ITO, WD-40(3), KOLKATA, KOLKATA vs. M/S DAYAL ROADLINES, HOWRAH

ITA No.1376/Kol/2016 M/s Dayal Roadlines A.Y.2010-11 1

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH ‘B’ KOLKATA [Before Hon’ble Shri S.S.Godara, JM & Shri M.Balaganesh, AM ] ITA.No.1376/Kol//2016 Assessment year : 2010-11

I.T.O., Ward-40(3) Vs M/s Dayal Roadlines Kolkata Kolkata (PAN: AACFD 4793 K) (Appellant) (Respondent)

For the Appellant: Shri S.Dasgupta, Addl. CIT(DR) For the Respondent: Shri Siddharth Agarwal, Advocate

Date of Hearing : 18.06.2018. Date of Pronouncement : 04.07.2018.

ORDER PER S.S.GODARA, JM This Revenue’s appeal for A.Y.2010-11 arises against the CIT(A)-12, Kolkata’s order dated 06.03.2016 passed in Appeal No.123/CIT(A)-12/Kol./Circle- 56/2014-15 in proceedings u/s 143(3) of the Income Tax Act, 1961 (in short the ‘Act’). 2. The Revenue has raised four substantive grounds in its appeal. Its first and foremost grievance is that the CIT(A) has erred in law as well as on facts in reversing the assessment’s findings disallowing/adding assessee’s hire charges of Rs.2,81,00,233/- in question. We find that the CIT(A) of detail discussion on the instant issue reads as under :-

“3.2. I have carefully considered the submissions of the appellant and perused the assessment order. The AO has disallowed the amount of Rs . 2,81,00,233/- for non deduction of TDS u/s40(a)(ia), read with section 194C. The Explanation III to section 194C was applicable to the assessment year-in-question. However, it would not apply to the facts of the instant case. This was so because the provisions of section 194C are applicable to payments for carrying out any work in pursuance of a contract. In the case of CIT v. Poompuhar Shipping Corpn, Ltd. [2006] 282 ITR 3/153 Taxman 486 (Mad.), it was held that under section 194C, tax was to be deducted when a contract was entered into for carrying out any work. In the instant case, like therein, there was no contract between the appellant and the owners of the trucks to carry out any work. The appellant' had

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hired the trucks belonging to the truck owners for a fixed period on payment of hire charges. The hired trucks were utilized by the appellant for running them on hire. There was no agreement for carrying out any worker to transport any goods or passengers from one place to another. Like in CIT v. Poompuhar Shipping Corpn. Ltd.ts case (supra), with instant case also, it was not the case of the department that the appellant had entered into any contract with the truck owner for transportation of goods or passengers from one place to another. Thus, the hiring of trucks for the purpose of using them in the appellant's business would not amount to a contract for carrying out any work, as contemplated in section 194C. For carrying out' any work, manpower is the sine qua non and without manpower, it cannot be said that work has been carried out. Under section 194C "carrying out any work" is the substance for making a payment relating to such work, liable for deduction tax at source. The provisions of section 194C are attracted only where any sum is paid for carrying out any work including supply of labour for carrying out any work. In the instant case, it was not the case of the Assessing Officer that the trucks taken on hire by the appellant from the truck owners were supplied by the truck owners to the appellant alongwith manpower, i.e., drivers and/or conductors. The trucks were undeniably put to use by the personnel of the appellant. Thus, nothing had been brought on record by the Assessing Officer to the effect that manpower was provided alongwith the trucks to the appellant by the truck owners. Mere providing of the trucks without any manpower could not be termed as carrying out of any work by the truck owners, for which any payment was made by the appellant .The Assessing Officer had not disputed the case of the appellant that the payment was made as hiring charges regarding hiring of trucks. As explained in Poompuhar Shipping Corpn. Ltd.'s case, hiring is a contract by which one gives to another temporary possession and use of property other than money for payment of compensation and the latter agrees to return the property after the expiry of the agreed period, Therefore, when the appellant entered into a contract for the purpose of taking temporary possession of trucks from the truck owners, it did not amount to the appellant entering into any contract for carrying out any work. Once the contract was not for carrying out any work, as per Poompuhar Shipping Corpn. Ltd.’s case . the provisions of section 194C were not attracted.

