Income Tax Appellate Tribunal - Pune
Sh. Surve S. Krishnaji, Satara vs Department Of Income Tax on 14 May, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
Pune Bench "B" , Pune
Before Shri I.C. Sudhir Judicial Member
and Shri R.K. Panda Accountant Member
ITA No. 1207/PN/2010
CO No. 62/2011
(Asstt. Years : 2005-06 )
Dy. Commissioner of Income Tax,
Satara Circle Satara. ... Appellant
Vs.
Sri Surve Shriram Krishnaji
Prop of M/s. Aaditya Engineers,
Koyana Prasad, Opp:Krishna Hospital,
P.B. Road, Karad,
Tal : Karad, Dist : Satara. ... Respondent
PAN NO. AEPPS6618R
Appellant by : Shri Alok Mishra
Respondent by : Shri M.K.Kulkarni
Date of Hearing : 14-05-2012
Date of Pronouncement : 17-05-2012
ORDER
PER R.K. PANDA, AM
The appeal filed by the Revenue and the CO filed by the Assessee are directed against the order dt. 10-06-2010 of the CIT(A)-III, Pune relating to Assessment Year 2005-06 . For the sake of convenience, these were heard together and are being disposed of by this common order.
2. Facts of the case in brief are that the Assessing Officer during the course of assessment proceedings observed that the labour payment expenses, transport charges and bore drilling expenses incurred by the assessee during the year under consideration included payments exceeding Rs. 50,000/- to each labour/sub- contractor/transporter. Such labour payment expenses, transport expenses and bore 2 drilling expenses summed upto Rs. 76,06,900/-, Rs. 14,62,210/- and Rs. 14,89,640/- respectively. On being required by the Assessing Officer to state whether the provisions of section 194C r.w.s. 40(a)(ia) of the I.T. Act have been complied with in respect of all the aforesaid payments, it was submitted by the assessee that no TDS in respect of the aforesaid payments have been made. However, no comments were given by the assessee with regard to the specific query raised by the Assessing Officer regarding infringement of provisions of section 194C r.w.s. 40(a)(ia). Under these circumstances, the Assessing Officer presumed that since the assessee has admitted that there was no Tax deducted from the payments made, such admission itself made the position clear regarding violation of section 194C. Accordingly, the Assessing Officer disallowed the aforesaid amount by invoking the provisions of sec 40(a)(ia) on account of infringement of the provisions of sec. 194C.
3. Before CIT(A), it was submitted that a perusal of the list of specified persons in the provisions of sec 194C of the Act would reveal that the status 'individual' was not included in the said list applicable for the year under consideration. It was submitted that the status 'individual' has been included in the list effective from 01-06-2007 and was therefore, applicable from A.Y. 2008-
09. It was submitted that as the individual status was not included in the list in the provisions of sec 194C prior to 01-06-2007, the assessee was under no obligation to deduct the tax on the payments made in the year under consideration. Thus, according to the assessee the question of violation of provisions of sec. 194C and attraction of the provisions of sec. 40(a)(ia) to the case of the assessee does not arise.
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4. Based on the arguments advanced by the assessee, the ld. CIT(A) deleted the disallowance made by the AO by holding as under :
"3.3 The submission is considered and is found to merit acceptance. Prior to its substitution by the Finance Act, 2007, w.e.f., 01-06-2007, sub-section (1) of section 194C, as amended by the Finance Act, 1973 w.e.f., 01-04-
1973, Finance Act, 1992 w.e.f., 01-06-1982 and Finance Act, 1995 w.e.f., 01-07-1995, read as under :
Any person responsible for paying any sum to any resident (hereinafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and ;
(a) the Central Government or any State Government or
(b) any local authority; or
(c) any corporation established by or under a Central, State or Provincial Act; or
(d) any company; or
(e) any co-operative society; or
(f) any authority, constituted in India or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or
(g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or
(h) any trust; or
(i) any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1936 (3 of 1956); or
(j) any firm;4
shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to :
(i) one per cent, in case of advertising,
(ii) in any other case two per cent of such sum as income-tax on income comprised therein.
3.4. The provisions of sub section (1) of section 194C as amended by the Finance Act, 2007, w.e.f., 01-06-2007 are not applicable to the year under consideration and therefore, appellant's act of non-deduction of tax at source has not resulted in violation of the provisions of Chapter XVII-B. As such, the Assessing Officer is not justified in making aforesaid disallowances by invoking provisions of section 40(a)(ia) and the same are directed to be deleted".
