Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, KOLKATA BENCH “D” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-14, Kolkata dated 18.01.2016. Assessment was framed by ITO Ward-47(1), Kolkata u/s 263/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 28.03.2013 for assessment year 2007-08. The grounds raised by the assessee per its appeal are as under:-
1. That in the facts and circumstances of the case the Learned Commissioner of Income Tax (Appeals)-14, Kolkata was not justified in confirming the action of the Assessing Officer in making disallowance under section 40(a)(ia) read with section 194C amounting to Mr. Krishan Kr Somani vs. ITO Wdd-47(1) Kol. Page 2 Rs7,29,000/- under the head labaour charges whereas the appellant was not liable to deduct TDS as per express provisions of section 194C as applicable for Assessment Year 2007-2008.
That in the facts and circumstances of the case the learned Commissioner of Income Tax (Appeal s)-14, Kolkata was not justified in confirming the action of the Assessing Officer in making disallowance under section 40(a)(i) read with section 194C amounting to Rs.14,34,157/- under the head Export Freight for non-deduction of tax under section 194C whereas the Appellant was not liable to deduct TS as per express provisions of section 194C as applicable for Assessment Year 2007-2008 read with CBDT Circular 723 dated 19/09/1996.”
Shri S.D. Verma, Ld. Authorized Representative appeared on behalf of assessee and Md. Ghayas Uddin, Ld. Departmental Representative appeared on behalf of Revenue.
2. First issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining the disallowance on account of non-deduction of TDS u/s. 194C of the Act.
Briefly, the facts are that the assessee is an individual, carrying on his business under name & style of ‘Engineers Enterprises’. The assessee has claimed labour charges for an amount of Rs.7.29 lakh on which no TDS was deducted by assessee. Accordingly, AO disallowed the aforesaid sum for non- deduction of TDS and added to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the order of assessee. Aggrieved by this, assessee has come up an appeal before us.
Before us Ld. AR for the assessee submitted paper book which is running pages 1 to 73 and submitted that the assessee is an individual and the relevant AY involved is AY 2007-08 relevant to financial year 2006-07. Ld. Counsel for the assessee further stated that the provisions of section 194C(1) for TDS on individual will apply with effect from 01-06-2007 and not in the case of the assessee. On the other hand the ld. DR pleaded that the said ground was not raised by the assessee before the AO & the ld. CIT(A). Hence Mr. Krishan Kr Somani vs. ITO Wdd-47(1) Kol. Page 3 it should be restored to the AO. The ld. DR supported the order of the lower authorities.
We have heard the rival contentions and perused the materials available on record. The only issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of labour charges paid for contract jobs for non-deduction of Tax Deducted at Source (TDS for short) by invoking the provisions of Section 40(a)(ia) of the Act. We find that this issue is now squarely covered in favour of the assessee and against the revenue by the decision in the case of ACIT Vs Smt. Keya Seth in & 843/K/2010 for assessment years 2006- 07 & 2007-08 vide order dated 11.03.2011. We find that in the case of Smt. Keya Seth cited (supra), wherein exactly the same issue has been decided as under:
"5. We have heard rival contentions and gone through facts and circumstances of the case. It is an admitted position that the assessee an individual carrying on the business of Ayurvedic (Cosmetic Division) and the consultancy on beautician and also related therapies . As claimed by the assessee, whether the provisions of Section 194(1) as existed in assessment years 2006-07 & 2007-08 will apply to the assessee or not? Admittedly, assessee has not deducted any TDS on advertisement payment and according to her, provisions of Section 194C(1) as existed in the relevant assessment years will not obliterate any duty on assessee to deduct TDS. Now, we have to examine this. The relevant provisions of Section 194C(1) & (2) as exist in assessment year 2006-07 & 2007-08 reads as under :- "(1) Any person responsible for paying any sum to any resident (hereafter 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 by or under any law, engaged either for the purpose of dealing with and satisfying the need for Mr. Krishan Kr Somani vs. ITO Wdd-47(1) Kol. Page 4 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 ; (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, 1956 (3 of 1956), or (j) any firm, 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. (2) Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-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 one per cent of such sum as income-tax on income comprised therein."