The Explanation III to section 194C explains 'work," as used in section 194C(1) and (2),. Obviously, the Explanation cannot operate beyond the field of the section. read with the Explanation. The Explanation would be applicable if the appellant has made any payment for carrying out any work including as per the Explanation, carriage of goods and passengers by any mode of transport other than by railways. The Explanation cannot apply to a situation not amounting to a contract for carrying out any work as contemplated in section 194C, and entering into a contract for hiring of trucks is not equivalent to entering into a contract for carrying out any work. Therefore the Explanation III to section 194C was not attracted to the facts of the instant case.

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It is also noted that the Sec 194C is applicable only in case of any person responsible for paying any sum to any resident (hereafter referred to as the 'contractor') for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a 'specified person' will be liable to deduct tax at source at the prescribed rates. The term 'contract' will include a sub-contract also. The 'specified person' include such person who is liable to audit of accounts under clause (a) or (b) of Sec 44AB during the financial. Year immediately preceding the financial year in which the sum is credited or paid to the account of the contractor. The appellant had paid Rs. 80,84.588/= to the various individuals (list enclosed) who were not under the category of specified person. Hence, Sec 194C is also not applicable to .such non-specified person.

Even no deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor or sub- contractor, if such sum does not exceed twenty thousand rupees:

Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds fifty thousand rupees, the person responsible for paying such sums referred to in sub-section (1) or as the case may be. sub-section(2) shall be liable to deduct income tax under this section.

The appellant has paid hire charges of Rs. 1,85,570/- to six individual truck owners which was within the above provision and is liable to be deleted for addition by the assessing officer.

Provided further that no deduction shall be made under sub-section - (2), from the amount of any sum credited or paid or likely to be credited or paid during the previous year to the account of the sub-contractor during the course of business of plying. Hiring or leasing goods carriages. , on production of a declaration to the person concerned paying or crediting such sum, in the prescribed form and verified in the prescribed manner and within such time as may be prescribed. if such sub-contractor is an individual who has not owned more than two goods carriages at any time during the previous year which comes to Rs. 46,34,612/= . Moreover, the appellant also complied with the conditions laid down in informing the PAN details of the payees to the concerned Income Tax Authority by filling -Form - 27 A for the quarter ended 30.06.2009 & 30.09.2009.

In view of the above, there was no merit in the grounds raised by the Assessing Officer and I find force in the arguments of the appellant ,hence the disallowances of the expenses for the period from 01.04.2009 to 30.09.2009 for Rs. 1,28,42,070/- is deleted.

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As per the amended section 194C through Finance (No.2) Act, 2009 w.e.f. 01.10.2009 it is clearly specified that no deduction shall be made from any sum credited or paid ( or likely to the credited or paid) during the previous year to the account or a contractor during the course of business of plying, hiring or leasing goods' carriages, provided the said contractor furnished has Permanent Account Number (PAN) to the person paying or crediting such sum, The payer shall furnish to the prescribed income-tax authority or the person authorized by such authority, such particulars in such form and within such time as may be prescribed.

In the instant case the appellant informed the PAN details of the payees to the concerned income tax. authority by filling quarterly Form - 27 A belatedly and thereby complied the conditions laid down therein, Hence, the disallowance of Hire Charges paid for the period from 01.10.2009 to 31.03.2010 aggregating to Rs.1,52,81,163/- is deleted.”

