INCOME TAX OFFICER (TDS), AJMER vs. DIVISIONL FOREST OFFICER, AJMER

per notification of Rajasthan State Government payments to

EDC/VFPMCs do not fall under the category of contract payments,

therefore, the provisions of section 194C is not applicable. The AO

rejected the arguments stating that State Government GR cannot

override provisions of Income Tax Act and therefore payments

made to these AOPs were in nature of contract payment wherein

the assessee was held liable to deduct TDS and accordingly the

deductor treated as assessee in default u/s. 201(1)/201(1A) of the

Act for non-deduction and deposition of tax at source by an order

dated 20.03.2019.

preferred an appeal before the ld. CIT(A) who has based on the

written submission filed by the assessee allowed the appeal of the

assessee. The relevant finding upon which the appeal of the

assessee allowed is reproduced here in below :

“4.3 DECISION: - The observations of the AO, submissions of the appellant and the material on record have been considered. Briefly, the facts are that the appellant is an office of State Government of Rajasthan working on conservation and reforestation of forest area in the state of Rajasthan. During a spot verification survey conducted on the appellant on 03.01.2019 u/s 133(2A) of the Act it was found that the appellant has been making payments of large sum of to certain groups for executing work for the appellant. These groups were Eco Development Committee (EDCs) and Van Suraksha and Prabandhan Samiti (VFPMC). These groups were incorporated as Self Working Group for jointly working with the Government for preservation of forest

6 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer

and other such programme as a part of implementation of Panchayati Raj. as per Rajasthan State Government Notification S.No. F/7(39)/VAN/90 dated 17.08.1999. During the course of assessment proceeding, the appellant before the AO submitted that payments made to these EDC/VFPMC do not constitute as contract payments as there were specific on employing contractor. It was submitted that these Van Samitis are not contractor and the work executed by them under Government Public Partnership under Government Scheme of National Rural Employment Programme(NREP) and Rural Landless Employment Guarantee Programme (RLEGP). Further, as per Government notification members of the samitis would only be local inhabitants of the village or the area and these samitis operate on "no profit and no loss" basis. Therefore payments made to these Van Samitits cannot be considered within the purview of section 194C.

4.3.1 The AO in the order passed relied on the statement recorded u/s 131 during the spot verification of the accounting officer (AAO) wherein he had not denied of the fact that TDS on these payments were not deducted. Further, the AO held that if there was a contract between two parties for execution of certain work, then payments made would fall under the category of contract payment triggering liability for section 194C. The AO held that instructions of state government has no bearing on the Income Tax Act as state government notification has no overriding effect of law passed by the union government. Accordingly, the AO held that the appellant as assessee is default u/s 201 of the Act for non deduction of TDS u/s 194C on contract payment.

4.3.2 I have considered the rival arguments. It is evident from the above paragraphs, that there is no doubt regarding the institution of these EDCS/VFPMC groups or the nature of the work executed by them for the forest department. The only issue at hand is whether payments made for preservation of forest/reforestation by employing self help groups as per implementation of panchayti raj/NREP/RLEGP can be constituted as contract payment within the meaning of section 194C.

4.3.3 During the appellate proceedings, the appellant placed reliance on the CBDT circular no. 502 (F.No. 385/49/86-ITC dated 27.01.1988). As per this circular, programmes under NREF/RLEGP are executed with the participation of the people and the Panchayati Raj institutions under the active supervision of the State Governments in conformity with the guidelines framed by the Central Government. There is no contract between the village committee/voluntary agencies and the State Governments, which is sine qua non for attracting the provisions of section 194C. Moreover, these schemes specifically ban the employment of contractors/middlemen for the execution of the work undertaken under these schemes.

7 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer

4.3.4 The Van Samitis are instituted as per Rajasthan State Government Notification S.No. F/7(39)/VAN/90 dated 17.08.1999 for various conservation/forestation programme consisting people of local/village area for their upliftment through employment. As per notification these Van Samitis are not in the category of 'thekedar' i.e. contractor. Thus work was executed through participation of people and government as per notification framed by the State Government as per National Forest Policy (1988) of the Central Government. Therefore, conditions for exemption u/s 194C are satisfied in this case in view of the CBDT circular no. 502 (F.No. 385/49/86-ITC dated 27.01.1988), as these payments were not contract payments. The AO was incorrect in placing reliance on the statement given by the AAO u/s 131 for fixing liability u/s 194C. It is to be noted here that in the statement recorded the AAO in answer to Question no 4 denied of involvement of contractor in his department. Considering these facts, and CBDT circular no 502 dated 27.01.1988, I am of the opinion that payments made to these Van Samitis are not contract payments and provisions of section 194C thus do not apply. The AO is directed to delete the tax demanded u/s 201 of the Act. Grounds raised by the appellant are thus allowed.”

