M/s Karnataka Power Transmission Corporation Ltd., Tumkur V. ITO, Bangalore

ITA 173/BANG/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5640 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-01-2011
• Assessment Year: 2009-2010
• Appeal Filed On: 16-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G V GOPALA RAO CITI
• Assessee Lawyers: CHYTHANYA K K
• Keywords: Recovery proceedings; Principle of natural justice; Question of law
• Section: 133A; 194C; 201(1)

Judgement Text

PAGE 1 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 1 THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI GEORGE GEORGE K, J.M. AND SHRI A MOHAN ALANKAMONY, A.M. ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 (ASST. YEARS 2002-03 TO 2009-2010) M/S KARNATAKA POWER TRANSMISSION CORPORATION LTD., OLD ZILLA PANCHAYATH BUILDING, TUMKUR-572 102. - APPELLANT VS THE INCOME-TAX OFFICER (TDS), WARD-18(1), BANGALORE. - RESPONDENT APPELLANT BY : SHRI CHYTHANYA, K. K, ADVOCATE RESPONDENT BY : SHRI G V GOPALA RAO, CIT-I O R D E R PER BENCH : THESE SIXTEEN APPEALS INSTITUTED BY KPTCL, TUMKUR DIVISION A STATE GOVERNMENT PUBLIC SECTOR COMPANY ARE DIR ECTED AGAINST THE CONSOLIDATED ORDER OF THE LD. CIT (A)-LTU, BANGALOR E, IN ITA NOS: 3 TO 10/W 18(1)/CIT(A) LTU/09-10 DATED: 30.10.2009 FOR T HE ASSESSMENT YEARS 2002-03 TO 2009-2010. I. ITA NOS:132 TO 139/10 AYS: 2002-03 TO 2009-10 U /S.201(1) OF THE ACT : 2. THE ASSESSEE HAD RAISED AS MA NY AS TWENTY SIX IDENTICAL GROUNDS FOR THE AYS UNDER DISPUTE IN AN ILLUSTRATIV E AND NARRATIVE MANNER. ON A CLOSE SCRUTINY OF THE SAME, THE CRUXES OF THE I SSUES EMERGED ARE THAT PAGE 2 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 2 1. THE CIT (A)-LTU WAS NOT JUSTIFIED IN SUSTAINING THE ACTION OF THE AO (TDS) IN TREATING THE ASSESSEE AS ASSESSEE IN DEFAULT AND DEMANDING THE TAX ON THE BASIS THAT THE ASSESS EE OUGHT TO HAVE DEDUCTED THE TDS IN RESPECT OF PAYMENTS MADE T O THE CONTRACTORS TOWARDS SUPPLY OF MATERIALS 2. THAT THE CIT(A)-LTU HAD FAILED TO APPRECIATE TH AT THE ASSESSEE CANNOT BE REGARDED AS AN ASSESSEE IN DEFA ULT U/S 201(1) AS THERE WAS NO OBLIGATION ON THE PART OF TH E ASSESSEE TO DEDUCT TDS UNDER ANY OF THE PROVISIONS OF THE ACT; 3. THAT THE CIT(A)-LTU WAS NOT JUSTIFIED IN SUSTAIN ING THE STAND OF THE AO THAT THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE IN RESPECT OF PAYMENT TOWARDS TREES (BEING R EIMBURSEMENT OF COMPENSATION FOR CUTTING OF TREES OR CROP LOSSES TO FARMERS OR LANDLORDS); 4. THE CIT(A)-LTU WAS NOT JUSTIFIED IN NOT ADDRESSI NG THE GROUND RAISED BY THE ASSESSEE RELATING TO ADOPTION OF INCORRECT AMOUNT BY THE AO AS RS.40.06 CRORES IN STEAD OF RS. 17.08 LAKHS; & - THE CIT (A)-LTU HAD WRONGLY STATED THAT THE ASS ESSEE HAD ADMITTED ITS LIABILITY TO DEDUCT TAX IN RESPECT OF THE SURVEY WORK U/S 194J. HE HAD MISUNDERSTOOD THE STATEMENT OF TH E ASSESSEE WHEREIN THE ASSESSEE ONLY STATED AS HOW THAT DEPAR TMENT IS IN THE OPINION THAT THE SURVEY WORK INVOLVES PROFESSIO NAL SKILLS AND KNOWLEDGE. HENCEFORTH, IT WILL ENSURE THAT TDS WIL L BE DEDUCTED AT APPLICABLE RATES: II. ITA NOS:166 TO 173/10AYS:2002-03 TO 2009-10-U/S 2 01(1A) OF THE ACT: 3. LIKEWISE, FOR THE AYS UNDER CHAL LENGE, THE ASSESSEE HAD RAISED THREE IDENTICAL GROUNDS, OUT OF WHICH, GROUND NO.1 BECOMES NON- PAGE 3 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 3 CONSEQUENTIAL AS IT BEING GENERAL AND NO SPECIFIC I SSUE INVOLVED. IN THE REMAINING GROUNDS, THE ISSUES RAISED ARE REFORMULAT ED AS UNDER: 1. THE CIT (A)-LTU WAS NOT JUSTIFIED IN SUSTAINING THE ACTION OF THE AO (TDS) IN TREATING THE ASSESSEE AS ASSESSEE IN D EFAULT AND DEMANDING INTEREST ON TAX; & - THAT THE CIT (A)-LTU WAS NOT FURTHER JUSTIFIED IN U PHOLDING THE STAND OF THE AO IN LEVYING INTEREST U/S 201 (1A) OF THE ACT WHEN THE ASSESSEES CASE DOESNT FALL WITHIN THE SPHERE OF S.201(1) OF THE ACT. 4. AS THE ISSUES RAISED IN THESE APP EALS BEING IDENTICAL AND INTER- LINKED PERTAINING TO THE SAME ASSESSEE, THEY WERE HE ARD, CONSIDERED TOGETHER AND DISPOSED OFF IN THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND CLARITY. 5. BRIEFLY, THE ASSESSEE - A STATE GOVE RNMENT PUBLIC SECTOR COMPANY - WAS CARRYING ON THE BUSINESS OF TRANSMISSION OF EL ECTRICITY FROM ELECTRICITY GENERATING POINTS TO VARIOUS ELECTRICAL SUB-STATION S IN THE STATE THROUGH THE NETWORK OF TRANSMISSION LINES AND SUB-STATIONS. T HE ASSESSEES PREMISES WERE SUBJECTED TO AN OPERATION U/S 133A OF THE ACT ON 23.1.2009 TO VERIFY THE COMPLIANCE OF TDS PROVISIONS. DURING THE COURS E OF SURVEY, IT WAS NOTICED BY THE REVENUE THAT THE ASSESSEE HAD ENTERED INTO AGREEMENTS WITH VARIOUS CONTRACTORS FOR SETTING UP OF ELECTRICAL SU B-STATIONS. THE SUB- STATIONS WERE ESTABLISHED IN ORDER TO SEGREGATE THE LOAD OF ONE STATION OR TO IMPROVE THE RELIABILITY OF POWER SUPPLY AND TO MEET T HE INCREASING DEMAND FOR POWER SUPPLY. IT WAS NOTICED BY THE REVENUE DURI NG THE VERIFICATION OF THE AGREEMENTS THAT THE ASSESSEE HAD ENTERED INTO S EPARATE AGREEMENTS FOR SUPPLY OF MATERIALS, ERECTION AND FOR CIVIL WORK POR TION ETC., IT WAS, FURTHER, PAGE 4 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 4 NOTICED THAT WHEN THE ASSESSEE WAS DEDUCTING TAX AT SOURCE WHILE MAKING PAYMENTS ON CIVIL WORK AND ERECTION PORTION, HOWEVER , NO TDS WAS EFFECTED ON PAYMENTS TOWARDS SUPPLY OF MATERIAL PORTION. DURI NG THE COURSE OF PROCEEDINGS U/S 201(1) AND 201(1A) OF THE ACT, THE AO WAS OF THE VIEW THAT AS THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURC E ON THE SUPPLY OF MATERIAL PORTION ALSO, IT WAS REQUIRED TO EXPLAIN S UCH INACTION ON THE PART OF THE ASSESSEE. 