By K. B. Bhujle | Advocate
New Page 1
39. TDS : Payments to
contractors/sub-contractors : S. 194C of Income-tax Act, 1961 : Assessee is a
society constituted by truck operators : It entered into contracts with
companies for carriage of goods by its members : Those companies deducted tax at
source from payments made to assessee : Assessee paid entire amount received by
it to its members, who had actually carried goods, after deducting a nominal
amount towards administrative expenses : Members not sub-contractors of assessee.
Assessee not liable to deduct tax at source on payments so made to respective
members.
[CIT v. Sirmour Truck
Operators Union, 195 Taxman 62 (HP)]
The assessee-society was
constituted by the truck operators. It entered into contracts with companies for
carriage of goods. Those companies deducted 2% of the amount paid to the
assessee on account of TDS in terms of S. 194C(1). The assessee-society paid the
entire amount received by it to its members, who had actually carried the goods,
after deducting a nominal amount of Rs. 10 or Rs.20 for administrative expenses
of running of the society. The Assessing Officer held that the assessee was
liable to deduct tax at source at the rate of 1% from the amount paid to the
members/truck operators in terms of S. 194C(2). The Tribunal held that the
provision of S. 194C(2) was not attracted, since there was no sub-contract
between the assessee-society and its members.
On appeal by the Revenue,
the Himachal Pradesh High Court upheld the decision of the Tribunal and held as
under :
“(i) It was urged on behalf of the Revenue
that since the assessee, being a person was paying a sum to the members-truck
operators’ who were resident within the meaning of the Act, TDS was required
to be deducted. That argument did not take into consideration the heading of
the Section and the entire language of S. 194C(2) which clearly indicates that
the payment should be made to the resident who is a sub-contractor.
(ii) The concept of
sub-contract is intrinsically linked with S. 194C(2). 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. To understand the nature of the contract,
it would be relevant to mention that in the instant case the assessee-society
was created by the transporters themselves. The transporters formed the
society or union with a view to enter into a contract with the companies. The
companies entered into contract for transportation of goods and materials with
the society. However, the society was nothing more than a conglomeration of
the truck operators themselves. The assessee-society 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 operator was given
strictly in turn so that every truck operator had an equal opportunity to
carry the goods and to earn income.
(iii) The society itself
did not do the work of transportation. The members of the society were
virtually the owners of the society. A finding of fact had been rendered by
the authorities that the societies were formed with a view to obtain the work
of carriage from the company, since the companies were not ready to enter into
a contract with the individual truck operator but had asked them to form a
society.
(iv) Admittedly, the
society did not retain any profits. It only retained a nominal amount as
‘parchi charge’ which was used for meeting the administrative expenses of the
society. There was no sub-contract between the society and the members.
(v) 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 of 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.
(vi) 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.”