appeal challenging the finding of the ld. CIT(A) on the grounds as

reiterated here in above. All the grounds raised by the revenue are

interconnected and are in relating to the levy of TDS on the

payment made to the EDCs are liable for TDS u/s. 194C of the Act

or not. In support of the grounds so raised the ld. DR raised

vehemently argued that the revenue has made the spot verification

on the issue that has been raised in the assessment order and the

based on the verification and after considering all the arguments of

the assessee deductor the liability is determined. The statement of

the authorized officer was recorded. The assessee after the

8 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer assessment year 2018-19 started making the TDS compliance.

The ld. AO categorically stated that the EDCs/VFPMCs does not

fall into category of state government or local authority as per

section 10(20) or section 10(46) of the Act or any sub-section 10 of

section10 comes to the relief. The EDCs/VFPMCs are also not

registered as per provision of section 11 and 12 or that as co-

operative society so as to claim the provision of section 80P of the

Act. Thus, there is no means by which the payee are exempted

from tax. The ld. CIT(A) has granted the relief to the assessee

based on the circular of state government and the decision of the

apex court is not applicable to the present set of facts. The

provision of the Central Act cannot be exempted by the state

government notification. The CBDT circular no. 502 dated

27.01.1988 is not applicable as the scheme referred in that circular

and the payment are for the different scheme. Thus, considering

the provision of section 194C of the Act the appeal of the assessee

has been allowed without considering the findings of the ld. AO

recorded in his order and the arguments presented herein above.

finding of the ld. CIT(A). The ld. AR of the assessee filed a detailed

9 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer

written submission in support of the order passed by the ld. CIT(A)

and contention raised there upon based on that aspect of the

matter the appeal of the assessee is allowed by the ld. CIT(A). The

written submission filed by the assessee is reproduced here in

below :

(1) That LD CIT(A) has considered / appreciated the facts that the provisions of applicability of section 201(1) / 201(1A) of Income Tax Act, 1961 of Rs. 1,62,92,205.00 for “Assessee not in default” are not applicable to such VFPMC’S. AND (2) That LD CIT(A) has rightly considered / appreciated the facts that CBDT’S circular no. 502 (F.No. 385/49/86-ITC dated 27.01.1988) applicable to payments of VFPMC are squarely applicable to such VFPMC’S. BOTH THE GROUND ARE COMMON IN NATURE HENCE DEALT JOINTLY. 1. BRIEF OF FACTSOF CASE ARE AS UNDER:- (a) That the deductor assessee is an office of state government of Rajasthan who works as forest department of state of Rajasthan & it’s work include conservation of forest and increasing the forest area through re-foresting in Ajmer Region of state. (b) It has been observed by A.O. during spot verification; that assessee is regularly paying large sum of money to AOPS, called Eco Development Committee (EDC’S) or Van Suraksha and Prabandh Samiti (VFPMC). (c) The work of these VFPMC so called AOP include supplying of labour and carrying of any such work which include defence of forest in their assigned zone etc. thus these are schemes of the state government for planning, coordination, supervision, monitoring and implementation of the programme is the responsibility of district rural agencies and in such implementation the panchayati raj is actively involved as well as such voluntary organization are also involved and under these scheme there is specific ban on employment of contractors for the execution of the work under the programme and thus it is clear that such programmes / works are executed with the participation of the people, panchayati raj and state government in conformity with the central government and there is no contract between the village committee, voluntary agencies and the state

10 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer

government which is sine qua non for attracting the provisions of section 194C. A total payment of Rs. 5,88,89,874/- has been paid to such VFPMC’S during the year. These VFPMC are working on no loss no profit basis. (Page 1 to 4) (d) Further these VFPMC are incorporated as “SELF WORKING GROUP” for joint work as per direction of government & to preserve the forest & to grow them more. Even the clause 8.8 of Government of Rajasthan Notification S.No. F7(39) VAN/90 dated 17.08.99 it has been clarified that “MORE & MORE SUCH VAN SURAKSHA SAMITI” would be inspired under this “JANTA VAN YOJNA” for tree plantation & forestry. Such samitis shall not be in category of “THEKEDAR” (Contractor) rather this is work done under the Government Public Participation under the Government scheme of NREP(National Rural Employment programme) & RLEGP (Rural Landless Employment Guarantee Programme); since as per government notification such samiti & member would be local inhabitants of village / area only as per constitution & thus circular No. 502 dated 27/01/1988 squarely applies which states that “PROVISION OF SECTION 194C ARE NOT ATTRACTED IN THE CASE OF PAYMENTS MADE IN RESPECT OF SUCH WORKS”. (Page 5 to 6, 7 and 11) Further it is again a “REIMBURSEMENT OF EXPENSES” since the objects of such “VAN SAMITIS” are “NO LOSS NO PROFIT” & thus again the provisions of circular no. 715 dated 08.08.1995 applies. From the bills raised to accounts submitted by such samities it is clear that there are no surplus / loss (except for cash accounting by such samiti’s). (Page 8 to 10)

