Asst.C.I.T., Bangalore V. Director of Technical Education, Bangalore

ITA 1124/BANG/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0402 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-05-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 03-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: SHREEHARI KUTSA
• Section: 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NOS.1124 TO 1127/BANG/2015 ASSESSMENT YEARS : 2011-12 TO 2014-15 THE ASSISTANT COMMISSIONER OF INCOME TAX (TDS), CIRCLE 1(1), BANGALORE. VS. THE DIRECTOR OF TECHNICAL EDUCATION, TECHNICAL EDUCATION BUILDING, OPP. MAHARANI COLLEGE, PALACE ROAD, BANGALORE 560 001. TAN: BLRD02314E APPELLANT RESPONDENT APPELLANT BY : DR. P.K. SRIHARI, ADDL. CIT(DR) RESPONDENT BY : SHRI SHREEHARI KUTSA, CA DATE OF HEARING : 18.05.2016 DATE OF PRONOUNCEMENT : 20.05.2016 O R D E R PER BENCH THESE APPEALS ARE BY THE REVENUE DIRECTED AGAINST THE ORDER OF CIT(APPEALS)-V, BANGALORE DATED 28.10.2014 FOR THE ASSESSMENT YEARS 2011-12 TO 2014-15. SINCE IN ALL THESE APPEALS, CO MMON ISSUE IS INVOLVED, WE PROCEED TO DISPOSE OF THE SAME BY THIS CONSOLIDA TED ORDER. ITA NOS.1124 TO 1127/BANG/2015 PAGE 2 OF 7 2. THE REVENUE HAS RAISED THE FOLLOWING COMMON GROU NDS OF APPEAL:- 1. THE ORDER OF THE LD. CIT(A) IS OPPOSED TO THE F ACTS AND LAW. 2. THE LD CIT(A) HAS ERRED IN HOLDING THAT THE PAYE ES I.E. M/S. RITES LTD AND M/S. KHB ARE NOT CONTRACTORS OF THE PAYER I.E DIRECTOR OF TECHNICAL EDUCATION, AS ENVISAGED I N SECTION 194C. 3. THE LD CIT(A) HAS ERRED IN HOLDING THAT THE PAYE ES I.E. M/S. RITES LTD AND M/S. KHB ARE RENDERING TECHNICAL AND MANAGERIAL SERVICES FOR THE PAYER. 4. THE LD CIT(A) HAS ERRED IN HOLDING THAT THE PAYE ES I.E. M/S RITES LTD AND M/S KHB ARE ACTING AS AGENTS VIS- A-VIS THE CONTRACTORS ACTUALLY EXECUTING THE CONSTRUCTION WOR K OF BUILDINGS FOR THE PAYER. 5. THE LD CIT(A) HAS ERRED IN NOT CONSIDERING THE F ACTS BROUGHT OUT BY THE AO TO THE EFFECT THAT PAYEES I.E . M/S RITES LTD AND M/S KHB WERE AWARDED THE CONTRACT FOR CONST RUCTION OF COLLEGE BUILDINGS. 6. THE LD CIT(A) HAS ERRED IN NOT CONSIDERING THE F ACTS BROUGHT OUT BY THE AO TO THE EFFECT THAT PAYEES I.E . M/S RITES LTD. AND M/S KHB HAVE QUOTED THE CONSTRUCTION COST OF COLLEGE BUILDINGS AND WERE PAID FOR THAT PURPOSE. 7. THE LD CIT(A) HAS ERRED IN NOT CONSIDERING THE P OSITION OF LAW THAT IN TERMS OF SECTION 194C, THE CONTRACT INC LUDES SUB- CONTRACT. 