ACIT, Mangalore V. Sri. G. Balraj, Mangalore

ITA 1207/BANG/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8676 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 25-08-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 17-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Diversion of income; Retrospective amendment; Revenue expenditure; TDS; Set aside
• Section: 40A(3); 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.1207(BNG)/09 (ASSESSMENT YEAR : 2006-07) THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), MANGALORE. VS. SHRI G. BALRAJ, PWD CONTRACTOR, KANKANADY, MANGALORE. APPELLANT. RESPONDENT. C.O. NO.15(BNG)/10 (IN ITA NO.1207(BNG)/09) (ASSESSMENT YEAR : 2006-07) (BY ASSESSEE) REVENUE BY : SHRI GOPAL RAO, CIT-I ASSESSEE BY : SHRI RAMASUBRAMANYAM, CA O R D E R PER SMT P. MADHAVI DEVI, J.M. : THIS APPEAL IS FILED BY THE REVENUE FOR THE ASSESSMENT YEA R 2006-07 AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS), MANGALORE AND THE CROSS OBJECTION IS BY THE ASSESSEE. 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS; 1. THE ORDER OF THE CIT(A) IS OPPOSED TO THE LAW AND FA CTS OF THE CASE. THE LEARNED CIT(A) ERRED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN HOLDING THE CONTRACT RE CEIPT OF THE ASSESSEE OF RS.2,93,61,792 AS DIVERTED AT SOURCE. 2. THE LEARNED CIT(A), FAILED TO APPRECIATE THE FACT THA T THE CONTRACTS WERE AWARDED TO THE ASSESSEE BY THE ORGAN IZATION (PWD, MANDYA AND KIADB) NOT JUST BASED ON LOWEST QUOTA TION BUT ALSO ON THE CAPACITY AND QUALITY OF WORK TURNED O UT BY THE CONTRACTOR; FURTHER IN CASE OF ANY SHORTCOMINGS IN TH E WORK ITA NO.1207(BNG)/09 C.O.15(BNG)/10 - 2 - EXECUTED, THE CONTRACTOR (THE ASSESSEE) WHO HAS OBT AINED THE WORK ORDER IS HELD RESPONSIBLE. HENCE THE ASSESSEE IS THE PERSON WHO HAS GOT THE CONTRACT WORK AND BY AN AGRE EMENT WITH SRI J. BAPUJI, HE HAS GIVEN THE SUB-CONTRACT WORK. 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT ONCE TH E ASSESSEE HAS RECEIVED THE CONTRACT AND GIVEN THE SA ME AS SUB-CONTRACT, HE WAS LIABLE TO MAKE TDS AS PER PROVISI ONS OF SECTION 194C AND CONSEQUENTLY FAILURE TO DEDUCT TDS WILL RESULT IN ATTRACTING THE PROVISIONS OF SECTION 40(A )(IA) OF THE ACT WHILE COMPUTING THE INCOME FROM BUSINESS AND PROFES SION OUT OF THIS BUSINESS RECEIPT. 4. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF TH E CIT(A) MAY BE ANNULLED AND THAT OF THE ASSESSING OFFICER RESTORED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PWD CONTRACTOR. HE FILED HIS RETURN OF INCOME ON 31.10.2006 DEC LARING A TOTAL INCOME OF RS.78,60,163/-. DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, THE ASSESSING OFFICER OBSERVED THAT IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE HAS SH OWN A TOTAL CONTRACT RECEIPTS OF RS.6,35,51,511/- IN ADDITION TO COMMISSION RECEIPT S OF RS.6,36,312/-. DURING THE COURSE OF ASSESSMENT