In absence of a relationship as that of “Contractor” and “Sub-contractor”, tax is not to be deducted at source u/s 194C:

AO made disallowance u/s 40(a)(ia) for failure on the part of the assessee to deduct tax at source u/s 194C while making the certain payments and the same came to be confirmed by CIT(A). On further appeal, Hon’ble ITAT deleted such disallowance aggrieved by which, Revenue preferred tax appeal. Hon’ble High Court observed that assessee had entered into a contract with M/s. IPR according to which it was to provide specified no. of vehicles to M/s. IPR and perform the work of transportation of employees of M/s. IPR in lieu of which it shall be paid transportation charges by M/s. IPR. Assessee had, in addition its own vehicles, obtained vehicles of other owners which were used in discharging the aforesaid duty. It was the payment made to such vehicle owners which came to be disallowed u/s 40(a)(ia) for non-deduction of tax at source u/s 194C since AO was of the view that assessee had given sub-contract to such vehicle owners and hence, it was required to comply with TDS provisions. It was further observed that the entire task was performed by the assessee. Contractual arrangement between the assessee and M/s. IPR was such that assessee couldn’t have assigned such work to a sub-contractor without prior permission of M/s. IPR. Assessee had merely hired vehicles from concerned owners for discharging its duties. Further, revenue had not brought on record any material to establish that the owners of the vehicles had performed the task of transportation. Thus, there was no relationship of a contractor and sub-contractor between the assessee and such vehicle owners in absence of which question of deducting tax at source u/s 194C doesn’t arise at all and consequently, disallowance u/s 40(a)(ia) is not called for. Accordingly, Revenue’s appeal was dismissed.

[CIT Vs. Mukesh Travels Co. – Tax Appeal No.937 of 2013]