5.1. BRUSHING ASIDE THE ASSESSEES CONTEN TIONS/EXPLANATION, THE AO WENT AHEAD IN CONCLUDING, AFTER A DETAILED REASONS RECORDED IN HIS IMPUGNED ORDER UNDER CHALLENGE, THAT THE ASSESSEE SHOULD HAV E DEDUCTED TAX AT SOURCE ON THE SUPPLY PORTION ALSO WHICH IT HAD FAILED TO DO SO, THE ASSESSEE WAS TREATED AS ASSESSEE IN DEFAULT AND, ACCORDINGLY CO MPUTED THE TAXES U/S 201 AS WELL AS INTEREST THEREON U/S 201(1A) OF THE ACT FOR THE ASSESSMENT YEARS UNDER DISPUTE. 6. AGGRIEVED , THE ASSESSEE TOOK UP THE ISSUES WITH THE LD. CIT (A)- LTU FOR SOLACE. AFTER DUE CONSIDERATION OF THE LENG THY CONTENTIONS PUT- FORTH BY THE ASSESSEES A.R., PERUSING THE OBSERVATI ONS MADE BY THE AO IN HIS IMPUGNED ORDER, ANALYZING THE PROVISIONS OF S.19 4C OF THE ACT, EXTENSIVELY QUOTING THE RULINGS IN THE CASES OF (I) ASSOCIATED CEMENT CO. LTD. V. CIT (1993) 201 ITR 435 (SC), (II) BRIJ BHUSHAN LALS CASE (1976) 115 ITR 524 (SC), (III) STATE OF HIMACHAL PRADESH V. ASSOCIATED HOTELS OF INDIA LTD. (1972) 29 STC 474 (SC), (IV) STATE OF GUJARAT (COMMISSIONER OF SALES- TAX, AHMEDABAD) V. VARIETY BODY BUILDERS 38 STC 176 ( SC) AND DUE PERUSAL OF TENDER NOTIFICATION FLOATED BY THE ASSESSEE AND ALSO CONSIDERING THE PAGE 5 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 5 CASE LAWS ON WHICH THE ASSESSEE HAD PLACED STRONG R ELIANCE, THE LD. CIT (A) HAD OBSERVED THUS: 4.12. (C) (ON PAGE 31) FROM THE FACTS STATED ABOVE , IT CAN BE SEEN THAT THE CONTRACT ITSELF SPECIFIED T HE MATERIAL AND WORK WITH ESTIMATED COST OF SUPPLY AS WELL AS WORK AND LABOUR. THUS, SUPPLY AND WORK ARE DISTINCT AND IDENTIFIABLE. IN THE INSTANT CASE, TH E APPELLANT FLOATED A TENDER AND THERE IS NO SEPARATI ON OF SUPPLY, ERECTION AND INSTALLATION AS WELL AS CIV IL WORKS. ONLY AFTER AWARDING THE TENDER, THE APPELLA NT ENTERED INTO AGREEMENT WITH THE CONTRACTOR FOR SUPPLY, CIVIL WORKS AND ERECTION. THUS, THE FACTS OF THE CASE LAW CITED ARE DISTINGUISHABLE AND IS OF NO ASSISTANCE TO THE APPELLANTS CASE. 4.13. IN THE WRITTEN SUBMISSIONS, THE APPELLANT FURTHER STATED THAT IT IS NOT THE CASE OF THE AO TH AT THE CONTRACTOR HAS FAILED TO FULFILL THE TAX OBLIGA TION AND THAT THE GOVERNMENT WAS DEPRIVED OF TAX DUE, RELYING ON THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE OF HINDUSTAN COCA COLA BEVERAGE PVT. LTD. V. CIT (2007) 293 ITR 226 (SC) WHERE THE PAYEE HAD ALREADY PAID THE TAX ON THE INCOME WHICH WAS THE SUBJECT MATTER OF SHORT DEDUCTION OF TAX AT SOURCE, RECOVERY OF TAX CANNOT BE MADE ONCE AGAIN FROM THE TAX DEDUCTOR. THIS ISSUE HAS ALREADY BEEN DISCUSSED IN PARAS 4.4.1 AND 4.2 SUPRA AND AS THERE IS NO MERIT IN THE APPELLANTS SUBMISSION IN VIEW OF T HE PROVISIONS OF SECTION 194C OF THE ACT. HENCE, THE OBJECTIONS IN THIS REGARD ARE REJECTED. 4.14. HERE, THE LAST POSITION OF THE SPECIAL TERM IN REGARD TO THE PAYMENT OF THE AMOUNT DUE UNDER THE CONTRACT ALSO MAKES CLEAR THAT IT IS ONLY WHEN THE COMPONENT PARTS ARE FITTED INTO POSITION AT THE SUB - STATION THAT AN EQUIPMENT WOULD BE TREATED AS COMPLETE AND THIS EQUIPMENT HAS TO BE TO THE PAGE 6 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 6 SATISFACTION OF THE APPELLANT AND IT IS THEN TO BE HANDED OVER BY THE CONTRACTOR TO THE APPELLANT AND THEN ALONE WOULD BE REMAINING 10 PER CENT WOULD BE PAYABLE BY THE APPELLANT TO THE CONTRACTOR. IT IS, THEREFORE, CLEAR THAT THE CONTRACT IS ONE SINGLE AN D INDIVISIBLE CONTRACT AND THE ERECTION AND INSTALLAT ION OF THE EQUIPMENT IS AS MUCH FUNDAMENTAL PART OF THE CONTRACT AS THE FABRICATION AND SUPPLY. IN THE CIRCUMSTANCES AND IN VIEW OF THE DISCUSSION MADE ABOVE, MY CONSIDERED OPINION IS THAT THE CONTRACT W AS A CONTRACT FOR WORK AND LABOUR AND NOT A CONTRACT F OR SUPPLY. I, THEREFORE, DO NOT FIND INFIRMITIES IN T HE AOS FINDINGS AND, THEREFORE, THE SAME IS CONFIRMED . 6.1. DURING THE COURSE OF APPELLATE PROCEED INGS, THE ASSESSEE HAD ALSO RAISED THE FOLLOWING ADDITIONAL GROUNDS BEFORE THE LD. CIT (A)-LTU: (I) WITH REGARD TO TREE CUTTING COMPENSATION PAID T O THE AGRICULTURISTS/FARMERS THAT THERE WAS NO OBLIGATION TO DEDUCT TAX AS THE PROVISIONS OF S.194C WERE NOT APPLICABLE; (II) IN RESPECT OF SURVEY WORK THAT THE SURVEY WORK HAD NOTHING TO DO WITH THE TECHNICAL SERVICES AND THE ASSESSEE MAY OR MAY NOT ACT UPON THE REPORT OF SURVEY AND, THUS, THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE TO MAKE TDS U/S 194J OF THE ACT; - WITHOUT PREJUDICE, THE ASSESSEE HAD PAID ONLY RS. 17.08 LAKHS AND NOT RS.40.06 CRORES UNDER THE HEAD SURVEY AS RECORDED IN THE ORDER BY THE AO; THE OBSERVATIONS OF THE CIT (A) ARE EXTRACTED AS UNDER: 5.2. I HAVE EXAMINED THE FACTS OF THE CASE AND ALSO GONE THROUGH THE DETAILS IN RESPECT OF THE TRANSACTION PAYMENTS MADE TO THE CONTRACTORS TOWARDS TREE CUTTING. IT IS OBSERVED THAT THE TOTAL AMOUNT