C I TTDSJAIPUR vs. M/S K U M S F AND VMUHANA JAIPUR

DBITA No.52/12 & 5 connected appeals 1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR. J U D G M E N T 1) D.B. INCOME TAX APPEAL NO.52/2012. The Commissioner of Income Tax (T.D.S.) Jaipur Vs. M/s.Krishi Upaj Mandi Samiti (F&V), Muhana, Jaipur. 2) D.B. INCOME TAX APPEAL NO.51/2012. The Commissioner of Income Tax (T.D.S.) Jaipur Vs. M/s.Krishi Upaj Mandi Samiti, Jaipur 3) D.B. INCOME TAX APPEAL NO.53/2012. The Commissioner of Income Tax (T.D.S.) Jaipur Vs. M/s.Krishi Upaj Mandi Samiti, Sikar 4) D.B. INCOME TAX APPEAL NO.54/2012. The Commissioner of Income Tax (T.D.S.) Jaipur Vs. M/s.Krishi Upaj Mandi Samiti, Chomu 5) D.B. INCOME TAX APPEAL NO.55/2012. The Commissioner of Income Tax (T.D.S.) Jaipur Vs. M/s.Krishi Upaj Mandi Samiti (F&V), Muhana, Jaipur. 6) D.B. INCOME TAX APPEAL NO.62/2012. The Commissioner of Income Tax (T.D.S.) Jaipur Vs. M/s.Krishi Upaj Mandi Samiti, Jaipur Date of Judgment:- May 23, 2013. HON'BLE MR.JUSTICE MOHAMMAD RAFIQ HON'BLE DR.JUSTICE SMT.MEENA V.GOMBER Smt.Parinitoo Jain for the appellant-Revenue. ***** Reportable BY THE COURT:- (Per Mohammad Rafiq J.) 1) All these appeals raise identical questions of law and facts and, therefore, are heard together and are being decided by this common judgment.

DBITA No.52/12 & 5 connected appeals 2 2) Respondents-Krishi Upaj Mandi Samiti establish agriculture market yards to the agriculturists / farmers to sale / purchase and carry out their business within the notified agriculture market yards. A TDS survey was conducted in the office premises of the respondent-Krishi Upaj Mandi Samiti on 12/10/2009. During survey, it was revealed that Samiti made transfer of certain money to Rajasthan State Agriculture Marketing Board (for short, the “Board”) for construction of agriculture market yards and roads. According to the revenue, transfer of such funds amounted to payment for the work done by the Agriculture Marketing Board attracting Section 194C of the Income-tax Act, 1961 (for short, the “Act of 1961”). The tax should have been deducted at the time of such payment. Contribution made to the Agriculture Marketing Board and the funds for which the contribution was also made were utilized for specific purpose by the Board. Such contribution was also covered within the ambit of Section 194J as professional and technical services provided by the Board. The respondent-Samiti was liable to deduct the TDS at the time of making / crediting the payment of contribution. 3) A show cause notice was issued under Section 201(1),(1A) of the Act of 1961 to the respondent-Samiti on 29/1/2010 for not deducting

DBITA No.52/12 & 5 connected appeals 3 TDS u/Ss.194C & 194J of the Act of 1961. The assessing officer dealing with the contention of the Revenue held that the respondent-assessee was in default in not deducting tax including interest and further held that the services provided by the Board on contribution to the assessee clearly proved that assessee was getting technical know how and professional expertise for the erection, upkeep and maintenance of infrastructure facility, which is in the nature of professional technical services covered within the ambit of Section 194J of the Act of 1961. 4) The order of the assessing officer dated 11/2/2010 was challenged before the Commissioner of Income Tax (Appeals) by the respondent- assessee, which was dismissed vide order dated 24/11/2010. The respondent-assessee filed an appeal against the aforesaid two orders before the Income Tax Appellate Tribunal. The Tribunal held that construction of the agriculture market yards and roads and maintenance by the Board in the market area and approach roads were executed and carried out by the Board and not by the Committee and the contribution made by the respondent- assessee to the Board was statutory contribution and did not amount payment of fee. Aggrieved thereby, the Revenue has filed this appeal against the aforesaid judgment of the Tribunal.

