Srinivas Civil Works P.Ltd., Hyderabad V. ITO, Hyderabad

ITA 1198/HYD/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3373 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-04-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 17-12-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: S RAMA RAO
• Section: 194C

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.1198/H/2007 ASSESSMENT YEAR 2003-04 ITA NO.1199/H/2007 ASSESSMENT YEAR 2004-05 M/S SRINIVAS CIVIL WORKS (P) LTD., HYDERABAD (PAN AAECS 1716 J) VS THE ITO, WARD 15(2), HYDERABAD APPELLANT RESPONDENT APPELLANT BY : SHRI S. RAMA RAO RESPONDENT BY : SMT. NIVEDITA BISWAS, DR ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THESE TWO APPEALS PREFERRED BY THE ASSESSEE ARE I S DIRECTED AGAINST THE DIFFERENT ORDERS PASSED BY THE CIT(A) II, HYDERABAD DATED 17.9.2007 AND PERTAINS TO THE ASSESSMENT YEARS 2003 -04 & 2003-05. SINCE CERTAIN ISSUES INVOLVED IN THESE TWO APPEALS ARE CO MMON IN NATURE, THEY ARE CLUBBED, HEARD AND DISPOSED OFF TOGETHER FOR THE SA KE OF CONVENIENCE. 2. THE FIRST TWO GROUNDS IN ITA NO.1198/H/2007 RA ISED BY THE ASSESSEE ARE AS FOLLOWS: 1. THE CIT(A) ERRED IN HOLDING THAT THERE IS SHORT DE DUCTION OF TAX U/S 194A AND FURTHER ERRED IN CONFIRMING THE CHARGING O F INTEREST OF RS.18,055/- 2. THE CIT(A) ERRED IN HOLDING THAT THERE IS SHORT DED UCTION U/S 194C IN RESPECT OF JOB WORK CHARGES AND FURTHER ERRED IN CONFIRMING THE CHARGING OF INTEREST OF RS.71,526/-. 3. THE ABOVE TWO GROUNDS WERE NOT PRESSED BY THE ASSESSEE BEFORE US AND HENCE DISMISSED AS NOT PRESSED. 4. THE NEXT GROUND RAISED BY THE ASSESSEE IN ITA NO.1198/H/2007 IS THAT THE CIT(A) ERRED IN HOLDING THAT THERE IS S HORT DEDUCTION OF TAX U/S ITA NO.1198 & 1199/H/2007 SRINIVASA CIVIL WORKS P LTD., HYD. 194C OF TRANSPORT CHARGES AND FURTHER ERRED IN CONF IRMING THE CHARGING OF INTEREST OF RS.27,438/-. 5. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF TH E CIT(A). WE FIND THAT THIS GROUND DOES NOT EMANATE FROM THE ORDER OF THE CIT(A). ACCORDINGLY, WE DECLINE TO ADJUDICATE THIS GROUND. 6. THE NEXT COMMON GROUND IN THE APPEALS IS WITH REGARD TO CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN A RRIVING AT THE SHORT DEDUCTION OF TAX IN RESPECT OF PAYMENTS MADE TO THE LABOURERS AND FURTHER ERRED IN CHARGING OF INTEREST 7. IN THESE ASSESSMENT YEARS THE ASSESSEE HAS INC URRED LABOUR CHARGES INCLUDING LABOUR WELFARE LIKE FOOD AND MEDI CAL AMENITIES PROVIDED TO THE LABOURER AND THAT UNDER LABOUR MOBILISATION EXP ENSES ARE INCURRED TOWARDS BRINGING LABOUR FROM THEIR NATIVE PLACE TO THE WORK SITE AND BACK TO THEIR NATIVE PLACES AFTER COMPLETION OF THEIR WORK. TRANSACTIONS UNDER THESE TWO HEADS OF ACCOUNTS ARE NOT HIT BY THE PROVISIONS OF TDS. THE LABOUR CHARGES, THE ASSESSEE HAS INCURRED HUGE EXPENDITURE ON LABOUR CHARGES AS THE WORKS UNDERTAKEN ARE HIGHLY LABOUR INTENSIVE IN NATURE. VERIFICATION OF ACCOUNTS BY ASSESSING OFFICER REVEALED THAT LARGE A MOUNTS WERE CREDITED TO INDIVIDUALS, TERMED AS MAISTRIES OR LABOUR CONTRACT ORS, WITHOUT DEDUCTING TAX. WHEN THE ASSESSEE WAS QUESTIONED BY