(e) Thus the applicability of provisions of section 194(C) do not arise. The statements of staff recorded u/sec. 131 of Act are general in nature & procedural but does not include the technical aspect as discussed above. Complete procedure government notifications were before A.O. to justify the facts in legal aspect & the circular no. 502 dated 27.01.1988 clearly specify such activities; not in perview of section 194C. The A.O. has not even tried to refer the provisions & exemptions available in Income Tax Act, mere “PAYMENT” does not mean “CONTRACT” rather it is government schemes which are executed to safeguard the funds & to get the desired work done. 2. LEGAL ASPECTS:- (1) According to the provisions of section 194C, any person responsible for paying any sum to any contractor for carrying out any work in

11 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer

pursuance of a contract between the contractor and the agencies specified therein shall, at the time of credit of such sum to the amount of the contractor or payment thereof in cash, etc., deduct an amount equal to 2 per cent of such sum as income-tax on income comprised therein. (2) According to the NREP Scheme, at the district level the entire work relating to planning, co-ordination, supervision and monitoring of implementation of the programme will be the responsibility of the District Rural Agencies. In the implementation of the programme, the Panchayati Raj institutions are actively involved. Voluntary organizations are also involved in such implementation. The wages under this programme are paid partly in food grains and partly in cash. There is a specific ban on employment of contractors for the execution of the work under the programme. (3) According to the RLEGP Scheme while preparing the work project, the State Government will indicate the implementing agencies for each project. There can be different implementing agencies for different work projects in a State. The projects can be entrusted to voluntary organizations/Panchayati Raj institutions also for implementation. The State Government will have the overall responsibility for planning, supervision and monitoring of the projects taken up under this programme. The wages under this programme are to be paid partly in food grains and partly in cash. This programme also specifically bans the employment of contractors for execution of work. It has been specifically laid down in the guidelines for implementation of RLEGP that the voluntary organizations should ensure that no contractors or middlemen or any such intermediary agencies are engaged in the execution of work. (4) Thus, it is clear that the programmes under the NREP and RLEGP are executed with the participation of the people and the Panchayati Raj institutions under the active supervision of the State Governments in conformity with the guidelines framed by the Central Government. There is no contract between the village committee/voluntary agencies and the State Governments, which is sine qua non for attracting the provisions of section 194C. Moreover, these schemes specifically ban the employment of con tractors/middlemen for the execution of the work undertaken under these schemes. (5) In view of the foregoing, the provisions of section 194C are not attracted in the case of payments made in respect of works executed under these programmes. Accordingly in terms of circular no. 502 (F.No. 385/49/86-ITC dated 27.01.1988) of Government of India, Income Tax department it has been

