The President, Mysore V. ITO, Mysore

ITA 1314/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57516 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 20-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE
• Assessee Lawyers: VANI H
• Section: 194C; 201(1); 246

Judgement Text

PAGE 1 OF 9 ITA NOS.1311 TO 1314 /BANG/2011 1 INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B BEFORE SHRI N K SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NOS.1311 TO 1314/BANG/2011 (ASST. YEARS 2006-07 & 2007-08) DATE OF HEARING : 13.03.2012 DATE OF PRONOUNCEMENT : 16.03.2012 APPELLANT BY : SMT. VANI H, ADVOCATE RESPONDENT BY : SMT. SUSAN THOMAS JOSE, JCIT O R D E R PER BENCH : THESE APPEALS ARE DIRECTED AGAINST THE CONSOLIDA TED ORDER OF THE LD. CIT(A), MYSORE DATED 25.10.2011, IN RELATION TO FINANCIAL YEARS 2006- 07 AND 2007-08. THE ORDER OF THE CIT(A) ARISE OUT OF INTIMATION/LETTER OF ITO(TDS) DATED 28/3/2008. THE ITO (TDS) IN HIS LET TER DATED 28/3/2008 HAD DIRECTED THE APPELLANT TO PAY A SUM OF RS.32,93, 176/- UNDER SECTION 201(1) AND 201(1A) OF THE ACT FOR THE FINANCIAL YEAR S 2006-07 AND 2007-08. THE PRESIDENT, GROUP D EMPLOYEES WELFARE ASSOCIATION, DEPUTY COMMISSIONER OFFICE BUILDING, MYSORE. PA NO.AABTD 1021 D VS THE INCOME TAX OFFICER, TDS, WARD-1, MYSORE. (APPELLANT) (RESPONDENT) PAGE 2 OF 9 ITA NOS.1311 TO 1314 /BANG/2011 2 2. THE GROUNDS RAISED IN ITA NOS. 1311 AND 1313 AR E IDENTICAL AND THEY READ AS FOLLOWS:- I) THE ORDER OF THE LEARNED CIT(A) DISMISSING THE APPE ALS FILED BY THE APPELLANT IS ILLEGAL, ARBITRARY AND UNSUSTAINABLE. II) THE LEARNED CIT(A) ERRED IN HOLDING THAT THE LETTER DATED 28.3.2008 SERVED UPON THE APPELLANT CALLING F OR OBJECTIONS/EXPLANATION IS ITSELF AN ORDER UNDER SEC TION 201(1) OF THE ACT. III) THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT T O TREAT THE APPELLANT AS AN ASSESSEE-IN-DEFAULT THERE MUST BE A REASONED ORDER PASSED UNDER SECTION 201(1) BY T HE AUTHORITIES. ADMITTEDLY, IN THE CASE ON HAND, THERE IS NO SUCH ORDER PASSED BY THE AUTHORITY AFTER THE APPELLAN T FURNISHED DETAILS AND REQUESTED FOR DROPPING THE PROCEEDINGS. IV) THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT T HE APPELLANT HAD INITIALLY MADE THE PAYMENTS ONLY TOWARDS PURCHASE OF LAND AND THEREFORE THERE IS NO LIABILIT Y TO DEDUCT TAX AT SOURCE. FURTHER THE LEARNED CIT(A) O UGHT TO HAVE APPRECIATED THAT PURSUANT TO THE SUBSEQUENT AGREEMENTS DATED 23.4.2008 AND 3.6.2008, THE APPELL ANT HAD ENTRUSTED DEVELOPMENTAL WORKS AND THE APPELLANT HAD DEDUCTED TAX AT SOURCE WHILE MAKING PAYMENTS TOWARD S DEVELOPMENTAL ACTIVITIES PURSUANT TO THE SAID AGREE MENTS. V) THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT TH ERE ARE TWO SETS OF AGREEMENT ENTERED INTO BETWEEN THE PARTIES ONE TOWARDS MERE PURCHASE OF THE LAND AND T HE