THE ASSES SING OFFICER WHY THESE PAYMENTS ARE NOT BEING SUBJECTED TO TDS, THE ASSESS EE HAS STATED THAT THESE CONTRACTORS ARE NOT CONTRACTORS IN THE TRUE SENSE B UT ONE OF THE LABOURERS, IDENTIFIED AS A GROUP LEADER, THROUGH WHOM PERIODIC AL PAYMENTS TO LABOUR ARE MADE CONSIDERING WHICH THE ASSESSEE COMPANY H AD NOT DEDUCTED ANY TDS ON THESE PAYMENTS. THE CONTENTION OF THE ASSES SEE COMPANY IS NOT ACCEPTED BY ASSESSING OFFICER FOR THE REASON THAT T HE PROJECTS OF THIS NATURE BEING LABOUR INTENSIVE REQUIRE LARGE NUMBER OF LABO URERS AND THE COMPANIES/FIRMS, THEMSELVES, CANNOT MOBILISE SUCH L ARGE NUMBERS ON THEIR OWN AND EXERCISE CONTROL OVER THEM AS LABOUR TURNOV ER IN SUCH PROJECTS IS ITA NO.1198 & 1199/H/2007 SRINIVASA CIVIL WORKS P LTD., HYD. VERY HIGH. IN VIEW OF THESE DIFFICULTIES, THIS JOB OF MOBILISATION OF LABOUR IS ASSIGNED TO LABOUR CONTRACTORS. IT IS CAST UPON TH E LABOUR CONTRACTORS TO MAKE PAYMENTS, TO PROVIDE BOARDING AND LODGING AND TO TAKE CARE OF THEIR MEDICAL AND OTHER AMENITIES AFTER MOBILISING THEM T O THE WORK SITE. THOUGH THERE IS NO WRITTEN CONTRACT AGREEMENT TO TH AT EFFECT BETWEEN THE MAIN CONTRACTOR AND THE LABOUR CONTRACTOR, IT REMAI NS THE RESPONSIBILITY OF THIS PERSON TO PROVIDE THE CONTRACTOR COMPANY WITH A REQUIRED NUMBER OF LABOURERS FOR A SPECIFIED PERIOD. FOR CARRYING OUT ALL THESE AFORE SAID JOBS, THE LABOUR CONTRACTOR OR MAESTRI IS MADE A LUMP SUM PAYMENT. THE CONTRACTOR, IN TURN MAKES PAYMENTS TO THE LABOUR AT AN AGREED PRICE FOR THE NUMBER OF DAYS WORKED. IN THE WHOLE TRANSACTION, T HE CONTRACTOR IS BENEFITED BY A SUBSTANTIAL MARGIN OF PROFIT FOR HIM SELF. CONSIDERING ALL THESE, THE ASSESSING OFFICER IS OF THE OPINION THAT THE PAYMENTS MADE UNDER THE LABOUR CHARGES SHOULD BE SUBJECTED TO TDS AT RATES PRESCRIBED FOR INDIVIDUAL CONTRACTORS. AGAINST THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) HELD THAT THE PAYMENTS MADE TO MAISTRIES IS NOTHING BUT PAYMENTS MADE TO LABOUR CONTRACTORS WHO ACTUALLY AS SIST THE ASSESSEE IN SMOOTH EXECUTION OF THE PROJECT BY WAY OF PROVIDING ADEQUATE LABOUR FORCE IN AN ORGANISED MANNER. FURTHER, ALL THE PAYMENTS A RE BEING MADE BY THE ASSESSEE FIRM TO THE LABOUR MAISTRIES, WHO IN TURN MAKE THE PAYMENTS TO THE INDIVIDUALS LABOURERS. THE MODALITY IS EXACTLY THE SAME EVEN IN THE CASE OF LABOUR CONTRACTORS, WHO RECEIVE THE PAYMENT FROM TH E PRINCIPAL AND MAKE THE PAYMENT TO THE LABOURERS ENGAGED. ACCORDINGLY, IT IS HELD THAT THE LABOUR PAYMENT MADE TO THE MASTRIES WILL COME UNDER THE PURVIEW OF SECTION 194C OF THE IT ACT AND HAVING FAILED TO DO SO, THE ASSESSEE FIRM HAS BEEN RIGHTLY TREATED AS AN ASSESSEE IN DEFAULT U/S 201(1 ) AND 201(A) OF THE ACT. