ITO., Ward- 6(3), Hyderabad, Hyderabad V. M/s Pioneer Roadways, Hyderabad

CO 60/HYD/2014

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0346 (ITAT-HYDERABAD)
• Duration Of Justice: 2 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 19-11-2014
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: V RAGHAVENDRA RAO

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER & SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 606/HYD/2014 ASSESSMENT YEAR: 2006-07 INCOME - TAX OFFICER, WARD 6(3), HYDERABAD VS M/S.PIONEER ROADWAYS, HYDERABAD [AAGFP 3081 Q] (APPELLANT) (RESPONDENT) C.O. NO. 60/HYD/2014 (IN ITA NO. 606/HYD/2014) ASSESSMENT YEAR: 2006-07 M/S.PIONEER ROADWAYS, HYDERABAD [AAGFP 3081 Q] VS INCOME - TAX OFFICER, WARD 6(3), HYDERABAD ( CROSS OBJECTOR ) (RESPONDENT) REVENUE BY : SHRI R A JAT MITRA, DR ASSESSEE BY : S HRI V.RAGHAVENDRA RAO, AR DATE OF HEARING : 16 - 12 - 2014 DATE OF PRONOUNCEMENT : 1 3 - 0 2 - 201 5 O R D E R PER SAKTIJIT DEY, J.M.: THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE OR DER DATED 10-01-2014 OF LD. COMMISSIONER OF INCOME TAX (APPEALS)- IV, HYDERABAD PERTAINING TO THE ASSESSMENT YEAR (A. Y.) 2006- 07. THE ASSESSEE HAS ALSO FILED A CROSS OBJECTION SUPPORTING THE ORDER OF THE LD. CIT(APPEALS). THE ONLY EFFECT IVE GROUND OF THE DEPARTMENT IS AS UNDER: 2 ITA NO. 606/HYD/2014 & C.O.NO.60/HYD/2014 THE HONBLE CIT(A) OUGHT HAVE SUSTAINED THE DISALL OWANCE U/S.40(A)(IA) SINCE THE PAYMENT WAS TOWARDS COMMISS ION ON WHICH THE ASSESSEE FAILED TO COMPLY WITH THE PROVISIONS O F SEC.194H. 2. BRIEFLY THE FACTS RELATING TO THE AFORESAID ISSU E ARE, THE ASSESSEE A PARTNERSHIP FIRM IS ENGAGED IN THE BUSIN ESS OF TRANSPORT AS WELL AS CIVIL CONTRACTS. FOR THE A.Y. UNDER CONSIDERATION, THE ASSESSEE FILED RETURN OF INCOME ON 31-10- 2006 DECLARING TOTAL INCOME OF RS.21,39,370/-. DUR ING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER WHILE EXAMINING THE P&L A/C OF CONTRACT WORK NOTICED THAT ASSESSEE EXECUTED THE WORK ON SUB-CONTRACT BASIS TO THE MAIN CONTRACT ORS M/S.G.VENKATA REDDY AND CO., WHO HAD OBTAINED THE C ONTRACT FROM GOVERNMENT. THE ASSESSING OFFICER NOTICED THA T FOR GETTING SUB-CONTRACT FROM THE MAIN CONTRACTOR, THE ASSESSEE PAID A SUM OF RS.25,56,326/- WHICH WAS DEBITED TO P &L A/CIT(A) UNDER THE HEAD MAIN CONTRACTOR COMMISSION . THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE PA YMENT MADE WAS IN THE NATURE OF COMMISSION, THE ASSESSEE WAS R EQUIRED TO DEDUCT TAX AT SOURCE U/S.194H OF THE INCOME TAX ACT , 1961 (ACT). HOWEVER, SINCE THE ASSESSEE HAD