High Court Of Karnataka
Smt. J. Rama vs. CIT, Bangalore
Assessment Year : 2005-06
Section : 194C
N. Kumar And Mrs. B.V. Nagarathna, JJ.
IT Appeal No. 418 Of 2009
July 19, 2010
N. Kumar, J. – This appeal is by the assessee challenging the orders passed by the authorities upholding the additions made by the Assessing Officer.
2. The facts of the case are that the assessee is an individual deriving income from hiring of vehicles. For the assessment year 2005-06, return of income was filed on 30-10-2005 declaring an income of Rs. 8,27,740. The return was processed under section 143(1) on 23-3-2006 and a refund of Rs. 34,619 was issued to the assessee. Thereafter, the case was selected for scrutiny under CASS. Notice under section 143(2) was served on the assessee on 2-9-2006. In reply to the same, the assessee appeared, produced books of account and other details. It is seen from the said books and from the income and expenditure statement, the assessee had debited a sum of Rs. 88,12,432 as vehicle running expenses. When she was called upon to explain the said expenses, she had given elaborate accounts of vehicle running expenses. The said accounts disclosed that the assessee had not deducted the tax deducted at source (TDS) as per the provisions of section 194C of the Income-tax Act, 1961 (‘the Act’). In spite of sufficient opportunity granted the assessee did not produce the particulars of the TDS, if any. However, the assessee contended in writing that the assessee is not liable to deduct TDS as there is no written or oral contract and that the assessee is not liable under section 194C as individual charges for private service vehicle will not exceed Rs. 20,000. She also referred to Circular No. 93 dated 26-9-2002 stating that the liability to TDS would not arise. The said circular was superceded by a clarification issued by the Board which made it obligatory to deduct tax. The Assessing Officer held the contract entered into between the assessee and the persons who supplied the vehicle is a transport contract and not hiring of machinery and therefore, she was legally bound to deduct TDS. As the said deduction was not made, section 40(i)(a ) is attracted. Accordingly, deduction on the amount paid to a sub-contractor on which tax has not been deducted at source was disallowed. Therefore, a sum of Rs. 79,45,225 representing the said payment was brought to tax. There was a discrepancy in the accounts relating to amount covered under TDS certificates and therefore, a sum of Rs. 6,82,968 was also added. Thus, a sum of Rs. 94,55,933 was held to be taxable. Aggrieved by the said assessment order, the assessee preferred an appeal to the Commissioner of Income-tax.
3. After referring to the aforesaid facts and the case law on the point, the appellate authority held that the assessee is the owner of the hired vehicle. It was a transport contract. Section 194C mandates TDS and therefore, he held that disallowance by the Assessing Officer is proper and accordingly, he confirmed the same. Insofar as the discrepancy in the TDS Certificate is concerned, it was noticed that the balance amount was received in subsequent year which was duly reflected in the accounts and when the assessee was maintaining the books of account on mercantile basis therefore, the accounting and reflecting on receipt basis was not in order and therefore, even the addition made by the Assessing Officer in respect of TDS was also confirmed.
4. Aggrieved by the said two orders, the assessee preferred an appeal to the Tribunal. The Tribunal on re-appreciation of the entire facts and after hearing both the parties, held hiring of vehicles by the assessee is definitely in the nature of transport contract and hence, the disallowance under section 40(a)(ia ) on vehicle maintenance claim of Rs. 79,45,225 on which as of now the payment of tax also had not been deducted and paid before the expiry of the prescribed time as per sub-section (1) of section 200 was to be disallowed. With reference to the second issue, it was held that there was a difference in receipt disclosed by the assessee in the Profit and Loss Account on account of transport contract and the figure as per TDS Certificate. The said sum was not disclosed as income when the books of account had been closed but included the receipt as per the TDS certificates and therefore, no case for interference in the said addition was made out. Accordingly, the appeal came to be dismissed. Aggrieved by these orders, the assessee is in appeal before us.
5. After hearing the parties, this appeal is admitted to consider the following substantial questions of law :
(1) When the material on record do not disclose the contract entered into by the assessee with the sub-contractor, for supply of vehicles to perform the contract entered into with the customers, whether the liability under section 194C is attracted.