12 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer

clarified / explained that provisions of section 194C are not applicable in case of afore captioned situation. Since Dy. Conservator Forest Department Bhilwara (Raj.) is a wing of Rajasthan State Government, Jaipur & works for forest department of State of Rajasthan for conservation of forest & increasing the forest area through re-foresting under the same schemes. Even Hon’ble Supreme Court in case of Gujrat State & Others v/s Pratam Singh Parmar J.T. 2001(3) SC 326 in the bench of G.B. Patnaik & Shri V.N. Agarwal order dated 31.01.2001 has decided that State Government & Forest Department is not an “INDUSTRY” but there act are “UNIVERSAL”. Few work order under NREGA (Mahatama Gandhi National Rural Employment Gurantee Assurance Programme) & other government flagship schemes are also there to justify the facts & non applicability of provisions of section 194C of Income Tax Act, 1961 & circular No. 502 dated 27.01.1988 of Board is clearly applicable. (6) ALTERNATIVELY; in terms of section 206AA read with section 139A of Act and Article 14 of The Constitution of India 1950 the facts are to be examined that whether the DEDUCTION OF TAX AT SOURCE REQUIREMENT TO FURNISH PAN, is must (UNCONSTITUTIONAL) in view of statute in case of person whose income is below taxable limit. Refer High Court of Karnataka (2012) 208 Taxman 208 / 22 Taxmann.com 157 Karnatka in case of Smt. A Kowsalya Bai V/s Union of India where the Hon;ble High Court has decided that “section 139A which is introduced way back in April’ 1991 is in vogue & this provision stands the scrutiny of Article 14 of the constitution for reasonableness. But, section 206AA which is contrary to section 139A appears to be discriminatory as it is overriding section 139A introduced earlier. Though the intention of the legislature is to bring the maximum persons under the net of Income Tax when necessarily it provided for exemption upto taxable limit. It may not insist such persons whose income is below the taxable limit to compulsorily go for pan. If any mischief of avoiding of tax or any other act of concealing the income is detected that could be taken care of by penal provisions. Accordingly the case was decided in favour of petitioner (Assessee) thus the question of obtaining pan from such societies who has no

13 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer

income or below taxable income does not arise & even section 197A subsection 1B states as under;- Section 197A(IB) (1B) The provisions of this section shall not apply where the amount of any income of the nature referred to in sub-section(1) or sub- section(1A) as the case may be, or the aggregate of the amounts of such incomes credited or paid or likely to be credited or paid during the previous year in which such income is to be included exceeds the maximum amount which is not chargeable to income tax. Thus when such societies are not having “TAXABLE INCOME” in terms of section 139 of Act; no return is to filed by them; nor are required to get pan. Section 197A(IB) also prohibits to them for apply “LOWER DEDUCTION” or to file any form. Thus asessee is “NOT IN DEFAULT” & no liability u/sec. 201(1) & 201(1A) can be determined. ALTERNATIVELY in view of provisions in section 201 / 201(1A) w.e.f. 01.07.2012 (Finance Act, 2012) it has been clearly stated as under:- Provided that in case any person, including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident but is not deemed to be an assessee in default under the first proviso to sub-section (1), the interest under clause (i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident Thus the assessee cannot be considered as “ASSESSEE IN DEFAULT” since each eco development committee (EDC”S) or Van Surakasha and Prabandh Samiti (VFPMC) as defined above has no taxable income. There audited accounts for each financial year is as enclosed and Income Tax Department has not issued them any notice u/sec. 148 / 143(2) / 142(1) of Act so far since no income taxable. Thus when there is no taxable income of any such institution (Samitis) than the provisions of section 201 and section 201(1A) are applicable & “ASSESSEE IS NOT IN DEFAULT” . Section 4 of Income Tax Chapter II / States “BASIS OF CHARGE” Thus “MUTUAL CONCERNS”, where the members of the assesse association are contributors to a common fund and had the right to participate

14 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer

in surplus, the surplus would not be assessable as the assessee’s income on the ground of mutuality – CIT V/s Cement Allocation & Co.-ordinating Org. (1999) 236 ITR 553 (Bom.) Section “4” of Act further defines what is “CONSORTIUM MEMBER” what is AOP & features of consortium arrangement & what is not AOP etc. (Refer circular no. 7/2016 dated 07.03.2016) copy as enclosed. (Page 1) Thus till it is not established that such VAN SURAKSHA AND PRABHANDAN SAMITI (VFPMC) are AOP or not or are only “MUTUAL CONCERNS” & thus has basic charge to Income Tax u/sec. 4 of Act. The A.O. without verifying this test has straightway considered such VFPMC as AOP liable to tax & thus instead considering such “MUTUAL CONCERNS” for no profit object has considered them AOP & has levied TDS liability. Thus a person cannot make a taxable profit out of transaction with himself DUBLIN CORPORATION V/S H ADAM 2TC 387 Further the payments by Rajasthan State Government (through it’s forest department wing) to such VFPMC & Rajasthan State Forest Department are thus covered by article 289(1) of the constitution, where the property or income of a state is not liable for union taxation. Further held that such arrangement must be of a non – trading character:- “Arrangement must be of non – trading character – it is settled that in the case of mutual society or concern (including a members club), there must be complete identity between the class of contributors and the class of participators. The particular label of form by which the mutual association is known, is of no consequence. In substance, the arrangement or relationship between the club and its members should be of a non – trading character. At what point does the relationship of mutuality ends and that of trading begins is a difficult and vexed question. A host of factors may have to be considered to arrive at a conclusion. Whether or not the persons dealing with each other constitute a mutual club or are carrying on a trading activity or an adventure in the nature of trade, is largely a question of facts – CIT v. Bankipur Club Ltd. (1997) 92 Taxman 278 (SC).” Similar view has further held in case of Chelmsford Club V/s CIT(2000) 243 ITR 89 (SC). “Principle of mutuality will extend to property income also – Where the assesse – club provides recreational facilities to its members and their guests