DBITA No.52/12 & 5 connected appeals 4 5) Smt.Parinitoo Jain, learned counsel appearing for the Revenue has argued that the Tribunal has grossly erred in law in holding that respondent-assessee was not liable to deduct the tax at source u/S.194C of the Act of 1961 for payment made by it to the Board. Such payment was made for construction and maintenance of agriculture market yard. Since payments pertain to construction work undertaken by the Board on behalf of the respondent-assessee, this would fall within the purview of Section 194C of the Act of 1961 and thus was liable to deduction of tax and interest at source. The order passed by the Tribunal is therefore wholly perverse because it failed to appreciate that the respondent-assessee has no authority to carry out any construction work on its own. All the works will have to be undertaken by the Board after due approval from the Directorate of Agriculture Marketing Board, which has an Executive Engineer on deputation from the Public Works Department and the entire construction work are carried out in his supervision. The respondent-assessee pays cost of construction to the Board, which also pays supervision charges @10% and work charges @1.5% of the cost. 6) Learned counsel argued that Section 194C of the Act of 1961 has to be interpreted purposely. Word 'contractor' for the purpose of

DBITA No.52/12 & 5 connected appeals 5 applicability would be any person who enters into a contract with the Central or State Government, any local authority, any Corporation established by or under a Central, State provincial Act, any company or any cooperative society, for carrying out any work including the supply of labour for carrying out any work. All these facts clearly show that there is an implied contractor- contractee relationship between the Board and the respondent-assessee. The Board having received the payment from the Samiti, was burdened with an obligation to carry out the work. What is crucial therefore is as to whether or not, work was carried out under the direction or control by the respondent-assessee or any its representative. It was argued that even if the income of the Board is exempted from tax, it should have applied for a certificate for deduction at a lower rate or authorization or non deduction at source u/S.197. Since the Board is charging from the respondent- assessee for construction activities undertaken by it, the assessee was under an obligation to deduct tax on the payment Executive Engineer of the Board and deposit the same with the Income Tax Department. 7) Smt.Parinitoo Jain, learned counsel for the appellant further argued that as per provisions of Sections 19 & 22J of the Rajasthan Krishi Upaj Mandi Act, 1961, which provides for

DBITA No.52/12 & 5 connected appeals 6 purposes for which the funds shall be expanded, the assessing officer and the Commissioner of Income Tax (Appeals) were justified in holding that the TDS was required to be deducted in the payment of professional services as per Section 194J of the Income Tax Act, 1961. It was argued that judgment of this Court in Commissioner of Income Tax Vs. Krishi Upaj Mandi Samiti and Ors. : (2009) 227 CTR (Raj.) 79 has wrongly been applied by the Tribunal to the facts of the present case, which in fact was to the effect whether contribution made by the Samiti to the Board can be considered as payment. That judgment was rendered entirely on different facts situation and is not related to the question whether there was relationship of contractor and contractee between the Board and the Samiti. 8) In the light of the aforesaid arguments, learned counsel for the appellant contend that following substantial questions of law do arise for consideration of this Court:- (1) Whether in the facts and circumstances of the case, the Tribunal was justified in law in reversing the findings of the Commissioner of Income Tax (Appeals) and holding that provisions of Section 194C of the Income Tax Act, 1961 were not applicable in respect of payment made to RSAMB for construction/maintenance of the market area and approach roads? (2) Whether the Tribunal has acted perversely in holding

that

contractor-contractee relationship existed between the assessee and RSAMB and not covered u/S.194C? (3) Whether in the facts and circumstances of the case, the Tribunal was justified in law in reversing the findings of the Commissioner of

DBITA No.52/12 & 5 connected appeals 7 Income Tax (Appeals) and holding that provisions of Section 194J of the Income Tax Act, 1961 were not applicable in respect of the payments made by the assessee to RSAMB on account of statutory contribution against which professional and technical services were received by the assessee? (4) Whether Tribunal has acted perversely in holding the payments made as statutory contribution was not fee and not covered u/S.194J? (5) Whether the Tribunal was legally justified in reversing the findings of the Commissioner of Income Tax (Appeals) and holding that provisions of Sections 194C and 194J of the Income Tax Act, 1961 were not applicable on the payments made to RSAMB and also deleting the demand and interest u/S.201(1),(1A)? 9) We have given our anxious consideration to the rival submissions and also carefully studied the Division Bench judgment of this Court in Commissioner of Income Tax supra. 10) Section 194C of the Act of 1961 provides that any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the contractor and a specified person 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 the tax at source. 11) The Tribunal on careful consideration of the Division Bench judgment of this Court in Commissioner of Income Tax supra held that Section 194C of the Act of 1961 will not be applicable in the case of the respondent-Samiti. It is not the Samiti but the Board execute and carry out the works. This Court in the aforesaid judgment, on

DBITA No.52/12 & 5 connected appeals 8 analysis of the provisions of the Rajasthan Agricultural Produce Markets Act, 1961 and the Rules of 1963 framed thereunder to detail out the legal character of the Rajasthan Agricultural Marketing Board and the Krishi Upaj Mandi Samiti and their work pattern under the scheme. In paras 9 to 14, the relevant discussion was made. Although it is true that the aforesaid judgment was rendered in slightly different context where the assessee-Samiti claimed realization of the fund by the Board, part of which was spent outside its market area on construction and repair work of buildings, roads etc. Assessee claimed that this should be accepted to have been applied for charitable purpose within India. Tribunal in that case held that contribution made by the assessee towards charitable activities extended even outside its local jurisdiction but within India, shall be entitled for the benefit of exemption under Section 11(10)(a) of the Income Tax Act. What has to be considered in the present matter is whether the relationship of contractor and contractee can be assumed between the Agriculture Marketing Board and the Krishi Upaj Mandi Samiti and it is for that purpose that the Tribunal has relied on the Division Bench judgment of this Court in Commissioner of Income Tax supra. 12) In order to appreciate the scheme of the Act of 1961, it would be apposite to reproduce