5. Aggrieved with such order of the CIT(A), the Revenue has filed this appeal by taking the following grounds :
(1) The order of the learned CIT (Appeals) is contrary to law and to the facts and circumstances of the case.
(2) The learned CIT (Appeals) has erred on facts and in law in deleting the addition of Rs. 1,05,58,750/- u/s. 40(a)(ia) of the income-tax Act, 1961. (3) The learned CIT (Appeals) has wrongly relied on the provisions of section 194C(1)(k) which were made applicable to the 'individual' assessee w.e.f., 01-06-2007. The proper section to be applied to individual and HUF from 01-04-2002.5
(4) The learned CIT (Appeals) has erred on facts and in law in not appreciating that as per proviso to sub-section (2) of section 194C of the Income-tax Act, 1961, which is applicable from 01-04-2002, an individual or HUF whose sales, gross receipts or turnover from business or profession exceeds the monetary limit specified under clause (a) or clause(b) of section 44AB of the Income-tax Act, 1961 during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of sub-contractor, shall be liable to deduct Income-tax under the sub-section.
(5) The learned CIT(Appeals) has erred on facts and in law in not appreciating that the payments made by the assessee to labourers is a payment to sub-contractors and fall within the proviso to section 194C(2) of the Income-tax Act, 1961 and, therefore, are liable to TDS and thus the disallowance was correctly made by invoking section 40(a)(ia) of the Income-tax Act, 1961.
6. The assessee has also filed CO with the following grounds :
1. "On the facts and circumstances of the case and in law the small delay occurred be condoned and cross-objections be admitted for hearing.
2. On the facts and circumstances of the case and in law the ground of appeal taken by the AO in their appeal No. 1207-PUN-2010 regarding applicability of sec.194C (2) of the Act is not tenable in law as there is no sub-contract either oral or in writing for payments held to be subject to TDS and therefore, no disallowance can be made invoking sec 40(a)(ia) of the Act,
3. On the facts and circumstances of the case and in law the AO has failed to prove the existence of sub-contract in the instant case within the meaning of sec 194C(2) of the Act. The assessee-Respondent is not expected 6 to prove a thing which is non-existent. The appeal of the Revenue in the circumstances be dismissed.
4. On the facts and circumstances of the case and in law and alternatively the assessee being 'individual' in status was covered by sec.194C of the Act from 01-06-2007 only and therefore, for A.Y. 2005-06 was not obliged to deduct any tax at source as provided in that section. The appeal of the Revenue is, therefore not maintainable and it be dismissed.
5. On the facts and circumstances of the case and in law the provisions of sec. 40(a)(ia) are also not applicable since the expenditure has been actually 'paid' and nothing remained 'payable' as at the end of the assessment year in the form of liability. It be held accordingly.
7. After hearing both the sides, the delay in filing of the co. by the assessee is condoned.
8. The learned counsel for the assessee at the outset referring to the decision of the Ahmedabad bench of the Tribunal in the case of Sri Prakash Chandra Juglubhai Lonari Vs. ITO vide ITA 2920/Ahmedabad/2009 order dt 05-10-2011 for A.Y. 2006-07 submitted that the issue is covered in favour of the assessee by the decision of the Tribunal cited (supra). The learned DR on the other end submitted that the said decision is distinguishable since the assessee in that case was a sub- contractor whereas in the impugned case the assessee is a contractor.
9. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the decision of the Ahmedabad bench of the Tribunal in the case of Sri Prakashchandra Juglubhai Lonari (supra). There is no 7 dispute to the fact that the assessee is an individual engaged in construction and contract work and the assessment year involved is 2005-06. According to the Revenue, since the assessee has not deducted TDS from the payments made towards labour charges (Rs. 76,06,900/-), transportation charges (Rs. 14,62,210/-) and bore drilling expenses (Rs. 14,89,640/-) the assessee has violated the provisions of section 40(a)(ia) r.w.s. 194C(2) of the I.T. Act. According to the assessee, the provision of section 194C (1)(k) which were made applicable to the individual assessee's w.e.f., 01-06-2007 is applicable from assessment year 2008- 09 and onwards and not applicable for the impugned assessment year. 9.1 We find the Ahmedabad bench of the Tribunal in the case of Prakash Chandra Juglubhai Lonari (supra) has held as under :
"8. In the case of the assessee, the status of the assessee is individual and he is proprietor of M/s. Balaji Cable Network and has made a contract with M/s. Devshree Network Pvt. Ltd., The amount in question was paid by the assessee to M/s. Devshree Network Pvt. Ltd. for giving cable transmission. The provisions of section 194C of the IT Act had undergone certain vital changes. The main purpose of introduction of this section in the Act was to make provisions for deduction of tax at sources from the payment made to contractors and sub-contractors in certain cases. Income tax is deductible at source from the income comprised in payments made by a person specified in this section. As per the original section 194C(1) of the IT Act, any person responsible for paying any sum to any contractor for carrying out any work in pursuance of a contract is required to deduct TDS. However, as per section 194C(2) of the IT Act, any person being a 8 contractor responsible for payment of any sum to any sub-contractor in pursuance of a contract with the sub-contractor for carrying out any work is required to deduct tax at the time of payment. Sub-section (2) has later on made a provision according to which any individual or HUF and whose sales exceeds the monetary limits prescribed u/s. 44AB of the IT Act shall be liable to deduct income tax at the time of payment to sub-contractor. It may be noted here that by amendment with effect from 01-06-2007 by the Finance Act, 2007 an individual or HUF has also been added vide sub- clause (k) in section 194C (1) of the IT Act. The assessment year under appeal is 2006-07, therefore, the amendment to section 194C(1)(k) of the IT Act being introduced with effect from 01-06-2007, has no applicability to the assessment year under appeal. In the case of the assessee since the assessee paid the amount to M/s. Devshree Network Pvt. Ltd., for giving transmission, therefore, the assessee is a "person responsible for paying the sum in question to the contractor". The contractor in the case thus would be M/s. Devshree Network Pvt. Ltd., For applying the provisions of section 194C(1) of the IT Act the contract should be between the contractor and the parties as per the list given from (a) to (j) of section 194C (1) of the IT Act as per the provisions applicable to the assessment year under appeal in which sub-clause(k) being the individual do not find mention. Thus, in the assessment year under appeal, the contract between the contractor and individual would not cast any obligation on the individual to deduct TDS on the payment made to the contractor. Since in this case, payment is made by the assessee to M/s. Devshree Network Pvt. Ltd., for providing cable transmission, therefore, no other person is involved in the transaction/oral contract. Thus, the assessee did not act as a sub-contractor in this case. 9
Since the assessee has not acted as a contractor and no payment is made to the sub-contractor, therefore, the findings of the authorities below are based on wrong premise and assumption of certain facts which are not relevant to the matter in issue. . . . . .. . . . . . . . . . . . . .
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9. Considering the above discussions, we are of the view that provisions of section 194C(1) and (2) of the IT Act would not apply to the case of the assessee. The decision of the Hon'ble Punjab & Haryana High Court in the case of Kurukshetra Darpans (P) Ltd., (supra) would not advance the case of the revenue. We accordingly, set-aside the orders of the authorities below and delete the addition".
10. Since the facts of the instant case are identical to the case decided by the Ahmedabad bench of the Tribunal cited (supra), therefore, respectfully following the decision of the Ahmedabad bench of the Tribunal we uphold the order of the CIT(A). The grounds raised by the Revenue are accordingly dismissed.
11. So far as the grounds raised by the assessee in the CO are concerned we find one of the ground in the CO states that since the expenditure has been actually paid and nothing remained payable as at the end of the A.Y. in the form of liability, therefore, provisions of section 40(a)(ia) are not applicable. The above ground of the assessee, which is an alternate ground , is in favour of the assessee by the recent decision of the special bench of the Tribunal (Visakhapatnam Bench) in the case of M/s. Merilyn Shipping Transport Vs. ACIT wherein it has been held that 10 section 40(a)(ia) can apply only to expenditure which is payable as of 31st March and does not apply to expenditure which has already been paid during the year. Respectfully following the decision of the Special Bench of the Tribunal, the ground of the CO on this is allowed.
12. Since we have upheld the order of the CIT(A), therefore, the other grounds in the CO being in support of the order of the CIT(A) become infructuous and are dismissed.
13. In the result, the appeal filed by the Revenue is dismissed and the CO filed by the assessee is partly-allowed.
Order pronounced in the open Court on 17th May 2012.
Sd/- Sd/-
(I.C. SUDHIR) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, dated the 17th May 2012
satish
Copy of the order is forwarded to :
1. The DCIT, Satara Circle, Satara
2. The CIT(A)-III, Pune
3. The CIT concerned
4. D.R. "B" Bench, Pune
5. Guard File
By order
Private Secretary,
Income Tax Appellate Tribunal, Pune