COMMISSIONER OF INCOME TAX-II CHANDIGARH vs. SATISH KUMAR #3201 SECTOR-45-D CHANDIGARH

Facts

The Revenue (Commissioner of Income Tax-II Chandigarh) appealed against an order of the Income Tax Appellate Tribunal (ITAT) dated 29.05.2013, which had dismissed the Revenue's appeal against the order of the Commissioner of Income Tax (Appeals) dated 31.08.2012. The assessment year in question is 2006-07. The dispute arose from a rectification order passed by the Income Tax Officer, raising a demand of Rs.22,73,715/-. This demand was based on the Assessing Officer's observation that the assessee, Satish Kumar, had claimed Rs.47,81,505/- as labour charges in his profit and loss account, but had not deducted tax at source (TDS) on this amount, making it non-allowable under Section 40(a)(ia) of the Income Tax Act, 1961. The CIT(A) had partly allowed the assessee's appeal, holding that the non-deduction of TDS on labour charges was a debatable issue and not a mistake apparent from the record, thus not rectifiable under Section 154.

Held

The High Court held that the appeal filed by the Revenue under Section 260-A of the Income Tax Act, 1961, was dismissed. The Court reasoned that the applicability of Section 40(a)(ia) of the Act concerning the non-deduction of tax at source on labour charges was indeed a debatable issue. This finding was supported by the concurrent views of the ITAT and the CIT(A). The Court emphasized the Supreme Court's decision in Mepco Industries Ltd. Vs. CIT, which clearly states that recourse to rectification under Section 154 of the Act cannot be undertaken to change an opinion on a debatable issue. The Court also noted that a Coordinate Bench of the same High Court, in ITA No.716 of 2009 (PMS Diesels Vs. Commissioner of Income Tax), had also discussed similar issues and judgments, including those from the Gujarat and Calcutta High Courts, regarding the interpretation of 'payable' in the context of TDS. Given that the ITAT's view was plausible and the issue was debatable, the Court found no substantial question of law to interfere with the Tribunal's order. The appeal was accordingly dismissed.

Key Issues

1. Whether the non-deduction of tax at source on labour charges, amounting to Rs.47,81,505/-, constitutes a mistake apparent from the record, making the rectification order under Section 154 of the Income Tax Act, 1961 permissible? (Question of law and fact) Contentions: Assessee: The assessee contended that the issue of whether TDS was required to be deducted on labour charges was debatable. Reliance was placed on the Supreme Court's decision in Mepco Industries Ltd. Vs. CIT, 319 ITR 208, which held that rectification under Section 154 is not permissible for debatable issues. The ITAT had dismissed the Revenue's appeal, agreeing that the applicability of Section 40(a)(ia) to labour charges was a debatable issue, citing the majority view of the Vishakhapatnam Tribunal in ACIT Vs. Merilyn Shipping and Transports, which was later set aside by the Gujarat High Court in CIT Vs. Sikanderkhan N. Tunvar and others and the Calcutta High Court in CIT Vs. Cresent Export Syndicate. Revenue: The Revenue argued that a substantial question of law arose. The Revenue initially sought to dismiss the appeal based on Circular No.03/2018 due to low tax effect but later got the appeal restored, claiming the case fell under exceptions to the circular. The Revenue's core argument, implied by their appeal, was that the non-deduction of TDS was not debatable and thus rectifiable.