OTHER TOWARDS DEVELOPMENT OF THE SAID LAND. VI) THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PAYMENT S MADE TOWARDS MERE PURCHASE OF LAND FOR THE PURPOSES OF DEVELOPMENT OF LAYOUT AMOUNTS TO WORK IN TERMS OF EXPLANATION(IV) APPENDED TO SECTION 194C OF THE ACT . VII) THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT T HE WORK ENTRUSTED BY THE APPELLANT TO THE CONTRACTEE HA S NOT BEEN COMPLETED AND THE MATTER HAS RUN INTO PAGE 3 OF 9 ITA NOS.1311 TO 1314 /BANG/2011 3 LITIGATIONS. THE APPELLANT HAS FILED SUITS FOR RECOVERY/SPECIFIC PERFORMANCE AGAINST THE CONTRACTEE WHICH IS PENDING ADJUDICATION. THEREFORE, AFTER TH E PURCHASE OF LAND TO A SMALLER EXTENT, THE CONTRACT HAS NOT BEEN TAKEN OFF AND NO DEVELOPMENTAL WORK HAS BE EN CARRIED OUT BY THE CONTRACTEE. THEREFORE, IT IS SUBMITTED THAT NO WORK HAS BEEN DONE BY THE CONTRACTEE PURSUANCE TO THE AGREEMENTS WITH THE APPELLANT. VIII) THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE CA SE LAW RELIED UPON BY THE APPELLANT. 2.1 THE GROUNDS RAISED IN ITA NOS.1312 AND 1314/BA NG/2011 ARE IDENTICAL AND THEY READ AS FOLLOWS:- I) THE LEARNED CIT(A) ERRED IN UPHOLDING THE LEVY OF INTEREST UNDER SECTION 201(1A) OF THE ACT WITHOUT APPRECIATING THE FACTS OF THE CASE. II) THE LEVY OF INTEREST UNDER SUB-SECTION (1A) OF SECT ION 201 IS NOT WARRANTED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. III) THE LEARNED AUTHORITIES OUGHT TO HAVE APPRECIATED T HAT THERE WAS NO LIABILITY TO DEDUCT TAX AT SOURCE AND THEREFORE THE LEVY OF INTEREST IS UNWARRANTED. IV) THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FA CT THAT SINCE THE CONTRACT HAS NOT BEEN COMPLETELY ACTE D UPON BY THE PARTIES TO THE AGREEMENT, THERE WAS NO LIABILITY UPON THE APPELLANT TO DEDUCT TAX AT SOURCE . THUS, THE QUESTION OF PAYMENT OF COMPENSATORY INTERES T WOULD NOT ARISE IN THE CASE ON HAND. V) WITHOUT PREJUDICE, IT IS SUBMITTED THAT THE LEVY OF INTEREST FROM THE DATE OF ALLEGED DEFAULT TILL THE DATE OF PASSING THE ORDERS IS HIGHLY ARBITRARY. THE AUTHORIT IES OUGHT TO HAVE LEVIED INTEREST ONLY UP TO THE DATE OF EITHER PAYMENT OF ADVANCE TAX OR SELF ASSESSMENT TAX IF ANY OR FILING OF RETURNS BY THE RECIPENT. PAGE 4 OF 9 ITA NOS.1311 TO 1314 /BANG/2011 4 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE APPELLANT IS A WELFARE ASSOCIATION OF GROUP D EMPLOYEES. FOR THE BENEFIT OF ITS MEMBERS, THE ASSOCIATION HAD PLANNED TO PURCHASE LAND AND DEVELOP THE SAME TO FORM RESIDENTIAL SITES /LAYOUTS. ACCORDINGLY, THE APPELLANT ENTERED INTO AN AGREEMENT WITH M/S QU ALITY DEVELOPERS. IT IS THE CLAIM OF THE ASSESSEE THAT THE AGREEMENT ENTERE D WITH M/S QUALITY DEVELOPERS AT THE FIRST INSTANCE WAS FOR THE PURCHA SE OF LAND AND AFTER GETTING NECESSARY APPROVALS FORM THE STATUTORY AUTHOR ITIES, TO DEVELOP THE SAME TO FORM A LAYOUT