NOT DEDUCTED ANY TAX ON SUCH PAYMENTS, THE ASSESSING OFFICER CALLED UPON TH E ASSESSEE TO SHOW CAUSE AS TO WHY THE PAYMENT MADE SHOULD NOT BE DIS- ALLOWED U/S.40(A)(IA). THOUGH, THE ASSESSEE SUBMITT ED BEFORE THE ASSESSING OFFICER THAT AFTER GETTING SUB-CONTRA CT FROM THE MAIN CONTRACTOR, IT STARTS EXECUTION OF WORK AND ON PERCENTAGE BASIS OF WORK COMPLETED, IT RAISES BILL ON MAIN CON TRACTOR, WHO IN TURN CLAIMS THE PAYMENT FROM THE PRINCIPAL I.E., THE GOVERNMENT. AFTER RECEIVING THE PAYMENT FROM THE PR INCIPAL, THE MAIN CONTRACTOR MAKES PAYMENT TO THE ASSESSEE. AT THE TIME OF MAKING PAYMENT, THE MAIN CONTRACTOR MAKES DEDUCTION TOWARDS MATERIAL RECOVERIES/OTHER RECOVERIES SUCH AS FSD, T DS (IT), SALES TAX AND SURCHARGE ETC., INCLUDING CERTAIN AMO UNTS ON THE 3 ITA NO. 606/HYD/2014 & C.O.NO.60/HYD/2014 ROYALTY ON CONTRACT AMOUNT FOR AWARDING CONTRACT. THUS, IT WAS SUBMITTED THAT THE ASSESSEE IN FACT WAS NOT PAYING ANY AMOUNT TO THE MAIN CONTRACTOR. THE MAIN CONTRACTOR HIMSEL F PAYS THE AMOUNT TOWARDS WORK EXECUTED BY THE ASSESSEE AFTER RETAINING HIS SHARE AND THE NET AMOUNT PAYABLE WAS PAID TO TH E ASSESSEE. THUS, IT WAS SUBMITTED THAT AS NO SERVICE WAS RENDE RED BY THE MAIN CONTRACTOR TO THE ASSESSEE AND THERE IS NO PRI NCIPAL AGENT RELATIONSHIP BETWEEN THE PARTIES, THE PROVISIONS OF SUB-SECTION 194H WILL NOT APPLY. THE ASSESSING OFFICER, HOWEVE R, DID NOT APPRECIATE THE EXPLANATION OF THE ASSESSEE AND PROC EEDED TO HOLD THAT THERE BEING A PRINCIPAL AGENT RELATIONSHI P BETWEEN THE ASSESSEE AND THE MAIN CONTRACTOR AND SINCE THE MAIN CONTRACTOR HAS DEDUCTED TDS @1% AND THE BALANCE AMO UNT WAS DEEMED TO HAVE BEEN PAID TO THE ASSESSEE THEN THE A SSESSEE SHOULD BE DEEMED TO HAVE PAID COMMISSION TO THE CON TRACTOR. THE ASSESSING OFFICER ALSO OBSERVED THAT SECTION 19 4H DOES NOT APPLY MERELY TO AN AGENT BUT ALSO TO PAYMENTS RECEI VED OR RECEIVABLE FOR ANY SERVICE IN THE COURSE OF BUYING OR SELLING OF GOODS OR IN RELATION TO ANY TRANSACTIONS RELATING T O ANY ASSET, VALUABLE ARTICLE OR THING OTHER THAN SECURITIES. O N THE AFORESAID BASIS, THE ASSESSING OFFICER DIS-ALLOWED THE AMOUNT OF RS.25,56,326/- BY APPLYING THE PROVISIONS OF SECTIO N 40(A)(IA). BEING AGGRIEVED OF SUCH DIS-ALLOWANCE, ASSESSEE PR EFERRED AN APPEAL BEFORE THE LD. CIT(APPEALS). BEFORE THE L D. CIT(APPEALS) IT WAS CONTENDED THAT THE ASSESSEE WAS MERELY A SUB-CONTRACTOR FOR THE MAIN CONTRACTOR AND IT HAD N OT MADE ANY PAYMENT TO THE MAIN CONTRACTOR. EXPLAINING THE NAT URE OF DEBIT TO THE P&L A/C OF RS.25,56,326/-, IT WAS SUBMITTED THE MAIN CONTRACTOR HAD