Society not liable to deduct TDS on payments made to the truck owners who are also members of the society
The concept of sub-contract is intrinsically linked with section 194C(2); if there is no sub-contract then the person making payment is not liable to deduct tax at source even if payment is being made to a resident.
CASE LAW DETAILS
Decided by:, HIGH COURT OF HIMACAHAL PRADESH, In The case of: CIT v. Ambuja Darla Kashlog Mangu Transport Co-op. Society, Appeal No.:, ITA NOS. 39,40,46 & 49 OF 2009, Decided on: October 20, 2009
RELEVANT PARAGRAPH
11. Having said so, we are still of the considered view that s. 194C(2) is not attracted in the present case. The heading of s. 194C reads thus :
“Payments to contractors and sub-contractors”
Sec. 194CU) deals with payments made to the contractor which in this case would mean the payment made by companies which entered into contract of transportation with the assessees. Admittedly the companies deducted tax at source in terms of s. 194C(1). The entire amount received by the assessee from the companies after deductions was paid to the members of the truck operators who had carried the goods after deducting a nominal sum as “Parchi charges”. The question which arises is whether the members are sub-contractors or not.
12. The main contention of the Revenue is that since the assessee has a separate juristic identity and each of the truck operators who are members of the assessees have separate juristic identity they are covered with in the meaning of s. 194C(2). It is urged on behalf of the Revenue that since the assessee being a person is paying a sum to the member truck operator who is a resident within the meaning of the Act, TDS is required to be deducted. This argument does not take into consideration the heading of the section noted hereinabove 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. 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.
13. To understand the nature of the contract, it would be relevant to mention that in the present cases the assessee societies were created by [the transporters themselves. The transporters formed the societies or unions with a view to enter into a contract with the companies. The companies enter into contract for transportation of goods and material fifth the society. However, the society is nothing more than a conglomeration of the truck operators themselves. The assessee societies have 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 is given strictly in turn so that every truck operator has an equal opportunity to carry the goods and earn income, the society itself does not do the work of transportation. The members of the society are virtually the owners of the society. It may be true that they both have separate juristic entities but that fact remains that the reason for creation of the society was only to ensure that work of provided to all the truck operators on an equitable basis. A finding of fact; has been rendered by the authorities that the societies were formed with a view to obtain the work of carnage from the company since the companies were not ready to enter into a contract with the individual truck operators but had asked them to form a society.
14. Admittedly, the society does not retain any profits. It only retain nominal amount as “parchi charges” which is used for meeting the administrative Expenses of the society. There is no dispute with the submission that the society has an independent legal status and is an contractor within the meaning of s. 194C. It is also not disputed that the members have a separate status but there is no sub-contract between the society and the members. In fact if the entire working of the society seen it is apparent that the societies have entered into a contract on behalf of the members. The society is nothing but a collective name for the members and the contract entered by the society is for the benefit of the constituent members and there is no contract between the society and the members.
15. For the foregoing reasons we are of the considered view that s 194C(2) of the Act is not attracted and the assessee society(s) is not liable to deduct tax at source on account of payments made to the truck owners who are also members of the society. The questions of law accordingly decided in favour of the assessees and against the Revenue.
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