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“8. We have heard the parties at length and also gone through the findings of the authorities below and the case laws as have been referred in the appellate order as well as relied upon by the learned counsel. The relevant facts for adjudication of the issue are that the appellant is carrying out the business of transportation of oil through tankers. It entered into a contract with various companies (here mainly BPCL) for transporting the oils to various destinations as per the agreement entered into by the said company. The appellant was solely responsible for executing the contract on behalf of its principal. For fulfilling its transportation commitment, the appellant besides using its own tankers was also hiring the tankers from outside parties as and when required. In such a case of hiring from outside, the responsibility of successful completion of transportation work rested upon the appellant. From the record or the findings of the authorities below no where it is borne out that there was any kind of written or oral contract with the principals by such outside tank owners that they will share the risk and responsibility with the appellant.

8.1 At this stage, it is not in dispute that the department's case is that in the present case provisions of section 194C(1) are applicable and not section 194C(2). Once it is held that it is a case of 194C(1) then it would be sent that this section applies to any payment made to a person for carrying out any work in pursuance of a contract between the contractor and the person making the payment. If the condition of "carrying out any work in pursuance of a contract" is not fulfilled then the provisions of this section will not be applicable at all. Here in this case, the contract for carrying out the work was between the BPCL and the appellant. The appellant alone had risk and responsibility for carrying out the contract work as per the agreement entered into by it with its principal i.e. BPCL. There is no material on record to suggest that there was any contract or ITA No : 3536/Mum/2011 M/s. Bhail Bulk Carriers sub-contract whether written or oral with the outside tank owners and the appellant, whereby the risk and responsibility which is associated with a contract has also been passed on to these outside parties. Once the CIT(Appeals) has accepted the fact that the outside tank owners do not had any responsibility or liability towards the principal, then it cannot be held that these outside parties were privity to the contract between the appellant and its principal. Thus the payment made to the outside parties do not come or fall within the purview of section 194C, as the "carrying out any work" indicates doing something to conduct the work in pursuance of contract and here in this case, it was solely between appellant and its principal.

8.2 The judgment of Hon'ble Madras High Court in the case of CIT vs. Pompuhar Shipping Corporation Ltd. (supra) also fortifies the case of the appellant. In this case the assessee which was a Tamil Nadu Government undertaking was engaged in the business of transportation of coal from the ports of Haldia, Visakhapatnam and Paradeep to Chennai and Tuticorin under contracts executed with the Tamil Nadu Electricity Board. The assessee owned three ships. Since three ships were not sufficient to carry out the contracts entered into with Tamil Nadu, the assessee hired ships belonging to other shipping companies and paid hire shipping charges for using the ships. The assessee, however, did not deducted tax under section 194C

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before the making payment of hire charges to the shipping companies. The Assessing Officer directed the assessee to pay tax u/s.201(1) and levied interest u/s.201(1A) on the ground that TDS should have been deducted u/s.194C of the Act. On the these facts, the Hon'ble High Court observed and held as under :-