8. THE LD CIT(A) HAS ERRED FACTS IN DIRECTING THE A O TO WORK OUT THE REMUNERATION COMPONENT IN THE IMPUGNED PAYM ENTS AND WORK OUT TAX DEDUCTIBLE U/S 194J. 9. THE LD CI-T(A) HAS ERRED FACTS IN PLACING RELIAN CE ON THE DECISION IN THE CASE OF M/S U.P. STATE INDUSTRIAL D EVELOPMENT CORPORATION LTD V ITO [2002] 81 ITD 173 (LUCKNOW) A ND ALLOWING RELIEF. ITA NOS.1124 TO 1127/BANG/2015 PAGE 3 OF 7 10. THE LD CIT(A) HAS ERRED IN HOLDING THAT THE BEN EFIT UNDER PROVISO TO SECTION 201(1) IS AVAILABLE ON PRODUCTIO N OF DECLARATION IN 26A, THOUGH NO TAX IS REMITTED BY THE PAYEE M/S KHB IN ITS INCOME TAX RETURN. 11. THE LD CIT(A) HAS ERRED IN HOLDING THAT THE BEN EFIT UNDER PROVISO TO SECTION 201(1) IS AVAILABLE ON PRODUCTIO N OF DECLARATION IN 26A, THOUGH FULL AMOUNT IS NOT ACCOUNTED AS INCO ME BY THE PAYEE M/S RITES LTD. 12. FOR THE ABOVE GROUNDS AND OTHERS THAT MAY BE SO UGHT AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF LD. CIT(APPEAL) IS SET ASIDE AND ORDERS OF THE ASSESSING OFFICER ARE R ESTORED. 3. BRIEFLY THE FACTS ARE AS UNDER. THE RESPONDENT -ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH M/S. KHB AND M/S. RI TES LTD. FOR RENDERING OF SERVICES IN CONNECTION WITH CONSTRUCTI ON OF ENGINEERING AND POLYTECHNIC COLLEGE BUILDINGS IN THE STATE OF KARNA TAKA. THE TDS OFFICER NOTICED THAT THE RESPONDENT-ASSESSEE HAD NOT DEDUCT ED TAX AT SOURCE ON THE PAYMENTS MADE TO THE ABOVE PARTIES UNDER THE PR OVISIONS OF SECTION 194C OF THE ACT AND HE THEREFORE HELD THE RESPONDEN T-ASSESSEE AS AN ASSESSEE IN DEFAULT FOR NOT DEDUCTING TAX AT SOUR CE AND RAISED DEMAND AS UNDER:- DEMAND RAISED BY WAY OF SEPARATE ORDERS ASSESSMENT YEAR SECTION 201(1) SECTION 201(1A) TOTAL 2011-12 1 , 79 , 76 , 000 55 , 13 , 040 2 , 39 , 84 , 090 2012-13 65 , 39 , 740 14 , 94 , 434 66 , 84 , 174 2013-14 33 , 80 , 040 3 , 14 , 121 36 , 94 , 161 2014-15 25 , 44 , 000 1 , 19 , 400 26 , 63 , 4 00 TOTAL 3 , 04 , 39 , 780 74 , 40 , 995 3 , 78 , 80 , 775 ITA NOS.1124 TO 1127/BANG/2015 PAGE 4 OF 7 4. BEING AGGRIEVED BY THESE ASSESSMENTS, APPEALS WE RE PREFERRED BEFORE THE CIT(APPEALS), WHO VIDE IMPUGNED ORDER HE LD THAT THE PAYMENTS IN QUESTION WERE NOT IN THE NATURE OF CONSIDERATION FOR WORKS CONTRACT AND THEREFORE, THERE WAS NO LIABILITY UNDER THE PROVISI ONS OF SECTION 194C OF THE ACT. HE, HOWEVER, HELD THAT SUCH PAYMENTS ARE LIAB LE FOR TAX DEDUCTION AT SOURCE UNDER THE PROVISIONS OF SECTION 194J OF THE ACT. ON NOTICING THAT THE RESPONDENT-ASSESSEE HAD DEDUCTED TAX AT SOURCE UNDE R THE PROVISIONS OF SECTION 194J, SUBSEQUENTLY THE CIT(APPEALS) UPHELD THE LIABILITY ON INTEREST U/S. 201(1A) OF THE ACT ON THE DELAY IN DEDUCTION O F TAX DEDUCTION AT SOURCE UNDER THE PROVISIONS OF SECTION 194J OF THE ACT. 5. THE