S.A.A.Isphani Trust, CHENNAI V. ITO, CHENNAI

ITA 1046/CHNY/2010

• Counselvise Citation: 104621714 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-06-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 24-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: G SEETHARAMAN
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE DR. O.K.NARAYANAN, VICE PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER .. ITA NO.1046/MDS./10 ASSESSMENT YEA R: 2003-04 ITA NO.1047/MDS./10 ASSESSMENT YEA R: 2003-04 S.A.A. ISPAHANI TRUST, 15, NUNGAMBAKKAM HIGH ROAD, CHENNAI 600 034. VS. INCOME TAX OFFICER, T.D.S. WARD II(2), CHENNAI 600 034. PAN AAATS 2984 F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.SEETHARAMAN DEPARTMENT BY : SHRI P.B.SEKARAN O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER : WE ARE PROCEEDING TO DECIDE ABOUT CAPTIONED APPE ALS FILED BY THE ASSESSEE BY A COMMON ORDER FOR THE SAK E OF CONVEYANCE AND BREVITY. THESE APPEALS PERTAIN TO ASSESSMENT YEAR 2003-04 AND ARISE OUT OF COMMON ORD ER OF LD.CIT(A) PASSED U/S.201(1) AND 201(1A) OF THE ACT FOR ASSESSMENT YEAR 2003-04 ON 15.04.2010. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE APPELLANT TRUST HAD ENTERED INTO A DEVELOPMENT AGREEMENT DT.0 1.11.1994 PAGE OF 10 ITA. 1046/1047/MDS/10 2 WITH M/S.TAMIL NADU REAL ESTATE LTD. (TNRE) (PROJEC T MANAGER/PRINCIPAL CONTRACTOR) FOR CONSTRUCTION OF T HE PROPERTY SITUATED AT 123/124, NUNGAMBAKKAM HIGH ROAD, CHENNA I. SUBSEQUENTLY, ON 17.05.95 THE TERMS OF THE AGREEMEN T WERE MODIFIED IN A MEETING OF THE BOARD OF TRUSTEES TO T HE EFFECT THAT TNRE WILL ONLY SUPERVISE THE CONSTRUCTION AND PROVI DE FACILITIES FOR THE CONSTRUCTION, AND THAT TNRE WILL PROVIDE FU ND (INTEREST FREE) FOR THE CONSTRUCTION, WHICH WILL BE REIMBURSE D AFTER SELLING A PORTION OF THE BUILT-UP PORTION. ON THE PAYMENT M ADE TO TNRE, THE ASSESSEE-TRUST DID NOT DEDUCT TAX AT SOUR CE AND THEREFORE, THE ASSESSING OFFICER INVOKED THE PROVIS IONS OF SECTION 194C AND TREATED THE ASSESSEE AS AN ASSESSE E-IN- DEFAULT IN RESPECT OF A SUM OF RS.47,33,656/- UNDER THE PROVISIONS OF SEC.201(1) VIDE HIS ORDER DATED 26.02 .2004 AND ALSO LEVIED A CONSEQUENTIAL INTEREST U/S.201(1A) OF RS.35,68,182/- VIDE HIS ORDER DATED 25.11.2004. TH E ASSESSEE PREFERRED AN APPEAL AGAINST BOTH THE ABOVE ACTIONS OF THE ASSESSING OFFICER, BUT WAS NOT FULLY SUCCESS FUL, AS COMMISSIONER OF INCOME TAX(A) HAS MODIFIED THE ORDE R REGARDING TDS TO THE TUNE OF RS.10.64 LAKHS SUBJECT TO VERIFICATION OF PAYMENT, IF MADE IN GOVERNMENT ACCO UNT. REGARDING INTEREST, LD. COMMISSIONER OF INCOME TAX( A) FOUND PAGE OF 10 ITA. 1046/1047/MDS/10 3 THAT THE ASSESSING OFFICER HAS IMPOSED INTREST FROM THEDATE ON WHICH TAX WAS DEDUCTIBLE U/S.194C TO THE DATE OF AC TUAL PAYMENT. HENCE, THERE IS NO INFIRMITY IN THE