PAID WAS PAGE 7 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 7 ASSESSED AT RS.2,38,48,322/- PAID DURING THE FY 2002-03 TO 2007-08 AND IT IS APPARENT THAT TREES WERE CUT ON MASS SCALE. IN ORDER TO CUT THE TREES AND REMOVING THE PIECES, KPTCL MUST HAVE CARRIED OUT PHYSICAL VERIFICATION AND CERTAIN ADMINISTRATIVE FORMALITIES WHICH ARE DISCUSSED IN BRIEF AS FOLLOWS: (I) KPTCL WOULD HAVE APPROACHED THE REVENUE AUTHORITIES OF THE STATE GOVERNMENT TO IDENTIFY AND DEMARCATE THE PLOTS ON WHICH TREES ARE STANDING. SIMILARLY, THEY WILL IDENTIFY THE OWNER OF THE RESPECTIVE PLOTS AND ACCORDINGLY ISSUED NO OBJECTION CERTIFICATES; (II) SIMILARLY, THE FOREST DEPARTMENT MUST HAVE VERIFIED THE PROPOSED AREA AND THE STANDING TREES AND, ACCORDINGLY ISSUED NO OBJECTION CERTIFICATE; (III) AFTER IDENTIFYING THE PLOTS AND THE TREES STANDING THEREON, TREES WERE VALUED BY EITHER THE AUTHORITIES OF THE FOREST DEPARTMENT OR THE HORTICULTURE DEPARTMENT; (IV) AFTER COMPLETING ALL THESE FORMALITIES, THE APPELLANT WANTED TO MAKE PAYMENTS TO THE OWNERS OF THE TREES OR FARMERS OF THE CROPS. IT IS SIGNIFICANT TO NOTE THAT THE CONTRACTOR NOT ONLY PAID THE COMPENSATION BUT HE ALSO CARRIED OUT THE WORK OF CUTTING THE TREES, CUT THEM INTO PIECES AND REMOVED AND TRANSPORTED THEM TO THE STORING PLACE DESIGNATED BY THE APPELLANT. 5.4. THUS, IT MAY BE SEEN THAT THE CONTRACTOR NOT ONLY PAID COMPENSATION TO THE OWNERS BUT ALSO CARRIED OUT THE WORK OF CUTTING, TRANSPORTING AND BLOCK OF CUT WOOD AND AS SUCH THERE WAS INVOLVEMENT OF WORK AND LABOUR WHICH ATTRACTS THE PROVISIONS OF SECTION 194C OF THE ACT. THE APPELLANT CONTENDED THAT THE TURNKEY PAGE 8 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 8 CONTRACTOR HAS BEEN APPOINTED ONLY TO CARRY OUT THE CIVIL WORK, ERECTION/INSTALLATION WORK IS NOT CORRECT. THE DISCUSSIONS MADE ABOVE SHOW THAT THE CONTRACTOR CARRIED OUT OTHER ALLIED WORK WHICH DEFINITELY COMES WITHIN THE CONCEPT OF WORK AND LABOUR CONTRACT. 5.5. IN VIEW OF THE HONBLE SUPREME COURTS DECISION IN THE CASE OF ASSOCIATED CEMENT CO. LTD. V. CIT (SUPRA), THE CBDT ISSUED CERTAIN GUIDELINES [CIRCULAR NO.68] DATED 8.3.1994] IN REGARD TO THE APPLICABILITY OF THE PROVISIONS OF S.194C OF THE ACT. THE PROVISIONS OF THIS SECTION WOULD COVER NOT ONLY WRITTEN CONTRACT BUT ALSO ORAL CONTRACTS WHERE THE TOTAL PAYMENT UNDER THE CONTRACT IS LIKELY TO EXCEED RS.20,000/- FOR THE ENTIRE PERIOD FOR WHICH THE CONTRACT WILL REMAIN IN FORCE, INCOME-TAX WILL BE DEDUCTED AT SOURCE. IN A CASE WHERE, AT THE TIME WHEN THE CONTRACT WAS ENTERED INTO, IT WAS EXPECTED THAT THE TOTAL PAYMENT FOR THERE- UNDER WOULD NOT EXCEED RS.20,000/- BUT LATER ON IT WAS FOUND THAT THE PAYMENT EXCEEDS THAT AMOUNT, DEDUCTION OF INCOME-TAX SHOULD BE MADE IN RESPECT OF EARLIER PAYMENTS AS WELL. 5.6. IT IS ALSO CONTENDED THAT THE CONTRACTOR HAS BEEN ASKED TO MAKE THE PAYMENT TO OWNERS/FARMERS ON BEHALF OF KPTCL WHICH AMOUNT IS REIMBURSED BY KPTCL TO THE CONTRACTORS. THE PAYMENT BY WAY OF REIMBURSEMENT TO THE CONTRACTORS CANNOT BE SAID TO BE FORMING PART OF CONTRACTUAL PAYMENT TO BE MADE IN PURSUANCE OF THE TURNKEY CONTRACT. HERE, IT MAY BE STATED THAT PAYMENT TO THE OWNERS/FARMERS WERE NOT MADE BY THE KPTCL DIRECTLY BUT THROUGH THE CONTRACTORS ONLY. THE PAGE 9 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 9 CBDT VIDE CIRCULAR NO.715 DT.8.8.1995 IN ANSWER TO QUESTION NO: 30 CLARIFIED AS UNDER: SECTIONS 194C AND 194J REFER TO ANY SUM PAID. OBVIOUSLY, REIMBURSEMENTS CANNOT BE DEDUCTED OUT OF THE BILL AMOUNT FOR THE PURPOSE OF TAX DEDUCTION AT SOURCES. 5.7. IN VIEW OF THE BOARDS CLARIFICATION, EVEN THE PAYMENT BY WAY OF REIMBURSEMENT COMES UNDER THE PURVIEW OF SECTION 194C OF THE ACT. THUS, THE GROUND OF APPEAL ON THIS ISSUE FAILS. 6. SHORT DEDUCTION OF TAX AT SOURCE U/S 194J OF THE ACT. 6.1. IT IS OBSERVED THAT THE APPELLANT PAID AMOUNT OF RS.40, 06, 13,291/-. THE AO LEVIED TAX AND INTEREST AGGREGATING TO RS.8463194/- [6422953 U/S 201(1) + 2040241 U/S 201(1A)] ON ACCOUNT OF SHORT DEDUCTION OF TAX AND INTEREST THEREON. IN HIS ORDER DATED: 26.2.2009 IN PARA 23(8) & (9), THE AO HELD AS FOLLOWS: 8.HENCE . 9.WITH.REGARD HENCEFORTH, WE WILL ENSURE THAT TDS WILL BE DEDUCTED AT APPLICABLE RATES. (I) THE AO MADE THE FOLLOWING OBSERVATIONS ON THE SAID SUBMISSIONS OF THE APPELLANT: THE ASSESSEES PLEA OF LACK OF KNOWLEDGE/IGNORANCE CANNOT BE ACCEPTED AS A PAGE 10 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 10 VALID REASON FOR DROPPING THE PROCEEDINGS. THE TAX HAS TO BE DEDUCTED AT THE APPROPRIATE RATES AS PRESCRIBED UNDER THE ACT. 6.2. THERE IS FORCE IN THE AOS OBSERVATION AND EVEN THE APPELLANT ADMITTED THAT THE SURVEY WORK INVOLVES PROFESSIONAL SKILLS AND KNOWLEDGE AND PAYMENT MADE TOWARDS SURVEY WORK INVOLVES PROFESSIONAL CHARGES. THUS, BY THIS FACT ALSO, THE PAYMENT ATTRACTS THE PROVISIONS OF SECTION 194J OF THE ACT AND TAX AT SOURCE WOULD BE DEDUCTIBLE AT THE RATE OF 10% AT THE TIME OF PAYMENT OR CREDITED IN THE ACCOUNTS. 