NEITHER PROVIDED ANY SERVICE TO THE ASSESSEE NOR RECEIVED ANY PAYMENT FROM THE ASSESSEE. THEREFORE, THERE WAS NO LIABILITY ON THE ASSESSEE TO DEDUCT TAX ON THE S UM OF RS.25,56,326/-. IN SUPPORT OF SUCH CONTENTIONS, AS SESSEE ALSO 4 ITA NO. 606/HYD/2014 & C.O.NO.60/HYD/2014 RELIED ON CERTAIN DECISIONS OF THE ITAT. THE LD. C IT(APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND EXAMINING THE FACTS AND MATERIAL ON RECORD, DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER: 5. I HAVE CONSIDERED THE FACTS ON RECORD AND THE S UBMISSIONS OF THE AR. THERE IS NO DISPUTE THAT M/S.G.VENKATA REDDY & CO IS A PRINCIPAL CONTRACTOR WHICH HAS SUBCONTRACTED THE WORKS TO THE APPELLANT. THE PRINCIPAL CONTRACTOR HAD BEEN AWARDED A CONTRACT FO R CERTAIN WORKS RELATING TO KC CANAL, CUDDAPAH FOR A SUM OF RS.11,38,62,156/ - THE PRINCIPAL CONTRACTOR INTERN AWARDED ENTIRE WORKS TO THE APPEL LANT FOR THE FULL CONSIDERATION OF RS.11,38,62,156/-. AS FAR AS THE COMMISSION PAYMENT IS CONCERNED, CLAUSE 5 OF THE SUBCONTRACT AGREEMENT BE TWEEN EH APPELLANT AND M/S.G.VENKATA REDDY & CO., READS AS FOLLOWS: THE PRINCIPAL CONTRACTOR WILL PAY BILLS TO THE SUB CONTRACTOR AFTER DEDUCTING ROYALTY (COMMISSION) @ 4% ON THE GROSS BILLS PAYABL E TO THE SUBCONTRACTOR AS CONSIDERATION FOR THIS AGREEMENT. 6. IT IS, THUS, CLEAR FROM THE TERMS OF THE AGREEM ENT ITSELF THAT THE CONTRACT WAS AWARDED ON A BACK-TO-BACK BASIS WITH T HE PRINCIPAL CONTRACTOR RETAINING 4% OF THE GROSS AMOUNT AS ITS OWN MARGIN. THE COMMISSION REFERRED TO IN THE AGREEMENT WAS NOT FOR ANY SERVIC ES RENDERED BY THE PRINCIPAL CONTRACTOR AND THE RETENTION OF THE 4% IS NOT IN THE NATURE OF PAYMENTS REFERRED TO IN SECTION 194H. THE APPELLAN T WAS ENTITLED TO THE NET AMOUNT OUT OF GROSS RECEIPTS AFTER DEDUCTION OF 4% AND THE DEBITING OF THIS AMOUNT AS COMMISSION TO THE P&L A/CIT(A) DOES NOT C HANGE THE NATURE OF THE TRANSACTIONS BETWEEN THE PRINCIPAL CONTRACTOR A ND THE APPELLANT. THE DIS-ALLOWANCE U/S.40(A)(IA) IS, THEREFORE, DIRECTED TO BE DELETED SINCE THERE WAS NO LIABILITY CAST ON THE APPELLANT FOR DEDUCTIO N U/S.194H. 3. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS OT HER MATERIALS ON RECORD. AS CAN BE SEEN FROM THE FACTS ON RECORD , THE ASSESSEE HAS EXECUTED THE WORK AS A SUB-CONTRACTOR TO THE MAIN CONTRACTOR M/S.G.VENKATA REDDY AND CO., WHO WAS AWA RDED THE 5 ITA NO. 606/HYD/2014 & C.O.NO.60/HYD/2014 WORK BY THE PRINCIPAL. IT IS ALSO EVIDENT THAT DEP ENDING ON THE PERCENTAGE OF WORK COMPLETED, ASSESSEE RAISED BILL ON THE PRINCIPAL CONTRACTOR. IT IS ALSO NOT DISPUTED THAT THE PRINCIPAL MAKES THE PAYMENT TO THE MAIN CONTRACTOR I.E., M/S. G.VENKATA REDDY AND CO. THE MAIN CONTRACTOR AFTER MAKING CER TAIN RECOVERIES FROM THE BILLS RAISED AND RETAINING 4% O F THE GROSS AMOUNT, REMITS THE BALANCE AMOUNT TO THE ASSESSEE. FROM THIS IT IS CLEAR THAT THE SO CALLED COMMISSION IS NEVER PAID BY THE ASSESSEE TO THE MAIN CONTRACTOR. 