15 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer

and to no one else, and is run on no profit no loss basis, in that the members pay for all their expenses and are not entitled to any share in the profits and surplus, if any, is used for maintenance and development of the club, the notional income from house property in respect of the club building is not assessable to tax, on the principle of mutuality which will extend to such deemed income also on the facts of the case – Chelmsford Club V. CIT(2000) 243 ITR 89(SC).” “Activities should not be commercial or profit – motivated – Where the facilities extended by the clubs to their members are as a part of usual privileges, advantages and conveniences attached to the members of the club, the said activity cannot be said to be trading activity. On the other hand, if the activities disclose profit – earning motive and are tainted with commerciality and what is being offered are usual privileges, advantages and conveniences, that would attract the principle of mutuality. Such a finding and consequent applicability of the principle cannot be interfered with unless the revenue from the record points out that the findings are totally perverse – CIT v. Willingdon Sports Club (2008) 302 ITR 279 (Bom).” Thus from above facts & discussions it is clear that such VFPMC are not AOP’S (An independent entity for levy of tax, basis of charge – section 4 of Income Tax Act, 1961) but are only MUTUAL CONCERNS & thus no tax liability, existence (Separate) proved. Further as held at ITAT Mumbai Bench in case of ICICI Securities Ltd. V/s ITO International Taxation order dated 09.11.2022 it has been held that “Liability to deduct TDS u/sec. 201 of Income Tax Act, is a VICARIOUS LIABILITY; which ends with discharge of principal liability of recipient of income. Thus when “RECEIPIENT OF INCOME” such society’s VAN SURAKSHA AND PRABHANDAN SAMITI (VFPMC) are mutual concern of Rajasthan State Forest Department than there is no tax liability of such concerns in terms of article 289(1) of Indian Constitution. (f) Thus these VFPMC are incorporated as “SELF WORKING GROUP” for joint work as per direction of government & to preserve the forest & to grow them more. Even the clause 8.8 of Government of Rajasthan Notification S.No. F7(39) VAN/90 dated 17.08.99 it has been clarified that “MORE & MORE SUCH VAN SURAKSHA SAMITI” would be inspired under this “JANTA VAN YOJNA” for tree plantation & forestry. Such samitis shall not be in category of “THEKEDAR” (Contractor) rather this is work done under the Government Public Participation under the Government scheme of NREP(National Rural Employment programme) & RLEGP (Rural Landless Employment Guarantee Programme); since as

16 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer

per government notification such samiti & member would be local inhabitants of village / area only as per constitution & thus circular No. 502 dated 27/01/1988 squarely applies which states that “PROVISION OF SECTION 194C ARE NOT ATTRACTED IN THE CASE OF PAYMENTS MADE IN RESPECT OF SUCH WORKS”. Further it is again a “REIMBURSEMENT OF EXPENSES” since the objects of such “VAN SAMITIS” are “NO LOSS NO PROFIT” & thus again the provisions of circular no. 715 dated 08.08.1995 applies. From the bills raised to accounts submitted by such samities it is clear that there are no surplus / loss (except for cash accounting by such samiti’s. Even Hon’ble Supreme Court in case of Gujrat State & Others v/s Pratam Singh Parmar J.T. 2001(3) SC 326 in the bench of G.B. Patnaik & Shri V.N. Agarwal order dated 31.01.2001 has decided that State Government & Forest Department is not an “INDUSTRY” but there act are “UNIVERSAL”. Further in this case all pan number of each VFPMC were submitted to A.O & has been admitted by A.O. in assessment order itself (Page 3 of Ao’s order) & thus of same the provisions of section 206AA (Requirement to furnish pan or if Pan Not furnished TDS at 20% instead rate in force) cannot be applied. Thus even if provisions of section 201 / 201A are applied; TDS liability should be considered only to the extent of TDS rates in force u/sec. 194C e.g. 2% & not at 20% by invoking the provisions of section 206AA. The Hon’ble Supreme Court in Hindustan Coca Cola Beverage (P) Ltd. V/s CIT(293 ITR 226 (SC)) upholding the order of Tribunal held that though the appellant assessee was rightly held to be an assessee in default, there could be no recovery of the tax alleged to be in default once again from the appellant considering that the payee had already paid taxes on the amount received from the appellant. The Tribunal had also held that the taxes once again could not be recovered from the deductor assessee since the taxes had already been paid by the receipient of income. The Hon’ble Supreme Court further noted the contents of the Circular dated 29.01.1997 issued by CBDT and held that the deductor assessee was liable to pay interest under section 201(1A) of the Act till the date of payment of taxes by the deductee assessee, observing as under:- “10 Be that as it may, the Circular no. 275/201/95-IT(B), dated 29th Jan, 1997 issued by the CBDT, in our considered opinion, should put an end to the controversy. The circular declares “no demand visualized under section 201(1) of the IT Act should be enforced after the tax deductor has satisfied the officer-in-charge of TDS, that taxes due have been paid by the deductee – assessee. However, this will not alter the liability to charge interest under