6.3. IT IS PERTINENT TO NOTE THAT WHERE, IN THE CASE OF ANY INCOME OF ANY PERSON, INCOME-TAX IS REQUIRED TO BE DEDUCTED AT THE TIME OF CREDIT AT THE RATE IN FORCE UNDER THE PROVISIONS OF SECTION 194J, THE AO SHALL ISSUE A CERTIFICATE TO DEDUCT THE TAX AT SOURCE AT LOWER RATE OR NO DEDUCTION TO BE MADE ON AN APPLICATION MADE BY THE TAX-PAYER AS PER THE PROVISIONS OF SECTION 197(1) OF THE ACT. IN THE INSTANT CASE, NO SUCH CERTIFICATE HAS BEEN OBTAINED FROM THE AO TO DEDUCT TAX AT SOURCE AT A LOWER RATE. THUS, IT IS OBLIGATORY ON THE PART OF THE APPELLANT TO DEDUCT TAX AT 10% AT THE TIME OF CREDIT OR AS THE CASE MAY BE AT THE TIME OF PAYMENT. IN VIEW OF THE DISCUSSIONS MADE ABOVE, THERE ARE NO INFIRMITIES IN THE AOS FINDINGS AND, THEREFORE, THE LEVY OF TAX AND INTREST IS CONFIRMED. 7. AGGRIEVED WITH THE STAND OF THE LD. C IT (A) ON THE ABOVE MENTIONED ISSUES, THE ASSESSEE HAS COME UP WITH THE PRESENT APPEALS. PAGE 11 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 11 7.1. BEFORE ADDRESSING TO THE ISSUES RAIS ED BY THE ASSESSEE AS WELL AS THE ARGUMENTS PUT FORTH BY THE LD. A R REFERRED SUPR A, WE WOULD LIKE TO POINT OUT THAT THE FOLLOWING TWIN MAJOR ISSUES, VI Z., (I) IN TREATING THE ASSESSEE AS ASSESSEE IN DEFAULT A ND DEMANDING THE TAX U/S 201(1) OF THE ACT ON THE BASI S THAT THE ASSESSEE OUGHT TO HAVE DEDUCTED TDS IN RESPECT OF PAYMENTS MADE TO THE CONTRACTORS TOWARDS SUPPLY OF MATERIALS; & (II) IN TREATING THE ASSESSEE AS ASSESSEE IN DEFAULT A ND DEMANDING INTEREST ON TAX U/S 201 (1A) OF THE ACT; RAISED IN THESE APPEALS HAVE SINCE BEEN RAISED IN A N IDENTICAL FASHION BEFORE THIS BENCH BY THE ASSESSEES COUNTER-PART KPTCL BA NGALORE DIVISION IN ITS APPEALS IN ITA NOS.112 TO 115 & 162 TO 165 /BANG/2010 DATED 10.3.2011. 7.2. THE ABOVE MENTIONED ISSUES WERE ELABORATELY DI SCUSSED AND SUBMISSIONS OF BOTH - THE LD. A.R AS WELL AS THE LD . D.R - ALSO DULY CONSIDERED AT LENGTH IN THOSE APPEALS BY THIS BENCH. AFTER CON SIDERING THE RIVAL SUBMISSIONS AND ALSO DILIGENT PERUSAL OF MATERIALS ON RECORD, THIS BENCH HAD RESOLVED THOSE ISSUES IN THE FOLLOWING MANNER (QUOTE ) 11.6. IN TAKING INTO ACCOUNT THE FACTS AND CIRCUMSTANCES OF THE ISSUES WHICH HAVE BEEN METICULOUSLY ANALYZED AND ALSO EXTENSIVELY QUOTING THE VARIOUS JUDICIAL PRONOUNCEMENTS ON THE ISSUES IN TH E FORE-GOING PARAGRAPHS, WE ARE OF THE CONSIDERED VIE W THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN TREATING THE ASSESSEE KPTCL AS AN ASSESSEE IN DEFAULT U/S 201(1) AND ALSO CHARGING OF INTEREST U /S 201(1A) OF THE ACT FOR THE FOLLOWING REASONS: PAGE 12 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 12 1. THE ASSESSEE CANNOT BE CATEGORIZED AS AN ASSESSEE IN DEFAULT WHEN THERE WAS NO OBLIGATION ON THE PART O F THE ASSESSEE TO DEDUCT TAX U/S 194C OF THE ACT FOR SUPPLY PORTION; 2. AMENDMENT OF S. 194C THROUGH FINANCE ACT(NO.2) OF 2009, CLARIFY DEDUCTION DOESNT EXTEND TO SUPPLY O F MATERIALS (PORTION); 3. THE MATERIALS IN QUESTION WERE PURCHASED FROM THE SUPPLIERS BY THE ASSESSEE AND GIVEN TO THE CONTRACTOR(S) FOR CARRYING OUT THE WORK OF CIVIL, ERECTION, ETC., 4. THE CONTRACT BETWEEN THE ASSESSEE AND THE CONTRACTO R WAS A CONTRACT FOR SUPPLY AND NOT FOR CONTRACT OF WORK AND THE REVENUE HAD CONSISTENTLY REFUSED TO S EE THE REASON AND TO RECOGNIZE THE DISTINCT MEANING - SUPPLY AND WORK; 5. IT WAS WRONGLY VISUALIZED THAT THE EQUIPMENTS, MATERIALS COMPONENT PARTS WERE FABRICATED AND INSTALLED AT WORK SITE PREMISES; 6. IT WAS WRONGLY PRESUMED THAT THE CONTRACTS ENTERED INTO BETWEEN THE ASSESSEE AND THE CONTRACTOR WERE COMPOSITE CONTRACT AND AN INDIVISIBLE CONTRACT WHER EAS THERE WERE THREE SEPARATE CONTRACTS, VIZ., (I) SUPP LY OF MATERIALS; (II) FOR ERECTION & (III) FOR CIVIL W ORK PORTION; 7. INSTRUCTION TO BIDDERS (SECTION II ITB) UNDER CLA USE 14. TAXES AND DUTIES [SOURCE P 123 OF PB AR] IT H AS BEEN MADE IMPLICITLY CLEAR THAT 14.1. AS INDICATED IN CLAUSE 35.2 OF SECTION ITB O F THE BID DOCUMENT, IN CASE OF AWARD OF CONTRACT, A DIVISIBLE CONTRACT COVERING THE ENTIRE SCOPE OF THE PARTIAL/TOTAL TURNKEY PACKAGE WILL BE ENTERED INTO WITH THE SUCCESSFUL BIDDER, THERE SHALL BE THREE SEPARAT E CONTRACTS AS UNDER: (I) FOR SUPPLY OF GOODS (II) FOR ERECTION WORKS (III) FOR CIVIL ENGINEERING WORKS PAGE 13 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 13 THUS, TENDER CLEARLY GIVES BREAKS-UP OF SEPARATE AGREEMENTS REFLECTING SEPARATE CONSIDERATION; THROUGH A SINGLE BIDDING PROCESS, ALL THE CONTRACTS WERE AWARDED DISTINCTLY WHICH DO NOT MEAN THAT THEY WERE COMPOSITE CONTRACTS; THE HONBLE APEX COURT IN THE CASE OF HINDUSTAN COC A COLA BEVERAGES P. LTD. V. CIT REPORTED IN 293 ITR 226(SC) HAD RULED THAT IT IS NOT DISPUTED THAT THE CIRCULAR NO. 275/201/95-IT(B) DATED JANUARY 29, 1997 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES DECLARING THAT 'NO DEMAND VISUALIZED UNDER SECTION 201(1) OF THE INCOME- TAX ACT SHOULD BE ENFORCED AFTER THE TAX DEDUCTOR HAS SATISFIED THE OFFICER-IN - CHARGE OF TDS, THAT TAXES DUE HAVE BEEN PAID BY THE DEDUCTEE-ASSESSEE; WHEN THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TAX ON SUPPLY PORTION, THERE WAS NO QUESTION OF CHARGING OF INTEREST U/S 201(1A) OF THE ACT; WE HAVE ALSO DULY PERUSED THE CASE LAWS ON WHICH TH E LD. CIT (A) HAD PLACED STRONG RELIANCE. HOWEVER, W E ARE OF THE CONSIDERED VIEW THAT THOSE DECISIONS WER E CLEARLY DISTINGUISHABLE TO THE FACTS AND CIRCUMSTAN CES OF THE ISSUES UNDER CONSIDERATION. 