ITO,WARD-38(1), KOLKATA, KOLKATA vs. M/S JAGDISH NARAYAN INDER BAHADUR SINGH, KOLKATA

This appeal of the revenue arises out of the order of ld.CIT(A)-XXIV, Kolkata in Appeal No.721/CIT(A)-XXIV/38(1)/09-10 dated 28.05.2012 for A.Y.2007-08. Assessment was framed by I.T.O., Ward-38(3) u/s 143(3) of the Income tax Act, 1961 (hereinafter referred to as the ‘Act ‘) vide order dated 31.12.2009.

The only issue raised by the revenue is that the ld. CIT(A) has erred in law as well as on fact in deleting the addition made u/s 40(a)(ia) of the Act to the tune of Rs.10,57,611/- for not deducting TDS u/s 194C of the Act.

Briefly stated facts are that the assessee is a partnership firm and engaged in the business of trading of spare parts and heavy earth moving vehicles. During the year the assessee has claimed expenses of Rs.10,57,611/- towards lorry freight charges without deducting TDS on the said expenditure. On question by AO during the course of assessment proceedings, the assessee could not give any satisfactory explanation regarding the violation of section 194C of the Act. Hence AO has added to the income of the assessee.

Shri M.K.Biswas, JCIT, Sr.DR, the ld. DR appeared on behalf of the revenue and Shri.Indu Chatrath appeared on behalf of the assessee.

The ld. DR relied on the order of AO. The ld. AR argued that the freight charges were paid on the material dispatched by the supplier of the assessee as such there was no contract between the assessee firm and transporters . Thus the provisions of section 194C of the Act are not applicable. Since there was no contract between the assessee and the transporters, the obligations to deduct tax at source does not arise. In support of his claim he relied on the decision of ITAT Kolkata vide order dated 16.12.2010. The ld. AR also submitted that the lorry charges was part of the purchase price which has been paid to the transport parties.

We have heard the rival contentions and perused the material available on record. The contention of the ld. AR that there was no written contract between the assessee and the transport parties, hence the provision of TDS does not attract in the present case, is not tenable as the department has clarified that the provisions of section 194C are equally covered even for verbal contract in terms of CBDT Circular No.86 dated 29th May, 1972. The claim of the ld. AR that the lorry charges was part of the purchase price was not correct as evidenced from the financial statement of the assessee wherein the lorry charges has been declared separately by it. Even otherwise M/s. Jagdish Narayan Inder Bahadur Singh A..Y.2007-08 the verbal contract are duly covered and the same has been held in the case of DCIT Vs Kamal Mukherjee & Co. (Shipping )(P) Ltd wherein it is held as under :- (From Head notes) “…….Undoubtedly, these decisions do indicate that there is a workman employer relationship between the dock workers and the stevedores like assessee when they employ those workers, but be that as it may, the fact remains that the assessee has made payments to the CDLB for supply of labour, even when this labour may be treated as employed by the assessee for all practical purposes, the provisions of section 194C are clearly attracted. In such a situation, i.e. when labour hired by the assessee through CDLB is considered to be in assessee’s employment, the payments made to CDLB cannot be treated as payments for any work, but nevertheless these payments could still be covered by the provisions of section 194C because these are payments made for supply of labour which are specifically covered by section 194C(1). CDLB is an agent of the stevedores like the assessee in the sense that the labour is recruited by the assessee through CDLB, but when this fact does not affect the nature of payment by the assessee to the CDLB which is admittedly in the nature of payment for supply of labour. The reasoning adopted by the Commissioner (Appeals), though somewhat impressive at first glance, is fallacious. There is no cause and effect relationship between workers assigned by the CDLB having employer workman relationship with the assessee, and the payments being made by the assessee to CDLB being not in the nature of ‘payment for supply of labour’”.

In the result the appeal of the revenue is allowed.