17 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer

section 201(1A) of the Act till the date of payment of taxes by the deductee – assessee or the liability for penalty under section 271C of the IT Act. Considering & affirming the similar facts / pleas the LD. CIT(A), NFAC Delhi in similar type of cases of Divisional Forest Officer, Ajmer (A Division of Forest Department Like Assessee) vide Appeal order no. 10144/2019-20 , 10145/2019-20, 101431/2019-20 order dated 28.02.2023 for A.Y. 2016-17 / 2017-18 has deleted the addition / disallowance. Copy enclosed. It is requested to kindly consider the facts in view of provisions of law & delete the demand.” “Date of Hearing : - Sr. No. Nature of Documents Page No. (1) Analysis of Amount paid to each VPPMC, with 1 to 4 pan & year wise amount paid (2) Copy of clause 8.8 of Government of Rajasthan Notification 5 to 6 Sr. No. F7(39) VAN/90 dated 17.08.99 (3) Copy of CBDT Circular No. 502 dated 27/01/1998 for applicability 7 of provisions of section 194C. (4) Copy of Circular No. 715 dated 08.08.1995 8 to 10 (5) Copy of scheme under NREP and RLEGP schemes of government. (6) Copy of High Court order that “Forest Act” is not a “Trader”/”Industry” dated 16.08.2001”

CIT(A) also relied upon the CBDT circular No. 502 dated

27.01.1988. The ld. AR of the assessee also submitted that the

liability of TDS has been fixed upon the assessee @ 20%

considering that EDC’s are having any PAN. That information is

already on record as the assessee started compliance to avoid

unnecessary litigation. The ld. AR of the assessee submitted that

in almost all cases there are available PAN. Therefore, even if on

merit are not considered then the liability fasten in assessee

cannot be @ 20%. Therefore, even if this plea is considered the

18 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer demand will substantially reduce if these details are considered

and mostly importantly even if these details are placed on record

non of these EDCs case is re-opened or assessed considering the

income paid by the assessee as chargeable to tax this itself proves

that the revenue has accepted the fact that the income of the

payee are not chargeable to tax and thus the TDS liability fastened

on the assessee has rightly been deleted by the ld. CIT(A).

authorities and vehemently argued that the subsequent action of

the assessee taking PAN making compliance of TDS itself

demonstrate that the assessee for the year under consideration is

liable for TDS liability. Based on this aspect of the matter he

supported the order of lower authority.

placed on record. The brief facts of the case are that the appellant

is an office of State Government of Rajasthan working on

conservation and reforestation of forest area in the state of

Rajasthan. ITO, TDS made a spot verification cum survey on the

office premises of the assessee on 03.01.2019 u/s 133(2A) of the

19 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer Act. During the spot verification the AO found that the assessee

making payments of large sum to certain groups for executing the

various work. The payments were made to Eco Development

Committee (EDCs) and Van Suraksha and Prabandhan Samiti

(VFPMC). These groups were constituted as Self Working Group

jointly with the Government for preservation of forest and other

such programme as a part of implementation of Panchayati Raj.

Relying on the Rajasthan State Government Notification S.No.

F/7(39)/VAN/90 dated 17.08.1999 assessee submitted that

payments made to these EDC/VFPMC do not constitute as

contract payments as there were specific on employing contractor.