ACTION OF THAT ASSESSING OFFICER. BUT HE HAS CONCOMITANTLY DIRECTE D TO MODIFY THE AMOUNT OF INTEREST COMMENSURATE WITH THE MODIFI CATION MADE IN ORDER U/S.201(1) SUBJECT TO VALID PAYMENT O F TDS TO THE TUNE OF RS.10.64 LAKHS AS STATED ABOVE. NOW, T HE ASSESSEE IS FURTHER AGGRIEVED AND HAS PREFERRED THE SE SECOND APPEALS 3. WE HAVE HEARD RIVAL CONTENTION AND HAVE CIRCUMS PECTED THE RECORDS. REGARDING TREATING THE APPELLANT AS A N ASSESSEE- IN-DEFAULT U/S.201(1) IN SUBSTANCE, THE SUBMISSION OF THE LD. AR SHRI G.SEETHARAMAN IS THAT TNRE WAS NOT A PRINC IPAL CONTRACTOR, BUT SUPERVISED THE ENTIRE CONTRACT, SO THE TAX WAS TO BE DEDUCTED ONLY ON THE REMUNERATION PAYMENT TO THE M BUT NOT ON ALL THE PAYMENTS MADE LIKE PURCHASE OF MATERIAL S, ETC. WITH THE ABOVE SUBMISSION, IT HAS BEEN PRAYED THAT ORDER PASSED U/S.201(1) MAY BE ANNULLED. ON THE OTHER HAN D, LD.CIT, D.R. HAS RELIED ON THE ORDERS OF THE AUTHORITIES BE LOW IN SUPPORT OF HIS CONTENTION THAT THERE IS NO ILLEGALI TY IN THE PAGE OF 10 ITA. 1046/1047/MDS/10 4 APPELLATE ORDER INSOFAR AS TREATING THE APPELLANT A S ASSESSEE- IN-DEFAULT U/S.201(1) AND ALSO IN CHARGING INTERES T U/S.201(1A). 4. WE HAVE TREADED THROUGH THE VARIOUS COMPILATION S FILED BY LD. AR CAREFULLY. THERE IS NO DOUBT REGARDING T HE FACT THAT THE APPELLANT TRUST DEMOLISHED ITS BUILDING SITUATE D AT NUNGAMBAKKAM HIGH ROAD AND GOT A NEW BUILDING CONSTRUCTED AFTER ENTERING INTO AGREEMENT WITH TNRE , FOR DEVELOPMENT OF THAT PROPERTY. AS PER THE TERMS OF THIS AGREEMENT, TNRE HAD TO PROVIDE FUNDS FOR CONSTRUCTI ON AND THE APPELLANT HAD TO REIMBURSE THE COST OF CONSTRUC TION AFTER SELLING 55,000 SQ. FT. OF BUILT-UP AREA. TNRE WAS ENTITLED TO 10% OF THE TOTAL BUILT-UP AREA FOR THE SERVICES REN DERED. BUT THIS AGREEMENT WAS SUBSEQUENTLY MODIFIED BY INCORPO RATING THE TERMS THAT THE APPELLANT WILL CONSTRUCT THE BUI LDING WITH TECHNICAL ASSISTANCE OF TNRE; THAT TNRE WILL INCUR THE EXPENSES ON BEHALF OF THE APPELLANT AND THE APPELLA NT WILL REIMBURSE ENTIRE EXPENSES BY SELLING A PORTION OF T HE PROPERTIES; THAT TNRE WILL PROVIDE TECHNICAL ASSIST ANCE SUCH AS PROCUREMENT OF MATERIALS, SUPERVISION OF CONSTRUCTI ON ETC AND TNRE WILL BE PAID A REMUNERATION EQUIVALENT TO 10% OF THE COST OF CONSTRUCTION (EXCLUDING THE REMUNERATION PA YABLE TO PAGE OF 10 ITA. 1046/1047/MDS/10 5 TNRE) PAYABLE AFTER COMPLETION OF THE CONSTRUCTION. AGAIN THERE IS NO DOUBT WITH REGARD TO THE FACT THAT TNRE FINANCED THE CONSTRUCTION BETWEEN THE YEARS 1995 TO 2001 AND EXPENSES WERE LATER REIMBURSED FROM THE APPELLANT T RUST. TNRE WAS DEDUCTING TAX ON PAYMENTS AS IS EVIDENT FR OM PAPER BOOK PAGE NO.21 AND HAD BEEN REMITTING THE SA ME. TDS RETURN WERE FILED AND IT WAS DEBITED TO THE ACC OUNTS OF THE APPELLANT IN THE BOOKS OF TNRE. THE CASE OF LD. AR IS THAT REVENUE IS