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. THE SECTION 194C READS AS FOLLOWS: ITA NO.1198 & 1199/H/2007 SRINIVASA CIVIL WORKS P LTD., HYD. 9. TO SETTLE THE CONTROVERSY INVOLVED HEREIN, IT IS NECESSARY TO KNOW ABOUT THE PROVISIONS OF SECTION 194C OF THE IT ACT. PAYMENTS MADE TO CONTRACTORS AND SUB CONTRACTORS: (1) ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT (HER EINAFTER IN THIS SECTION REFERRED TO AS THE CONTRACTOR) FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND : A) THE CENTRAL GOVT. OR ANY STATE GOVT. B) ANY LOCAL AUTHORITY; OR C) ANY CORPORATION ESTABLISHED BY OR UNDER A CENTRAL, STATE OR PROVINCIAL ACT, OR D) ANY COMPANY OR E) ANY COOPERATIVE SOCIETY ; OR F) ANY AUTHORITY, CONSTITUTED IN INDIA BY OR UNDER ANY LAW, ENGAGED EITHER FOR THE PURPOSE OF DEALING WITH AND SATISFYI NG THE NEED FOR HOUSING ACCOMMODATION OR FOR THE PURPOSE OF PLANNIN G, DEVELOPMENT OR IMPROVEMENT OF CITIES, TOWNS AND VILLAGES, OR FO R BOTH; OR G) ANY SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRA TION ACT, 1860(21 OF 1860) OR UNDER ANY LAW CORRESPONDING TO THAT ACT IN FORCE IN ANY PART OF INDIA ; OR H) ANY TRUST ; OR I) ANY UNIVERSITY ESTABLISHED OR INCORPORATED BY OR UN DER CENTRAL, STATE OR PROVINCIAL ACT AND AN INSTITUTION DECLARED TO BE A UNIVERSITY U/S 3 OF THE UGC, 1956 (3 OF 1956) OR J) ANY FIRM OR (K) ANY INDIVIDUAL OR AN HUF, WHOSE TOT AL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSIO N CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CL.(A) O R CL.(B) OF S.44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH SUCH SUM IS CREDITED OR PAID TO BE ACCOUNT OF THE CONTRACTOR; ITA NO.1198 & 1199/H/2007 SRINIVASA CIVIL WORKS P LTD., HYD. SHALL AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCO UNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO I) ONE PERCENT IN CASE OF ADVERTISING II) ANY OTHER CASE TWO PERCENT, OF SUCH SUM AS INCOME T AX ON INCOME COMPRISED THEREIN. 10. THE HONBLE SUPREME COURT IN THE CASE OF BIRL A CEMENT WORKS VS. CBDT (2001) 248 ITR 216 (SC) HAS LAID DOWN THE CONDITIONS PRECEDENT FOR ATTRACTING THE PROVISIONS OF SECTION 194C OF TH E ACT VIZ., (1) THERE MUST BE A CONTRACT BETWEEN THE PERSON RESPONSIBLE FOR MAKIN G PAYMENT TO CONTRACTOR (2) THE CONTRACT MUST BE FOR CARRYING OUT OF ANY WO RK, (3) THE WORK IS TO BE CARRIED THROUGH THE CONTRACTOR (4) THE CONSIDERATIO N FOR THE CONTRACT SHOULD EXCEED RS.10,000/ (20,000)- I.E. THE AMOUNT FIXED B Y SUB. SEC. 194C AND (5) THAT THE PAYMENT IS MADE TO THE CONTRACTOR FOR THE WORK CARRIED OUT BY HIM. IN THE PRESENT CASE, THE RELATION SHIP BETWEEN THE ASSESSEE AND THE MAISTRY CREATED THROUGH THE AGREEMENT. THE AGREEMENT NEED NOT BE IN WRITING. THE ASSESSEE PAID THE MONEY TO THE MAISTRY FOR SUPPLY O F LABOUR FOR CARRYING ANY WORK WHICH IS POPULARLY KNOWN AS LABOUR CONTRACT, T HERE IS LEGAL OBLIGATION ON THE ASSESSEE TO DEDUCT TAX AT THE SPECIFIED RATE AND DEPOSIT THE SAME WITH THE GOVT. IT IS PERSISTENT TO NOTE THAT IN SECTION 194C THE LEGISLATURE IS UNAMBIGUOUS TERMS MADE IT CLEAR THAT THE PAYEE OR R ECIPIENT SHOULD BE CONTRACTOR OR SUB CONTRACTOR. IN THE PRESENT C ASE, BECAUSE OF AN AGREEMENT BETWEEN THE ASSESSEE AND THE MAISTRY THE PAYMENT WAS MADE FOR SUPPLY OF LABOUR FOR CARRYING OUT THE WORK FOR THE BENEFIT OF THE ASSESSEE. THUS, THE ASSESSEE CANNOT SHIRK FROM ITS LIABILITY OF DEDUCTION OF TAX. FURTHER, THE WORD CONTRACTOR FOR THE PURPOSE OF T HESE PROVISIONS WOULD BE ANY PERSON WHO ENTERS INTO A CONTRACT WITH THE CENT RAL OR ANY STATE GOVT OR