct tax at source in the present case do not arise."
9. In the result, we see no question of law arising. Tax Appeal is therefore dismissed.