It was submitted that these Van Samitis are not contractors and the

work executed by them under Government Public Partnership

under Government Scheme of National Rural Employment

Programme (NREP) and Rural Landless Employment Guarantee

Programme (RLEGP). Further, as per Government notification

members of the samitis would only be local inhabitants of the

village or the area and these samitis operate on "no profit and no

loss" basis. Therefore, payments made to these Van Samitits

cannot be considered within the purview of section 194C. Whereas

the ld. AO in the order passed relied on the statement recorded u/s

20 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer 131 during the spot verification of the accounting officer (AAO). In

the said statement he had not denied to the fact that TDS on these

payments were not deducted. Further, the ld. AO held that if there

was a contract between two parties for execution of certain work,

then payments made would fall under the category of contract

payment and thereby the provision of section 194C would

automatically apply. The ld. AO held that instructions of state

government have no bearing on the Income Tax Act as state

government notification cannot overriding the central government

Act and the assessee did not bring on record any circular or

notification of central government notifying the exemption.

Accordingly, the AO held that the assessee is default u/s 201 of the

Act for non deduction of TDS u/s 194C on contract payment. The

bench noted that it is not under disputed that the institution of these

EDCS/VFPMC groups or the nature of the work executed by them

for the forest department. The only issue at hand is whether

payments made for preservation of forest/reforestation by

employing self help groups as per implementation of panchayti

raj/NREP/RLEGP can be constituted as contract payment within

the meaning of section 194C of the Act or not. The ld. AR of the

assessee heavily relied upon the CBDT circular no. 502 (F.No.

21 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer 385/49/86-ITC dated 27.01.1988). As per this circular, programmes

under NREF/RLEGP are executed with the participation of the

people and the Panchayati Raj institutions under the active

supervision of the State Governments in conformity with the

guidelines framed by the Central Government. There is no contract

between the village committee/voluntary agencies and the State

Governments, which is sine qua non for attracting the provisions of

section 194C. Moreover, these schemes specifically ban the

employment of contractors/middlemen for the execution of the work

undertaken under these schemes. The Van Samitis are instituted

as per Rajasthan State Government Notification S.No.

F/7(39)/VAN/90 dated 17.08.1999 for various conservation /

forestation programme consisting people of local / village area for

their upliftment through employment. As per notification these Van

Samitis are not in the category of 'thekedar' i.e. contractor. Thus,

work was executed through participation of people and government

as per notification framed by the State Government as per National

Forest Policy (1988) of the Central Government. Therefore,

conditions for exemption u/s 194C are satisfied in this case in view

of the CBDT circular no. 502 (F.No. 385/49/86-ITC dated

27.01.1988), as these payments were not contract payments. The

22 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer

ld. AO merely based on the fact that these payments were made

for the work and relying the statement given by the AAO u/s 131

fasten the liability u/s 194C which is against the various facets

argued by the ld. AR of the assessee. It is to be noted here that in

the statement recorded the AAO in answer to Question no 4 denied

of involvement of contractor in his department. Considering these

facts, and CBDT circular no 502 dated 27.01.1988, we are of the

considered view that payments made to these Van Samitis are not

contract payments and provisions of section 194C thus do not

apply. We get support of this view from the decision of Delhi Bench

of ITAT in ITA No.6844/Del./2019 (Assessment Year : 2015-16) in

the case of M/s. Santur Infrastructure Pvt. Ltd., vs. ACIT, Range 77

New Delhi where in the coordinate bench has also considered

these aspect of the matter. The relevant part of the decision is

reiterated here in below :

23 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer

24 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer

be levied.” Operative part of the judgment supra is extracted for ready perusal as under :- "2. The matter was pursued by the Revenue before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal vide order dated 31.03.2006 entered the following findings: "11. We have carefully considered the rival submissions. In the instant case we are not dealing with collection of tax u/s 201(1) or compensatory interest u/s 201(1A). The case of the assessee is that these amounts have already been paid so as to end dispute with Revenue. In the present appeals we are concerned with levy of penalty u/s 271-C for which it is necessary to establish that there was contumacious conduct on the part of the assessee. We find that on similar facts Hon'ble Delhi High Court have deleted levy of penalty u/s 271-C in the case of Itochu Corporation 268 ITR 172 (Del) and in the case of CIT v. Mitsui & Company Ltd. 272 ITR 545. Respectfully following the aforesaid judgments of Hon'ble Delhi High Court and the decision of the ITAT, Delhi in the case of Television Eighteen India Ltd., we allow the assessee's appeal and cancel the penalty as levied u/s 271C." 3. Being aggrieved, the Revenue took up the matter before the High Court of Delhi against the order of the Income Tax Appellate Tribunal. The High Court rejected the appeal only on the ground that no substantial question of law arises in the matter. 4. On facts, we are convinced that there is no substantial question of law, the facts and law having properly and correctly been assessed and approached by the Commissioner of Income 9 ITA No.6844/Del./2014 Tax (Appeals) as well as by the Income Tax Appellate Tribunal. Thus, we see no merits in the appeal and it is accordingly dismissed." 15. Furthermore, coordinate Bench of the Tribunal in case of DCIT (TDS), ACIT (TDS) and JCIT (TDS), Dehradun vs. The Joint Secretary Organizing Committee for Winter Games also decided the identical issue by relying upon the decision rendered by Hon’ble Supreme Court in case of CIT vs. Bank of Nova Scotia (supra) and deleted the penalty u/s 271C by returning following findings :- "31. We have carefully considered the rival contentions and perused the orders of the lower authorities. On looking to the facts of the case as discussed by us in appeal of the assessee and revenue in 201(1) and 201(1A) proceedings above, we find that the belief of the assessee is bonafide and failure to deduct tax at source u/s 194C of the Act is for a reasonable cause. The ld Assessing Officer could not show any contemptuous conduct on part of the assessee for non-deduction of tax at source. There could also not be any reason for non-deduction as assessee has made most of the payments to the public sector