REVENUE, BEING AGGRIEVED BY THE PART OF DIRE CTION OF THE CIT(APPEALS) THAT SUCH PAYMENTS ARE NOT LIABLE FOR TAX DEDUCTION AT SOURCE U/S. 194C, FILED THE PRESENT APPEALS BEFORE US. 6. THE LD. SR. DR VEHEMENTLY CONTESTED THAT THE SUB JECT PAYMENTS WERE IN THE NATURE OF CONSIDERATION PAID FOR WORKS CONTRACT AND THEREFORE THE CIT(APPEALS) HAD FAILED TO CONSIDER SUCH PAYMEN TS IN THE PROPER PERSPECTIVE. HE SUBMITTED THAT THE ORDER PASSED BY THE CIT(APPEALS) IS NOT IN ACCORDANCE WITH LAW AND PRAYED FOR QUASHING OF T HE IMPUGNED ORDER. 7. ON THE OTHER HAND, THE LD. AR OF THE RESPONDENT- ASSESSEE SUBMITTED THAT THE CIT(APPEALS) HAS PASSED THE IMPUGNED ORDER AFTER PERUSING THE RELEVANT CLAUSES OF THE AGREEMENTS ENTERED BY THE R ESPONDENT-ASSESSEE WITH KHB AND RITES LTD. HE SUBMITTED THAT KHB / R ITES LTD. HAD NOT ITA NOS.1124 TO 1127/BANG/2015 PAGE 5 OF 7 UNDERTAKEN ANY WORKS WITH THE RESPONDENT-ASSESSEE. THEY HAVE RENDERED ONLY TECHNICAL SERVICES IN CONNECTION WITH THE EXEC UTION OF THE CONSTRUCTION WORKS FOR ENGINEERING & POLYTECHNIC COLLEGE BUILDIN GS IN THE STATE OF KARNATAKA. IN THIS CONNECTION, HE HAS DRAWN OUR AT TENTION TO THE RELEVANT CLAUSE OF THE AGREEMENTS AND ALSO THE ORDER OF CIT( APPEALS). HE ALSO RELIED ON THE DECISION OF THE COORDINATE BENCH OF L UCKNOW IN THE CASE OF M/S U.P. STATE INDUSTRIAL DEVELOPMENT CORPORATION L TD V ITO [2002] 81 ITD 173 (LUCKNOW) . 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN APPEAL IS WHETHER THE SAID PA YMENTS MADE BY THE RESPONDENT-ASSESSEE TO KHB AND RITES LTD. ARE IN TH E NATURE OF CONSIDERATION PAID FOR WORKS CONTRACT. THE CIT(APP EALS) AFTER PERUSING THE RELEVANT AGREEMENTS HAD SUMMARIZED THE POSITION VID E PARA 6 OF HIS ORDER, WHICH READS AS UNDER:- 6. COMING TO THE ISSUE AS TO WHETHER THE AMOUNTS PAID TO KHB AND RITES FOR EACH OF THE YEAR UNDER APPEAL ARE PAYMENTS IN THE NATURE OF CONTRACT INCOME OF THE RECIPIENT PAYEES , LIABLE TO DEDUCTION OF TAX U/S 194C , IT IS C L EAR FROM THE TERMS OF AGREEMENT ENTERED BY THE APPELLANT WITH KH B AND RITES THAT THEY ARE NOT CONTRACTORS FOR THE EX ECUT I O N OF ACTUAL WORK OF CONSTRUCTION OF COLLEGE BUILDINGS FOR THE A PPELLANT. ALTHOUGH T HE FACT TH AT TAX WAS DEDUCTED BY THEM WHILE MAK I NG PAYMENTS TO CONTRACTORS WOUL D NO T H EL P T HE APPELLANT ' S CASE , IT IS PERTINENT TO EXAMINE THE TERMS OF ENGAGEMENT OF T H E A PPEL L AN T WITH KHB AND RITES, WHICH SHOWS THAT THEY ARE NOT CONTRACTORS AS ENVISA G ED IN SE CT IO N 194C , BUT RENDERING TECHNICAL AND MANAGERIAL SERV I CES FOR THE APPELLANT AND A L SO A C T IN G AS AGENTS VIS - A-VIS THE