TDS on Payment to Contractor not applicable on Payment made towards Transport of Goods by way of Hiring Vehicle: Madras HC [Read Order]

The Madras High Court held that the TDS on Payment to Contractor is not applicable on payment made towards transport of goods by way of hiring vehicles.

The assessee,  is the Proprietor of a concern, namely, Shri Manikandan Transport, which is engaged in the transport of Salt and Gypsum from the Salt Pans in Tuticorin to Chettinad Cement Factory at Karaikal and Ariyalur. The assessee filed her return of income on

23.02.2010 for the Assessment Year under consideration, i.e., AY 2009-10, declaring an income of Rs.18,73,240/-. The return was initially processed under Section 143(1) of the Act and subsequently, the case was selected for scrutiny under Section 143(2). During the course of assessment, the Assessing Officer observed that the assessee has shown certain amounts as lorry hire receipts and the assessee was called upon to explain as to whether lorry hire payments would attract the provisions of Section 194C of the Act and whether the assessee had deducted TDS as required under the said section, and if not, the provisions of Section 40(a)(ia) of the Act would stand attracted and the entire payment for hire of lorries would be disallowed.

The assessee submitted her reply contending that the provisions of Section 40(a)(ia) of the Act would not be attracted to the assessee’s case. Certain other factual aspects were also placed and more particularly to state that, there was no written contract nor any contract as presumed by the Department between the lorry owners/drivers and the assessee, and where ever it was feasible, TDS has been deducted, and only in cases where payments were made to the lorry owners, there is no feasibility of deducting any Tax at Source. The Assessing Officer was not convinced with the reply given by the assessee and accordingly, completed the assessment by order disallowing the payments with regard to lorry hire charges.

Mrs.S.Premalatha, learned Junior Standing Counsel, placed reliance on the decision of the High Court of Karnataka in J.Rama v. Commissioner of Income Tax. In the said case, the contention of the assessee was that, there was no written contract and there is no duty on the part of the assessee to deduct Tax at Source. Per contra, the Department/Revenue contended that the material on record clearly discloses that the vehicles are hired by the assessee from the various owners of the vehicles only to discharge the obligation under the contract between the assessee and other customers.

The division bench of Justice T.S.Sivagnanam and Justice Sathi Kumar Sukumara Kurup ruled that  found that the assessee therein had entered into a contract to supply vehicles to M/s.Mahindra and many other companies under written contract on various dates and only to perform the obligation under the said contracts, he had hired vehicles from the sub-contractors under the written contract and the liability to deduct TDS arises under Section 194C(2) of the Act. Furthermore, while testing the correctness of the stand taken by the assessee, the Court considered the factual position that the assessee is providing vehicles to one of its customers, M/s.Mahindra Group, and in Clause-5 of the written agreement between the parties, a condition has been stipulated that provision of services would involve providing vehicles owned by the assessee or associates of assessee or agents, for transportation of the employees of Thomson Corporation, and further, on facts, it was found that the assessee is owning a fleet of vehicles, which is not sufficient to meet the agreement entered into between the assessee and such individual owners.

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