PROCEEDING S, HE THEREFORE ASKED THE ASSESSEE TO PROVIDE DETAILED BREAK UP OF CONT RACT RECEIPTS DURING THE COURSE OF ASSESSMENT PROCEEDINGS. ON PERUSAL OF THE TDS CERTIFICATE ENCLOSED WITH THE RETURN OF INCOME, IT WAS OBSERVED THAT THE ASSESSEE HAS NOT OFFERED CONTRACT RECEIPTS OF RS.3,02,13,040/- RECEIVED FROM PWD, MANDYA AND RS.1,89,91,581/- RECEIVED FROM KIADB, BANGALORE AS PART OF HIS TURNOVER. THE ASSESSEE WAS ASKED TO RECONCILE THE DISCREPANCY IN THE CONTRACT RECEIPTS OFFERED TO TAX. THE ASSESSEE SUBMITT ED THAT THOUGH THE WORK AT MYSORE WAS ALLOTTED TO HIM BY THE PWD AND KIA DB THE WORK AMOUNTING TO RS.2,93,61,792/- WAS CARRIED OUT BY ONE SRI J. BAPUJI AS PER ITA NO.1207(BNG)/09 C.O.15(BNG)/10 - 3 - THE AGREEMENTS BETWEEN THEM AND THE BALANCE WAS OFFERE D BY HIM UNDER CONTRACT RECEIPTS RECEIVED DURING THE YEAR 2005-06. HE HAS FILED A RECONCILIATION STATEMENT FOR THE CONTRACT CHARGES ACCOUN TED FOR THE YEAR 2005-06 AND ALSO THE COPIES OF AGREEMENTS. ON PERUSAL O F THE AGREEMENTS BETWEEN THE ASSESSEE AND SRI J. BAPUJI, MYSORE, IT WAS NO TICED THAT THE ENTIRE CONTRACT WAS TO BE EXECUTED BY SRI BAPUJI AS PE R THE TERMS OF THE CONTRACT AGREEMENT ENTERED INTO BY THE ASSESSEE WITH KIADB & PWD, MANDYA AND THE ASSESSEE HAS RECEIVED COMMISSION EQUIVALE NT TO THE AMOUNT OF TDS OF INCOME TAX MADE BY THE AUTHORITIES CONC ERNED. HE FURTHER OBSERVED THAT THE CONTRACT OF RS.4,92,04,621/- WAS AWARDED TO THE ASSESSEE. HE THUS HELD THAT THE AGREEMENT BETWEEN THE ASSESSEE AND SRI BAPUJI IS NOTHING BUT A SUB-CONTRACT EXECUTED IN THE N AME OF AGREEMENT AND SINCE THE ASSESSEE HAS NOT DEDUCTED TDS WHILE MAKIN G PAYMENT TO SRI BAPUJI, IT WAS TO BE DISALLOWED UNDER SECTION 40A(IA) OF THE I NCOME TAX ACT, 1961. ACCORDINGLY, HE ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE ON 31.10.2008. IN REPLY TO THE SAME, THE ASSESSEE VIDE LETT ER DT.11.11.2008 CONTENDED THAT THE AGREEMENT BETWEEN HIMSELF AND SRI B APUJI, WILL NOT AMOUNT TO SUB-CONTRACT BUT THAT THE ENTIRE CONTRACT RECEIPT AND INCOME OR LOSS THEREOF ACCRUES OR ARISES ONLY TO MR. BAPUJI AND THEREFORE, IT IS NOTHING BUT DIVERSION OF INCOME OR RECEIPTS BY OVERRIDING TITLE. THIS EXPLAN ATION WAS NOT ACCEPTED BY THE ASSESSING OFFICER AND HE HELD THAT TH E SAID AGREEMENT IS NOTHING BUT A SUB-CONTRACT FOR THE WORK TO THE TUNE O F RS.2,93,61,792/- AND THE ASSESSEE WAS LIABLE TO PAY THE TAX TO THE GOVT. ACC OUNT AND AS THERE IS A FAILURE ON THE PART OF ASSESSEE TO DEDUCT TAX AT SOURCE , THE PROVISIONS OF ITA NO.1207(BNG)/09 C.O.15(BNG)/10 - 4 - SECTION 40A(IA) OF THE INCOME TAX ACT, 1961 ARE ATTRACTED . HE, THEREFORE, DISALLOWED THE ENTIRE AMOUNT OF RS.2,93,61,792/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED THE ASSESSEE PREFERR ED AN APPEAL BEFORE THE CIT(A) WHO ALLOWED THE SAME HOLDING THAT THE AGREEME NT BETWEEN THE ASSESSEE AND SRI BAPUJI IS NOT A SUB-CONTRACT AND THE