Whether when assessee itself is contractor of IOCL for transportation of LPG cylinders, hiring of truck owners for executing contract is to be construed as sub-contract liable for TDS u/s 194C - YES: HC

HE issue before the HC is - Whether when the assessee itself is a contractor of the IOCL for transportation of LPG cylinders, the hiring of truck owners for executing the contract is to be construed as sub-contract liable for TDS u/s 194C. And the verdict goes against the assessee.

Facts of the case

The assessee is engaged in the business of purchase and sale of LPG cylinders. The AO noticed

that the main contract of the assessee for carriage of LPG was with the Indian Oil Corporation, Baddi. The assessee had received the total freight payments from the IOC Baddi to the tune of Rs. 32,04,140/-.The assessee had, in turn, got the transportation of LPG done through 3 persons. The A.O. observed that the assessee had made a sub-contract with the given three persons within the meaning of section 194C and, therefore, he was liable to deduct tax at source from the payment. On account of his failure to do so, the said freight expenses were disallowed by the A.O. as per the provisions of Section 40 (a) (ia).The CIT(A) & the Tribunal upheld the AO order.

On Appeal before the HC the Assessee Counsel submitted that Section 40 (a) (ia) and Section 194C have been completely misconstrued by the authorities below. It was further submitted that since the hiring was not a result of any written or oral contract, the payments made in consequence of such hiring to the transporters or to the truck owners directly were also not a result of any written or oral contract and it was so because the liability fastened upon the transporter having entered into contract with the parties for transporting the goods, therefore, could not have been fastened either on to the transporter or the truck owners from whom the trucks had been hired. It was also submitted that no disallowance can be made u/s 40 (a) (ia) as the freight charges had been paid and were not payable.

Having heard the parties, the HC held that,

++ the nature of transportation between the appellant and the three persons was self explanatory. On such basis, the authorities below recorded a pure finding of fact that there did not exist any explicit agreement between the assessee and the three truck owners. As far as the question of applicability of Section 194C (1) or Section 194C (2) is concerned, it was found that since the freight charges were being paid by the appellant to the three persons in respect of the sub-contract u/s 194C (2) following the appellant’s own contract with IOC, it was evident that the appellant was trying to take undue benefit of the amendment brought about in Section 194C (1);

++ the provisions of Section 40 (a) (ia) were applicable not only to the amount which were shown as outstanding on the closing of the relevant previous year, but to the entire expenditure which became liable for payment at any point of time during the year under consideration and which was also paid before the closing of the year as rightly held by the authorities below;

++ all the findings recorded by the authorities below are pure findings of fact which normally cannot be interfered with in the present appeal save and except if the findings of the Court on a fact is vitiated by reasons of having relied upon conjectures, surmises and suspicion not supported by any evidence on record or partly upon evidence and partly upon inadmissible evidence or the findings recorded can be termed to be in any manner perverse. None of the aforesaid conditions are qualified so as to call for interference in the present appeal.