ANY LOCAL AUTHORITY, ANY CORPORATION ESTABLISHED B OR UNDER A CENTRAL, STATE PROVINCIAL ACT, ANY COMPANY OR ANY COOPERATIVE SOCI ETY FOR CARRYING ON ANY WORK INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT AN Y WORK AND A SUB- CONTRACTOR WOULD MEAN ANY PERSON WHO ENTERS INTO A CONTRACT WITH THE ITA NO.1198 & 1199/H/2007 SRINIVASA CIVIL WORKS P LTD., HYD. CONTRACTOR FOR CARRYING OUT, OR FOR THE SUPPLY OF L ABOUR FOR CARRYING OUT, THE WHOLE OR THE PART OF THE WORK UNDERTAKEN BY THE CON TRACTOR UNDER A CONTRACT WITH ANY OF THE AUTHORITIES NAMED ABOVE OF FOR SUPP LY WHETHER WHOLLY OR PARTLY AND LABOUR WHICH THE CONTRACT HAS UNDERTAKEN TO SUPPLY IN TERMS OF HIS CONTRACT WITH ANY OF THE AFORESAID AUTHORITIES. WE FIND, IN THE PRESENT CASE, THE CONTROVERSY IS REGARDING THE PAYMENTS MAD E FOR DISBURSEMENT OF LABOUR CHARGES TO MAISTRIES. THE MAIN CONTENTION L F THE ASSESSEES COUNSEL IS THAT THERE IS NO CONTRACT BETWEEN THE ASSESSEE A ND THE MAISTRIES AND IT CANNOT BE SAID TO BE LABOUR CONTRACTORS WITHIN THE MEANING OF THE PROVISIONS OF SECTION 194C . ACCORDING TO HIM, THERE IS NO REQ UIREMENT IN LAW TO DEDUCT TAX AT SOURCE BY THE ASSESSEE UNDER THE PROVISIONS OF SECTION 194C OF THE AC AND HE PLACED RELIANCE ON THE ORDER OF THE TRIBUNAL IN THE CASE OF SAMANWAYA VS. ACIT (34 SOT 332 (KOL. ON THE OTHER H AND, THE DR PLACED RELIANCE ON THE JUDGEMENT OF UTTARANCHAL HIGH COURT IN THE CASE OF KUMAON MANDAL VIKAS NIGAM LTD. VS. ITO (290 ITR 538). IN OUR OPINION, WHEN THE MOBILISATION OF LABOUR IS ASSIGNED TO THE LABOUR CO NTRACTOR, THERE IS AN AGREEMENT BETWEEN THE ASSESSEE AND THE MAISTRY AND FOR WHICH THE ASSESSEE HAS PAID CHARGES. THIS FACT IS EMANATED FROM THE O RDER OF THE ASSESSING OFFICER AND THE ASSESSEE COULD NOT BRING OUT ANY CO NCRETE EVIDENCE/MATERIAL TO SUGGEST THAT THERE IS NO CONTRACT BETWEEN THE AS SESSEE AND THE MAISTRIES. IN SUCH CIRCUMSTANCES, IT IS NATURAL TO COME TO THE CONCLUSION THAT THE PAYMENTS WAS MADE FOR SUPPLY OF LABOUR FOR CARRYING OUT THE WORK OF THE ASSESSEE. WHERE ANY WORK IS CARRIED OUT BY SUPPLYI NG THE MANPOWER, THE PROVISIONS OF SECTION 194C IS ATTRACTED. IN THE P RESENT CASE, IT IS NOT THE CASE OF THE ASSESSEE THAT THE PAYMENT IS NOT RELATE D TO THE SUPPLY OF LABOURS. NOTHING HAS BEEN BROUGHT ON RECORD TO THE EFFECT TH AT MANPOWER WAS NOT PROVIDED BY THE MAISTRIES HIMSELF. IN VIEW OF THIS MATTER, IN OUR OPINION, THE CIT(A) IS JUSTIFIED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER. THIS GROUND OF THE ASSESSEE IN BOTH THE APPEALS IS DISMI SSED. ITA NO.1198 & 1199/H/2007 SRINIVASA CIVIL WORKS P LTD., HYD. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESS EE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT O N: 21 . 4. 2011 SD/- SD/- G.C. GUPTA CHANDRA POOJA RI VICE PRESIDENT ACCOUNTANT MEMBE R DATED THE 21 ST APRIL, 2011 COPY FORWARDED TO: 1. SHRI S. RAMA RAO, FLAT NO.103, H.NO.3-6-542/4, INDR IRADEVI NILAYAM, HIMAYATNAGAR, HYDERABAD. C/O SRINIVASA CIVIL WORKS (P) LTD., HYDERABAD 2. THE ITO WARD 15(2), HYDERABAD 3. THE CIT(A) V, HYDERABAD\ 4. THE CIT HYDERABAD 5. THE DR, ITAT, HYDERABAD. NP