PAYMENT IS A DIVERSION OF INCOME BY OVERRIDING TITLE. HE ACCORDINGLY DELET ED THE ADDITION. AS REGARDS THE ASSESSEES CROSS OBJECTION TO CLAIM CRE DIT FOR TDS MADE ON THE CONTRACT RECEIPTS ASSIGNED TO SHRI BAPUJI. THE CIT(A ) DIRECTED THE ASSESSING OFFICER TO RESTRICT THE CREDIT FOR TDS TO THE PROPORTION O F ASSESSEES WORK. AGGRIEVED BY THE RELIEF GIVEN BY THE CIT(A), THE REVE NUE IS IN APPEAL BEFORE US AND AGGRIEVED BY THE RESTRICTION OF THE TDS P ROPORTIONATELY TO HIS INCOME, THE ASSESSEE IS IN CROSS OBJECTION BEFORE US. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE WHILE STRONGL Y SUPPORTING THE ORDER OF THE ASSESSING OFFICER SUBMITTED TH AT THE AGREEMENT BETWEEN THE ASSESSEE AND SRI BAPUJI IS NOTHING BUT A SU B-CONTRACT FOR THE FOLLOWING REASONS : I) THE CONTRACT IS AWARDED TO THE ASSESSEE AND ALL THE OB LIGATIONS AND LIABILITIES OF THE SAID CONTRACT ARE ON THE ASSESSEE AND IF T HERE ARE ANY SHORT COMINGS IN EXECUTION OF THE CONTRACT, IT WAS T HE ASSESSEE WHO WOULD BE RESPONSIBLE AND NOT SRI BAPUJI. II) THE CONTRACT AMOUNTS ARE PAID TO THE ASSESSEE AND ON LY THEREAFTER CAN BE ASSIGNED TO SRI BAPUJI WHO GETS A RIGHT OVER THE SAID AMOUNT AND THEREFORE IT IS NOT A CASE OF DIVERSION OF INCOM E BY OVERRIDING TITLE, BUT IS A CASE OF APPLICATION OF INCOME. ITA NO.1207(BNG)/09 C.O.15(BNG)/10 - 5 - III) THE RECEIPTS ARE FIRST ACCRUED TO THE ASSESSEE IN TERMS OF THE CONTRACT GRANTED BY PWD AND KIADB AND THEREAFTER THE RECEIPTS ARE ACCRUING TO SRI BAPUJI WHICH MERELY PROVES THAT IT IS AN APPLICATION OF INCOME. 5. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE CIT(A) AND DREW OUR ATTENTION TO THE A GREEMENTS BETWEEN THE ASSESSEE AND SRI BAPUJI TO DEMONSTRATE THE FOLLOWING POINTS : I) THOUGH THE CONTRACT WAS AWARDED TO THE ASSESSEE, THE ASSESSEE WAS NOT ABLE TO EXECUTE THE CONTRACT AND THEREFORE HA D ENTRUSTED IT TO SRI BAPUJI TO EXECUTE THE ENTIRE SCHEDULE WORK AND T HOUGH THE ASSESSEE HAD SUBMITTED THE TENDER FOR CARRYING OUT TH E WORK, IT WAS SRI BAPUJI WHO HAS DEPOSITED THE REQUISITE EMD IN FAVO UR OF THE CEO AND KIADB, BANGALORE AND CARRIED OUT THE WORK. II) BOTH THE PARTIES HAVE OPENED JOINT BANK ACCOUNTS AT S TATE BANK OF MYSORE, MANDYA AND SRI BAPUJI WAS ALSO AUTHORIZED TO OPE RATE THE SAID ACCOUNT. PAYMENT OF SALES TAX, INCOME TAX AND OTHE R LEGAL CHARGES ARE TO BE MADE BY SRI BAPUJI IN RESPECT OF SCHEDULE WORK. THUS ACCORDING TO HIM IT IS CLEAR THAT THOUGH THE CONTR ACT WAS AWARDED ONLY IN THE NAME OF ASSESSEE BUT IT WAS SRI BAPUJI WHO HAD IN ITIALLY PAID THE EMD AND ALSO EXECUTED THE WORK AND THAT THE FACT THAT THERE IS A JOINT ACCOUNT AND SRI BAPUJI WAS AUTHORIZED TO OPERATE THE S AME CLEARLY PROVES THAT THERE IS NO APPLICATION OF INCOME BUT IT IS DIVERSION OF INCOME BY ITA NO.1207(BNG)/09 C.O.15(BNG)/10 - 6 - OVERRIDING TITLE. THUS ACCORDING TO HIM, THE ORDER OF THE C IT(A) IS TO BE UPHELD. 6. