CIT, LUDHIANA vs. M/S GREWAL BROTHERS

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ITA/662/2010HC Punjab & HaryanaPHHC01093620201005 April 2011Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that while a firm and its partners are separate entities for income tax purposes and a firm can contract with its partners, the crucial determination is whether a separate sub-contract existed. In this case, the assessee's plea that the firm acted as an agent and the partners executed the transportation using their trucks, with payments routed through the firm, was accepted by the CIT(A) and the Tribunal. Once this factual finding was established, it could not be held that there was a separate sub-contract requiring the firm to deduct tax under Section 194C. The Tribunal's view was consistent with the High Court's own prior judgment in Commissioner of Income Tax Vs. United Rice Land Ltd. and the Himachal Pradesh High Court's decisions. Therefore, no substantial question of law arose. The addition made by the AO was deleted.

What were the facts?

The assessee, M/s Grewal Brothers, a transport business, secured contracts with Hindustan Petroleum Products and Indian Oil Corporation for LPG carriage. The assessee firm paid its partners for transportation services using their trucks, retaining a 3% commission for securing the contracts. The Assessing Officer (AO) treated these payments as sub-contract payments and disallowed them for non-deduction of Tax Deducted at Source (TDS) under Section 194C. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) upheld the assessee's contention that the firm acted merely as an agent, and there was no sub-contract, thus no TDS obligation. The revenue appealed this decision to the High Court.

What were the issues?

1. Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal is justified in law in holding that the provisions of Section 194C are not applicable on the payments of Rs.54,66,942/- made by the firm to its partners on account of transportation charges for use of trucks owned by the partners? 2. Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal is justified in law in deleting the addition of Rs.51,61,183/- made in view of the provisions of section 40(a)(ia) of the Income Tax Act, 1961 as no tax at source was deducted by the firm as required under section 194C of the Income Tax Act, 1961? Assessee's Contention: The firm acted as an agent for securing contracts, retaining a 3% commission, and paid the balance to partners who owned the trucks and executed the transportation. There was no sub-contract between the firm and its partners. Reliance was placed on Sirmour Truck Operators Union Vs. CIT and CIT Vs. Ambuja Darla Kashlog Mangu Transport Coop Society. Revenue's Contention: The firm and its partners are separate entities. The firm was liable to deduct tax on payments made to partners as sub-contractors, as there was a deemed oral agreement for execution of transportation contracts. The fact that the companies deducted tax from payments to the firm did not absolve the firm of its TDS obligation.

Which sections of the Income-tax Act were involved?

Section 194C,Section 40(a)(ia),Section 260A

AI-generated summary — verify with the full judgment below

of 2010

-1- *** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Income-tax Appeal No.662 of 2010 Date of decision: 5.4.2011 Commissioner of Income-Tax-I, Ludhiana ...Appellant Versus M/s Grewal Brothers ...Respondent CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Mr. Rajesh Katoch, Senior Standing Counsel for the appellant.

**** Adarsh Kumar Goel, J.

1.

This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 against order dated 29.1.2010 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A', Chandigarh in ITA No.883/CHD/2009, for the assessment year 2006-07, claiming following substantial questions of law:- “i) Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal is justified in law in holding that the provisions of Section 194C are not applicable on the payments of Rs.54,66,942/- made by the firm to its partners on account of transportation charges for use of trucks owned by the partners? ii) Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal is of 2010

-2- *** justified in law in deleting the addition of Rs.51,61,183/- made in view of the provisions of section 40(a)(ia) of the Income Tax Act, 1961 as no tax at source was deducted by the firm as required under section 194C of the Income Tax Act, 1961?

3.

The assessee is engaged in business of transport. It entered into a contract with Hindustan Petroleum Products and Indian Oil Corporation for carriage of LPG. From the payment made to it, the companies deducted tax. The assessee firm passed on the transportation work to its partners and made the payment received from the said companies to its partners after deducting 3% commission as charges for the firm having secured the contract. The assessing officer held that in giving of the contract of transportation by the firm to the partners there was a sub contract and the firm was liable to deduct TDS out of the payment made to the partners as sub contractors in absence of which the payment made to the partners was liable to be disallowed. On appeal, the CIT(A) upheld the plea of the assessee that there was only one contract of transportation to be executed by the partners for the companies and the firm only acted as an agent for securing the contract and earned 3% commission and thus, there was no separate sub contract between the firm and the partners. This view has been upheld by the Tribunal as under:- “The provisions of section 194C of the Act are attracted when there is a contract, whether in writing or oral, between two entities and any payment is made in lieu thereof. We find support of 2010

-3- *** from the ratio laid down by the Hon'ble Himachal 49, it was held that the payment by Society/AOP to member truck owner is not a sub contract liable for deduction of tax at source u/s 194C(2) of the Act. contract/sub contract between the two, wherein the assessee firm retains only 3% as commission and transfers the balance to the respective accounts of the partners who in turn are owing the said trucks, is not liable for tax deduction at source under section 194C of the Act as it is neither a payment made to a contractor or a sub contractor.”

4.

We have heard learned counsel for the parties.

of 2010

-4- *** 5. -5- *** Mangu Transport Co-op. Society (2009) 227 CTR (HP) 299 and Rice Land Ltd. (2008) 217 CTR (P&H) 332. The matter being covered by earlier judgment of this Court, no substantial question of law arises.

7.

Accordingly, the appeal is dismissed.

( Adarsh Kumar Goel) Judge April 05, 2011

(Ajay Kumar Mittal) Pka

Judge

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