DBITA No.52/12 & 5 connected appeals 9 paras 12 to 14 of the aforesaid judgment, as under:- “12. Section 9 of the Act of 1961 deals with the functions and duties of the market committee. Section 17 of the Act of 1961 authorises the levy of market fee by the market committees. The market fees to be prescribed by the market committees is subject to a maximum to be prescribed by the Government under the rules and it has co-relation with the services to be rendered for carrying out the objects of the Act of 1961. Section 18 provided that all money received by the market committee shall be paid into a fund to be called “the market committee fund” and all expenditure incurred by the market committee under or for the purposes of the Act shall be defrayed out of the said fund. Section 18A casts an obligation upon the market committee to pay to the Board before 15th of every month, such amount as may be prescribed but not exceeding 10 per cent of the income derived by it from license fees, market fees and fines imposed by the Court. Section 19 provides for the purposes for which the market committee fund shall be expanded which include the management of the market proper, the principal market yard, sub-market yards for which it is constituted, control and regulation of the running of the market in the interest of agriculturists and traders operating in the market and the behaviour of those who entered in the market for transacting business, and for providing facilities such as shelters, sheds, parking accommodations, water for persons, drought cattle, vehicles and pack animals coming or being brought to the market and on construction and repair of approach roads, culverts and bridges in the market area and for such other purposes, as may be specified by the State Government. 13. The Board has been established by the State Government under Section 22A of the Act of 1961 to carry out the purposes specified in Section 22J of the Act of 1961 and to tender advise to the Government and the market committees in relation to agricultural marketing as and when referred to. Section 22H provides for creation of the marketing redevelopment fund to be administered by the Board. Section 22J specifies the purposes for which the marketing development fund shall be utilized by the Board which inter alia includes construction of the market, roads and approach roads to the markets, construction of market yards and sub-yards and leasing or transferring these to the market committees. 14. For the purposes of carrying out the provisions of the Act of 1961, in exercise of power conferred by Section 36 of the Act of 1961, the State Government has framed the rules namely, “The Rajasthan Agriculture Produce Market Rules,

DBITA No.52/12 & 5 connected appeals 10 1963” (in short “the rules of 1963” hereinafter). As per Rule 45 of the Rules of 1963, all money received by the market committee shall be credited to the fund called the market committee fund. Rule 52 provides that all works to be taken up by the market committees shall be executed and carried out by the Board in such manner as may be decided by the Board from time to time. That apart, the Board is empowered to specify the limits upto which the market committee may be allowed to carry out the construction works.” 13) Analysis of the Rajasthan Agricultural Produce Markets Act, 1961 as made in the aforementioned judgment clearly shows that the Agriculture Marketing Board and the Krishi Upaj Mandi Samiti owe their existence to that enactment. Construction of the agriculture market yards and roads and maintenance by the Board in the market areas and approach roads, are executed and carried out by the Board and not by the Committee. The money transferred by the respondent-assessee to the Board was statutory contribution. It is by virtue of the Rajasthan Agricultural Produce Markets Act, 1961 and Rajasthan Agriculture Produce Market Rules, 1963 framed thereunder that the Board has been charged with the duty to carry out the works of construction of agriculture market yards and missing link roads in yard premises. The contention therefore that relationship of contractor and contractee between the Board and the Samiti, which is the pre-requisite condition for invocation of Section 194C, should be assumed, cannot therefore be countenanced in the facts of the case. For the same reason also therefore it cannot be held that

DBITA No.52/12 & 5 connected appeals 11 the Agriculture Marketing Board provides to the Krishi Upaj Mandi Samiti any kind of professional or technical services in the meaning of Section 194J of the Act. Mere fact that supervision charges @10% and work charges @1.5% of the cost are charged by the Board does not bring the activities of the Board within the sphere of “professional technical services” rendered by the Board to Krishi Upaj Mandi Samiti. It is only prescription of the rates at which the deduction can be made by the Board in meeting out its day to day expenses, out of the total cost of the construction of a particular work in the nature of agriculture market yard or roads or otherwise. 14) In view of above discussion, we do not find any infirmity in the approach taken by the Tribunal and any merit in these appeals. The appeals are therefore dismissed.

(Dr.MEENA V.GOMBER), J. (MOHAMMAD RAFIQ), J. anil/175-180 All corrections made in the judgment/order have been incorporated in the judgment/order being e-mailed Anil Kumar Goyal Sr.P.A. Cum JW