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED T HE RIVAL CONTENTIONS, WE FIND THAT THE ONLY DISPUTE IS WHETHER THE AGREE MENT BETWEEN THE ASSESSEE AND SRI BAPUJI IS A SUB-CONTRACT OR AN A GREEMENT BY WHICH THE INCOME IS DIVERTED BY OVERRIDING TITLE. THERE IS NO DISPUTE THAT THE CONTRACT WAS AWARDED TO THE ASSESSEE AND SRI BAPUJI HAS EXECUT ED THE WORK AWARDED TO THE ASSESSEE. HAVING GONE THROUGH THE AGREEMENTS BETWEEN BOTH THE PARTIES, IT IS OBSERVED THAT IT IS THE ASSESSEE WHO HAS S UBMITTED THE TENDER WHILE IT IS SRI BAPUJI WHO HAS DEPOSITED THE REQUISITE EMD. BOTH THE PARTIES HAVE OPENED A JOINT BANK ACCOUNT EVEN PRIOR TO ENTERIN G INTO AGREEMENT. IT IS ALSO EVIDENT THAT SRI BAPUJI IS AUTHORIZED TO OPERATE T HE SAID ACCOUNT. FROM THESE FACTS, IT IS TO BE EXAMINED IF IT IS DIVERSION OF INCOME BY OVERRIDING TITLE OR IT IS MERE APPLICATION OF INCOME. THE LEARNED DEPARTM ENTAL REPRESENTATIVE HAD SUBMITTED THAT THE CIT(A) HAD MISCONS TRUED THE JUDICIAL PRECEDENT IN COMING TO THE CONCLUSION THAT THERE IS A DIVERSION OF INCOM E BY OVERRIDING TITLE. WE HAVE GONE THROUGH THE DECISIONS QUOT ED BY THE CIT(A) AND THE OLDEST AND MOST AUTHORITATIVE DECISION QUOTED BY HIM IS IN THE CASE OF CIT VS. SITALDAS TIRATHDAS (1961) 41 ITR 367 WHEREIN IT HAS BEEN OBSERVED THAT THE TRUE TEST OF DIVERSION OF INCOME BY OVERRIDING TITLE IS WHETHER THE AMOUNT SOUGHT TO BE DEDUCTED, IN TRUTH, NE VER REACHED THE ASSESSEE AS HIS INCOME. OBLIGATIONS NO DOUBT, THERE ARE IN EVERY CASE, BUT IT IS THE NATURE OF THE OBLIGATION WHICH IS THE DECISIVE FACT. T HERE IS A DIFFERENCE BETWEEN AN AMOUNT WHICH A PERSON IS OBLIGATED T O APPLY OUT OF ITA NO.1207(BNG)/09 C.O.15(BNG)/10 - 7 - HIS INCOME AND AN AMOUNT WHICH BY THE NATURE OF OBLIGATION CANNOT BE SAID TO BE A PART OF THE INCOME OF THE ASSESSEE. WHERE, BY T HE OBLIGATION, INCOME IS DIVERTED BEFORE IT REACHED THE ASSESSEE, IT IS DEDUCTIBLE ; BUT WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE AN OBLIGATION AFTER SUCH INCOME REACHES THE ASSESSEE, THE SAME CONSEQUENCE IN LA W DOES NOT FOLLOW. IT IS THE FIRST KIND OF PAYMENT WHICH CAN TRULY BE EXCUSE D AND NOT THE SECOND. THE SECOND PAYMENT IS MERELY AN OBLIGATION TO P AY ANOTHER A PORTION OF ONES OWN INCOME WHICH HAS BEEN RECEIVED AND IS SINCE APPLIED. THE FIRST IS A CASE IN WHICH THE INCOME NEVER REACHED TH E ASSESSEE, WHO EVEN IF HE WERE TO COLLECT IT, DOES SO, NOT AS PART OF THIS INCOME, BUT FOR AND ON BEHALF OF THE PERSON TO WHOM IT IS PAYABLE. 