Madras High Court
M/S.P.K.Ramasamy Nadar & Bros vs The Income Tax Officer on 13 November, 2013
Author: Chitra Venkataraman
Bench: Chitra Venkataraman, T.S.Sivagnanam
IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 13.11.2013 Coram The Honourable Mrs.Justice CHITRA VENKATARAMAN and The Honourable Mr.Justice T.S.SIVAGNANAM Tax Case (Appeal) No.728 of 2013 --- M/s.P.K.Ramasamy Nadar & Bros., 98, PKR Buildings, Main Bazaar Virudhunagar ... Appellant -vs- The Income Tax Officer Ward I(3) Virudhunagar ... Respondent Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961 against the order dated 24.05.2013 passed by the Income Tax Appellate Tribunal, Chennai in ITA.No.1893/MDS/2011 for the assessment year 2008-09. For appellant : Mr.V.S.Jayakumar JUDGMENT
(The Judgment of the Court was made by CHITRA VENKATARAMAN, J.) Following are the questions of law raised by the assessee in seeking admission of the Tax Case (Appeal) filed for the assessment year 2008-09.
1. Whether the Tribunal was right in law in holding that the payment made to the driver of the lorry of the supplier is not payment to agent of the assessee and so rule 6DD(k) of the Income Tax Rule 1961 cannot be invoked?
2. Whether the Tribunal is right in holding that the disallowance of cash payment under Section 40A(3) is proper on the facts of the case ?
2. The appellant firm carries on the business of manufacture and sale of dhalls and grains. The appellant made cash payments of Rs.7,80,027/- towards lorry freight in excess of the limit contained in Section 40A(3) of the Income Tax Act, 1961 (hereinafter called as the "Act"). The Assessing Officer disallowed the same and added it to the income of the appellant. The Assessing Officer pointed out that the lorry freight payments made throughout the year by the assessee were through cash payments only; since the assessee was liable to deduct tax at source towards lorry freight made in excess of limit of Rs.20,000/- as per the provisions laid down under Section 194C of the Act, interest under Section 234B and 234D was levied apart from penalty proceedings initiated separately. Aggrieved by the disallowance, the assessee filed appeal before the Commissioner of Income Tax (Appeals).
3. In the course of hearing, the assessee filed affidavits from seven of the lorry owners out of 20 transporters, informing that they collected the lorry freight in cash through the driver of the lorry concerned, in which the goods were transported. The assessee contended that the cash payments for goods and services were made through agents viz., the lorry drivers, hence, cash payment for lorry freight paid to the lorry drivers cannot be disallowed under Section 40(A)(3) read with Rule 6DD(k) of the Income tax Rules, 1962. The assessee further contended that it had paid the charges to the driver, who acted as their agent, who, in turn would hand over the cash to the transport operator; thus, the assessee claimed that there was no case of levying penalty.
4. The First Appellate Authority held that the supplier of the goods to the assessee could not certify that the lorry drivers had acted as the agents of the assessee, on the other hand, the lorry drivers acted on behalf of their principal viz., lorry owners/transport operators. The terms and conditions mentioned in the bills indicated that the transport operators took no responsibility for any kind of loss like leakage, spoilage, breakage etc., Thus, the Commissioner of Income Tax (Appeals) held that the claim of the assessee that the lorry drivers acted as an agent of the assessee was a farfetched claim, thus, Rule 6DD(k) of the Income Tax Rules would not be applicable to the facts of the assessees case. In the light of the amended provisions of Section 40A(3) of the Act and Rule 6DD of the Income Tax Rules, disallowance was held as proper. Aggrieved by this, the assessee filed further appeal before the Income Tax Appellate Tribunal.
5. The Income Tax Appellate Tribunal, however, pointed out that the assessee had not placed any material to show that the remuneration was paid by the assessee to the lorry drivers for acting as agents for the assessee. The Income Tax Appellate Tribunal, thus held that the truck drivers in receiving the payment of transport charges from the assessee, has not acted as agents of the assessee rather at best, they could be treated as agents of the transporting company. In the circumstances, the Income Tax Appellate Tribunal, rejected the case of the assessee. Aggrieved by this, the present Tax Case (Appeal) filed seeking admission.