6. From the above provisions of Section 194C(1), it is clear that the payments made by individual or Hindu Undivided Family does not come within the ambit of TDS i.e. the expenditure incurred for advertisement as individual and HUF are specifically excluded in the above provisions. The provision of Sub-Section (2) applies only to payments made to Sub- Contractors and not to Contractors. Accordingly, Assessing Officer can not made disallowance by invoking provisions of Section 40a(ia), as present assessee being an individual is not liable to deduct tax in view of provisions of Section 194C(1) as existed in the relevant assessment years. No doubt, assessee's turnover exceeds the monetary limit as specified under clause (a) or clause (b) of Section 44AB and the assessee's accounts are subject to audit and the assessee has audited her accounts and filed Tax Audit Report along with return of income. We find that the Assessing Officer has made disallowance in view of the amended provisions of Section 194C(1) by the Finance Act, 2007 with effect from 01.06.2007 wherein it is proposed to amend Sub-Section (1) in Section 194C so as to include payments made by any individual or Mr. Krishan Kr Somani vs. ITO Wdd-47(1) Kol. Page 5 Hindu Undivided Family whose total sales / gross receipts or turnover from the business or profession carried on by him exceed monetary limit specified under clause (a) or clause (b) or Section 44AB during the financial year or immediately preceding financial year in which such sum is credited or paid to the account of the Contractor. This amendment takes effect from 1st day of June, 2007 and is applicable for and from assessment year 2008-09. In Section 194C(1) with effect from 01.06.2007, by the Finance Act, 2007, clause as inserted, reads as under :- "(k) any individual or a Hindu Undivided Family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of Section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor, 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 : Provided that no individual or a Hindu Undivided Family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu Undivided Family."
We find from the arguments of Ld.SR. DR that revenue want to invoke provisions of Sub- Section (2) of Section 194C for furtherance of this case but we are of the considered view that Section 194C(2) will apply to the payments made to Sub-Contractors by the Contractor and not by the assessee. In the present case, it is an admitted position that the assessee has made payments on advertisement to the Contractors and not to Sub-Contractors. Further as referred by Ld. Counsel for the assessee, this provision was explained by CBDT Circular No.3 of 2008 dated 12.03.2008 which is reported in (2008)299 ITR 8 (Statute) and the relevant Circular as reported at page 71, reads as under :- "54. Expansion of scope of the provisions of section 194C.
54.1 The existing provisions of sub-section (1) of section 194C provided for deduction of income-tax at source from any sum credited or paid to the resident contractor for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government, local authorities, statutory corporations, companies, co-operative societies, statutory authorities engaged in providing housing accommodation, etc., registered societies, trusts, universities and firms. The rate of TDS is 1% in respect of advertising contracts and 2% in other cases.
Mr. Krishan Kr Somani vs. ITO Wdd-47(1) Kol. Page 6 54.2 The existing provisions of sub-section (1) of section 194C did not provide for deduction of tax at source on payments made by an individual or a Hindu undivided family to a contractor.
54.3 Considering the rising number of contracts being awarded by individuals and HUFs carrying on business or profession and the increasing volume of such payments to contractors, it was felt that there is need to require such persons to deduct tax at source from payments made by them to contractors. 54.4 There would be genuine difficulties if individuals or HUFs with small business turnovers or gross receipts of profession are required to deduct tax at source. An exception in such cases would be justified. Similarly the contracts awarded by an individual or a member of HUF of HUF exclusively for personal purposes merit exclusion. 54.5 Accordingly, the Finance Act, 2007, has substituted the said sub- section (1) to include in its ambit such individual or a Hindu undivided whose total sales, gross receipts or turnover from the business or profession carried on exceed the monetary limits specified under clause(a) or clause (b) of section 44AB during the financial year immediately preceding financial year in which sum is credited or paid to the account of the contractor. This amendment shall not apply in respect of payments made to a contractor by any individual or a member of a Hindu undivided family exclusively for their personal purposes. 54.6 Applicability - This amendment will take effect from the 1st day of June, 2007."
In view of the above clear provisions of Section 194(1) as existing in assessment years 2006-07 & 2007-08, i.e. relevant assessment years in the present appeals, it is clear that the assessee is under no obligation to deduct TDS on the expenditure of advertisement, as the assessee being an individual, and the claim of the assessee is as per provisions of law. Once the assessee is not liable to deduct TDS under the provision of Section 194C(1), the provisions of Section 40a(ia) for making disallowance of expenditure for non-deduction of TDS will not apply. We further find that, it is not the case of the revenue that the expenses are bogus or unreasonable or excessive but the disallowance is made merely for non-deduction of TDS. Accordingly, we are of the considered view that CIT(A) has rightly deleted the disallowance and we confirm the same." As the issue raised by the assessee is exactly on similar facts in the present case, taking a consistent view that the amended provisions of section Mr. Krishan Kr Somani vs. ITO Wdd-47(1) Kol. Page 7 194C(1) of the Act will not apply to the present assessment year, in the instant case of the assessee. Accordingly, this issue of assessee's appeal is allowed.
7. Next issue raised by assessee is exactly on similar facts in the present case except amount involved, we have already discussed the facts in para-6 of this order, taking a consistent view we allow assessee’s issue. AO is directed accordingly.