11.7. IN A NUT-SHELL (I) WHEN THE ASSESSEE WAS UNDER NO OBLIGATION TO DEDUC T TAX U/S 194C OF THE ACT TOWARDS THE PAYMENTS MADE ON SUPPLY PORTION, THE ASSESSEES CASE DOESNT FALL WITHIN THE AMBIT O F THE PROVISIONS OF S.201(1) OF THE ACT AND, THUS, THE AS SESSEE CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT; AND (II) THAT WHEN THE ASSESSEE WAS NOT REQUIRED TO DEDUCT T AX TOWARDS THE PAYMENT ON SUPPLY PORTION, THERE WAS NO QUESTIO N WHATSOEVER IN CHARGING OF INTEREST U/S 201(1A) OF T HE ACT. PAGE 14 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 14 IT IS ORDERED ACCORDINGLY. (UNQUOTE). 7.3. AS THE ISSUES BEFORE US IN THESE APPEALS ARE SIMILAR TO THAT OF THE ISSUES ALREADY DEALT WITH AND ALSO IN CONFORMITY WITH THE SAID FINDINGS IN THE CASE OF KPTCL, BANGALORE DIVISION REFERRED SUPRA, WE ARE OF THE FIRM VIEW THAT THE FINDINGS RECORDED THEREIN HOLD GOOD FOR THE ISSUES ON HAND. IT IS ORDERED ACCORDINGLY. 8. WITH REGARD TO THE LD. CIT (A) OBSERVAT IONS IN RESPECT OF COMPENSATION PAID FOR REMOVAL OF TREES ETC., SHRI K .K. CHYTHANYA, THE LD. A. R. MADE THE FOLLOWING SUBMISSIONS: (I) TREATING THE REIMBURSEMENT TO CONTRACTOR TOWARD S COMPENSATION FOR CUTTING OF TREES OR LOSS OF CROPS TO THE FARMERS OR LANDLORDS: - T HAT, THE CIT (A) WAS NOT JUSTIFIED IN SUSTAINING T HE ACTION OF THE AO THAT THE APPELLANT OUGHT TO HAVE DEDUCTED TAX AT SOURCE IN RESPECT OF PAYMENT TOWARDS TREES. HE HAD F AILED TO APPRECIATE THAT THE AO HAD BRUSHED ASIDE THE FACTUA L CONTENTIONS OF APPELLANT WITHOUT RECORDING ANY REASO N; - THAT, IN THE COURSE OF INSTALLING THE TOWERS THE APPELLANT WAS LIABLE TO PAY COMPENSATION FOR HAVING REMOVED THE ST ANDING CROPS, CUTTING OF TREES ETC. TO THE FARMERS AND FOR THIS PURPOSE AND AS A MATTER OF CONVENIENCE THE CONTRACTORS WERE INSTRUCTED TO PAY THE SUMS TO THE FARMERS AND LANDLORDS ON BEHA LF OF THE ASSESSEE; . - THAT THE CIT (A) HAD FAILED TO APPRECIATE THAT TH E SUMS PAID BY THE APPELLANT WERE IN THE NATURE OF REIMBURSEMENT AND THEREFORE, THE PROVISIONS OF SECTION 194C DO NOT GE T ATTRACTED IN CASE OF PURE REIMBURSEMENTS. HE HAD FAILED TO AP PRECIATE THAT THE SUMS REIMBURSED TO THE CONTRACTOR WERE NOT IN THE PAGE 15 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 15 NATURE OF CHARGES BUT IN THE NATURE OF COMPENSATION TOWARDS CUTTING OF TREES OR CROP LOSS TO FARMERS; ALLIED - THAT THE CIT (A) HAD FAILED TO APPRECIATE THAT T HE SUMS REIMBURSED TO THE CONTRACTOR WERE NOT THE REIMBURSE MENTS TOWARDS SOME CHARGES BUT WERE REIMBURSEMENTS TOWARD S COMPENSATION FOR TREES OR CROP LOSS TO FARMERS AND, THUS, HE ERRED IN RELYING ON THE ANSWER TO THE QUESTION NO. 3 0 OF CIRCULAR NO. 715 WHICH WOULD APPLY ONLY IN CASE OF PAYMENTS TO PROFESSIONALS ALONG WITH REIMBURSEMENT OF CERTAIN E XPENSES; - REBUTTING THE OBSERVATIONS OF THE CIT (A) RECORDED AT PARAS 5.6. AND 5.7 OF HIS ORDER, A REFERENCE WAS MADE TO CIRCULAR NO. 715, SPECIFICALLY TO QUESTION NO. 30, WHICH READS: Q 30: WHETHER THE DEDUCTION OF TAX AT SOURCE UNDER SECTIONS 194C AND 194J HAS TO BE MADE OUT OF THE GROSS AMOUN T OF THE BILL INCLUDING REIMBURSEMENTS OR EXCLUDING REIMBURS EMENT FOR ACTUAL EXPENSES? A: S. 194C AND S.194J REFER TO ANY SUM PAID. OBVIOUS LY, REIMBURSEMENTS CANNOT BE DEDUCTED OUT OF THE BILL A MOUNT FOR THE PURPOSE OF TAX DEDUCTION AT SOURCE. THUS, IT WAS ARGUED THAT THE AFORESAID CIRCULAR APP LIES TO THE CIRCUMSTANCE WHEN CONTRACTEE REIMBURSES THE COSTS I NCURRED BY THE CONTRACTOR OR REIMBURSES THE COSTS OF THE CON TRACTOR; THAT IN THE INSTANT CASE THE COMPENSATION PAID BY TH E CONTRACTORS WAS NOT THEIR COSTS. FOR CONVENIENCE, T HE APPELLANT HAD ASKED THE CONTRACTOR TO PAY THE COMPENSATION TO THE LANDLORDS FOR LOSS OF THE TREES OR CROPS. THE SUMS PAID WERE NOT THE COSTS OF THE CONTRACTOR. THE CONTRACTOR WAS ONL Y ACTING AS A CONDUIT TO MAKE PAYMENT TO FARMERS OR LANDLORDS ON B EHALF OF THE APPELLANT AND, THUS, NEITHER THE APPELLANT NOR THE CONTRACTOR WAS OBLIGED TO MAKE TDS IN RESPECT OF TH E COMPENSATION PAID TO FARMERS OR LANDLORDS UNDER THE PROVISIONS OF THE I.T. ACT; PAGE 16 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 16 - THAT THE CIT(A) WAS NOT JUSTIFIED IN IGNORING VARI OUS DECISIONS WHICH HAVE HELD THAT OUT AND OUT REIMBURSEMENT DOES NOT PARTAKE THE CHARACTER OF INCOME AND IN SUCH CASE, T HE QUESTION OF DEDUCTION OF TAX DOES NOT ARISE. RELIES ON THE FOLLOWING CASE LAWS: (I) THE HONBLE KARNATAKA HIGH COURT IN AN UNREPOR TED DECISION KARNATAKA STATE URBAN INFRASTRUCTURE DEVELOPMENT FI NANCE CORPORATION, B'LORE VS. ITO, (2008-TIOL-691-HC-KAR-IT) HAD OBSERVED AS FOLLOWS: . IN THE EXPLANATION, IT IS CONTENDED THAT THE T AX WAS DEDUCTED AT SOURCE BASED ON THE ACTUAL PAYMENT MADE TO THE NON-RESIDENT COMPANIES TO PROVIDE TECHNICAL KNOW-HOW AND SO ALSO, THE CONSULTANCY CHARGES. SINCE SMALL AMOUNT WAS SPENT BY THE COMPAN Y TOWARDS THE ACCOMMODATION AND CONVEYANCE OF THE OFFICERS OF NON-RESIDENT COMPANIES, WHEN THEY VISIT ED INDIA, UNDER THE BONA FIDE BELIEF THE SAME WAS NOT DEDUCTED AND THERE WAS NO INTENTION TO VIOLATE THE PROVISIONS OF S. 195 OF THE IT ACT. WE DO SEE SOME FORCE IN THE ARGUMENTS ADVANCED BY THE LEARNED COUNSEL FOR THE APPELLANT ON THE