By K. B. Bhujle | Advocate
New Page 1
17 TDS : S. 194C(2) of Income-tax Act, 1961 : Payment to
sub-contractors : Assessee a registered co-operative society constituted by
truck operators : Contracts with companies for transportation of their goods :
Contracts executed by member truck operators :
Companies make payment to assessee after deduction of tax u/s.194C : Member
truck operators are not sub-contractors : Assessee not required to deduct tax at
source on payment to member truck operators u/s.194C(2)
[CIT v. Ambuja Darla Kashlog Mangu Transport Co-op. Society,
188 Taxman 134 (HP)]
The assessee was a registered co-operative society
constituted by truck operators. It entered into contracts with companies such
as cement manufacturers for transport of their goods. The company, which had
entered into contract with the assessee, deducted tax at source u/s.194C(1) on
payments made to the assessee. Thereafter, the assessee-society paid that
entire amount to its members, who had actually carried the goods, after
deducting a nominal amount of Rs.10 or Rs.20 for administrative expenses known
as ‘parchi charges’ for running of the society. The Assessing Officer held
that the assessee was liable to deduct tax at source from the amount paid to
the members/truck operators in terms of S. 194C(2). The Tribunal held that
since there was no sub-contract between the society and its members, the
provision of S. 194C(2) was not attracted.
On appeal by the Revenue, the Himachal Pradesh High Court
upheld the decision of the Tribunal and held as under :
“(i) The main contention of the Revenue was that since the
assessee had a separate juristic identity and each of the truck operators, who
were members of the assessee, had separate juristic identity, they were
covered within the meaning of S. 194C(2). It was urged by the Revenue that
since the assessee was a person paying a sum to the member-truck operator who
was a resident within the meaning of the Act, TDS was required to be deducted.
That argument did not take into consideration the heading and entire language
of S. 194C(2) which clearly indicates that the payment should be made to the
resident who is a sub-contractor. The concept of a sub-contract is
intrinsically linked with S. 194C(2) and if there is no sub-contract, then the
person is not liable to deduct tax at source, even if payment is being made to
a resident.
(ii) In the instant case, the assessee-society was created
by the transporters themselves who formed the societies or unions with a view
to enter into a contract with companies. The companies entered into contracts
for transportation of goods and materials with the society. However, the
society was nothing more than a conglomeration of the truck operators
themselves and had been created only with a view to make it easy to enter into
a contract with the companies as also to ensure that the work to the
individual truck operators was given strictly in turn, so that every truck
operator had an equal opportunity to carry the goods and earn income. The
society itself did not do the work of transportation. The members of the
society were virtually the owners of the society. It might be true that they
both had separate juristic entities, but the fact remained that the reason for
creation of the society was only to ensure that work was provided to all the
truck operators on an equitable basis. A finding of fact had been rendered by
the authorities that the society was formed with a view to obtain the work of
carriage from the companies since the companies were not ready to enter into a
contract with individual truck operators but had asked them to form a society.
(iii) Admittedly, the society did not retain any profits.
It only retained a nominal amount as ‘parchi charges’ which was used for
meeting the administrative expenses of the society. There was no dispute with
the submission that the society had an independent legal status and was also a
contractor within the meaning of S. 194C. It was also not disputed that the
members had a separate status, but there was no sub-contract between the
society and the members. In fact, if the entire working of the society was
seen, it was apparent that the society had entered into a contract on behalf
of the members. The society was nothing but a collective name for all the
members and the contract entered into by the society was for the benefit of
the constituent members and there was no contract between the society and the
members.
(iv) For the
foregoing reasons, S. 194C(2) was not attracted and the assessee-society was
not liable to deduct tax at source on account of payments made to the truck
owners who were also members of the society.”
