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Income Tax Appellate Tribunal, “D” BENCH: KOLKATA
ORDER
Per Shri A.T.Varkey, JM
This is an appeal filed by the assessee against the order of Ld. CIT(A)-15, Kolkata dated 09.06.2015 for AY 2010-11.
Ground nos. 1, 7 and 5 are general in nature and require no adjudication. 3. Ground nos. 2 to 5 are against the action of the Ld. CIT(A) in disallowing the freight charges by applying sec. 40(a)(ia) of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’).
Brief facts are that the AO during the assessment proceedings noted that the assessee has claimed deduction of freight expenses to the tune of Rs.27,03,311/-. According to the AO, since there has been no TDS deducted on the said expence, he restricted the allowance of the expenditure claimed by the assessee and thus disallowed Rs.18,35,801/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to confirm the same. Aggrieved, the assessee is before us.
2 Mini Dairy, AY 2010-11 5. We have heard rival submissions and gone through the facts and circumstances of the case. The main plea of the assessee is that there is no contract between the assessee and the truck owners. According to the assessee, whichever truck was available on a day to day basis it was hired locally and freight charges were settled and paid. Since there was no contract between the assessee and lorry owners and there was no fixed amount of freight or any rate contract was there on record, the disallowance u/s. 40(a)(ia) of the Act for infringement of sec. 194C of the Act cannot be saddled on the assessee. We note that in similar cases, the Tribunal has been consistently taking the view that since there was no contract between the assessee firm and the truck owners, tax deduction at source u/s. 194C of the Act cannot be attracted. We note that there was no contract either verbal or written is entered into with the owners/drivers in this case, so it is purely temporary transporting arrangement made by the assessee. In such a scenario, no disallowance was warranted. Moreover, we note that the PAN of all the truck owners were furnished before the authorities below which is evident from page 3 of the Ld. CIT(A)’s order and, therefore, in any case, the disallowance was not warranted. The aforesaid view of ours has been upheld by the Hon’ble Calcutta High Court in the case of CIT Vs. Stumm India, ITA No. 127 of 2009 dated 16.08.2010, wherein the Hon’ble jurisdictional High Court held as under:
“It is urged before us that the learned Tribunal ought not to have accepted the judgment and order of the CIT(Appeal) who has quashed the disallowance of deduction of Rs.41,33,710/- and on account of tax deduction at source. The learned Tribunal has recorded the fact that the department has not been able to bring any material on record to show that the assessee has made the payment to the transporters in pursuance of contract for carriage of goods of the assessee and the question of deduction at source under section 194C does not and cannot arise. In the absence of evidence of payment made by the assessee to the transporters, the assessee cannot be saddled with the liability of deducting tax at source. Before us no other point has been urged not it is said that the aforesaid fact finding is truthful without any basis whatsoever.”
Respectfully following the aforesaid prescription of law, we delete the addition and allow this ground of appeal of assessee.
7. Ground no. 6 is against the action of the Ld. CIT(A) in disallowing the salary paid to partners. The brief facts of the case are that during assessment proceedings the AO noted
3 Mini Dairy, AY 2010-11 that as per the partnership deed dated 16.04.2008 in clause 9(b) the partners’ remuneration was clearly quantified at Rs.15000/- for Ruby Ghosh and Rs. 2000/- for Anupam Kr. Ghosh per month, so the AO was of the opinion that the working partners are only eligible for remuneration of Rs.2,04,000/- and since the remuneration claimed by the assessee is to the tune of Rs.4,05,317/- the difference of Rs.2,01,317/- was disallowed and added to its total income of the assessee. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to confirm the same. Aggrieved, assessee is before us.
We have heard rival submissions and gone through facts and circumstances of the case. The main plea of the assessee is that the AO has not taken note of the sub-clause 9(a) of the Partnership Deed which provided for payment of remuneration in terms of section 40(b)(v) of the Act and, therefore, the action of the AO was misplaced. We have gone through the Partnership Deed and takes note of the clauses 9(a) and 9(b) of the partnership deed, which are as under:
`9(a) That the remuneration of the Partners shall be fixed by the Partners mutually before beginning of each year and shall be subjected to the limit as laid down in sub clause (v) of clause (b) of section 40 of the Income Tax Act, 1961 and all the partners shall be working Partners. 9(b) The partners shall be entitled to monthly remuneration as detailed below: Ruby Ghosh Rs. 15,000/- (Fifteen thousand p.m.) Anup Kumar Ghosh Rs. 2,000/- (Two thousand p.m.) However partners may reduce, increase the remuneration as mutually agreed.
From a reading of the aforesaid clause, we note that the partners Smt. Ruby Ghosh and Shri Anup Kumar Ghosh have agreed for a monthly remuneration of Rs.15,000/- and Rs.2,000/- per month respectively. However, it has to be seen that the partners have agreed by this deed to reduce or increase the remuneration as mutually agreed upon; and needs to be read along with clause 9(a) which prescribes an upper ceiling of remuneration to be mutually agreed upon. We note that clause 9(a) gives the upper limit prescribed as per section 40(b)(v) of the Act, which implies that the assessee firm can give remuneration to the working partners within the limit prescribed as per the amount worked out u/s. 40(b)(v) of the Act. In such a scenario, the AO ought to have seen whether the remuneration claimed
4 Mini Dairy, AY 2010-11 by the assessee has breached the provision of sec. 40(b)(v) of the Act and if it is not then the remuneration has to be allowed because the partnership deed empowers the working partners to mutually come to an agreement in respect of their remuneration subject to the upper ceiling as specified in clause 9(a). So, therefore, we set aside the order of the Ld. CIT(A) and remand the matter back to the file of the AO to verify whether the working partner’s remuneration is within the limit prescribed u/s. 40(b)(v) of the Act and if it is so, the deduction as claimed by the assessee firm has to be accepted. With this observation, we allow this ground of appeal of appeal of assessee for statistical purposes.