FIRST QUESTION OF LAW. SINCE THE AUTHORITIES HAVE NOT PROPERLY CONSIDERED THE EXPLANATION OFFERED, WHEN THE ASSESSEE COMPANY HAD DEDUCTED THE TAX AT SOURCE IN RESPECT OF THE MAJOR PAYMENTS MADE BY IT TO A NON-RESIDENT COMPANY, AN ORDINARY MAN OF PRUDENCE HAS TO ACCEPT THE EXPLANATION OFFERED BY THE APPELLANT IN THE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE LEVY OF PENALTY UNDER S. 201 IN RESPECT OF THE TAX NOT DEDUCTED ON ACCOUNT OF THE REIMBURSEMENT MADE BY THE ASSESSEE HAS TO BE SET ASIDE. (II) IN THE CASE OF ITO, BANGALORE VS. M/S CGI INFORMATION SYSTEMS & MANAGEMENT 2009-TIOL-668-ITAT-BANG BIAL VS. ITO, BANGALORE (2008) 115 TTJ (BANG) 477: 2008-TIOL- PAGE 17 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 17 536-ITAT-BANG AND BOVIS LEND LEASE (INDIA) (P.) LTD . VS. ITO [2010] 36 SOT 166 (BANG.-ITAT) THE HONBLE BANGALOR E BENCH HAS HELD THAT THE ISSUE BEING REIMBURSEMENT OF EXPENSES INCURRED, THE QUESTION OF DEDUCTING TAX ON SUCH REIMBURSEMENT DID NOT ARISE . (III) IN THE CASE OF DDIT VS. CHUBB PACIFIC UNDERWRITING MANAGEMENT SERVICES PVT. LTD ., (MUMBAI) [2009] TIOL 730 ITAT (MUM.), THE HONBLE TRIBUNAL, MUMBAI BENCH HA S HELD AS FOLLOWS: THE ASSESSEE WAS NOT A PARTY TO THE CONTRACT FOR T HE SUPPLY OF SOFTWARE LICENSES BETWEEN APEX AND JVCO. IT WAS CLEAR THAT THE PAYMENTS WERE MADE ONLY ON BEHALF OF JVCO DUE TO JVCOS INABILITY TO PAY THE SAME BEFORE COMMENCEMENT OF BUSINESS. THE AMOUNT RECEIVED BY THE ASSESSEE WAS IN THE NATURE OF REIMBURSEMENT OF ACTUAL PAYMENT MADE BY THE ASSESSEE ON BEHALF OF JVCO TO APEX. THERE WAS NO ELEMENT OF PROFIT OR INCOME INVOLVED IN SUCH PAYMENT. ADEQUATE TAXES WERE DEDUCTED WHILE MAKING PAYMENT TO THE SUPPLIER APEX, EVIDENCING THE FACT THAT THE TRUE RECIPIENT OF INCOME HAD BEEN ALREADY SUBJECTED TO TAX. SUCH RECEIPT, WHICH WAS PURE REIMBURSEMENT OF EARLI ER DISBURSEMENT MADE ON BEHALF OF JVCO, WAS NOT TAXABLE IN THE HANDS OF THE ASSESSEE UNDER THE PROVISIONS OF THE ACT. (IV) IN THE CASE OF JAIPUR VIDYUT VITRAN NIGAM LTD. VS. DCIT [2009] 123 TTJ (JP) 888, THE HONBLE ITAT HAS OBSER VED THAT, WE ALSO FIND FORCE IN ALTERNATE ARGUMENT OF THE LD A.R THAT THE PAYMENT OF TRANSMISSION/ WHEELING/SLDC CHARGES IS REIMBURSEMENT OF THE COST. THEREFORE THE PROVISIONS OF PAGE 18 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 18 CHAPTER XVII-B ARE NOT APPLICABLE SINCE THERE IS NO PAYMENT OF INCOME/REVENUE BY THE ASSESSEE. (V) ON ACTUAL REIMBURSEMENT, PROVISION OF DEDUCTION OF TAX AT SOURCE WOULD NOT APPLY AS HELD IN CASE OF ITO VS. DR. WILLMAR SCHWABE INDIA (P) LTD. [2005] 95 TTJ (DEL) 53; (VI) IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. DCIT (2009) 122 TTJ (MUMBAI) (SB) 577, HELD THAT, REIMBURSEMENT OF EXPENDITURE CANNOT BE CONSIDERED TO BE IN THE NATUR E OF INCOME. (VII) IN THE CASE OF CIT V. SIEMENS AKTIONGESELLSCHAFT [2009] 310 ITR 320 (BOM) AND THE DELHI HIGH COURT IN THE C ASE OF CIT V. INDUSTRIAL ENGINEERING PROJECTS P. LTD. [1993] 202 ITR 1014, HELD THAT, THE LEARNED DIVISION BENCH OF THE DELHI HIGH COURT WAS PLEASED TO HOLD THAT REIMBURSEMENT OF EXPENSES CAN, UNDER NO CIRCUMSTANCES, BE REGARDED AS A REVEN UE RECEIPT . A SIMILAR VIEW WAS TAKEN IN CIT V. STEWARDS AND LLYODS OF INDIA LTD. [1987] 165 ITR 416 (CAL). ALSO RELIED ON THE FOLLOWING CASE LAWS: A. CIT VS. DUNLOP RUBBER CO. LTD (1983) 142 ITR 493 (C AL); B. CIT VS. TATA ENGINEERING & LOCOMOTIVE COMPANY LIMIT ED (2001) 165 CTR 67 (BOM.); C. CIT VS. INDIAN ENGINEERING PROJECTS PVT. LTD 202 IT R 1014 (DEL) D. ROLLS ROYCE INDIA LTD VS. ITO 25 ITR 136 (DEL) (TRI B) (TM). E. SAIPEM SPA VS. DCIT [2004] 88 ITD 213 (DELHI) (TM) F. CLIFFORD CHANCE UK 82 ITD 106 (MUM) G. HNS INDIA VSAT INC VS. DDIT 95 ITD 157 H. GUJARAT AMBUJA CEMENTS LTD VS. DCIT [2005] 2 SOT 78 4 (MUM) I. MSEB VS. DCIT [2004] 90 ITD 793 (MUM) J. SEDCO FOREX INTERNATIONAL DRILLING INC V. DCIT [200 0] 72 ITD 415 K. PILCOM VS. ITO [2001] 77 ITD 218 (CAL) PAGE 19 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 19 L. ACIT VS. MODICON NETWORK (P) LTD. (14 SOT 204) (DEL HI) M. DECTA IN RE (1999) 237 ITR 190 (AAR); II. IN RESPECT OF SURVEY CHARGES AS PROFESSIONAL CHARGE S AND APPLICABILITY OF S. 194J ETC: - THAT THE CIT (A) WAS NOT JUSTIFIED IN NOT ADDRESSI NG GROUND OF THE APPELLANT TO ADOPTION OF INCORRECT AMOUNT BY THE AO AT RS. 40,06,13,291/- INSTEAD OF RS. 17,08,766/- - THAT THE CIT (A) HAD WRONGLY STATED THAT THE APPE LLANT ADMITTED HIS LIABILITY TO DEDUCT TAX IN RESPECT OF THE SURVEY WORK U/S. 194J. HE HAD MISUNDERSTOOD THE STATEMENT OF THE APPELLANT WHEREIN THE APPELLANT ONLY STATED AS NOW THAT DEPARTMENT IS IN THE OPINION THAT THE SURVEY WORK I NVOLVES PROFESSIONAL SKILLS AND KNOWLEDGE. HENCEFORTH WE WI LL ENSURE THAT TDS WILL BE DEDUCTED AT APPLICABLE RATES. CASE LAW : - IN THE CASE OF R.S. SURIYA V. DEPUTY CIT REPORTED IN [2010] 2 ITR (TRIB) 746 (CHENNAI), THE TRIBUNAL HEL D THAT WHERE THE PAYMENTS WERE MADE FOR MANAGING CALL SHEE TS OF THE ASSESSEE, THE SAME COULD NOT BE REGARDED AS PROFESSIONAL SERVICES FOR THE PURPOSES OF DEDUCTION OF TAX. THE TRIBUNAL OBSERVED THAT THE EXPERTISE REQUIRED F OR MAINTAINING CALL SHEETS (GIVING DATES) COULD NOT BE CONSIDERED TO BE OF A LEVEL SUFFICIENT TO BE CALLED AS PROFES SIONAL SERVICES. NEITHER ANY PROFESSIONAL QUALIFICATION W AS REQUIRED FOR GIVING SUCH SERVICES, NOR COULD THE AO SHOW THA T SUCH SERVICES WERE RENDERED BY ANY PROFESSIONALS. 