"We heard the arguments of learned counsel. Under section 194C, the tax is to be deducted when a contract was entered into for carrying out any work in pursuance of a contract ITA No : 3536/Mum/2011 M/s. Bhail Bulk Carriers between the contractor and the entities mentioned in sub-section (1) of section 194C. In the present case, there was no contract between the assessee and the shipping companies to carry out any work. On the other hand, the assessee-company hired the ships belonging to other shipping companies for a fixed period on payment of hire charges. The hired ships were utilised by the assessee in the business of carrying the goods from one place to another in pursuance of an agreement entered into between the assessee and the Tamil Nadu Electricity Board. There was no agreement for carrying out any work or transport any goods from one place to another between the assessee and the other shipping companies. The assessee- company simply hired the ships on payment of hire charges and it was utilised in the business of the assessee at their own discretion. It is not the case of the Revenue that the assessee entered into the said contract with the shipping company for transport of coal from one place to another. The hiring of ships for the purpose of using the same in the assessee's business would not amount to a contract for carrying out any work as contemplated in section 194C. The term "hire" is not defined in the Income- tax Act. So, we have to take the normal meaning of the word "hire". Normal hire is a contract by which one gives to another temporary possession and use of the property other than money for payment of compensation and the latter agrees to return the property after the expiry of the agreed period. Therefore, in our view, when the assessee entered into a contract for the purpose of taking temporary possession of ships in the shipping company it could not be construed as if the assessee entered into any contract for carrying out any work, and when the contract is not for carrying out any work, the Revenue cannot insist the assessee ought to have deducted tax at source under section 194C of the Act. Further, the other argument of counsel was, section 194C was amended with effect from July 1, 1995, incorporating the Explanation and the said Explanation clarifies the existing provision of section 194C of the Act. Hence, it would be applicable retrospectively. We are concerned with the assessment year 1994-95. In a recent judgment, the Supreme Court in the case of Sedco Forex International Drill Inc. v. CIT [2005] 279 ITR 310, considering the scope of the Explanation, held that there is no principle of interpretation which would justify reading the Explanation as operating retrospectively, when the Explanation comes into force with effect from a future date. In this case, the Explanation introduced is with effect from July 1, 1995. Hence it will be applicable only for the future assessment orders and it ITA No : 3536/Mum/2011 M/s. Bhail Bulk Carriers will not be applicable to the assessment year in consideration. The Tribunal also considered the fact that the shipping companies which received the hire charges are also income-tax assessees and they had shown the hire charges in their respective income-tax returns and paid the taxes on the same. The said fact was also not disputed by the Revenue. So, we are of the view that the payment of hire

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charges for taking temporary possession of the ships by the assessee-company would not fall within the provision of section 194C and hence no tax is required to be deducted, and there is no error or infirmity in the order of the lower authorities. Hence, no substantial question of law arises for consideration of this court. Hence, we dismiss the above tax case. No costs. Consequently, the connected TCMP No. 1253 of 2005 is closed. 8.4 Thus in view of the findings given above and the law laid down by the Hon'ble High Court as above, we are of the considered opinion that the appellant was not liable to deduct TDS u/s. 194C(1) for payments made to the outside parties and consequently the disallowance made u/s.40(a)(ia) by the authorities below are deleted. The appellant thus gets relief of `.56,03,210/-.”

“6.1. The appellant has stated the following in his submission :- “Claim of Repairs & Maintenance Rs.58,52,497/- Most of the repairing expenses were made on the road side small repairing workshop with a cash payment of below Rs.20,000/- in each case. Hence the question of deduction of TDS need not required at all (copy of ledger enclosed marked as 7). Moreover, out of the above, an amount of Rs.32,71,562/- were paid to M/s Bhandari Motors (P)Ltd/French Motor Car Co.(P)Ltd/Appolo Motors (P)Ltd/Saini Engineering/Mazhar Khan/Rabindranath Samanta /Munuzir Hussin/S.D.Udyog for purchase of Spare Parts the details of which are as follows : Date Amount (Rs.) Paid to 21.4.09 1,00,000/- Bhandari Motors (P)Ltd. 27.4.09 1,17,343/- Bhandari Motors (P)Ltd. 18.6.09 50,000/- Bhandari Motors (P)Ltd. 20.6.09 1,00,000/- Bhandari Motors (P)Ltd. 25.6.09 1,00,000/- Bhandari Motors (P)Ltd.

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3.7.09 84,691/- Bhandari Motors (P)Ltd. 12.10.09 91,000/- Bhandari Motors (P)Ltd. 7.12.09. 50,000/- Bhandari Motors (P)Ltd. 15.2.10 3,00,000/- Bhandari Motors (P)Ltd. 22.2.10 2,20,000/- Bhandari Motors (P)Ltd. 26.3.10 3,00,000/- Bhandari Motors (P)Ltd. 24.6.09 17,376/- Appolo Motors (P) Ltd 6.7.09 3,11,107/- Frendh Motor Car Co (P)Ltd 15.7.09 31,500/- Mazhar Khan 12.9.09 1,00,000/- Bakashwar Adak 12.9.09 70,000/- Rabindranath Samanta 7.11.09 1,00,000/- Appolo Motors (P)Ltd 8.1.10 46,600/- Appolo Motors (P)Ltd 26.1.10 9,930/- French Motor Car Co. Ltd. 19.2.10 1,68,750/- Saini Engineering 19.2.10 1,68,750/- Saini Engineering 3.10. 2,20,860/- French Motor Car Co. Ltd. 20.3.10 25,000/- Muruzir Hurrion 27.3.10 4,68,075/- S.D.Udyog 19.6.09 20,580/- French Motor Car Co.(P)Ltd Rs.32,71,562/-

