Gujarat High Court
Commissioner Of Income Tax Iii vs Ankleshwar Taluka Ongc & on 18 March, 2013
Author: Akil Kureshi
Bench: Akil Kureshi
COMMISSIONER OF INCOME TAX III....Appellant(s)V/SANKLESHWAR TALUKA ONGC & LAND LOOSER TRAVELLERS CO-OP.SOC.....Opponent(s) O/TAXAP/26/2013 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 26 of 2013 TO TAX APPEAL NO. 28 of 2013 ================================================================ COMMISSIONER OF INCOME TAX III....Appellant(s) Versus ANKLESHWAR TALUKA ONGC & LAND LOOSER TRAVELLERS CO-OP.SOC.....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI Date : 18/03/2013 COMMON ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) Since factual aspects are similar in all these appeals, we may note those facts as emerging in Tax Appeal No.26 of 2013.
Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') dated June 22, 2012. The following questions have been presented for our consideration :
(i) Whether, on the facts and in the circumstances of the case, the Hon'ble Tribunal has erred in law in upholding the decision of the CIT(A), deleting the addition of Rs.4,17,35,747/- made u/s.40(a)(ia) of the IT Act being the amount paid to sub contractors without deducting tax at source as required u/s 194C of the IT Act on totally irrelevant criterion, contrary to statutory provisions in this regard ?
Whether, on the facts and in the circumstances of the case, the Hon'ble Tribunal has erred in law in upholding the decision of the CIT(A), deleting the addition of Rs.83,47,149/- made u/s.40A(3) of the IT Act being payment made in contravention with the provisions of section 40A(3) of the IT Act ?
With respect to question (i), we notice that the Tribunal had in the impugned judgment while holding in favour of the assessee relied on its decision in the case of this very assessee for the assessment year 2005-06 when such an issue had come up for consideration.
Learned counsel for the Revenue candidly pointed out that such earlier decision of the Tribunal for the assessment year 2005-06 was carried in appeal before this Court in Tax Appeal No.1456 of 2011. This Court by judgment dated September 18, 2012 had rejected the Revenue's appeal making following observations :
5. The facts as emerging from the record indicate that ONGC Ltd. had found Crude Oil and Natural Gas in the areas of Ankleshwar, Hansot taluka and nearby talukas of Bharuch District. Such lands belonged to many small illiterate farmers. ONGC formulated a scheme to acquire the said oil field land area from the farmers by compensating them. As part of the compensation mechanism, some of the farmers who were eligible were given jobs or services as per their qualifications.
However and many other illiterate farmers were not eligible for any job, to compensate such farmers ONGC decided to give a special right to each land losing farmer, for this purpose it was decided that each such farmer would be provided with one jeep each (transport vehicle) which would be taken on rent by ONGC so that each farmer was provided with a means of livelihood. To begin with, ONGC had entered into an agreement with these individual farmers which continued for a few years. However, the number of such farmers was increasing day by day and it became difficult for ONGC to maintain accounts of each individual farmer for releasing payments. With a view to obviate such difficulties in September, 1988 ONGC decided that a co-operative society be formed consisting of farmers whose land was acquired by ONGC which could maintain the individual account of each farmer and would be one stop entity coordinating all matters with ONGC on behalf of the farmers. Thus, the assessee Society, a non-profit making organization was formed. The assessee was maintaining vehicle-wise accounts comprising of details of expenses and receipts. All these vehicles were hired by ONGC and lump sum receipt was paid by ONGC after deducting TDS to the society, who thereafter allocated the amount to respective members after deducting the administrative expenses depending on actual usage. During the year under consideration, the assessee-Society received Rs.2,57,62,253/- and the entire amount was distributed to the farmers. The Assessing Officer was of the view that the society is functioning as a sub-contractor and that it ought to have deducted TDS on payments made to each of the farmers as per the provisions of section 40(a) (ia) and section 194C. According to the Assessing Officer the assessee was hiring cabs from farmers and renting them to ONGC. Since in respect of jeep rental income of Rs.2,57,36,253/- no TDS was deducted the entire expenditure was not allowable under section 40(a)(ia) of the Act. Since the entire amount of Rs.2,57,36,253/- was paid to the farmers in cash, 20% of the expenditure amounting to Rs.51,47,250/- was also added to the income under section 40A(3) of the Act.
6. The Commissioner (Appeals) was of the view that the functions performed by the society had no profit motive and were more in the nature of a welfare activity performed by it. The context in which the society was formed was essentially to facilitate receipts and distribution of income and accounting for the expenses. The society acted as an interface between the farmers and ONGC for this limited purpose was receiving the jeep rental income on behalf of the illiterate farmers. This mechanism helps both ONGC and the farmers as it precludes individual interaction and smoothens the entire operation. The society prepares the individual logbook for the farmers and on the basis of such log books the ONGC releases the payment which is distributed to the farmers. The original agreement always remained between the ONGC and the individual farmers. The Commissioner (Appeals), accordingly, found that there was no element of work contract in terms of provisions of section 194C in the activities performed by the society and accordingly set aside the disallowance under section 40(a)(i) of the Act. He further held that there was no case for disallowance under section 40A(3) as no expenditure was incurred by the society in distributing the rentals to the farmers.
7. The Tribunal, after appreciating the material on record and carefully considering the reasons for the formation of the society was convinced that the assessee had no profit motive and the activity of the society was more of a welfare activity. The Tribunal concurred with the findings recorded by the Commissioner (Appeals) and accordingly upheld the same.
8. In the light of the above noted concurrent findings of fact recorded by the Tribunal upon appreciation of the evidence on record, this court is of the opinion that the reasoning adopted by the Tribunal is just and reasonable. Under the circumstances, it is not possible to state that there is any infirmity in the impugned order of the Tribunal so as to give to any question of law, much less, a substantial question of law so as to warrant interference. The appeal being devoid of merit is, accordingly, dismissed.
Since question (i) is squarely covered by the above noted judgment of this Court, such question is not considered.
Regarding question No.(ii), we notice that for the same expenditure of Rs.4.17 crore (rounded off), which was disallowed by the Assessing Officer under Section 40(a)(ia) of the Act, he made further disallowance of Rs.83.47 lac (rounded off) at the rate of 20% of the expenditure under Section 40A(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). The Assessing Officer observed that the payments made towards jeep rent expenses were by way of cash. He, therefore, disallowed 20% thereof.
We wonder how such disallowance can be made once the Assessing Officer had disallowed the entire expenditure of Rs.4.17 crore under Section 40(a)(ia) of the Act. It was this very payment towards jeep rent expenses, a part of which the Assessing Officer now disallowed under Section 40A(3) of the Act, in our opinion, this would be a clear case of double disallowance. However, since we have upheld the Tribunal's decision deleting the disallowance of expenditure under Section 40(a)(ia) of the Act, the validity of deletion of disallowance under Section 40A(3) of the Act would assume significance.
In this context, the learned counsel for the Revenue pointed out that the Tribunal rejected the Revenue's contention by making a brief observation .. .. there is no cash payment by the assessee to the Jeep owners.
The case of the Revenue, thus, is that the main contention is not dealt with in this respect and the Tribunal did not render its judgment on such aspect. It will be open for the Revenue to seek rectification of the order.
With above observations, we are not entertaining the appeal.
Since the facts are identical subject, of course, to change in figures of expenditure and disallowance in Tax Appeal Nos.27 of 2013 and 28 of 2013, such appeals are also disposed of with same observations.
In the result, all the Tax Appeals are dismissed.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) Aakar Page 6 of 6