4. ON THE OTHER HAND, IT IS TO BE NOTED, MAIN CONTR ACTOR HAS HANDED OVER THE WORK TO THE ASSESSEE ON BACK TO BAC K BASIS AND PAYMENTS TOWARDS EXECUTION OF WORK WAS RECEIVED BY THE MAIN CONTRACTOR FROM THE GOVERNMENT DIRECTLY AND AFTER R ETAINING HIS MARGIN OF 4% THE BALANCE AMOUNT IS REMITTED TO THE ASSESSEE. THEREFORE, THE 4% MARGIN RETAINED BY THE MAIN CONTR ACTOR CANNOT BE SAID TO BE IN THE NATURE OF COMMISSION BU T THE MARGIN/PROFIT RETAINED BY THE MAIN CONTRACTOR FOR H AVING SUB- CONTRACTED WORK TO THE ASSESSEE. IT IS ALSO ESTABL ISHED ON RECORD THAT THE ASSESSEE NEVER MAKES ANY PAYMENT TO THE MAIN CONTRACTOR. ON THE CONTRARY, THE MAIN CONTRACTOR M AKES THE PAYMENT TO THE ASSESSEE AFTER RECEIVING THE PAYMENT S FROM THE GOVERNMENT. THEREFORE, AS THERE IS NO PAYMENT BY T HE ASSESSEE TO THE MAIN CONTRACTOR, ONLY BECAUSE THE ASSESSEE H AS DEBITED THE AMOUNT TO ITS P&L A/C, IT CANNOT BE INFERRED TH AT COMMISSION TO THAT EXTENT WAS PAID BY THE ASSESSEE TO THE MAIN CONTRACTOR THEREBY ATTRACTING THE PROVISIONS OF SEC TION 194H. IN THE AFORESAID FACTS AND CIRCUMSTANCES, WE ARE OF TH E VIEW THAT LD. CIT(APPEALS) WAS JUSTIFIED IN DELETING THE ADDI TION MADE BY THE ASSESSING OFFICER. ACCORDINGLY, WE UPHOLD THE ORDER OF LD. CIT(APPEALS) BY DISMISSING THE GROUNDS RAISED BY TH E DEPARTMENT. 6 ITA NO. 606/HYD/2014 & C.O.NO.60/HYD/2014 IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DIS MISSED. 5. THE CROSS-OBJECTIONS OF THE ASSESSEE MERELY SUPP ORTS THE ORDER OF LD. CIT(APPEALS). IN VIEW OF OUR DECISION IN DEPARTMENTS APPEAL (SUPRA), UPHOLDING THE ORDER OF LD. CIT(APPEALS), ASSESSEES CROSS-OBJECTION HAS BECOME INFRUCTUOUS AND ACCORDINGLY DISMISSED. IN THE RESULT, BOTH THE DEPARTMENTS APPEAL AND AS SESSEES CROSS-OBJECTIONS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 13-02-2015 SD/- SD/- (J. SUDHAKAR REDDY ) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 13-02-2015 TNMM COPY TO:- 1) THE INCOME TAX OFFICER, WARD 6(3), 6-C, I.T.TO WERS, A.C.GUARDS, MASABTANK, HYDERABAD. 2) M/S PIONEER ROADWAYS, 8-2-268/A/1, PLOT NO.654, ROAD NO.3, BANJARA HILLS, HYDERABAD. 3) CIT(A)-IV, HYDERABAD 4) CIT-III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDER ABAD.