6.1 THUS TO APPLY THE DOCTRINE OF DIVERSION OF INCOME BY OVERRIDING TITLE, THE FIRST AND FOREMOST CONDITION TO BE SATISFIED IS THE NATURE OF THE ASSESSEES OBLIGATION, WHETHER BY THE OBLIGATION, THE INCOME IS DIVERTED BEFORE IT REACHES THE ASSESSEE, OR WHETHER THE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE AN OBLIGATION AFTER SUCH INCOME REACHE S THE ASSESSEE. IN THE CASE BEFORE US, WE FIND THAT THE AGREEMENT IS ENT ERED INTO BY THE PARTIES EVEN BEFORE THE CONTRACT IS AWARDED AND THE RE CEIPT CAN BE APPROPRIATED BY THE SECOND PARTY EVEN WITHOUT ANY FURT HER APPROVAL FROM THE ASSESSEE. WHETHER THESE FACTORS CAN BE SAID TO D ETERMINE THE NATURE OF THE OBLIGATION? IN OUR OPINION, THEY DO NOT. THE REAL DETERMINATIVE FACT OR IS THE POINT AT WHICH THE SECOND PARTY GETS A RIGHT TO RE CEIVE THE INCOME. THE AGREEMENT WOULD BE INEFFECTIVE AND NON-EXECUTABLE UNLESS A ND UNTIL THE CONTRACT IS AWARDED TO THE ASSESSEE AND THE SAME IS E XECUTED IN ACCORDANCE ITA NO.1207(BNG)/09 C.O.15(BNG)/10 - 8 - WITH THE TERMS AND CONDITIONS OF THE CONTRACT. A PERUS AL OF THE AGREEMENT BETWEEN THE ASSESSEE AND SRI BAPUJI SHOWS THAT HE IS ENTITLED TO ALL THE BENEFITS OF THE CONTRACT BUT NO OBLIGATION OF THE CONTRACT ARE FASTENED ON TO HIM. THUS, THE OBLIGATION OF THE CONTRACT ARE STILL WITH THE ASSESSEE AND THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE WAS ONLY LENDING HIS NAME WHEREAS IN THE LETTER AND SPIRIT THE CONTRACT IS TO BE E XECUTED AND THE RECEIPTS ENJOYED BY SRI BAPUJI. THEREFORE, AS THE CONT RACTOR, ASSESSEE IS ENTITLED TO RECEIVE THE CONTRACT RECEIPTS AND IT IS THERE AFTER THAT SRI BAPUJI IS ENTITLED TO RECEIVE THE SAME. THUS, IT IS A CASE OF APPLICA TION OF INCOME AND NOT DIVERSION OF INCOME BY OVERRIDING TITLE AS HELD BY THE C IT(A). IN VIEW OF THE SAME, THE ORDER OF THE CIT(A) IS SET ASIDE ON THIS POIN T. HOWEVER, THERE IS ANOTHER ANGLE TO THIS ISSUE. THE ASSESSEE HAS ONLY RECEIVED COMMISSION FROM SRI BAPUJI WHO HAS EXECUTED THE CONTRACT. FROM T HE FACTS OF THE CASE DETAILED ABOVE, IT LOOKS LIKE A JOINT VENTURE FROM THE INCEPT ION AND NOT A SUB-CONTRACT. THE AGREEMENT BETWEEN THE ASSESSEE A ND SRI BAPUJI IS PRIOR TO THE AWARD OF THE CONTRACT AND BOTH OF THEM HAVE OP ENED A JOINT ACCOUNT TO ENABLE SRI BAPUJI TO APPROPRIATE THE RECEIPTS. THUS IT CAN BE SEEN THAT IT IS MORE IN THE NATURE OF A JOINT VENTURE AND IS NOT A SU B-CONTRACT. IN SUCH A CASE, THE ASSESSEE WOULD NOT BE LIABLE TO DEDUCT TAX A T SOURCE. AS THIS ANGLE OF THE ISSUE HAS NOT BEEN LOOKED INTO BY THE AUTHO RITIES BELOW, WE DEEM IT FIT AND PROPER TO REMAND THIS ISSUE TO THE FILE O F THE AO FOR A RE- CONSIDERATION IN ACCORDANCE WITH LAW. 7. THE OTHER GRIEVANCE OF THE REVENUE IS THAT THE CI T(A) HAS GRANTED RELIEF TO THE ASSESSEE ON THE GROUND THAT WHEN THE ASS ESSEE HAS NOT CLAIMED ITA NO.1207(BNG)/09 C.O.15(BNG)/10 - 9 - THE PAYMENT AS EXPENDITURE, THE PROVISIONS OF SECTION 40A (IA) COULD NOT BE APPLIED AND THE ASSESSING OFFICER COULD NOT HAVE MADE TH E DISALLOWANCE OF THE SAME. IN SUPPORT OF HIS CONTENTION, THE LEARNED COUN SEL FOR THE ASSESSEE HAD PLACED RELIANCE UPON THE DECISION OF THE BANGALORE IT AT IN THE CASE OF BALAJI ENGINEERING & CONSTRUCTION WORKS VS. JCIT (ASST) IN ITA NOS.283, & 284/BANG/2002 DT.15.11.2002 WHEREIN CONSIDERING THE DISALLOW