RELYING ONLY ON THE ORIGINAL AGREEMENT A ND NOT HAS CONSIDERED THE MODIFIED AGREEMENT. THE CASE OF THE REVENUE IS THAT THE ORIGINAL AGREEMENT IS THE REAL AGREEMEN T BETWEEN THE PARTIES AND THE MODIFICATIONS HAVE BEEN DONE TH EREIN ONLY AS A PLOY TO ESCAPE FROM THE CLUTCHES OF SECTIONS O F THE ACT. FOR INVOKING THE PROVISIONS OF SEC.194C, FOLLOWING CONDITIONS ARE REQUIRED TO BE FULFILLED: I) THERE MUST BE A CONTRACT BETWEEN THE PERSON RESP ONSIBLE FOR MAKING PAYMENT AND THE CONTRACTOR. II) THE CONTRACT MUST BE FOR CARRYING OUT ANY WO RK. III) THE WORK SHOULD BE CARRIED OUT THROUGH THE CON TRACTOR IV) CONSIDERATION FOR THE CONTRACT SHOULD EXCEED RS.20,000/- V) THE PAYMENT IS MADE TO THE CONTRACTOR FOR THE WO RK CARRIED OUT BY HIM. PAGE OF 10 ITA. 1046/1047/MDS/10 6 IF THE ABOVE TEST IS APPLIED, ONE WOULD CLEARLY JUM P TO A CONCLUSION THAT THERE WAS A WORKS CONTRACT BETWEEN THE APPELLANT TRUST AND THE CONTRACTOR, TNRE. U/S.194 C, THE APPELLANT TRUST IS OBLIGED , IN SUCH A CASE, TO DED UCT TAX AT SOURCE ON CONTRACT PAYMENTS AS AND WHEN SUCH PAYMEN TS EXCEED RS.20,000/- AND TO PAY SUCH TDS TO THE GOVER NMENT ACCOUNT WITHIN ONE WEEK FROM THE LAST DATE OF THE M ONTH IN WHICH DEDUCTION IS MADE. IT IS A CLEAR CASE WHERE THE ASSESSEE HAS FAILED TO DEDUCT TAX ON THE ENTIRE CON TRACT PAYMENTS MADE TO THE CONTRACTOR AND THE ASSESSEE HA S ALSO FAILED TO PRODUCE ANY EVIDENCE FOR THE TAXES ALREAD Y DEDUCTED AS CONTENDED. THE ACTUAL TDS PAYABLE U/S.194C FOR THE PERIOD ENDED 31.03.2003 IS AS UNDER:- RS. CONSTRUCTION COST AS ON 01.04.02 21,33,74,847 ADD: CONSTRUCTION COST EFFECTED DURING 01.04.02 TO 31.03.03 1,20,37,373 TOTAL COST OF CONSTRUCTION 22,52,12,220 TDS TO BE DEDUCTED U/S.194C 47,33,656 (INCLUDING S/C) TNRE WAS PAID REIMBURSEMENT OF RS.1.9 CRORES EQUIVA LENT TO 10% OF COST OF CONSTRUCTION IN THE YEAR 2001-02 AND DEBITED TO THE BUILDING ACCOUNT. EVEN IF IT IS ACCEPTED FOR T HE SAKE OF ARGUMENT THAT IN THE MODIFIED AGREEMENT INSTEAD OF 10% OF COST OF CONSTRUCTION & 10% OF BUILT-UP AREA HAS BEE N PAGE OF 10 ITA. 1046/1047/MDS/10 7 MENTIONED, IT WOULD NOT MATERIALLY THE NATURE OF AG REEMENT BETWEEN THE PARTIES. IN SUBSTANCE, FROM THE VERY PE RUSAL OF THE MODIFIED AGREEMENT, ONE CAN EASILY CAPTURE THAT TNR E HAS ONLY ACTED AS A PRINCIPAL CONTRACTOR FOR THE APPELL ANT. TNRE PROVIDED INTEREST FREE FUNDS FOR THE PROJECT FOR A LONG TIME TILL REIMBURSEMENT OF THE SALE STARTED AFTER COMPLETION OR NEAR COMPLETION OF THE BUILDING, WHEN THE SAME WAS EITHE R RENTED OUT OR SOLD AS SUCH. THE TRUST HAD NEGLIGIBLE FUND S AND WAS UNABLE TO CARRY OUT THE ENTIRE PROJECT IN COHESION. THE REMUNERATION FOR SUPERVISION ETC. WAS NOT PAID IN C ASH, BUT WAS PAID IN FORM, HANDING OVER BUILT-UP AREA, THAT TO O IN THE YEAR 2000-01. EVEN WHEN THE PROJECT WAS STARTED IN THE YEAR 1995- 