CONTRACTORS ACTUALLY EXECUTING THE CONSTRUCTION WOR K OF BU IL DINGS FOR THE APPELLANT. THEY ARE MORE ITA NOS.1124 TO 1127/BANG/2015 PAGE 6 OF 7 OF TECHNICAL CONSULTANTS AND PROJECT MA N AGERS WHO ARE REQUIRED TO CARRY OUR SURVEY , SOIL TEST I NG, DESIGN OF BUILDING , INVITE TENDE R S TO IDENTIFY CONTRACTORS FOR CONSTRUCTION , SUPERVISE THE CONSTRUCTION FOR QUALITY A ND DE SIGN AND ALSO CERT I FY THE BILLS FOR PAYMENT TO CONTRACTORS EXECUTING THE CONST R UCT I ON OF C O LL E G E BU I LDINGS . THE AGREEMENT ALSO SPEC I F I ES THE REMUNERATION FOR SERVICES RENDERE D BY KHB AND RITES (10 % OF THE BUILT UP COST) WITH REGARD TO AND A PERCENTAGE OF THE PROJECT COST , AND THE PROVISION FOR PAYMENT ON ACTUAL BASIS IN THE NATURE OF RE-IMBURSEMENT. I CO NCUR WITH THE ARGUMENT OF LD. AR THAT THE ISSUE IS SQUARELY COVER ED BY THE HON'BLE ITAT- LUCKNOW BENCH DECISION IN THE CASE OF U.P. STATE INDUSTRIAL DEVELOPMENT CORPN. LTD. V. ITO REPORTED IN 81 ITD 173. THE PAYEES IN THE PRESENT CASE ARE NOT CONTRAC TORS WITHIN THE MEANING OF SECTION 194C OF THE INCOME TAX ACT. THE ENTIRE PAYMENT MADE BY THE APPELLANT TO KHB AND RITES ARE NOT IN THE NATURE OF INCOME OF THE PAYEES, AND SUCH ENTIRE AMO UNTS COULD NOT BE SAID TO BE LIABLE FOR DEDUCTION OF TAX U/S 1 94C. IN FACT, THE PAYMENT TO THE EXTENT OF REMUNERATION PAYABLE TO KH B AND RITES AS PERCENTAGE OF THE PROJECT COST IS IN THE N ATURE OF INCOME OF PROFESSIONAL/TECHNICAL AND MANAGERIAL NATURE LIA BLE TO DEDUCTION OF TAX U/S 194J. THE ASSESSING OFFICER IS THEREFORE DIRECTED TO COMPUTE THE AMOUNTS OUT OF PAYMENTS MAD E BY THE APPELLANT TO KHB AND RITES WHICH ARE REMUNERATION O R INCOME IN THE HANDS OF THE PAYEES, AND WORK OUT THE TAX DE DUCTIBLE U/S 194J. THE QUESTION IS ANSWERED ACCORDINGLY. THE GRO UND OF THE APPELLANT ON THE ISSUE IS PARTLY ALLOWED FOR AY 201 1-12, 2012-13, AND 2013-14. 9. THE LD. SR. DR HAD NOT FILED ANY EVIDENCE CONTRO VERTING THE ABOVE FINDINGS OF THE CIT(APPEALS). THE CIT(APPEALS) AFT ER CONSIDERING THE RELEVANT MATERIAL HAD COME TO THE CONCLUSION THAT T HE PAYMENTS WERE MADE IN CONSIDERATION OF TECHNICAL SERVICES RENDERED BY THE PAYEES. IN THE ABSENCE OF ANY MATERIAL CONTROVERTING THIS FINDING, WE HAVE NO REASON TO INTERFERE WITH THE ORDER OF CIT(APPEALS), HENCE CON FIRM THE ORDER OF CIT(APPEALS). ITA NOS.1124 TO 1127/BANG/2015 PAGE 7 OF 7 10. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF MAY, 2016. SD/- SD/- (VIJAY PAL RAO ) ( INTURI RAMA RAO ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 20 TH MAY, 2016. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.