ANCE UNDER SECTION 40A(3) OF THE INCOME TAX ACT, 1961, IT WAS HELD THA T THE PAYMENT MADE TO SUB-CONTRACTORS HAVE NOT BEEN CLAIMED AS A RE VENUE EXPENDITURE AND THE APPELLANT IS MERELY ACTING AS A CONDUIT FOR CHANNE LISING THE CONTRACT AMOUNT RECEIVED FROM THE GOVT. DEPARTMENTS TO THE SUB- CONTRACTORS, WHO HAVE ACTUALLY SPENT THE AMOUNTS AND THEREFORE SUCH PA YMENTS DO NOT HAVE A REVENUE CHARACTER AND THE PROVISIONS OF SECTION 40A(3) CANNOT APPLY. HE ALSO DREW OUR ATTENTION TO THE DECISION OF THE HON'BLE JU RISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BALAJI ENGINEERING AND CONSTR UCTION WORKS 323 ITR 351 (KAR), WHERE THE FINDING OF THE TRIBUNAL WAS UPHELD. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE OUGHT TO HAVE CONSIDERED ALL THE RECEIPTS AS HIS INCOME AND CLAIMED THE PAYMENT MADE TO SRI BAPUJI AS DED UCTION THEREAFTER AND THE FACT THAT ENTIRE TDS HAS BEEN DEDUCTED FROM HIS PAYMENT PROVES THAT THE CONTENTION OF THE ASSESSEE THAT IT IS NOT SHOW ING THE RECEIPTS AND NOT CLAIMING THE PAYMENT IS NOT CORRECT. AS REGARDS THE DECISION RELIE D UPON BY THE ASSESSEE, HE SUBMITTED THAT IT RELATES TO DISALLOWA NCE U/S 40A(3) WHEREAS THE ISSUE BEFORE US IS WITH REGARD TO DISALLOWANCE U/S 40A(IA) AND ITA NO.1207(BNG)/09 C.O.15(BNG)/10 - 10 - THEREFORE, THE SAID DECISION IS NOT APPLICABLE TO THE FACTS O F THE CASE BEFORE US. 9. HAVING HEARD BOTH THE PARTIES, WE FIND THAT THE ASS ESSEE HAS NOT CLAIMED THE PAYMENT TO SRI BAPUJI AS REVENUE EXPENDITURE AND HAS ONLY OFFERED THE COMMISSION FROM THE CONTRACT AS HIS INCOME. BU T, WE HAVE ALREADY HELD THAT THE AGREEMENT BETWEEN THE ASSESSEE AND SRI BAPUJI, IS NOT A SUB-CONTRACT AND IS IN THE NATURE OF A JOINT VENTURE. HAVING HELD SO, WE PROCEED TO CONSIDER THE DISALLOWANCE U/S 40A(IA). SEC.40A(IA) PROVIDE AS UNDER;- NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTI NG THE INCOME CHARGEABLE UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PR OFESSION . (A) .. (IA) ANY INTEREST COMMISSION OR BROKERAGE , RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR O4 SUB-CONTRACTOR, BEING RESIDENT FOR CARR YING OUT ANY WORK9INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT A NY WORK) ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHA PTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID DURING THE PREVIOUS YEA R OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PR ESCRIBED UNDER SUB-SECTION(1) OF SEC.200. FROM A PLAIN READING OF THE PROVISION IT IS CLEAR THAT THE AMOUNTS SPECIFIED UNDER CLAUSE(IA) IS NOT ALLOWABLE AS A DEDUCTION IN CO MPUTING THE ITA NO.1207(BNG)/09 C.O.15(BNG)/10 - 11 - INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF B USINESS OR PROFESSION. SIMILARLY, IN SUB-SEC.