TDS on C& F agents of Transporters: Implications of 194C(6)

Section 194C(6) has been amended with effect from 01-06-2015 to cover in its net large transporters owning more than ten trucks. To avail exemption from TDS web, it requires furnishing of PAN and declaration by contractor engaged in the business of plying, hiring or leasing of goods carriages provided the contractor owns ten or lesser trucks at any time during the year. In this article an attempt has been made to find an answer to following questions:

1.    Who will be the contractor for the purposes of section 194C(6)?

2.    Whether payment by C&F agent to truck owners will be subject to TDS u/s 194C?

3.    Whether C&F agent will be covered by presumptive taxation u/s 44AE?

4.    Whether truck owner/operator will be covered by presumptive taxation u/s section 44AE?

5.    Who will furnish its declaration and PAN for availing exemption u/s 194C(6) and whether C&F agent or truck owner is exigible to TDS ?

1.         a)Section 194C(6) as amended by Section Finance Act 2015

No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, where such contractor owns ten or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with his Permanent Account Number, to the person paying or crediting such sum.

          b) Memorandum explaining the provisions of Finance Bill 2015

“…………………………. the relaxation under sub-section (6 ) of section 194C of the Act from non-deduction of tax shall only be applicable to the payment in the nature of transport charges (whether paid by a person engaged in the business of transport or otherwise) made to an contractor who is engaged in the business of transport i.e. plying, hiring or leasing goods carriage and who is eligible to compute income as per the provisions of section 44AE of the Act (i.e a person who is not owning more than 10 goods carriage at any time during the previous year) and who has also furnished a declaration to this effect along with his PAN.

b)Circular No. 715 dtd 08-08-1995

Answer to Q.No.6 “………………………As regards payment made to clearing and forwarding agent for carriage of goods, the same shall be subjected to tax deduction at source u/s 194C of the Act ………..”

Answer to Q.No.7 “…………………..Clearing and Forwarding agents act as independent contractors. Any payment to them hence, be liable for deduction of tax at source. They would also be liable to deduct tax at source while making payment to a carrier of goods”

2.         Clearing agent held not independent contractor in following cases:

a)Grewal Brothers Punjab and Haryana High Court 05-04-2011 ITA 66/2010

The assessee firm passed on transport work to its partners and made the payments received from companies to partners after deducting 3% commission as charges for the firm having secured contracts. The assessee plea that partners were executing contracts by using their trucks and payment to partners was only routed through firm as agents was accepted. Having accepted the plea the Court said there was no separate contract between partners and the firm and no TDS required to be deducted on payment by firm to partners.

b)Hardarshan Singh HIGH COURT OF DELHI JANUARY 9, 2013 IT APPEAL NO. 604 OF 2012:

Assessee carried on business of commission agent by arranging for transportation of goods through other transporters. Assessee claimed that contract was between clients and lorry owners/transporters; he acted only as a facilitator or intermediary and was not liable to deduct tax at source while making payments to transporters. The High Court accepted the plea of the assessee. 

c)Cargo Linkers [2009]179 Taxmann 151 [25-03-2008] ITA 218/2008

Assessee was a partnership firm carrying on business of clearing and forwarding agents (C&F agents) and booking cargo for transportation abroad for various airlines operating in India. It collected freight charges from exporters who intended to send goods through a particular airline and paid amount to airline or its general sales agents and for services rendered, assessee charged commission from airlines. Held by High Court that since contract was actually between exporter and airline and assessee was only an intermediary, it was not a ‘person responsible’ for deduction of tax at source in terms of section 194C

d)Held by Himachal Pradesh High Court in the case of Ambuja Darla Kashlong Mangu Transport Co-op Society [188 Taxmann 134] [20-10-2009]

Assessee a registered cooperative society constituted by truck operators was nothing but a collective name for all the members and contract entered by society was for benefit of constituent members and there was no contract between society and members and therefore 194C(2) is not attracted.

e)Further Held by Himachal Pardesh High Court in Sirmour Truck Operators Union [10-09-2010] 195 Taxman 62

Assessee was AOP constituted by truck operators. Assessee received freight and made payments to members after deducting administrative expenses. Held that since there was no sub contract between assessee and its members amd in fact assessee had entered into contracts on behalf of its members, section 194C(2) was not attracted and assessee company was not liable to deduct TDS on account of payment made to truck owners.

3.         Conclusion

From the above discussion, it is very clear that first we have to find out that whether there exists an independent contract between the Customer and the C&F agent as envisaged in section 194C(6). This has to be found out keeping in view the facts and circumstances of each case and in the light of above judgments. After deciding this question, the answers can be divided into two categories as under:

a) Where C&F agent is not acting as an independent contractor and is not owning any goods carriage:

1.    Truck owner will be the Contractor for the purposes of Section 194C(6)

2.    Payment by C&F agent to truck owner will not be subject to TDS u/s 194C as there is no separate contract between clearing agent and transporter.

3.    The C&F agent is only facilitator entitled to commission from truck operators. Hence C&F agent will not be covered by presumptive taxation u/s 44AE.

4.    The truck owner/operator will be covered by presumptive taxation u/s section 44AE.

5.    The declaration and PAN shall be furnished by truck owner to the customer, if it owns ten or less carriages, failing which tax shall be deducted by the Customer mentioning the PAN of Truck owner/ operator.

b) Where C&F agent is acting as an independent contractor and is not owning any goods carriage:

1.  C&F agent will be the contractor for the purposes of section 194C(6).

2.  Payment by C&F agent to truck owners will be subject to TDS u/s 194C as there exists a separate contract between C&F agent and transporter, subject to his furnishing PAN and declaration.

3.  The C&F agent will not be covered by presumptive taxation u/s 44AE.

4.  The truck owner/operator will be covered by presumptive taxation u/s section 44AE.

5.  TDS of C& F agent shall be deducted in this case despite the fact that it does not own any goods carriage for following reasons:

a) Circular No. 715 requires deduction where C&F agent is independent contractor

b) Since C&F agent is not entitled to compute his income u/s 44AE  the  spirit of Memorandum explaining the provisions of Finance Bill 2015 also mandates this deduction.

However the language of section 194C(6) still requires some fine tuning to meet its intended objective of taxing large transporters.