8.1. ON THE OTHER HAND, THE LD. D.R SUPPORT ED THE STAND OF THE AUTHORITIES BELOW THAT (I) EVEN THE PAYMENT BY WAY OF REIMBURSEMENT [BEING COMPENSATION FOR TREE CUTTINGS ETC.,] COMES UNDER T HE PURVIEW OF S. 194C OF THE ACT AND ALSO (II) THE SHORT RECOVERY OF TDS IN R ESPECT OF SURVEY WORK. PAGE 20 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 20 IT WAS, THEREFORE, VEHEMENTLY URGED THAT THE ACTION OF THE AO AS WELL AS LD. CIT (A) REQUIRES TO BE SUSTAINED. COMPENSATION FOR REMOVAL OF TREES: 8.2. WE HAVE CAREFULLY EXAMINED THE RIVAL S UBMISSIONS, DILIGENTLY PERUSED THE RELEVANT CASE RECORDS AND ALSO THE JUDI CIAL PRONOUNCEMENTS ON WHICH THE ASSESSEES A.R HAD PLACED STRONG RELIANCE . 8.2.1. IT WAS THE CASE OF THE ASSESSEE THAT DURING THE COURSE OF INSTALLATION OF THE TOWERS, THE STANDING CROPS AS W ELL AS THE TREES REQUIRED TO BE REMOVED FOR SUCH LOSSES THE ASSESSEE WAS LIAB LE TO COMPENSATE TO THE FARMERS AND THE LANDOWNERS. IT WAS, FURTHER, CONTE NDED THAT AS A MATTER OF CONVENIENCE, THE ASSESSEE HAD INSTRUCTED THE CONTRA CTORS TO PAY THE SAME TO THE FARMERS/LAND OWNERS ON BEHALF OF THE ASSESSEE A ND, THUS, IT WAS ARGUED, THE AUTHORITIES BELOW HAVE FAILED TO APPRECIATE THA T THE SUMS PAID BY THE ASSESSEE WERE IN THE NATURE OF REIMBURSEMENTS AND T HEREFORE, THE PROVISIONS OF S. 194C OF THE ACT HAVE NO APPLICATIO N AND SO ON AND SO FORTH. 8.2.2. ON THE FACE OF IT AND TO VIEW IT GEN TLY, THE ASSESSEES CONTENTION IS LACKING CONVICTION. HAD THE REMOVAL OF TREES AN D DESTRUCTION OF STANDING CROPS BEING AN ISOLATED INCIDENT WHILE INSTALLING O F A TOWER, WE WOULD HAVE, WITHOUT ANY IOTA OF HESITATION, ACCEPTED THE THEOR Y OF THE ASSESSEE? HOWEVER, THE AMOUNTS PAID TOWARDS CUTTING OF TREES [SOURCE: ANNEXURE B TO THE AOS ORDER] WERE RUNNING INTO CRORES OF RUPEES WHICH UNAMBIGUOUSLY EXHIBIT THE ENORMITY OF TREES HAVE BEEN REMOVED TO F ACILITATE FOR INSTALLATION OF TOWERS AND ALSO SUBSEQUENT HAULING OF UPROOTED TREES TO THE STORING PLACES OF THE ASSESSEE. THESE TWIN WORKS H AVE BEEN EXECUTED BY THE PAGE 21 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 21 CONTRACTORS ON BEHALF OF THE ASSESSEE. IN SUCH AN EVENT, ONE COULD SAFELY INFER THAT THE ASSESSEE HAD REQUIRED, RATHER ASSIGN ED, THE CONTRACTORS (I) TO PAY COMPENSATION TO THE FARMERS FOR LOSING OF THEIR TREES/CROPS ETC., AND (II) FOR REMOVING AND CARTING OF THE LOGS TO ITS STORING PLACES. HOWEVER, THE AO IN HIS IMPUGNED ORDER HAD MADE A SWEEPING CONCLUSIO N THAT THE ASSESSEE HAD INCURRED EXPENSES FOR CUTTING OF TREES TO THE TUNE OF MORE THAN RS.2 CRORES FOR WHICH THE ASSESSEE WAS REQUIRED TO DEDUCT TAX U /S 194C OF THE ACT. 8.2.3. AS RIGHTLY HIGHLIGHTED BY THE CIT ( A), THE CONTRACTORS HAVE NOT ONLY OBLIGED THE ASSESSEE IN MAKING PAYMENTS OF COMP ENSATION FOR LOSS OF TREES/CROPS TO THE FARMERS, BUT, ALSO CARRIED OUT T HE EXECUTION OF REMOVAL OF TREES WHICH WERE COMING IN THE WAY OF INSTALLATIO N OF TOWERS. MOREOVER, THE CONTRACTORS WERE NOT THE AUTHORIZED ENTITIES OR THE ARBITRATORS TO DECIDE THE QUANTUM OF COMPENSATION TO BE PAID TO TH E FARMERS ETC., 8.2.4. THE ASSESSEE HAD NEITHER IN THE COUR SE OF PROCEEDINGS BEFORE THE AO NOR BEFORE THE FIRST APPELLATE AUTHORITY CAME UP WITH THE DETAILS OF COMPENSATION OF AMOUNTS SO PAID TO THE FARMERS. EV EN AT THE TIME OF HEARING BEFORE THIS BENCH, THE ASSESSEE HAD NOT COM E UP WITH ANY DETAILS AND THE QUANTUM OF COMPENSATION SO PAID TO THE FARM ERS. 8.2.5. IN VIEW OF THE ABOVE AND ALSO IN THE INTERESTS OF NATURAL JUSTICE AND FAIR-PLAY, WE ARE OF THE FIRM VIEW THAT THIS ISS UE SHOULD GO BACK ON THE FILE OF THE AO FOR FRESH CONSIDERATION WITH SPECIFI C DIRECTIONS TO THE EFFECT THAT (I) IN RESPECT OF COMPENSATION PAID; TWO ISSUES WER E INTER- LINKED, NAMELY, (A) COMPENSATION AMOUNTS FOR LOSS OF PAGE 22 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 22 TREES/CROPS; & (B) REMOVAL OF TREES AND ALLIED WORK S EXECUTED BY THE RESPECTIVE CONTRACTORS. - AS FAR AS COMPENSATION AMOUNTS ALLEGED TO HAVE BE EN PAID BY THE RESPECTIVE CONTRACTORS ON BEHALF OF THE ASSESSE E WHICH, ACCORDING TO THE ASSESSEE, WERE DULY REIMBURSED BY IT . HOWEVER, THE COMPENSATION SO PAID ON BEHALF OF THE ASSESSEE HAD NOT BEEN QUANTIFIED BY THE ASSESSEE AS POINTED O UT BY US IN THE FORE-GOING PARAGRAPH. THIS PORTION OF COMPENSA TION REQUIRES QUANTIFICATION WHICH, OF COURSE, DOESNT F ALL WITHIN THE SPHERE OF THE PROVISIONS OF S. 194C OF THE ACT SINC E QUESTION NO.30 IN CIRCULAR NO.715 DOES NOT APPLY TO THE FACTS OF THIS CASE. THE SITUATION ENUMERATED IN ANSWER TO QUESTI ON NO.30 TO CIRCULAR NO.715, APPLIES TO THE CIRCUMSTANCES WHEN CONTRACTEE REIMBURSES THE COSTS INCURRED BY THE CONTRACTOR OR R EIMBURSES THE COSTS OF THE CONTRACTOR. IN THE INSTANT CASE, T HE COMPENSATIONS PAID BY THE CONTRACTORS ARE NOT THEIR COSTS. FOR CONVENIENCE, THE ASSESSEE HAD ASKED THE CONTRACTOR TO PAY THE COMPENSATION TO THE LANDLORDS FOR LOSS OF THE TREES OR CROPS. THE SUMS PAID ARE NOT THE COSTS OF THE CONTRACTORS. THE CONTRACTOR IS ONLY ACTING