Mere hiring of vehicle without any risk associated with the carriage of goods not a contract liable to TDS u/s 194C(2)

Mere hiring of vehicle without any risk associated with the carriage of goods does not amount to carrying out any work or sub contract as defined u/s 194C(2) of the Income Tax Act, 1961

Case Details:
TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM
I.T.A.No.483/Vizag/2012  Assessment Year:2005-06
DCIT vs. Yekkala Subba Rao
Date of Order: 18/03/2016

Brief Facts of the Case:
The assessee was a transport contractor involved in the business of carriage of goods for customers. The case of the assessee was selected for scrutiny and accordingly, notice u/s 142(1) and the assessment was completed by making additions u/s 40(a)(ia) of the Act, for failure to deduct TDS u/s 194C of the Act. The matter traveled to ITAT, which set aside the assessment order to the file of the Assessing Officer with a direction to verify the nature of transactions between the assessee and the owners of the hired vehicles and decide the issue afresh, in accordance with principles laid down by the bench in the case of M. Seetaramaiah Vs. ACIT in ITA No.335/Vizag/2008 dated 18.5.2009, followed in the case of M/s. Mythri Transport Corporation in ITA No.183/Vizag/2008.

In remand proceedings, the assessee submitted that it is a mere hiring of vehicles and not a sub contract as defined u/s 194C(2) of the Act and to invoke the provisions of section 194C(2), there should be a contract for carrying out any work. Therefore, the question of deduction of TDS does not arise on payment of hire charges. He contended that the vehicle owners merely supplied the vehicles on fixed hire charges and the risk involved in carriage of goods was fully associated with him and not with the vehicle owners.However,  Assessing Officer was of the opinion that the vehicle owners allowed their vehicles to be used by the assessee for transportation of goods to the respective places of destinations as per the contract entered into by the assessee with the respective customers. The vehicle owners have incurred the expenditure towards maintenance of vehicle such as salaries, diesel and other maintenance expenses on their own. Therefore, there was a clear contractual relationship exist between the assessee and the vehicle owners, hence, it amounted to a contract as defined u/s 194C(2) and accordingly, the assessee was liable to deduct TDS.

Before CIT(A), the assessee submitted that the Goods Consignment Notes (GCNs) were issued by himself and not by the vehicle owners which was a clear evidence the contract was between the assessee and his customers and not with vehicle owners. Alternatively, the assessee submitted that the disallowance u/s 40(a)(ia) was applicable only to the amount that remained payable at the end of the financial year and since he had paid the amount before the end of the financial year, therefore, no disallowance could be made.

The CIT(A), placing reliance on Mythri Transport Corporation case deleted the additions made by the Assessing Officer. he also held that as per the judgement of ITAT, Visakhapatnam bench, in the case of M/s. Merilyn Shipping & Transports disallowance u/s 40(a)(ia) of the Act are applicable only in respect of amount remains payable at the end of the financial year .

Excerpts from the Judgment:

………. we find that the assessee is into the business of transport contract, has entered into agreement with his clients for carriage of goods. Though, carriage of goods included in the definition of ‘Work’ under section 194C, whether the arraignment between the assesee and the vehicle owners fit in to the definition is to be ascertained. In the present case on hand, there is no direct contract between the vehicle owners and the customers. The agreement is between assessee and his customers for carriage of goods. The vehicle owners have provided the vehicles on fixed rental basis and the risk associated with the transport of goods is vested with the assessee. On perusal of document filed by the assessee, we find that the vehicle owners have filed affidavit, wherein they have clearly stated that they have provided vehicle and not involved in the carriage of goods. Therefore, we are of the opinion that the Assessing Officer was not correct in coming to the conclusion that there exist a contract between the vehicle owners and the assessee and consequential payment attracts TDS u/s 194C(2) of the Act.

The coordinate bench of this Tribunal in the case of M/s. Mythri Transport Corporation Vs. ACIT (supra), categorically held that mere hiring of vehicles does not amount to carrying out any work as defined u/s 194C(2) of the Act. The relevant portion of the order is reproduced hereunder:

“Sec. 194C(2) is attracted if all the following conditions are satisfied: (a) the assessee should be a contractor; (b) the assessee, in his capacity as a contractor, should enter into a contract with a subcontractor for carrying out the whole or any part of the work undertaken by the contractor; (c) the sub-contractor should carry out the whole or any part of the work undertaken by the contractor; (d) payment should be made for carrying out the whole or any part of the work The stringent clauses in the work order suggest that the assessee is solely responsible for all the acts and defaults committed by the assessee and/or its employees. It is not established by the Revenue that other lorry owners, from whom the vehicles were hired, have also been fastened with any of the above said liabilities. In a sub-contract, s prudent contractor would include all the liability clauses in the agreement entered into by him with the sub-contractor. The assessee has also claimed before the tax authorities that the responsibility in the whole process lies with it only. Though the passing of liability is not the only criteria to decide about the existence of sub-contract, yet this contention of the assessee read with the liability clauses of the work order supports its submission that the individual vehicle owners are simple hirers of the vehicles. As per the provisions of s. 194C (2), the sub-contractor should carry out the whole or any part of the work undertaken by the assessee. The dictionary meaning of the words “carry out” is to “carry into practice”; “to execute “; “to accomplish ” . It signifies a positive involvement in the execution of the whole or any part of the main work by spending his time, money, energy, etc, and further taking the risks in carrying on the said activity. In the instant case, there is no material to suggest that the other lorry owners involved themselves in carrying out any part of the work undertaken by the assessee by spending their time, energy and by taking the risks associated with the main contract work. In the absence of the above said characteristics attached to a subcontract in the instant case, the payment made to the lorry owners stands at par with the payments made towards salaries, rent, etc. Hence the reasoning of the tax authorities to hold that the payment made for hired vehicles is a sub-contract payment is not correct and not based on relevant considerations. Hence, it cannot be said that the payments made for hired vehicles would fall in the category of payment towards a sub-contract with the lorry owners. In that case the assessee is not liable to deduct tax at source, as per the provisions of s. 194C(2), on the payments made to the lorry owners for lorry hire. Consequently, the provisions of 5. 40(a)(ia) shall not apply to such payments.”

The assessee relied upon ITAT, Visakhapatnam bench decision, in the case of ACIT Vs. Syed Rasheed Transports, Ongole in ITA No.235/V/2011 dated 26.12.2011. The coordinate bench of this Tribunal, under similar set of facts decided the issue in favour of the assessee. The relevant portion is reproduced hereunder:

“We have heard the rival contentions and carefully perused the record. There is no dispute with regard to the fact that the assessee has hired lorries from the open market for execution of the contract undertaken by it for transportation of goods. In the case of Mythri Transport Corporation cited (Supra), it has been held that mere hiring of trucks cannot be treated as giving work on sub-contract unless the lorry owners involved themselves in carrying out any part of the work undertaken by the assessee by spending their time, energy and also by taking the risks associated with the main contract. In the instant case also, the contention of the assessee is that it has merely hired the lorries from the open market. It is not shown by the revenue that the lorry owners, from whom the lorries were hired, undertook the risks associated with the main contract. In that case, mere hiring of lorries would not come under the category of “Sub-Contract” as held in the case of Mythri Transport Corporation (supra). Accordingly the provisions of sec. 194C(2) shall not apply to the assessee.”

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