6.2. I have carefully considered the submissions of the appellant and perused the assessment records as well the documents submitted by the appellant. The appellant has claimed that most of these expenses related to petty cash payments below Rs.20,000/- used mainly during the trip of transportation. The appellant has also claimed that out of Rs.58,52,497/- , an amount of Rs.32,71,562/- was spent on spare parts from the enclosed list as given above, necessary evidence has been filed and verified. There is no question of deducting TDS on purchase of spare part consumables. The AO has not brought out on record as to which specific transaction was in violation of section 194C. The AO has only stated that “From the aforesaid list of sundry creditors which includes outstanding sum on account of repairs, it is clear that assessee firm repairs its trucks and trailers on contract basis from these parties and therefore assessee firm was liable to make payment to contractor after deduction of tax u/s 194C of the Act.” There is nothing on record to support this conclusion by the AO. After perusing the documents filed by the appellant, I find force with their submissions and delete the disallowance of Rs.58,52,497/-.”

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basis which does not require any TDS deduction since not attracting any of the specified clauses in Chapter XVII of the Act. Learned Departmental Representative fails to dispute that all the remaining payments are very well below the threshold limit of Rs.20,000 in each case wherein the relevant TDS provision does not apply. The assessee’s ledger enclosed as marked –A7 to this effect has nowhere been rebutted during the course of hearing before us. We therefore see no reason to disturb the CIT(A)’s reasoning under challenge on both the components hereinabove. The second instant substantive ground is also declined.

“4.1. The appellant has made the following submission in respect of disallowance of Rs. 20,85,,000/- under the head Driver Salary and Rs,2,76,000/- under the head Salary to Khalasi made by the Assessing Officer:- "Salary to Drivers (permanent) Rs. 4,95,000/- The assessee was incurred the above amount for its 11 nos. permanent drivers thedetails of which is enclosed as marked - 4. Hence the balance amount as stated by the A.O. were paid to casual drivers who were hired as and when required by the assessee and duly debited to Fuel Charges A/c.(as 'trip expenses). Salary to Khalasis (permanent) Rs.l ,08,000/=.

The assesee was also incurred the above amount for its 5 nos. permanent khalasis the details of which is enclosed as marked - 5. Similarly the balance as stated by the A.O were paid to casual khalasis employed as and when required by the assessee and duly debited to Fuel Charges A/c as (trip expenses). 4.2. The AO in his remand report has stated that “First of all. in the Profit and Loss account for the year ended 31.03.2010 , the term ' trip expense' was not mentioned nor was such aggregation of heads explained before the A.O. during assessment stage. It is only when the A.O. applied his mind and detected undisclosed source that the assessee came with such frivolous logic of' debiting a portion of drivers’ salary and khalasis' salary exist in the P/L A/c.