6. Learned counsel appearing for the assessee submitted that the transactions were genuine one and that a person can act in multiple capacity and the relationship of each person vis-a-vis each transaction has to be given due weightage. He placed reliance on the decision reported in (2013) 259 CTR (Delhi) 15 (R.C.Goel Vs. Commissioner of Income Tax) and contended that there could not be a technical and narrow interpretation of Rule 6DD(k) of the Income Tax Rules, but can be extended to the benefit of the assessee and that the exigencies of the business deserved to be considered in this case.
7. Heard learned counsel appearing for the assessee and perused the materials on record.
8. As already noted in the preceding paragraph, there is hardly any material to substantiate the case of the assessee that the lorry driver acted in the dual capacity one of which happened to be as the agent of the assessee. A reading of the affidavit extracted in the order of the Commissioner of Income Tax (Appeals) show that the lorry owner collected the freight from the assessee through the driver for the concerned lorry; lorry freight was paid in cash by the assessee to the lorry drivers because they needed cash to purchase diesel, tyres and spare parts and for repairs en route. It is further stated that the lorry drivers could not receive the cheques from the assessee since they were their proprietors of P.K.Ramasamy Nadar & Bros. Virudhunagar, and they did not have any bank account to encash cheques in places like Virudhunagar; in the circumstances, the lorry driver acted as an agents of the assessee, to receive the lorry hire in cash. We find that the facts narration contained in the affidavit at best would only contain the modality on receiving the freight from the assessee and that the lorry drivers acted only on behalf of the lorry owners and collected the freight from the assessee. The reason why they collected cash was also given in the affidavit. We do not find such a submission made by the sellers on behalf of the lorry driver would establish the case of the assessee that the lorry driver acted in a dual capacity.
9. The remand report dated 27.07.2011 from the Assessing Officer further pointed out that the assessee and the authorized representative had informed the Assessing Officer that in the course of hearing for assessment held on 15.07.2011, the payers were not in a position to furnish the affidavit that the lorry payments had already been recorded in their books of accounts and they were assessed to tax before their respective Assessing Officer. The seven lorry transporters out of twenty transporters had filed affidavit, which contained no relevant particulars given about the receipt by the drivers, who according to the assessee operated in dual capacity.
10. As far as the reliance placed on the decision of the Delhi High Court reported in (2013) 259 CTR (Del) 15 (R.C.Goel Vs. Commissioner of Income Tax) is concerned, we find that the assessee therein was executing catering contracts for Railways in respect of two trains. In those trains, its personnel were deployed for sale of small articles of daily necessity and use to the passengers. Thus, payments received by them were necessarily in cash. These amounts were collected by the vendors and in turn handed over to the assessee. In terms of the contract, the assessee was bound to maintain constant supplies in the trains and ensure that at no point in time could the passengers be deprived of these article (which are food articles, soft drinks and other items necessary for travel). Thus, the Delhi High Court pointed out that the expression in Rule 6DD(k) of the Income Tax Rules "who is required to make payment in cash" to be read in the context of the nature of business activities; the consequence of instances of payments through account payee cheques in small businesses which are dependant on such supplies would be to completely stifle, if not stop, the business activities. Thus, the Delhi High Court held that Rule 6DD(k) of the Income Tax Rules would apply to the case of the assessee.
11. As far as the present case is concerned, we do not find that the judgment of the Delhi High Court reported in (2013) 259 CTR (Del) 15 (R.C.Goel Vs. Commissioner of Income Tax) would be of any relevance to accept the plea of the assessee. Quite apart from the fact that such a plea was not taken in the present case, in particular as regards the nature of business, the assessee's only claim before the authorities was that the driver acted in dual capacity, for which there is no evidence. Being pure question of fact without any material to substantiate the case of the assessee, we reject the case of the assessee.
12. In the result, the Tax Case (Appeal) stands dismissed. No costs.
(C.V.,J) (T.S.S.,J.)
13.11.2013
Index:Yes/No
Internet:Yes/No
nvsri
To
1. The Income Tax Officer, Ward I(3), Virudhunagar.
2.The Commissioner of Income Tax (Appeals)II, Madurai
3.The Income Tax Appellate Tribunal
"D" Bench, Chennai
CHITRA VENKATARAMAN, J.
and
T.S.SIVAGNANAM, J.
nvsri
Tax Case (Appeal) No.728 of 2013
13.11.2013