96, THE APPELLANT-TRUST STARTED REIMBURSEMENT ONLY IN THE YEAR 1999-00, WHEN THE TRUST STARTED SELLING A PORTION OF CONSTRUCTED BUILDING AS PER THE COPY OF ACCOUNTS OF THE ASSESSEE TRUSTS BUILDING/ CONSTRUCTION ACCOUNT, IN THE BOOKS OF TNRE. THEREFORE, FROM THE FACT THAT THE REIMBURS EMENT WAS INITIATED AFTER FOUR YEARS AFTER THE CONSTRUCTION S TARTED, ONE CAN ONLY DRAW A SAFE CONCLUSION THAT IT IS TNRE WHO HA S FINANCED THE ENTIRE PROJECT. THE SUB-CONTRACT FOR SMALL-SMA LL WORKS, LIKE ELECTRICAL, PLUMBING, AIR CONDITIONING, ETC. WERE A LSO ARRANGED BY TNRE AND PAYMENT TO THEM WERE MADE IN THE FIRST PAGE OF 10 ITA. 1046/1047/MDS/10 8 INSTANCE, BY TNRE AND ALSO DEDUCTED TAX AT SOURCE(T DS). SUPERVISION WORK DONE BY TNRE IS ONLY THE PART OF T HE CONTRACT-WORK AND PAYMENT MADE TO IT EVEN INCLU DES PAYMENT FOR SUPERVISION AND FOR TECHNICAL ASSISTANC E PROVIDED BY IT. THE BOOK ENTRIES MADE BY THE CONTRACTING PA RTIES WOULD NOT HELP THE CASE OF THE ASSESSEE, PARTICULARLY WHE N THEIR TRUSTEES AND DIRECTORS ARE COMMON. THE TNRE WAS INV OLVED IN CO-ORDINATION, TENDER EVALUATION, APPOINTMENT OF SUB- CONTRACTORS, PURCHASE OF MATERIALS, ET AL. THIS COM PANY ALSO DIRECTLY COLLECTED MONIES FROM THE BUYERS AND CONST RUCTED THE BUILDING AS PER THE SPECIFICATION, DRAWINGS AND SUP ERVISION OF THE ARCHITECT AND WAS REQUIRED TO CONSTRUCT THE BUI LDING WITHIN 36 MONTHS. ALL THESE REASONS TOGETHER GO TO ESTABLI SH THAT IT WAS A WORKS-CONTRACT AND THE APPELLANT TRUST WAS EN TITLED TO DEDUCT TDS. WHATEVER TDS DEDUCTED BY TNRE WILL DEF INITELY BE EXCLUDED IF IT WAS AT ALL DEDUCTED AS PER LAW. THEREFORE, WE ALSO FIND THE APPELLANT TRUST AS ASSESSEE IN DEFAUL T U/S.201(1), AND AFFIRM THE DIRECTIONS GIVEN BY COMMISSIONER OF INCOME TAX(A) TO MODIFY THE COMPUTATION OF TDS DEDUCTION. 5. INSOFAR AS CHARGING OF INTEREST U/S.201(1A) WA S CONCERNED THAT HAS BEEN CORRECTLY CHARGED FROM THE DAY ON PAGE OF 10 ITA. 1046/1047/MDS/10 9 WHICH THE TAX WAS REQUIRED TO TAX U/S.194C UP TO TH E DATE OF ACTUAL PAYMENT. CONCOMITANTLY, THE SAME RELIEF WH ICH HAS BEEN GRANTED U/S.201(1) WILL BE ALLOWABLE WITH REGA RD TO CHARGING OF INTEREST U/S.201(1A) OF THE ACT. CONSEQ UENTLY, WE DO NOT FIND ANY INFIRMITY IN THE APPELLATE ORDER. 6. HENCE, BOTH THE APPEALS FILED BY THE ASSESSEE S TAND DISMISSED. ORDER PRONOUNCED ON 03 RD AUGUST, 2011. SD/- SD/- ( DR.O.K.NARAYANAN ) ( HARI OM MARATHA ) VICE PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 3 RD AUGUST, 2011. K S SUNDARAM COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE PAGE OF 10 ITA. 1046/1047/MDS/10 10 DATE INITIALS 1. DRAFT DICTATED ON 2. DRAFT PLACED BEFORE AUTHORITY 3. DRAFT PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S. 6. KEEP FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE 9. DATE OF DISPATCH OF ORDER