(3) OF SEC.40-A, IT IS PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE SPECIFIE D THEREIN. THE COMMON FEATURE OF BOTH THE PROVISIONS IS THAT THE EXPEND ITURE SPECIFIED IN THE RESPECTIVE PROVISIONS SHALL NOT BE ALLOWED AS A DEDUCT ION UNLESS THE ASSESSEE SATISFIES THE CONDITION SPECIFIED THEREIN. THUS, IT CAN BE SEEN THAT ANY EXPENDITURE TO BE ALLOWED AS A DEDUCTION HAS TO BE CLAIMED AS SUCH , BUT IN A CASE WHERE NO SUCH CLAIM IS MADE BY AN ASSESSEE, TH ERE CANNOT BE ANY DISALLOWANCE AS HELD BY THE CO-ORDINATE BENCH IN THE CA SE OF M/S BALAJI ENGINEERING & CONSTRUCTION WORKS (CITED SUPRA) WHICH VIEW H AS ALSO BEEN UPHELD BY THE JURISDICTIONAL HIGH COURT. THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS REJECTED. 10. COMING TO THE CROSS OBJECTION OF THE ASSESSEE, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THE ASSES SEE HAS BEEN ISSUED THE CERTIFICATE OF TDS, THE ENTIRE TDS IS TO BE ALLOWED IN TH E HANDS OF THE ASSESSEE. IN SUPPORT OF HIS CONTENTION, HE PLACED RELIANC E UPON THE FOLLOWING DECISIONS; I) ITO VS. T.G. VEERARAGHAVAN 303 ITR (AT) 458 (COCHIN) - WHEREIN IT WAS HELD THAT DISMISSING THE APPEAL, THAT IT WAS AN UNDIS PUTED FACT THAT THERE WERE FOUR CO-OWNERS RECEIVING THE RENT BUT THE C ERTIFICATE FOR TAX DEDUCTED AT SOURCE WAS ISSUED IN THE NAME OF THE ASSES SEE ONLY AND THAT THE OTHER CO-OWNERS HAD NOT CLAIMED THE CREDIT OF THEIR SHARE OF TAX DEDUCTED AT SOURCE. IT WAS ALSO NOT DISPUTED THAT THE AMENDMENT TO SECTION 199 PERMITTING ADJUSTMENT PROPORTIONATELY IN THE HANDS OF THE CO-OWNERS ITA NO.1207(BNG)/09 C.O.15(BNG)/10 - 12 - HAD BEEN BROUGHT INTO THE STATUTE WITH PROSPECTIVE AND NOT RETROSPECTIVE EFFECT. BEFORE THE AMENDMENT TO SECTION 199, WHICH WAS BR OUGHT INTO THE STATUTE BOOK WITH EFFECT FROM THE ASSESSMENT YEAR 1997 -98, NORMALLY CREDIT FOR TAX DEDUCTED AT SOURCE WAS GIVEN TO THE PERSON IN WHOSE NAME THE CERTIFICATE WAS ISSUED. IT WAS NOT FAIR ON THE PART OF THE DEPARTMENT ALSO TO SAY THAT IT WOULD NOT GIVE CREDIT TO ANYBODY IN RESPECT OF THE TAX DEDUCTED AT SOURCE IN RESPECT OF THE REMAINING CO-OWNERS, EVEN AFTER TAKING THE ENTIRE TAX DEDUCTED AT SOURCE INTO ITS TREASURY, SO LONG AS TH E ASSESSEE WAS HOLDING A CERTIFICATE FOR THE ENTIRE TAX DEDUCTED AT SOURCE IN HIS NAME. AS THE ASSESSEE HAD THE CERTIFICATE IN HIS NAME FOR AN AMOUNT HIG HER THAN THE TAX DUE TO BE PAID BY HIM, THE EXCESS TAX WAS TO BE REFUN DED TO THE ASSESSEE. IF CREDIT WAS NOT GIVEN FOR THE ENTIRE AMOUNT MENTIONED IN T HE CERTIFICATE, IT WOULD AMOUNT TO DENIAL OF THE REFUND DUE TO THE ASSESSEE . THERE WAS NO INFIRMITY IN THE ORDER OF THE FIRST APPELLATE AUTHORITY. II) CIT VS. PUNJAB FINANCIAL CORPORATION 277 ITR 469 (P & H) - WHEREIN IT WAS HELD THAT FROM A PERUSAL OF THE ORDER OF THE TRIBUNAL, IT WAS CLEAR THAT NO TAX WAS DEDUCTIBLE AT ALL ON THE PORTION O F DIVIDEND DIVERTED TO THE STATE GOVERNMENT AS IT WAS NOT ASSESSABLE UNDER THE INCOME TAX ACT. THE ENTIRE ;TAX DEDUCTED AT SOURCE CLEARLY PERTAINED TO THE DIVIDEND PAYABLE TO THE ASSESSEE AND IT HAD BEEN FOUND AS A