By TIOL News Service

RANCHI, JUNE 03, 2015: THE issue before the Bench is - Whether sum paid as hire charges is allowable where assessee-transporter transports goods through sub-contractors on basis of oral agreement and cash payments of more than Rs 20K were made on different dates. NO is the answer.

Facts of the case

The assessee is a transporter and engaged in transporting of goods mainly through hired vehicles. Heavy vehicles have been hired by the assessee. Assessee is not only paying vehicles hire charges, but, he is paying entire vehicles running expenses such as cost of diesel and lubricants, labour charges, repair and maintenance charges which mainly comprising replacement of spare parts, tyres and tubes, batteries, engines, motors auto body, leaf spring and other general repairs and maintenance and also towards loading and unloading charges. These are the payments made under the different major heads by the assessee during the financial year 2008-2009. Assessee filed income tax return which was selected for scrutiny and notices u/s 143(2) and 142(1) were served upon the assessee. The assessee claimed deduction of amount paid to the sub-contractor for transportation. Assessee also claimed deduction under the heading of "loading and unloading charges". These deductions were not allowed by AO. In appeal, CIT(A) dismissed assessee’s appeal mainly on the ground that the assessee had not deducted TDS, as required u/s 194C and, therefore, deductions are not permissible u/s 40(a)(ia). In second appeal, tribunal granted relief to assessee.

Having heard the parties, the Court held that,

++ the assessee is not only paying vehicles hire charges, but, he is paying entire vehicles running expenses such as cost of diesel and lubricants, labour charges, repair and maintenance charges which mainly comprising replacement of spare parts, tyres and tubes, batteries, engines, motors auto body, leaf spring and other general repairs and maintenance and also towards loading and unloading charges. These are the payments made under the different major heads by the respondents during the financial year 2008-2009. Thus, it appears that he is not a broker at all who is earning Rs. 150-200 per truck as argued out by the respondent-assessee.

++ Huge amount has been paid in cash for vehicle hire charges. All the aforesaid payments are exceeding the limits of Rs. 20,000/- per day and Rs. 50,000/- during the financial year 2008-2009. This payment is also in breach of section 40(A)(3);

++ aforesaid amount has been paid in cash. The assessee is seeking deduction of this amount from taxable Income u/s 37 of the Income Tax Act, which is not permissible, looking to Section 194C of the Act, 1961 to be read with Section 40(a)(ia) of the Act , 1961

++ words used u/s 194C of the Act, 1961 "any person responsible for paying any sum to any resident (hereafter in this section referred to as contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and specified person shall.......". The words in pursuance of a contract "also includes the oral contract".

++ oral contract has to be deduced from the existing evidence;

++ every time there cannot be a written contract and the tax payers’ tendency specially, those who want to evade the tax will never prove or assist the authorities in giving evidence of the contract, especially when huge amount of cash is involved. Therefore, whenever any assessee is claiming huge cash paid e.g. in this case Rs.98,76,419/- which is paid in cash to the aforesaid different persons on different dates then it is a prime duty of the Income Tax Authorities to look at the transactions carefully. In the facts of the present case repeatedly several amounts have been paid in cash exceeding Rs.20,000/ - in breach of Section 40 A (3) of the Income Tax Act, 1961 towards vehicle hire charges, without deducting the tax at source and, therefore, this amount of Rs.98,76,419/- is to be added in the income of assessee as deduction is not permissible under Section 40(a) (ia) of the Income Tax Act, 1961. When any assessee is paying once in a blue moon for a transportation charges, Section 194C of the Income Tax Act may not be applicable. But, looking to the totality of the evidence, in the facts of the present case as stated in the assessment order para 3.4 passed by Assessing Officer dated 20th December, 2011 (Annexure 1 to the memo of this tax appeal), it appears that repeatedly huge amount has been paid in cash. This is an evidence of the oral agreement between the assessee and sub contractor. Every time there is no need of written agreement. It is a prime duty of the respondent authority to look at the transactions carefully when consistently huge cash is being paid by the assessee, in breach of Section 40 (A) (3) of the Income Tax Act and without deduction of tax at source. This is not the only evidence in this case. The assessee looking to the books of accounts have made the payment towards labour charges, repair and maintenance as well as towards the loading and unloading. Thus, the assessee is not a broker at all, but, is more than a broker. Broker will never pay the repair and maintenance as happened in this case. Payments have been made for spare parts, tyres and tubes, batteries, for engine, for motors auto body, for leaf spring etc. during the financial year 2008-09. Looking to this aspect of the matter, no error was committed by the Income Tax Commissioner, while dismissing the appeal preferred by the respondent-assessee. Income Tax Appellate Tribunal, Ranchi Circuit Bench, Ranchi has failed to appreciate the cumulative effect of the evidences on record;

++ assessee has paid loading and unloading charges to various parties on different dates. This amount cannot be allowed to be deducted from the income of the assessee as TDS has not been deducted under Section 194C of the Income Tax Act, 1961 to be read with Section 40(a) (ia);

++ assessee is a transporter and transporting the goods through sub contractors and as stated hereinabove on different dates in cash more than Rs.20,000/- have been paid to a single party namely Sri. Sudhir Kumar Sinha. Similarly, two other persons also on more than one occasions the payments have been made not only for the vehicles hire charges, labour charges, repair and maintenance, but also loading and unloading charges have been made. Looking to the books of accounts of the respondent-assessee, it can be safely deduced that there is existence of oral agreement enforceable by law between the respondent-assessee and sub contractors to whom the payments have been made;

++ Section 40(a) (ia) to be read with section 194C of the Income Tax Act, 1961 have not been incorporated to increase the morality of the assessee. In a taxing Statute, once there is a breach of section, the consequences are bound to follow happen. Looking to the provisions of Section 194C of the Income Tax Act, 1961 if the amount is paid in pursuance of the contract – which may be oral also, Section 194 C of the Income Tax Act,1961 is applicable. In the facts of the present case when aforesaid huge amount is paid towards vehicle hire charges in one year and also towards loading and unloading charges huge amounts is paid in cash. TDS ought to have been deducted before making such payments by the respondent to his sub contractors and as this TDS has not been deducted, the amount paid towards vehicle hire charges and amount paid towards loading and unloading charges which are at Rs. 98,76,419/- and at Rs. 12, 76,700/- is not deductable from the taxable amount u/s 40(a)(ia) of the Income Tax Act;

++ impugned order passed by the Income Tax Appellate Tribunal quashed and the decision given by Commissioner Income Tax (Appeal) upheld.

(See 2015-TIOL-1392-HC-JHARKHAND-IT)