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4.3. I have carefully considered the submissions of the appellant and perused the assessment records as well as the documents submitted by the appellant. I have also perused the AO's comments .on this matter in his remand report. It is very clear from the submissions and details submitted by the appellant that the amount under the head salaries was related to their permanent drivers and khalasis. The profit and loss account filed by the appellant also clearly reveals that salary for drivers was Rs.4,95,000/- and for Khalasis ,it was Rs. 1,08,000/-. The AO has estimated that since there were 32 trucks owned by the assessee, they must have employed at least 32 drivers and 32 khalasis There is no basis for this estimation. The AO further went on to estimate that each driver and khalasi should have been paid salary of Rs. 7,000 .m and Rs. 1,000 p.m respectively. Based on this assumption the AO calculated that Rs.20,85,900/- on account of Drivers Salary and Rs. .2,76,000/- on account of salary to khalasi has escaped assessment and added them back . This is of course based on surmise and estimate by the AO . The Appellant has all along been stating that since these drivers and khalasis were employed on temporary basis ,their expenses were clubbed under the head ‘trip expenses ‘. The AO has thus estimated and guessed that salary must have also been paid to 32 drivers and khalasis since the assessee owned 32 trucks that year. There is no basis for this assumption, more so when the appellant has steadfastedly been claiming that they had only 11 permanent drivers and 5 permanent khalasis . Hence the addition by the AO is deleted. “

“8.1. The appellant has stated the following in his submission.- "Interest on Advance to Telecom Steels (P) Ltd &.36,56,6001= & to Dayal Auto Finance Rs.94,00,000/-

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The Ld A. O. arbitrarily increased the income by way of calculation of notional interest on Advance given to parties. But it is needless to mention that the advance given to Telecom Steels (P) Ltd for acquiring the Company with its land and other assets the adjustment of which are still pending And the advance paid to Dayal Auto Finance was made for earning some income from new business to be set up as a separate unit of the same partners in future. Hence it is an investment to a subsidiary firm to get income in future when the new firm will be in active. 8.2. I have considered the submissions of the appellant and the facts of this ground. The fund utilized for advance given to Telecom 'Steels (P) Ltd & Dayal Auto Finance were out of own capital of the partners in the firm. The total capital balance of the partners in the firm were Rs. 1,24,21,710/-. . Hence, the advance were given out of its own capital and not from borrowed fund. The firm has no loan in the nature of cash credit or overdraft (except term loan against purchase of trucks) the proportionate interest of which was also not debited to P/L A/c as an expense to reduce the Net Profit. It is seen from the ledger copies submitted by the appellant that the amount was given as advance for purchase of land and other assets of the company viz. M/s Telecom Steels (P) Ltd. It is also noted that the advance to Dayal Auto Finance was given in the course of business for purchase of trucks and not for profit. It is not a fact that it advanced money to the ,party mentioned by Ld.ITO is free of interest. What the appellant states is that advances are given so that there is immediate supply of required trucks without any delay. The earlier they get the trucks, the better is their business. It is not a voluntary advance without business consideration. Such advances also help the firm to get favorable rates on purchase by means of additional discount. For reasons discussed above ,it is thus seen that the notional interest of Rs. 5,12,800/- calculated and added by the AO deserves to be deleted.”

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no material in the case file produced at the Revenue’s behest to dispel the CIT(A)’s clinching findings to this effect. The assessee’s ledger copies further indicated that former advance sum related to purchase of land and other assets. We therefore conclude that the CIT(A) has rightly deleted the impugned disallowance/addition as the Revenue has failed to prove the alleged diversion of interest bearing funds for non business purposes as well as the fact that the assessee’s partners capital balance was almost sufficient to cover the advance in question. This Revenue’s 4th substantive ground is also rejected.

Order pronounced in the Court on 04.07.2018.

Sd/- Sd/- [M.Balaganesh] [ S.S.Godara ] Accountant Member Judicial Member Dated : 04.07.2018. [RG Sr.PS] Copy of the order forwarded to: 1.M/s Dayal Roadlines, 35, Jagat Banerjee Ghat Road, Howrah-711102. 2. I.T.O., Ward-40 (3), Kolkata. 3. C.I.T.(A)- 12, Kolkata 4. C.I.T-14, Kolkata 5. CIT(DR), Kolkata Benches, Kolkata. True Copy By order,

Senior Private Secretary Head of Office/D.D.O, ITAT Kolkata Benches

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