FACT THAT T HE ENTIRE BURDEN OF THIS AMOUNT HAD FALLEN ON THE ASSESSEE-CORPORATION. THE TRIBUNAL HAD TAKEN A POSSIBLE VIEW WHICH WAS THE CORRECT VIEW IN THE FA CTS AND CIRCUMSTANCES OF THE CASE. AT ANY RATE, EVEN IF THE REVE NUE WERE TO SUCCEED, THE BALANCE AMOUNT WOULD STILL BE REFUNDABLE AS NO TAX WAS ITA NO.1207(BNG)/09 C.O.15(BNG)/10 - 13 - DEDUCTIBLE ON THE DIVIDEND PAYABLE TO THE STATE GOVERNME NT. SINCE THE BURDEN HAD BEEN FULLY BORNE BY THE ASSESSEE, SUCH REFUN D WOULD ALSO GO BACK TO THE ASSESSEE. THUS, THE WHOLE EXERCISE WOULD BE AN EXERCISE IN FUTILITY . 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTH ER HAND, SUBMITTED THAT SINCE THE ASSESSEE HAS NOT OFFERED THE I NCOME AS HIS INCOME, THE CIT(A) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO ALLOW THE PROPORTIONATE CREDIT FOR THE TDS. ACCORDING TO HIM, NO INT ERFERENCE IS CALLED FOR. 11.1 HAVING HEARD BOTH THE PARTIES, WE FIND THAT THE RE LEVANT PROVISION I.E SEC.199(1) AS IT STOOD FOR THE RELEVANT ASSESSM ENT YEAR READS AS UNDER; ANY DEDUCTION MADE IN ACCORDANCE WITH (THE FOREGOING PROVISIONS OF THIS CHAPTER) AND PAID TO THE CENTRAL GOVERNMENT SHALL BE TREATED AS A PAYMENT OF (TAX) ON B EHALF OF THE PERSON FROM WHOSE INCOME OF THE DEDUCTION WA S MADE, OR OF THE OWNER OF THE SECURITY. OR DEPOSITOR OR OWNER OF PROPERTY OR OF UNIT HOLDER OR OF THE SHAREHOLDER, AS THE CASE MAY BE, AND CREDIT SHALL BE FURNISHED TO HIM FOR THE AMOUNT SO DEDUCTED ON THE PRODUCTION OF THE CERTIFI CATE FURNISHED U/S 203 IN THE ASSESSMENT MADE UNDER THIS ACT FOR THE ASSESSMENT YEAR FOR WHICH SUCH INCOME IS ASSESSABLE. 11.2. FROM THE READING OF THE ABOVE PROVISION IT IS CLEAR TH AT THE CREDIT FOR THE TDS IS TO BE GIVEN TO THE PERSON FROM WHOSE INCO ME THE DEDUCTION ITA NO.1207(BNG)/09 C.O.15(BNG)/10 - 14 - WAS MADE FOR THE AMOUNT SO DEDUCTED ON THE PRODUCTION OF THE CERTIFICATE TO THIS EFFECT. IN THE CASE BEFORE US, THE TDS HAS BEEN MA DE FROM THE INCOME OF THE ASSESSEE AND THE CERTIFICATE ALSO WAS ISSUED IN HIS NAME. FURTHER, IT WAS STATED BY THE COUNSEL FOR THE ASSESSEE THAT SRI BA PUJI, HAS NOT CLAIMED THE CREDIT FOR THE TDS. IN VIEW OF THE SAME AND ALSO IN V IEW OF THE DECISIONS RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE WHICH A RE ALSO TO THE ABOVE EFFECT ONLY, WE HOLD THAT THE CIT(A) WAS NOT CORRECT IN RE STRICTING THE TDS TO THE PROPORTIONATE INCOME OFFERED BY THE ASSESSEE. 12. IN THE RESULT THE APPEAL OF REVENUE IS PARTLY ALLOWED FOR STATIS TICAL PURPOSES AND THE C.O. IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 12 TH NOVEMBER, 2010. (A. MOHAN ALANKAMONY) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED: 12-11-2010. AM* COPY TO : 1. THE ASSESSEE. 2. THE ASSESSING OFFICER. 3. CIT(APPEALS) 4. CIT 5. DEPARTMENTAL REPRESENTATIVE, ITAT, BANGALORE. 6. GUARD FILE, ITAT, BANGALORE. 7. GUARD FILE, ITAT, NEW DELHI. BY ORDER ASSISTANT REGISTRAR