THE issue before the Bench is - Whether when the assessee
enters into agreement for transporting employees and guests of a Research
Institute and hires certain vehicles on rent to fulfil its obligations, any TDS
liability u/s 194C arises on payments made in this regard. And the answer goes
against the Revenue.
Facts of the
case
The assessee
concern had undertaken a contract of transporting the employees of Institute of
Plasma Research 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. During assessment, AO contended that
u/s 194C, 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) 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. AO was unmoved and he
disallowed the expenditure and observed that it was clear that assessee was
liable to deduct TDS as per Section 194C. It was admitted that the assessee had
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 had not complied with the
provisions of section 194C and as such the provisions of section 40 (a)(ia) were
clearly attracted in the assessee's case.
On
appeal before the CIT (A), assessee 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. On further appeal, Tribunal allowed the
assessee’s appeal and reversed the deduction.
Before the HC, the Revenue's
counsel had contended that Tribunal committed an error in reversing the decision
of revenue authorities. The payments made by the assessee were clearly hit by
Section 194C. It was submitted that 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 subcontractor
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 subcontractor. Looked from any angle, even otherwise, such
payment would fall under section 194C.
Held
that,
++
from the various clauses of the agreement between assessee and IPR, it could be
seen that the entire task was assigned to 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 subcontractor without prior
permission of the IPR. 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 subcontractor was rightly not accepted by the Tribunal;
++ in
a judgment of CIT v. Prashant H. Shah, the Division Bench of HC considered the
provisions of Section 194C and in particular, subsection (2) thereof in
connection with the contract for construction. When the Revenue contended that
the contractor had engaged a subcontractor for performance of part of the work,
the Court observed that subsection (2) of section 194C requires that any person,
that is, a contractor responsible for paying any sum to any resident
subcontractor in pursuance of a contract with the subcontractor 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 subcontractor, or at the time of payment in cash or in any other manner,
deduct TDS at the specified rate. For application of subsection (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 subcontractor 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 subcontractor. Only under such circumstances, the
requirement of deducting tax at source on such payment would arise on the part
of the contractor. 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 subcontract. 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
subcontractors. To reiterate, for application of
section 194C (2) what was necessary was a relationship between the contractor
and subcontractor 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 subcontractor 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.
In the result, we see no question of law arising. Tax Appeal is therefore
dismissed.
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