IN WHICH RESIDENTIAL SITES ARE MARKED FOR THE PURPOSES OF ALLOTMENT. DURING THE FINANCIAL YEAR 2006-07, TH E APPELLANT HAD PAID A SUM OF RS.3,97,00,000/- AND FOR THE FINANCIAL YEAR 2007-08, RS.10,36,00,000/- TO M/S QUALITY DEVELOPERS. IT IS THE CLAIM OF THE APPELLANT THAT DURING THE SAID YEARS, M/S QUALITY DEV ELOPERS HAD PURCHASED 43 ACRES OF LAND AT DEVAGALLI VILLAGE, JAYAPURA HOBL I, MYSORE TALUK ON BEHALF OF THE APPELLANT. 4. THE ITO (TDS) WAS OF THE VIEW THAT THE PAYMENTS MADE TO M/S QUALITY DEVELOPERS ATTRACT TAX DEDUCTION UNDER SECTI ON 194C OF THE ACT AND SINCE THE APPELLANT HAS NOT DEDUCTED TAX ON THESE P AYMENTS, IT IS LIABLE UNDER SECTION 201(1) AND 201(1A) OF THE ACT. IT WA S SUBMITTED BEFORE THE ITO(TDS) THAT MERE PURCHASE OF LAND FOR AND ON BEHA LF OF THE ASSOCIATION WOULD NOT COME WITHIN THE AMBIT OF WORK AS DEFINE D IN CLAUSE (IV) OF SECTION 194C(1) OF THE ACT. THEREFORE, IT WAS CONTENDED BY THE ASSESSEE THAT IT WAS UNDER NO OBLIGATION TO DEDUCT TAX AT SOURCE UNDER S ECTION 194C AND THERE IS NO VIOLATION OF PROVISIONS. THE ITO(TDS), HOWEVER, INTIMATED THE APPELLANT PAGE 5 OF 9 ITA NOS.1311 TO 1314 /BANG/2011 5 UNDER SECTION 201(1) AND 201(1A) DEMANDING A SUM OF RS.32,93,176/-. THE DETAILS OF THE AMOUNT THAT IS DEMANDED UNDER SECTIO N 201(1) AND 201(1A) ARE AS FOLLOWS:- YEAR ENDING NATURE OF PAYMENT LIABLE FOR TDS/TCS SHORT DEDUCTION/NON DEDUCTION INTEREST UNDER SECTION TOTAL AMOUNT PAYABLE 31.3.06 194C 697928 96758 794686 31.3.07 194C 2322650 175840 2498490 GRAND TOTAL 3020578 272598 3293176 5. AGGRIEVED BY THE INTIMATION/LETTER DATED 28/3/20 08, THE APPELLANT FILED AN APPEAL BEFORE THE FIRST APPELLAN T AUTHORITY. 6. IT WAS CONTENDED BEFORE THE FIRST APPELLANT AUT HORITY THAT THE DEMANDING OF THE IMPUGNED AMOUNTS WITHOUT PASSING A N ORDER REQUIRED UNDER THE STATUTE IS ILLEGAL, ARBITRARY AND UNSUSTAINABLE . ON MERITS IT WAS ARGUED THAT THE ASSESSING AUTHORITY HAS FAILED TO APPRECIAT E THAT THE PROVISIONS OF SECTION1 94C ARE NOT APPLICABLE TO THE PAYMENTS MADE BY THE APPELLANT DURING THE YEARS 2006-07 AND 2007-08 SINCE THE ENTIR E AMOUNT WAS PAID TOWARDS PURCHASE OF THE LAND. IT WAS SUBMITTED FUR THER THAT THE ASSESSING AUTHORITY HAS FAILED TO APPRECIATE THAT THE PAYMENTS MADE BY THE APPELLANT TOWARDS THE DEVELOPMENT ACTIVITIES OF THE SAID LAND , IN ORDER TO FORM THE LAYOUT, HAS BEEN SUBJECTED TO TDS UNDER SECTION 194C AND THE AMOUNTS ARE DULY REMITTED TO GOVERNMENT ACCOUNT. IT WAS CONTEND ED THAT NOT ALL THE PAYMENTS ARE MADE SUBJECT TO PROVISIONS OF TAX DEDUC TION AT SOURCE AND THE PAYMENTS WHICH SPECIFICALLY FALL WITHIN THE PROVISIO NS OF CHAPTER XVII ALONE ARE LIABLE TO BE SUBJECTED TO TDS. HE FURTHER SUBM ITTED THAT THE SAID AMOUNTS PAID BY THE APPELLANT TOWARDS PURCHASE OF LA ND ARE NOT LIABLE TO BE SUBJECT TO TDS. PAGE 6 OF 9 ITA