I.T.O WD - 2(2),HOOGHLY., HOOGHLY vs. RATNA MUKHERJEE ( L/H OF LATE KAMAL MUKHERJEE), DURGAPUR

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ITA 559/KOL/2013Status: DisposedITAT Kolkata21 October 2016AY 2006-075 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the payments made were wages to employees, covered under Section 192 of the Act, and not payments to contractors attracting Section 194C. Therefore, Section 40(a)(ia) was not applicable.

What were the facts?

The Assessing Officer disallowed labour charges of ₹89,64,419/- for non-deduction of TDS under Section 194C read with Section 40(a)(ia) of the Act. The assessee contended that these payments were wages to employees, not payments to contractors.

What were the issues?

Whether payments made for labour charges, where PF and ESI were deducted, constituted wages to employees or payments to contractors for the purpose of TDS and disallowance.

Which sections of the Income-tax Act were involved?

Section 194C,Section 40(a)(ia),Section 147,Section 148,Section 192

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA

Before: Shri Waseem Ahmed & Shri K.Narsimha Chary

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

1.

This appeal by the Revenue is against the order of Commissioner of Income Tax (Appeals)-XXXVI, Kolkata dated 06.12.2012. Assessment was framed by ACIT, Circle-2, Hooghly, u/s 147/144 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 30.11.2010 for assessment year 2006-07.

Shri Dular Chand Mondal Ld. Departmental Representative appeared on behalf of Revenue and Shri Soumitra Choudhury, Ld. advocate appeared on behalf of assessee.

ITO Wd-2(2) Hgl. Vs. Ratna Mukherjee Page 2 2. At the threshold it was noted that there is a delay of 28 days in filing the appeal by the Revenue. The Revenue has filed condonation petition in this regard stating the reason that the delay is occurred due to pendency of work load. Ld. AR for assessee raised no objection for condonation considering the delay. This, in our considered opinion and on the facts and circumstances of the case, the delay deserves to be considered. Accordingly we condone the delay and proceed to hearing the appeal.

3.

Solitary interconnected issue raised by Revenue is that Ld. CIT(A) erred in deleting the addition made by Assessing Officer for ₹89,64,419/- on account of non deduction of Tax Deducted at Source (TDS for short) u/s 194C(2) r.w.s. 40(a)(ia) of the Act.

4. Facts in brief are that assessee in the present case is an individual and engaged in business of contracting. Assessee for the year under consideration has filed its return of income disclosing income at ₹8,18,250/- comprising of profit under the head “business and profession”. Subsequently the case was selected for income escaping assessment u/s 147 of the Act and accordingly notice u/s. 148 of the Act was issued upon assessee. The assessment was framed u/s. 147/144 of the Act at a total income of ₹98,82,470/- by making certain disallowances.

During the course of assessment proceedings, AO observed that assessee has paid labour charges amounting to ₹89,64,219/- without deducting TDS. Therefore, said expense was disallowed under the head “profession” of Sec. 40(a)(ia) of the Act and added to the total income of assessee.

5. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before ld. CIT(A) submitted that labourers to whom the wages were paid are the ITO Wd-2(2) Hgl. Vs. Ratna Mukherjee Page 3 employees. There was no relationship of contractor and contractee between the assessee and the labourers, therefore the provision of Sec. 194C r.w.s. 40(a)(ia) of the Act are not attracted. Further, assessee submitted that the payment was made to the employees after deducting PF and ESI in respect of all the labourers. Considering the facts and circumstances, Ld. CIT(A) deleted the addition made by AO by observing as under:- “8. However, in the light of the remand report of the AO, which is reproduced above, it is found that the payments made on account of labaour charges were passed muster through PF & ESI account duly confirmed by the appropriate authority. I have also gone through the different stats of labour charges, pay structure of the labourers, labour-wise details of deduction of PF & ESI for several months etc. on perusal of these evidence and considering the remand report of the AO stating that deductions of PF & ESI have been duly verified from the PF. Authority, I am of the considered view that the appellant’s case falls under the purview of sec. 194C(2) of the Act. however, as the labourers were the appellant’s employees from whom deductions of PF & ES have been made in regular course, there was no relationship of contractor and contractee to attract provisions of sec. 40(a)(ia) r.w.s 194C(2) of the Act. therefore, the labaour charges claimed were nothing but wages paid to the employees as the cost of labour and in such circumstances, there is no scope to invoke provisions of sec. 40(a)(ia) of the Act. That being so, the disallowance made by the AO u/s 40(a)(ia) of the Act is deleted and the AO is directed to allow the claim of the assessee in respect of expenditure of rs.89,64,419/- incurred on payment of wages to labourers. Ground No.1 of this appeal is thus allowed.”

Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.

4.

Before us Ld. DR submitted that labourers are not employees of assessee and in none of the case, no employment letters have been issued to those labourers. He vehemently relied on the order of AO. On the other hand, Ld. AR submitted that all the labourers to whom the wages have been paid are the employees of the assessee and in support of this claim, Ld. AR further submitted that payment were made to the labourers after depositing the PF and ESI on behalf of all the labourers. He also relied on the order of Ld. CIT(A).

5.

We have heard the rival contentions and perused the materials available on record. The issue in the present case is that the AO has treated the payment ITO Wd-2(2) Hgl. Vs. Ratna Mukherjee Page 4 of wages to the labourers as subject to the provisions of section 194C of the Act. But the assessee claims that the labourers are the employees of it and therefore they are governed by the provisions of section 192 of the Act i.e. salary to the employees. Accordingly the ld. CIT(A) has given the relief to the assessee for not deducting the TDS on the payment of wages to the labourers under section 194C of the Act. Now the issue before us arises so as to whether the labourers to whom the payments are being made are the employees of the assessee. We find that as per the provisions of section 17(1) of the Act salary includes wages and therefore conceptually there is no difference between salary & wages. Wages are treated just like salary and are taxable on same basis. The employment relationship can be complex, with no quick and easy formulae to use which will provide an instant solution. The general principles of contract law govern the formation of the contract of employment. A contract of employment is a contract by which a person, the employee, undertakes for a limited or indeterminate period of time to do work for remuneration according to the instructions and under the direction or control of another person, i.e the employer. Within the framework of a contract of employment, a person carries out the service of work, receives remuneration and the work is carried out according to the direction and control of the employer. The terms of the contract may be either in writing or given orally, but both are equally binding and enforceable. When a person is hired to be an employee, the person enters into a contract of service, which is an employer/employee relationship. Another type of contract between two parties is that of an independent contractor or a contract for service. This type of contract may be defined as a contract by which a person, contractor or service provider makes a commitment to another person, the client, to carry out material or intellectual work or to provide a service for a price or fee. The characteristics of a contract for service are that the contractor is free to choose the means of performing the contract and no relationship of subordination exists between the contractor or the provider of services and the ITO Wd-2(2) Hgl. Vs. Ratna Mukherjee Page 5 client in respect of such performance. In the instant case before us the ld. DR has not brought anything contrary to the findings of ld. CIT(A). In our considered view the wages in the instant case are covered under section 192 of the Act. Therefore the provisions of section 194C are not applicable. In the instant case the payment has been made to the employees of the assessee. In view of above we do not find any reason to interfere in the order of ld. CIT(A). Hence Revenue appeal is dismissed.

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