AS A CONDUIT TO MAKE PAYMEN T TO FARMERS OR LANDLORDS ON BEHALF OF THE ASSESSEE. (II) SO FAR AS THE REMOVAL OF TREES BY THE CONTRACTO RS WERE CONCERNED, A SIZEABLE NUMBER OF TREES COULD HAVE BE EN REMOVED BY THE CONTRACTORS FOR WHICH, THE ASSESSEE WAS OBLIG ED TO MAKE PAYMENTS FOR SUCH EXECUTION, WHICH INVOLVE WORK AND LABOUR COMING WITHIN THE PURVIEW OF SECTION 194C OF THE AC T. IN A NUT-SHELL : (I) THE ASSESSEE SHALL QUANTIFY THE COMPENSATION SO PAID WHICH, AS RECORDED SUPRA, WILL NOT ATTRACT THE PROVISIONS OF S.194C OF THE ACT; (II) THE BALANCE AMOUNT OUT OF THE TOTAL AMOUNTS [ANNEXURE B TO THE IMPUGNED ORDER OF THE AO] SHALL ATTRACT THE PROVISI ONS OF S.194C OF THE ACT. IT IS ORDERED ACCORDINGLY. PAGE 23 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 23 8.2.6. BEFORE PARTING WITH THE ISSUE, WE WO ULD LIKE TO RECORD THAT WE HAVE DULY PERUSED THE CASE LAWS ON WHICH THE ASSESSE E HAD PLACED RELIANCE AND OF THE CONSIDERED VIEW THAT THEY WERE DISTINGUIS HABLE AND NOT DIRECTLY APPLICABLE TO THE FACTS OF THE ISSUE UNDER DISPUTE. SURVEY WORK: 8.3. WITH REGARD TO SURVEY WORK, IT WAS THE CONTENTION OF THE ASSESSEE THAT THE ISSUE IN QUESTION HAS NOT BEEN PROPERLY DEA LT WITH BY THE FIRST APPELLATE AUTHORITY. IT WAS, FURTHER, CONTENDED THA T THE ASSESSEE HAD, IN FACT, PAID ONLY RS.17,08,766/- WHEREAS THE AO HAD AD OPTED THE FIGURE OF RS.40.06 CRORES. ON A GLIMPSE OF THE ADDITIONAL GR OUNDS OF APPEAL RAISED BEFORE THE CIT (A) FOR THE AYS 2002-03 TO 2009-10, IT WAS NOTICED THAT THE ASSESSEE HAD AGGRIEVED THAT 4. WITHOUT PREJUDICE, THE AMOUNT PAID BY THE APPEL LANT UNDER THE HEAD SURVEY WAS ONLY RS.1708766/- AND N OT RS.40,06,13,291/- AS NOTED BY THE ASSESSING AUTHORI TY IN THE ASSESSMENT ORDER. 8.3.1. EVEN THOUGH THE LD. CIT (A) HAD DELIB ERATED THE ISSUE AT LENGTH (REFERRED SUPRA) AND SUSTAINED THE AOS STAND IN LE VYING TAX AND CHARGING OF INTEREST ON THIS SCORE, HOWEVER, IT WAS OBSERVED TH AT THE LD. CIT (A) HAD LEFT UNTOUCHED THE PARTICULAR ISSUE (OF ALLEGED ADO PTION OF INACCURATE FIGURE BY THE AO AS RAISED BY THE ASSESSEE IN ITS ADDITIONAL GROUNDS OF APPEAL AT GR.NO.4) FOR ADJUDICATION, PERHAPS, BY OVERSIGHT. PAGE 24 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 24 8.3.2. ON A QUICK LOOK AT ANNEXURE C1 AND C 2 ANNEXED TO THE IMPUGNED ORDER OF THE AO, WE FIND THAT THE AO HAD WORKED OUT THE TOTAL AMOUNT RELATING TO SURVEY WORK AT RS.20,56,74,783 + RS.19, 49,38,508 = RS.40,06,13,291/- AND ON THE BASIS OF WHICH, HE HAD ARRIVED AT THE INTEREST PAYABLE BY THE ASSESSEE. 8.3.3. BEFORE US, THIS HAS BEEN HOTLY DISPUTE D BY THE ASSESSEE. HOWEVER, THE ASSESSEES ARGUMENT WAS NOT BACKED WITH ANY DOCU MENTARY EVIDENCE TO SUGGEST THAT IT HAD, IN FACT, INCURRED AN EXPENDIT URE TO THE EXTENT OF RS.17,08,766/- ONLY. IN LIEU OF THE ABOVE, IT IS R ATHER APPROPRIATE TO REMIT BACK THIS ISSUE ON THE FILE OF THE AO WITH A DIRECT ION TO ADDRESS TO THE GRIEVANCE OF THE ASSESSEE AND TO TAKE CORRECTIVE ST EPS, IF IT SO WARRANTS. THE ASSESSEE SHALL, IN THE MEANWHILE, FURNISH ALL T HE RELEVANT DETAILS BEFORE THE AO WHICH WOULD, IN OUR VIEW, FACILITATE HIM TO LOOK INTO ITS GRIEVANCE IN THE MATTER. IT IS ORDERED ACCORDINGLY. 8.3.4. IN RESPECT OF THE ASSESSEES RELIANCE IN THE FINDING OF THE HONBLE ITAT, CHENNAI REPORTED IN (2010) 2 ITR (TRIB) 746 ( CHENNAI) CANNOT, IN OUR CONSIDERED VIEW, COME TO THE RESCUE OF THE ASSESSEE , AS THE HONBLE TRIBUNAL HAD HELD THAT THE PAYMENTS MADE FOR MANAGING CALL SH EETS OF THE ASSESSEE COULD NOT BE REGARDED AS PROFESSIONAL SERVICE. WE ARE IN TOTAL AGREEMENT WITH THE FINDING OF THE HONBLE BENCH. HOWEVER, SU RVEY WORK UNDER-TAKEN BY THE PRESENT ASSESSEE FOR WHICH IT MADE PAYMENTS TOWA RDS SURVEY WORK CANNOT, WITH ANY STRETCH OF IMAGINATION, BE CLASSIF IED AS NON-PROFESSIONAL SERVICE. AS A MATTER OF FACT, SURVEY OF A LAND OR A BUILDING, AS THE CASE MAY PAGE 25 OF 25 ITA NOS.132 TO 139 & 166 TO 173/BANG/2010 25 BE, COULD BE CONDUCTED/ UNDERTAKEN ONLY BY THE PROFES SIONALS BACKED WITH EXPERTISE. 8.3.5. THE ASSESSEES ARGUMENT THAT THE SURVEY WORK HAD NOTHING TO DO WITH THE TECHNICAL SERVICES AND THE ASSESSEE MAY OR MAY NOT ACT UPON THE REPORT OF THE SURVEY ETC., WE WOULD LIKE TO REMIND THE ASSESSEE THAT AS TO WHETHER TO ACT UPON OR OTHERWISE OF THE REPORT OF S URVEY WAS THE PREROGATIVE OF THE ASSESSEE. HOWEVER, THE CRUX OF THE ISSUE FOR ADJUDICATION BEFORE US IS WHETHER THE SURVEY UNDERTAKEN BY THE ASSESSEE COMES UNDER THE PURVIEW OF PROFESSIONAL SERVICE OR OTHERWISE? CONSIDERING THE FACTS OF THE ISSUE, THE SURVEY WORK UNDERTAKEN BY THE ASSESSEE, IN OUR CONSIDERED VIEW, DOES FALL WITHIN THE AMBIT OF PROFESSIONAL SERVICE. THEREFORE, THE CASE RELIED ON BY THE ASSE SSEE IS RATHER MISPLACED AND CANNOT BE OF ANY HELP TO THE ASSESSEE. IT IS OR DERED ACCORDINGLY. 9. I N THE RESULT, THE ASSSESSEES APPEALS FOR THE ASSESSMENT YEARS 2002-03 TO 2009-10 ARE PARTLY ALLOWED. THE ORDER PRONOUNCED ON 21 ST DAY OF APRIL, 2011 AT BANGALORE. SD/- SD/- (A MOHAN ALANKAMONY) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMB ER COPY TO :- 1.THE ASSESSEE 2. THE REVENUE 3. THE CIT (A) CONCERNED. 4. THE CIT CONCERNED. 5. THE DR 6. GF BY ORDER MSP/18.4. ASSISTANT REGISTRAR, ITAT, BANGALORE.