NOS.1311 TO 1314 /BANG/2011 6 7. THE CIT(A) DECIDED THE TECHNICAL ISSUE AS WELL AS THE ISSUE ON MERITS AGAINST THE APPELLANT. IN SO FAR AS THE TEC HNICAL ISSUE IS CONCERNED, THE CIT(A) OBSERVED AS UNDER:- I HAVE GONE THROUGH THE ORDER WHICH IS IN THE FORM OF A LETTER, THE CONTENTIONS OF THE APPELLANT AND THE RE MAND REPORT. AS PER THE PROVISIONS OF THE ACT, THE MOME NT THERE IS A DEFAULT UNDER SECTION 194C THE APPELLANT AUTOMATICALLY BECOMES A DEFAULTER UNDER SECTION 201 (1) AND THE CONSEQUENCES ARE ALSO MANDATORY. THERE IS NO PRESCRIBED ORDER TO BE PASSED FOR THIS UNDER THE AC T. THE ASSESSING OFFICER HAS COMMUNICATED THE DEFAULT THROUGH THE IMPUGNED ORDER IN THE FORM OF A LETTER. HENCE, IT IS NOT CORRECT TO SAY THAT THERE IS NO ORD ER. ACCORDINGLY, THE APPELLANTS GROUND IS DISMISSED. 7.1 ON THE ISSUE ON MERITS, THE CIT(A) HELD THAT T HE NATURE OF THE PAYMENT IS SUCH THAT IT ATTRACTED TDS UNDER SECTION 194C OF THE ACT AND HENCE, THE APPELLANT IS CORRECTLY TREATED AS AN ASS ESSEE IN DEFAULT UNDER SECTION 201(1) OF THE ACT AND THE LEVY OF INTEREST U NDER SECTION 201(1A) IS ONLY MANDATORY AND CONSEQUENTIAL. 8. THE APPELLANT BEING AGGRIEVED IS IN APPEAL BEFO RE US. 9. THE LEARNED COUNSEL FOR THE APPELLANT SUBMITTED THAT THE CIT(A) OUGHT TO HAVE APPRECIATED THAT TO TREAT THE APPELLANT AS AN ASSESSEE IN DEFAULT, THERE MUST BE A REASONED ORDER PASSED UNDER SECTION 201(1) BY THE INCOME TAX AUTHORITIES CONCERNED. ADMITTEDLY, I N THE CASE ON HAND, THERE IS NO SUCH ORDER PASSED BY THE AUTHORITY AFTER THE APPELLANT HAD FURNISHED DETAILS AND REQUESTED FOR DROPPING PROCEE DINGS. IT WAS ARGUED THAT IT IS MANDATORY TO PASS A SPEAKING ORDER UNDER SECTION 201, THOUGH THE PAGE 7 OF 9 ITA NOS.1311 TO 1314 /BANG/2011 7 SECTION DOES NOT SPECIFICALLY INDICATE OR CONTEMPLAT E A WRITTEN ORDER. FOR THIS PROPOSITION, THE LEARNED AR RELIED ON THE JUDG EMENTS OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF A M AGENCIES V CIT 239 ITR 136 AND IN THE CASE OF METTUR CHEMICALS AND INDUSTRIAL CORPORA TION LIMITED V INSPECTING ACIT 150 ITR 341. ON MERITS, IT WAS SUB MITTED THAT THESE PAYMENTS ARE MADE TOWARDS PURCHASE OF LAND DURING TH E CONCERNED FINANCIAL YEARS AND ON PURCHASE OF LAND, THERE WAS SUBSEQUENT AGREEMENT EXECUTED, WHEREIN THE APPELLANT WAS ENTRUSTED DEVELOPMENT WOR K AND NECESSARY TAX DEDUCTION AT SOURCE WERE MADE ON SUCH PAYMENTS TOWAR DS THE DEVELOPMENT ACTIVITIES PURSUANT TO THE SAID AGREEMENT. 10. THE LEARNED DR STRONGLY RELIED ON THE ORDERS OF THE INCOME TAX AUTHORITIES. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS ON RECORD. THE LETTER/INTIMATION OF THE ITO (TDS) DEMANDING A SUM OF RS.32,93,176/- UNDER SECTION 201(1) AND 201(1A) OF THE ACT FOR THE FINANCIAL YEARS 2006-07 AND 2007-08 IS CERTAINLY NOT AN ORDER. THOUGH SECTION 201 DOES NOT REFER TO A WRITTEN ORDER FOR TREATING THE PERSON CONCERNED AS AN ASSESSEE IN DEFAULT, A READING OF SECTION 246A(1) (HA) INDICATE THAT THE STATUTE NORMALLY CONTEMPLATES A WRITTEN ORDER UNDER SECTION 201 SO THAT THE PERSON AGGRIEVED CAN FILE AN APPEAL UNDER SECTION 2 46A OF THE ACT. UNLESS THERE IS A WRITTEN ORDER, IT IS NOT POSSIBLE FOR TH E PERSON TO CHALLENGE THE SAME BY FILING AN APPEAL. THIS PROPOSITION HAS BEEN SPECIFICALLY CLARIFIED BY THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN T HE CASE OF METTUR PAGE 8 OF 9 ITA NOS.1311 TO 1314 /BANG/2011 8 CHEMICALS AND INDUSTRIAL CORPORATION LIMITED V INSP ECTING ACIT 150 ITR 341. 11.1 THE HONBLE MADRAS HIGH COURT DEALING WITH TH E ISSUE OBSERVED THUS:- ASSUMING THAT THE DEPARTMENT IS ENTITLED TO INVOKE SECTION 195 OF THE I T ACT THAT WILL NOT ENABLE THE DEPARTMENT TO TREAT THE PETITIONER AS AN ASSESSEE IN DEFAULT AS PROVIDED IN SECTION 201 OF THE ACT. WI THOUT TREATING THE PETITIONER AS AN ASSESSEE IN DEFAULT , THE AMOUNTS DUE TO THE PETITIONER BY WAY OF REFUND CANNOT STRAIGHTAWAY BE ADJUSTED AS HAS BEEN DONE IN THIS C ASE IN THE IMPUGNED LETTER. THOUGH SECTION 201 DOES NOT R EFER TO A WRITTEN ORDER TREATING THE PETITIONER AS AN AS SESSEE IN DEFAULT, A READING OF SECTION 246 WILL INDICATE THAT THE PERSON AGGRIEVED CAN FILE AN APPEAL UNDER SECTION 2 46 : UNLESS THERE IS A WRITTEN ORDER, IT IS NOT POSSIBLE FOR THE PETITIONER TO CHALLENGE THE SAME BY FILING AN APPEAL UNDER SECTION 246. AS A MATTER OF FACT IN CIT V EXPRESS NEWSPAPERS (P) LTD. (1978) 111 ITR 347 (MAD.), IT H AS SPECIFICALLY BEEN HELD THAT SINCE AN ORDER UNDER SEC TION 201 IS APPEALABLE, A WRITTEN ORDER IS ESSENTIAL. E VEN IF THE IMPUGNED LETTER DATED AUGUST 19, 1982, IS TREAT ED AS A WRITTEN ORDER, WE FIND THAT THE LETTER DOES NOT P ROCEED ON THE BASIS THAT THE PETITIONER IS AN ASSESSEE IN DEFAULT FOR NON-COMPLIANCE WITH THE PROVISIONS OF SECTION 1 95. THEREFORE, THE IMPUGNED LETTER CANNOT AT ALL BE TAK EN AS AN ORDER PASSED UNDER SECTION 201. 11.2 IN VIEW OF THE JUDGEMENT OF THE HONBLE MADRA S HIGH COURT, WE QUASH THE IMPUGNED ORDER OF THE LEARNED CIT(A), WHE REIN HE CONSIDERED THE LETTER/INTIMATION OF THE ITO(TDS) DATED 28/3/2008 A S AN ORDER PASSED UNDER SECTION 201 AND 201(1A) OF THE ACT. THE REVE NUE IS AT LIBERTY TO PASS PAGE 9 OF 9 ITA NOS.1311 TO 1314 /BANG/2011 9 A WRITTEN ORDER UNDER SECTION 201 IF IT WANTS TO FA STEN THE INCOME TAX LIABILITY ON THE APPELLANT CONCERNED. IT IS ORDERED ACCORDINGLY. 12. IN THE RESULT, THE APPEALS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH DAY OF MARCH, 2012 SD/- SD/- (N K SAINI) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO:- 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONC ERNED 4. THE CIT(A) CONCERNED 5. THE DR 6. GF MSP/- BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.