25 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer

undertaking. The Hon'ble Supreme Court in the case of CIT Vs. Bank of Nova Scotia in 380 ITR 550 has approved the decision of the Hon'ble Delhi High Court wherein, it has been held that it is necessary to establish 'contumacious conduct' on the part of the assessee for failure to deduct tax at source for levy of penalty u/s 271C of the act. In the present case, all the recipients have also furnished a certificate that they have received the payment. In view of this, we reverse the order of the ld CIT (A) confirming the levy of the penalty of � 1152461/- u/s 271C of the Act in absence of any finding to show contumacious conduct on the part of the assessee. Ld OA id directed to delete the penalty-levied u/s 271C of the act. Accordingly, appeal of the assessee in ITA No. 1576/Del/2015 for AY 2010-11 is allowed." 16. In view of what has been discussed above, we are of the considered view that firstly, the assessee was not required to deduct TDS as the payment of EDC was not made out of any statutory and 10 ITA No.6844/Del./2014 contractual liability to HUDA with whom the assessee has no privity of contract; secondly, the assessee has reasonable cause for non-deduction of tax at source by the assessee company; thirdly it is not the case of the Revenue authorities that the assessee has intentionally avoided the deduction of TDS by bringing on record contumacious conduct of the assessee; and fourthly, with continuous clarifications by the CBDT and DTCP discussed in the preceding paras, the issue became debatable if the TDS is to be deducted or not on the EDC providing reasonable cause to the assessee not to deduct the TDS. Consequently, penalty levied by the AO and confirmed by the ld. CIT (A) is not sustainable in the eyes of law, hence ordered to be deleted. So, the appeal filed by the assessee is allowed. In the light of the discussion made and respectfully following the

similar view taken by the coordinate bench of Delhi we do not find

any infirmity in the order of the ld. CIT(A). Based on these

observation the appeal filed by the revenue stands dismissed.

In the result, the appeal of the revenue in ITA no.

358/JP/2023 is dismissed.

26 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer 14. The fact of the case in ITA Nos. 359 to 360/JP/2023 are

similar to the facts of the case in ITA No. 358/JP/2023 and we have

heard both the parties and persuaded the materials available on

record. The bench has noticed that the issues raised by the

revenue in appeal Nos. 359 to 360/JP/2023 are equally similar on

set of facts and grounds. Therefore, it is not imperative to repeat

the facts and various grounds raised by the revenue. Hence, the

bench feels that the decision taken by us in ITA No. 358/JP/2023

for the Assessment Year 2016-17 shall apply mutatis mutandis in

ITA Nos. 359 to 360/JP/2023. Based on these observations the

appeal of the revenue in ITA Nos. 359 to 360/JP/2023 stands

dismissed.

In the result, the appeals of the revenue are dismissed.

Order pronounced in the open Court on 08/11/2023 Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 08/11/2023 *Ganesh Kumar, PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Income Tax Officer, TDS, Ajmer izR;FkhZ@ The Respondent- Divisional Forest Officer, Ajmer 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr@ CIT(A) 4.

27 ITA Nos. 358 to 360/JP/2023 Income Tax Officer (TDS) vs. Divisional Forest Officer

विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 5. 6. xkMZ QkbZy@ Guard File { ITA Nos. 358 to 360/JP/2023} vkns'kkuqlkj@ By order सहायक पंजीकार@Aेेज. त्महपेजतंत