Income Tax Appellate Tribunal (ITAT) Mumbai in a recent judgment has held that contracts envisaged in Section 194C are not limited to written contracts and all payments made in pursuance of written, oral, implied or quasi contracts are liable for deduction of tax at source u/s 194C of the Income Tax Act, 1961.

Case Details:
ITA No.1687/Mum/2011 ; Ay: 2007-08
ITO (Appellant) vs Gopal S. Rajput, Prop. M/s Express Transport (Respondent)
Date of Order: 30-11-2015

Case Laws/Circular covered:
Punjab & Haryana High Court-CIT(TDS) vs. M/s United Rice Land Limited (ITA No. 633 of 2007 dated 12-05-2008)
ITO v. Rajesh A Boricha in ITA no 1369/Rjt./2010 dated 13 ^th September 2013
Smt. J. Rama v. CIT (Calcutta HC) [2012] 344 ITR 608/[2010] 194 Taxman 37
Dy. CIT v. Kamal Kr. Mukherjee & Co. (Shipping) (P.) Ltd. [2012] 51 SOT 73 (URO)/20 taxmann.com 670 (Kol.Trib.)
DCIT v. Five Star Shipping Agency Private Limited (2015) 59 taxmann.com 369 (Kol.Trib.)

Brief facts of the Case:
The assessee was engaged in the business of transportation under the name and style of M/s Express Transport. During the course of assessment proceedings, the Assessing Officer (AO) asked details of transportation charges of Rs.94,61,762/-. In response, the assessee filed the list of 21 parties to whom such charges had been paid by the assessee. AO observed that no tax was deducted at source on the transportation charges u/s 194C consequently, such expenses were  disallowed and added back to the total income of the assessee u/s 40(a)(ia).

Before CIT (Appeals), the assessee contended that the payments have not been made by the assessee ‘in pursuance of a contract’ within the meaning of section 194C of the Act. The assessee also filed Affidavit stating that He had paid and debited payments of transport charges to various intermediary parties which were actually not transporters but were outsiders around him who managed transporters (who are stranger to him and whom he did not recognize) on SOS basis for him from open market. CIT(A) accepted the contentions of the assessee holding that the AO did not give fact finding as to whether there was any contract, written or oral between the assessee and the individual parties to whom the payment was made and hence the provisions of section 194C were not attracted.

Contentions of the assessee:
Before ITAT, the main contention of the assessee was that the payments had not been made in  pursuance of a contract between the assessee with any of the person or the actual transporters.

Question before ITAT:
Whether there was contractual relationship between the assessee and the persons to whom the assessee had made the payments of transportation charges for carriage of goods for the assessee who in turn have independently arranged actual transporter from open market for carriage of goods for the assessee and these intermediaries have paid the actual transporters out of money collected from the assessee.

ITAT noted observed that the word ‘Contract’ had not been defined u/s 194C and referred to the meaning of contract as used in commercial parlance vis-à-vis Indian Contract Act,1872. It held that the Indian Contract Act,1872 envisages four types of contracts, namely
(1) contracts made in writing
(2) contracts made orally
(3) contracts by implication or implied contracts and
(4) quasi contracts .

Held:
ITAT upheld the disallowance made by the Assessing Officer holding that the contracts envisaged in Section 194C are not limited to written contracts and all payments made in pursuance of written, oral, implied or quasi contracts are covered u/s 194C of the Act. Even an oral , implied or quasi contract is good enough to invoke the provisions of Section 194C of the Act.

Important Excerpt from ITAT Judgment:

Section 9 of the Indian Contract Act , 1872 provides that contracts can be either express or implied. An express contract is one where the proposal or acceptance of any promise is made in words while implied contract is one where such proposal or acceptance is made otherwise than in words. Even if there is no express contract, a contract may still exist by implication , i.e. contract consisting of obligations arising from the mutual agreement and intent to promise , which have not been expressed in words. An implied contract envisaged by Section 9 of the Indian Contract Act,1872 can be inferred from the facts and circumstances that indicate a mutual intention to contract . Circumstances may exist which, according to the ordinary course and common understanding , demonstrate such an intent that is sufficient to support the finding of an implied contract .

The contract also include sub-contract as it could be seen from coverage of payments to subcontractors by contractors within the ambit of Section 194C of the Act . In the instant case under appeal, the contractors i.e. intermediaries are transporting the goods by carriage for the assessee not themselves but through appointing sub-contractors independently i.e. actual transporters who are hired independently by contractors as sub-contractor for transporting the goods by carriage for the assessee and these sub-contractors are paid for by the intermediaries out of money collected from the assessee. Thus, the assessee has given work contract to intermediaries for hiring of transport for carriage of goods for the assessee which itself is a contract covered under Section 194C of the Act and in our considered view, the assessee was liable to deduct TDS u/s 194C of the Act on payments of Rs.94,61,762/- for carriage of goods through intermediaries as there was a contract covered u/s 194C of the Act between the assessee and these intermediaries for the work of carriage of goods through transport which was executed by these intermediaries through sub-contractors i.e. actual transporters appointed independently by these intermediaries.

In the case of United Rice Land Limited (supra) , there was uncontoverted finding of fact that the assessee therein was instructing for payment of truck charges and whatever charges were instructed by the assessee therein was paid by these C&F agents which was later reimbursed by the assessee and these C&F agents to whom the assessee therein made the payments have not independently appointed truck operators for the assessee therein rather it was the assessee therein who appointed truck operators while in the instant case the assessee has engaged the services of intermediaries who are not actual transporters themselves but who in turn engaged independently actual transporters for carriage of goods for the assesse and made payments to actual transporters out of money collected from the assessee . Thus, in the instant case under appeal, the assessee has given contract to these intermediary transporters in their independent capacity who have in turn hired independently the actual transporters as their subs-contractors for carriage of goods for the assessee while no such instructions was issued by the assessee to pay a certain amount to actual transporters who were hired by intermediaries independently and hence the case of United Rice Land Limited is clearly distinguishable

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