(2) Whether the deduction on account of the discrepancy in the vehicles towards TDS amounts is justified that the said amounts are actually paid in the subsequent years ?
6. Learned counsel for the appellant contended that the assessee had entered into contract to supply vehicles to M/s. Mahindra and many other companies under written contracts on various dates. It is only to perform the obligations under the said contracts, after he hired vehicles from sub-contractors under a written contract, the liability to deduct TDS arises under section l94C(2) of the Act. In this case, such a material is not available and therefore, the authorities were not justified in disallowing the deductions claimed by the assessee.
7. Per contra, learned counsel for the income-tax department submits that the material on record clearly discloses that the vehicles are hired by the assessee from various owners of vehicles only to discharge their obligations under the contract between the assessee and other customers. In that view of the matter, the authorities were justified in disallowing the deduction.
8. In order to appreciate the rival contentions, it is necessary to bear in mind the admitted facts :
The assessee is an individual deriving income from hiring of vehicles. Under a written agreement the assessee is providing vehicles to one of its customers, M/s. Mahindra Transport Solutions Group. Clause 5 of the written agreement entered into between them stipulates that the provision of services would involve providing vehicles owned by the assessee or associates of assessee or agents, for transportation of the Employees of Thomson Corporation (International) Private Limited. The material on record discloses that the assessee is owning a fleet of vehicles. That is not sufficient to meet their obligations. Therefore, the assessee hired vehicles from the owners of the vehicles. There is no written agreement entered into between the assessee and such individual owners. It is those vehicles hired in the aforesaid manner which are utilised for performing the contract entered into between the assessee and its customers. In the absence of any material placed by the assessee, the only inference that can be drawn from the facts of this case is that the assessee has utilised the vehicles taken on lease to perform the written contract entered into between the assessee and various customers. Out of the transportation charges received under the aforesaid written contract, a substantial portion has been paid to the various owners of the vehicles towards transportation charges. Though a ground is taken that such payment is not in excess of Rs. 20,000 and, therefore, there is no obligation to deduct TDS, the material on record discloses that total amount paid towards transportation charges is roughly about Rs. 79,45,225. In the absence of any particulars, it cannot be said that there was no liability to deduct tax on that score. Law does not stipulate the existence of a written contract as a condition precedent for payment of TDS. The contract may be in writing or it may be oral but the liability to pay tax arises when the recipient of the said amount receives payment in excess of Rs. 20,000. Proviso (2) to section 194C which is attracted to the facts of this case makes it very clear that when a individual or Hindu Undivided Family whose total sales from the business or profession carried on by him in excess of the monetary limit specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the sub-contractor, shall be liable to deduct income-tax under the sub-section. It is not in dispute that the turnover of the assessee exceeds the monetary limit specified under clause (a) or clause (b ) of section 44AB. Therefore, the liability to deduct tax arises under the said proviso to the sub-contractor from whom the vehicles are hired and the said amount payable to the sub-contractor is in excess of Rs. 20,000. Therefore, the three authorities have concurrently held that the transaction in question is a transport contract. The liability to deduct out of the money paid to the sub-contractors does arise. Immediately, TDS is not deducted and the said amount is not paid to the authorities. Therefore, the claim for deduction under section 40(a)( ia) is not attracted and the authorities were justified in disallowing the said deduction and treating the said amount as the income of the assessee and claiming tax on that amount.
9. Insofar as the second substantial question of law is concerned, the facts are not in dispute. The TDS certificates enclosed with the return amounted to Rs. 1,70,89,004 whereas the receipt disclosed in the income and expenditure account, was Rs. 1,64,06,036. This discrepancy is admitted. The explanation offered is that a portion of the said TDS deductions are claimed in the subsequent year. The amount of Rs. 6,82,968 was received by the assessee in the following year. As rightly pointed out by the authorities, when the assessee is following the maintenance of books of account on mercantile basis, accounting and reflecting on receipt basis is not proper and therefore, rightly they have upheld the deductions made.
10. In that view of the matter, we do not see any merit in this appeal. The substantial questions of law raised are accordingly answered against the assessee and in favour of the revenue.
Appeal is dismissed.
[Citation : 344 ITR 608]